The flight from Dubai to Beijing crosses the fabled trade routes of antiquity – the Strait of Hormuz, the Hindu Kush, the dusty plains and rugged mountains of Xinjiang and the Gobi Desert. Despite reminders of the Silk Road’s waystations, the difficult terrain symbolises the challenges facing China’s policy of energy outreach.
Its “One Belt, One Road” initiative concentrates on physical connectivity – ports, roads, railways, bridges, canals, pipelines, fibre optics and electric cables. A key aim is to secure energy supplies to the Middle Kingdom, for which the China Academy of Social Sciences recently proposed three key projects.
One such project is a deepwater port at Caofeidian, south-east of Beijing, where liquefied natural gas imports from the Middle East and Australasia, and gas pipelines from Russia and Central Asia would converge with the huge and growing consumer market around Bohai Bay, and perhaps in the future the Korean peninsula.
Another is an energy corridor across Pakistan and Afghanistan to western China, which would bring development to poor, isolated and unstable regions. And the third is a common electricity grid between southern China and South East Asia, which would share clean hydropower.
The opening up of such routes has to overcome the challenges not only of geography, but the even greater ones of economics, politics, security and institutions. Chinese policymakers might bear in mind the saying “mei you gui ju bu cheng fang yuan” (nothing can be accomplished without standards).
The private sector can build much of the required infrastructure, but it will do so only if conditions are right – a framework of enforceable laws, sensible regulation and taxation, financial clearing in yuan, transparent commodity markets with benchmark prices, and international agreements on tariffs and investor protection. China clearly recognises this, but these are far harder and slower to construct than a bridge or a dam.
China has made much of its claims that this strategy is aimed at mutual economic benefit, is intended to be open rather than exclusionary and does not interfere with national sovereignty. But its naval and island-building activities over disputed waters and petroleum exploration in the East China and South China seas worry its neighbours and push them into the arms of the United States.
It will need to reassure its potential partners that its projects are not intended as a covert way of spreading political or military influence, or gaining undue influence over commodity markets. Construction endeavours should not lead to environmental damage, mass influxes of surplus Chinese labour or floods of Chinese goods that overwhelm local factories.
The success of the strategy will also be defined by the competition – or cooperation – between the three Asian giants of China, India and Russia. India, with long-standing border disputes in the Himalayas and rivalry with China’s traditional ally Pakistan, lies astride the maritime trade routes from the Middle East that supply much of China’s oil and gas.
Meanwhile, Russia is an increasingly important energy exporter to China, as it seeks to develop its Siberian hinterland and diversify markets from a shrinking Europe. Moscow competes with Beijing for influence in the key Central Asian energy suppliers of Kazakhstan, Turkmenistan and Uzbekistan. And both have traditionally preferred bilateral concords to multilateral treaties and international law.
To gain trust, China will need to support many projects with no direct benefit at home. It will measure its gains instead in profits from commercially sensible enterprises, from the soft power of business reputation and relationships, and most of all from broader economic development and enhanced stability in its neighbourhood.
The rhetoric of “One Belt, One Road” is laudable. For it to succeed, China will have to develop impressive skills in conflict resolution, institution building and international business. As past merchants traversed the dunes of the Gobi, so today’s Chinese diplomats and investors must increasingly navigate the shifting sands of Asian energy politics.
Robin Mills is the head of consulting at Manaar Energy and the author of The Myth of the Oil Crisis.
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