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Why Is China So Anxious About Energy Abroad?

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Energy security is a pressing policy issue for many governments. Energy is the lifeblood of modern society – whether it is powering manufacturing industries, households or transport systems, economies could not function without a stable, affordable and reliable supply of energy. And as an energy transition from hydrocarbons to new energy sources gathers pace, policymakers are again turning attention to how 21st century energy systems can be designed. Nearly every government today maintains some kind of energy security policy.

Yet China cares about energy more than most. With a rapidly industrialising and urbanising economy, the Chinese government has made energy security a centrepiece of its economic reform program. Since the Twelfth Five-Year Plan (2005-10), it has gone to great lengths to develop its energy systems. On the domestic front, it has rapidly built-out its electrical distribution system, while actively promoting a range of new energy sources – including nuclear, hydro, solar, wind and natural gas – in order to foster a move away from high-polluting oil and coal sources.

China has also looked abroad for its energy supplies. Since 2004, the Chinese government has actively encouraged its energy firms – especially, but not only, its state-owned enterprises (SOEs) – to Go Out and acquire energy projects in other countries. This was supported through extensive investment subsidies through the state banking system, as well as forms of ‘resource diplomacy’ targeted at energy-rich governments in Asia, Africa and Latin America. In the decade to 2016, Chinese companies spent $827 billion acquiring over 1,000 energy projects in foreign countries. No other government has so aggressively bought-up foreign energy supplies.

China’s overseas energy acquisitions have proven extremely controversial. Critics have suggested it is attempting to ‘lock-up’ global oil supplies in competition with other importing countries, particularly Japan and South Korea. Others have criticised its resource dealings with several ‘pariah’ states – such as Libya, Sudan and Zimbabwe – noting that Chinese diplomatic support has propped up regimes with poor human rights records. It has also been suggested that China is triggering a neo-imperialist ‘scramble for Africa’, as other countries ramp up their energy investments in the continent to match Chinese efforts. Both the EU and US have publicly criticised China for what they view as a mercantilist approach to energy security, that threatens to undermine the transparency and openness of world energy markets.

Why has China adopted such a contentious strategy for securing its energy supplies?

First, China faces an accelerating ‘external dependence’ problem. While well-endowed with coal, its lack of high-quality domestic reserves has seen the Chinese economy become reliant on imports for oil and gas. As rapid industrialisation has driven energy demand upwards, China’s import dependence rate for oil has risen from 27 percent in 2000 to 60 percent today. This means China is far more exposed to the vicissitudes of international markets than previously, as energy costs are no longer captured within the Chinese economy, but are lost abroad as imports. Acquiring oil at the site of production thus provides a hedge against price movements, by enabling prices rises to be ‘internalised’ by Chinese firms.

China’s energy SOEs have also played a role. Three SOEs – CNPC, Sinopec and CNOOC – dominate the oil sector. These are highly powerful within the Chinese political system, with their heads holding vice-ministerial rank – a higher political rank than the energy agency heads, which supposedly regulate them. The SOEs have been one of the principal beneficiaries of China’s overseas energy investment program, as it has given them preferential access to subsidised credit through the state banking system. Indeed, the initial impetus for foreign energy investments came from the energy SOEs, who wished to use foreign investment as means to escape the unprofitable and declining domestic oil sector.

Geopolitical considerations have also loomed large, given China’s emerging rivalry with the US. Because most multinational energy firms are domiciled in the US, Chinese policymakers believe that global energy markets are ‘controlled’ by, and thus serve, US interests. It is also feared that during any future military confrontation, the US could use its naval supremacy in the Pacific to interdict China’s seaborne energy imports in the Straits of Malacca. The fact that approximately 45 percent of China’s oil and gas imports come from the Middle East – a region dominated by the US Navy, and comprised of US-aligned states – further contributes to these concerns. The consequence is a tendency to view energy security as a matter of national security, and to look for solutions that minimise Chinese dependence on US-secured energy supplies. Chinese investment in ‘independent’ energy producers assists this agenda.

For these reasons, China suffers from a much greater degree of ‘energy angst’ than other comparable economies. While energy is a major concern for many governments, it is of almost existential importance for China given its external dependence, powerful SOEs and geopolitical rivalry with the US. Unwilling to leave its energy supplies to the international market, it has instead committed to a strategy of acquiring energy at the site of production through a massive, multi-billion dollar state-backed investment program. And as this has put China on a diplomatic collision course with the US, Japan and EU, it threatens to further destabilise energy relationships between the world’s major economic powers.

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About the Author

This article was written by Dr Jeffrey Wilson of Elgar Blog. Dr Jeffrey Wilson is Senior Lecturer in International Political Economy, Murdoch University, Australia. His new book International Resource Politics in the Asia-Pacific is out now.

Entrepreneurship

Women on Top in Tech – Daphne Ng, CEO of JEDTrade

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

Daphne Ng is the CEO of JEDTrade, a blockchain technology company focused on trade, supply chain, and financial inclusion projects in ASEAN. She is also the Scretary-General at ACCESS and Exco. of Singapore Fintech Association

What makes you do what you do?
I was introduced to blockchain technology in 2016 after I left my corporate banking career after 10 years. It was my mentor who first got me interested in this technology, which I then went on to delve further into, on its potential applications in the lending and trade finance space – domains where I came from.

How did you rise in the industry you are in?
Being in the space for 2 years and actively involved in the ecosystem, I was able to bring on the projects, network and a good degree of thought leadership in this vertical. Early on in the startup journey, our team faced many challenges. And to me, the key to rising above failures are two essential factors – resilience and support. While resilience is innate, I received a lot of help be it in terms of connections or advice. ‘Nobody succeeds without help’ rings very true for me.

Why did you take on this role/start this startup especially since this is perhaps a stretch or challenge for you (or viewed as one since you are not the usual leadership demographics)?
From the start, I focused on my domain expertise in trade finance and the application construct of how blockchain and DLT can be applied to these use cases. Also, my strategy from the start was to build a technology company made up of 80% tech and engineers, which is also our key competitive advantage today. At the end of the day, deliverables are about strategy and execution, which includes building and leading an ‘A’ team.

Do you have a mentor that you look up to in your industries or did you look for one or how did that work?
I have many mentors, which includes our company advisors (all of whom are well-known in this industry) and mostly informal mentors I meet via my connections, and on various occasions and circumstances. Creating opportunities also means putting myself in the right place, at the right time. And in my case, these were mostly organic and genuine friendships formed from the initial connection.

How did you make a match if you and how did you end up being mentored by him?
To me, a match in values is very important. It also takes humility to ask for help and be willing to listen to advice, which is important in order for mentorships to be successful – be it formal or informal.

Now as a leader how do you spot, develop, keep, grow and support your talent?
I love this question! I am passionate about building strong teams and helping my people grow. I abide by the 3Rs when identifying talents: resourcefulness, resilience and right values. And then I invest in the ‘potential’ and this means giving them room to lead, make decisions and take risks.

Do you consciously or unconsciously support diversity and why?
My support of diverse talents, skillsets and characters can be seen in the make-up of our core team – all helming specific roles and each bringing their own value to the table. We need the sum of all parts to build a great company.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb?
Great leaders emerge in times of failures and challenges, never abandoning the team, and always putting the team’s interests before her own. And I consciously live by these mottos every day.

Advice for others?
My advice to other entrepreneurs: be resolute and dare to be different. If you are going to follow others, then you will end up on the same path as them. No right or wrong; but I would rather chart my own path. This June, we are officially launching our blockchain project, Jupiter Chain (www.jupiterchain.tech), which have garnered much interest in the industry, even before we made it public. We believe this project is the epitome of marrying innovation with practical implementation, and we want to be the first to truly operationalize blockchain for our ecosystem projects in this region.


If you’d like to get in touch with Daphne Ng, please feel free to reach out to her on LinkedIn: https://www.linkedin.com/in/daphne-ng-%E9%BB%84%E7%91%9E%E7%8E%B2/

To learn more about JEDTrade, please click here.

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Callum Connects

Jace Koh, Founder of U Ventures

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Jace Koh believes cash flow is the lifeblood of your business. Understanding it will enhance your ability to run and manage your business.

What’s your story?
My name is Jace Koh and I am the Founder of U Ventures. I’ve always been inclined towards investment and entrepreneurship. I’ve played a hand in starting businesses across these industries – professional services, cloud integration, software and music. I believe that succeeding in business is tough, but that’s what makes the rewards even sweeter.

What excites you most about your industry?
Everything excites me. These are my beliefs:

  • Why is accounting important?
    The accounting department is the heart. Cash flow is like blood stream, it pumps blood to various parts of the body like cash flow is pumped to various departments and/or functions in a business. It is vital to the life and death of the business.
  • Is accounting boring?
    Accountants are artists too. They paint the numbers the way they want them to be.
  • What makes a good accountant?
    A good accountant can tell you a story about the business by looking at the numbers.
  • Why is budgeting and projection important?
    Accountants are like fortune tellers, they can predict the numbers and if you wish to understand your business and make informed decisions, feel free to speak to our friendly consultants to secure a meeting.

What’s your connection to Asia?
I was born and raised in Singapore, and here’s where I want to be.

Favourite city in Asia for business and why?
Singapore is my favourite city. We have great legal systems in place, good security and people with integrity. Most importantly, we have a government that fosters a good environment for doing business. I recently went for a cultural exchange programme in Hong Kong to learn more about their startups. I found out that the Hong Kong government generally only supports local business owners in terms of grants. They’ve recently been more lenient and changed the eligibility to include all businesses that have at least 50% local shareholding. But comparing that to Singapore, the government only requires a 30% local shareholding to obtain government support. In the early days of starting a business, all the support you can get is precious. It’s great that we have a government that understands that.

What’s the best piece of advice you ever received?
The best time ever to plant a tree was 10 years ago as the tree would have grown so big to provide you with shelter and all. When is the next best time to plant a tree? It is today. Because in 10 years time, the tree would have grown big enough to provide you shelter and all.

Who inspires you?
Jack Ma. His journey to success is one of the most inspiring as it proves that with determination and great foresight, even the poorest can turn their lives around. I personally relate to his story a lot, and this is my favourite quote from him, “If you don’t give up, you still have a chance. Giving up is the greatest failure.”

What have you just learnt recently that blew you away?
I’ve faced multiple rejections throughout my business journey, and recently came across a fact on Jack Ma about how he was once rejected for 32 different jobs. It resonated very deeply and taught me the importance of tenacity, especially during tough times.

If you had your time again, what would you do differently?
Nothing. I live a life with no regrets. Everything I do, regardless of whether it is right or wrong, happy or sad, and regardless of outcome, it’s a lesson with something to take away.

How do you unwind?
I love to pamper myself through retail therapy and going for spas. I also make a conscious effort to take time off work to have a break outside to unwind as well as to uncloud my mind. This moment of reflection from time to time helps me see more clearly on how I can improve myself.

Favourite Asian destination for relaxation? Why?
Taiwan! Good food with no language barriers and the people are great!

Everyone in business should read this book:
I don’t really read books. Mostly, I learn from my daily life and interactions with hundreds of other business owners. To me, people tell the most interesting stories.

Shameless plug for your business:
We’re not just corporate secretaries, we’re “business doctors.”
U Ventures is a Xero certified advisory firm that goes beyond traditional accounting services to provide solutions for your business. You can reach us on our website: http://uventures.com.sg/

How can people connect with you?
Converse to connect. You can reach me via email at [email protected] or alternatively, on LinkedIn here: https://www.linkedin.com/in/jacekoh/

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started,
built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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