In seeking out such investments, Chinese NOCs initially felt disadvantaged and unable to compete with international oil companies that already had substantial presences on both continents. Seeing themselves as late to the game of overseas resource development, Chinese NOCs targeted countries that—for a variety of reasons often related to sanctions or high political risk—did not have access to Western capital or markets. From Venezuela to Sudan, China provided much needed capital to at-risk governments in return for actual ownership over their resources, or claims to guaranteed flows of oil.
The result—intended or not—was that Beijing appeared to be cultivating its own gallery of rogues across Latin America and Africa. Such relations often contained an anti-American or anti-Western tinge. For instance, between 2007 and 2015, Beijing loaned Caracas approximately $50 billion, most of it to be repaid in shipments of oil. For years, these loans-for-oil arrangements have brought with them close political ties. In late 2004, Venezuelan president Hugo Chávez told a group of Chinese businessmen, “We have been producing and exporting oil for more than 100 years. But these have been a 100 years of domination by the United States. Now we are free, and place this oil at the disposal of the great Chinese fatherland.”
The “going out” strategy has also been perceived as a challenge to Western efforts to promote good governance, environmental protection, and economic reform in Africa and Latin America. Western governments generally view the investments made by international companies domiciled in their countries as entirely separate from development aid and finance to countries in need, much of which is administered by multilateral development banks. China, in contrast, saw the two as complementary. When given the choice between Beijing’s unconditional assistance and the highly structured and conditional aid packages of the World Bank, IMF, and Western governments, few developing countries chose the more stringent option. Perhaps the most oft-cited example of how this Chinese approach undermined Western efforts to promote certain liberalizing economic and political policies occurred in Angola.
In 2002, Angola emerged from twenty-seven years of civil war with its countryside and cities devastated and half a million of its people dead. Once an exporter of food, by the 1980s, Angola had become an importer of grains and a country in which nearly half of the children were suffering from malnutrition. Like other countries in dire need of basic infrastructure and development, it turned to the IMF to provide a significant loan for such purposes. As was common practice, the IMF required an accompanying “stabilization program” through which Angola would agree to greater transparency and certain economic reforms; Angola was already a significant oil exporter, and according to the IMF, at least $8.5 billion of public funds had been unaccounted for over the previous five years. Abruptly, in 2004, Angola broke off these negotiations with the IMF and soon afterward announced it would be the recipient of $2 billion in soft loans from Beijing, granted at very favorable interest rates. Angola would repay the loan in shipments of oil over the following twelve years. Around the same time, negotiations were concluded in which Sinopec, one of the Chinese NOCs, secured a 50 percent stake in Angola’s Block 18, which had belonged to Shell before being sold to the Angolan company Sonangol earlier that year. Two years later, in June 2006, when the prime minister Wen Jiabao visited Angola, Angolan president José Eduardo dos Santos summed up the relationship, “China needs natural resources, and Angola wants development.” Soon thereafter, China’s EximBank announced a $2 billion loan for Angolan infrastructure projects. As of 2017, Angola was China’s second largest supplier of crude oil imports, providing more oil to China than did Russia, Iraq, or Iran.
“Going Out” Blowback
The new energy abundance is one of several factors that have called into question the value of this “going out” strategy. Beyond doubt, China’s “going out” strategy has brought benefits to Latin America and, especially, Africa. Over the last decade and a half, China has built critical infrastructure within countries and across the continents. By far the largest financer of African infrastructure, Chinese institutions have supported the construction of dams intended to boost hydropower-generating capacity and rehabilitated or constructed from scratch roads, railways, and airports across the continent. Africa’s telecommunications sector has also been transformed by China’s investment and financing. Little wonder that China remains generally popular in Africa; a 2014 Pew poll found that, except in South Africa, the overwhelming majority of those polled in five African states had a favorable view of China.
There is, however, evidence of growing discomfort with China in some parts of Africa. Writing in 2013, Nigeria’s central bank governor, Lamido Sanusi, called for Africans to “wake up to the realities of their romance with China. . . . China takes our primary goods and sells us manufactured ones. This was also the essence of colonialism. The British went to Africa and India to secure raw materials and markets. Africa is now willingly opening itself up to a new form of imperialism.”
Sanusi wasn’t alone in his concern. African civil society groups and others have protested the effects of Chinese practices on human rights, governance, labor conditions, and the environment. The more than one million Chinese expatriate workers living in Africa in 2015 have also been an irritant to some local populations; African governments have promulgated new local content laws in reaction to this influx of Chinese workers. The Zambian presidential election of 2011 served as a further example of the backlash against China in some parts of Africa. In a country where banking can be done using the renminbi, the Chinese currency, Michael Sata, the successful candidate, ran a campaign highly critical of Chinese influence. Sata stirred up crowds at his rallies with declarations such as, “Zambia has become a province of China. . . . The Chinese are the most unpopular people in the country because no one trusts them. The Chinaman is coming just to invade and exploit Africa.” He reviled the Chinese for “bringing in their own people to push wheelbarrows instead of hiring local people.” Rumors circulated that his opponent’s campaign was funded by China. Speaking in Beijing in 2012, South African president Jacob Zuma warned that China’s relationship with Africa was “unsustainable,” delicately but clearly referencing African concerns about the emergence of a neocolonial relationship.
More recently, China’s “going out” strategy garnered scrutiny within China itself. Over time, the NOCs executing the strategy became more and more driven by commercial motivations, particularly after they were partially privatized. Increasingly, observers concluded that NOCs—not the government—were the main drivers of the “going out” strategy, using government largesse and influence not to augment Chinese energy security but to advance their own corporate objectives. While the activities of Chinese NOCs have increased global oil supply and, therefore, the energy security of all consumers, relatively little of this production has found its way back to China. One industry insider shared with me his private estimate that only 10 percent of the “going out” investments generated oil eventually consumed in China; the rest was sold on the open market. Moreover, the oil that does flow from these investments in Latin America and Africa to China in most cases is transported via waterways protected by the U.S. Navy and therefore considered vulnerable. While the equity oil investments certainly provided an economic hedge against high oil prices, these realities made it difficult to argue that they directly and materially enhanced China’s energy security.
Other critics have focused on the fact that in commercial terms many of these equity oil endeavors proved to be poor investments for the Chinese; indeed, as many as two-thirds have been estimated to be unprofitable. For example, Chinese NOC Sinopec made investments of $10 billion in Angola between 2008 and 2015, yet reported no returns on its investment. Corruption has flourished in deals of such great size, with so many players, in nontransparent environments. One of the most powerful senior officials or “tigers” targeted by President Xi’s corruption probe was Zhou Yongkang, a former head of the country’s domestic security and an ea
rlier head of China National Petroleum Corporation (CNPC). Zhou had been an aggressive promoter of CNPC’s international expansion and had personally spearheaded the company’s entry into Sudan, among other places. Sentenced in 2015 to life in prison, Zhou was convicted of leaking confidential documents and accepting $118,000 in bribes, including those from Jiang Jiemin, a former head of CNPC who was also jailed for corruption. Zhou and Jiang were not alone in their convictions; more than a dozen senior officials from Chinese NOCs lost their jobs and were investigated for corruption.
The revelations behind these corruption probes raised eyebrows both internationally and domestically. Chinese consumers especially chafe at the thought that NOCs might have pressured the government to offset their losses overseas with subsidies and higher domestic oil prices, contributing to domestic inflation. Some African and Latin American governments may be equally dismayed to learn how Chinese officials enriched themselves in such deals, which could potentially affect their ability to strike similar deals in the future.
China’s oil-for-loans programs also look less attractive in light of new energy abundant realities. Take Venezuela. The loans-for-oil arrangements between Beijing and Caracas mentioned earlier have meant that Venezuela receives little payment for as much as 1 mnb/d of its roughly 2.6 mnb/d of exports, if highly discounted exports to the Caribbean are added to the Chinese flows. As a result, Venezuelan revenues are already well below what might be expected from the OPEC exporter, even before the dramatic price plunge of 2014–2016 is taken into account. As a result, few funds exist for reinvestment into or development of Venezuela’s vast reserves, leading to wobbly production projections. Although Beijing has provided Caracas additional financial assistance, Chinese officials might well wonder about the wisdom of further propping up a very unpopular regime struggling to deliver on its commitments over the long run. Dr. Xue Li from the Chinese Academy of Social Sciences and one of his colleagues articulated this view clearly as early as March 2015: “Considering [Venezuela’s] political and economic situation, it is inappropriate [for China] to further increase the amount of investments and loans. In short, China should guard against bad debts.” In today’s new energy environment, China can be much more confident in the market to deliver energy security than in a brittle, insolvent regime in Venezuela.
For all these reasons, China’s “going out” strategy was overdue for a reexamination and revision. The new energy abundance gave Chinese leaders—in government and in the NOCs—space for undertaking such review and reform. In a world of oil and gas plenty, China can be more comfortable in relying on the market as a mechanism to secure needed energy resources. Protecting and strengthening oil-rich governments—and enduring international opprobrium for doing so—seems unnecessary in a world where the Chinese can be confident the market will deliver its energy needs. The changed energy environment gives Beijing more leeway to choose another, less confrontational, less easily misunderstood path. If the costs of the “going out” strategy were deemed high in a world of energy scarcity, they are even more unreasonable—or unnecessary—in a world of abundance.
There is already some evidence this shift is occurring. In recent years, China has been willing to impose sanctions on Khartoum for egregious domestic behavior, and support for Venezuela may be more qualified in private than it appears in public. Commercial considerations seem to be getting the upper hand in deciding on investments, as the profile of Chinese overseas investment is shifting to more mature economies—such as Canada and the United States—from developing Africa and Latin America.
Ceding Space to New Drivers of Foreign Policy
Chinese officials insist Xi Jinping’s One Belt, One Road plan is an “initiative,” not a “strategy.” They also emphatically reject any reference to it being “a Chinese Marshall Plan,” as they are eager to divorce this big idea from notions of geopolitical competition and expansion. Yet however one refers to it, Xi’s grand scheme demonstrates China’s readiness to step away from its reluctant role in the world and instead to be a driver of major change in its region and beyond. In November 2013, Xi presented this proposal to create new corridors of connection and integration between China and more than sixty countries by land and by sea. A bit confusingly, the “belt” refers to efforts to build on the old Silk Road, which extended overland from China, through Central Asia, to Europe. The “road” loosely retraces the maritime voyages through Southeast Asia to the east coast of Africa made by Zheng He, a eunuch admiral of the Ming Dynasty whose ten-thousand-mile journey unfolded almost a century before Christopher Columbus traveled to the Americas.
The modern revival of these two routes underpins the grandest conception of the One Belt, One Road initiative. Although there is considerable uncertainty about the exact details of the effort, hundreds of billions of dollars already appear devoted to it through a Silk Road Fund, the new China-led Asian Infrastructure Investment Bank, and the China Development Bank. These funds are supporting the building of roads, railways, pipelines, and ports. Rather than being limited to tangible infrastructure, however, the initiative also encompasses efforts to promote greater financial integration through the region-wide use of the renminbi; it also entails an “Information Silk Road” of optical cables and other communication nodes to facilitate greater people-to-people exchanges and interactions.
The One Belt, One Road initiative could be seen by some as simply the “going out” strategy on steroids. Part of the appeal of China’s western neighbors is, no doubt, their significant energy resources; energy infrastructure is certainly central to the success of the initiative. China would unquestionably welcome a diminished dependency on oil and gas traveling through the Strait of Malacca. Nevertheless, unlike in previous decades, energy is no longer the main animating feature behind China’s most dramatic and consequential foreign policy initiative.
Two important factors have allowed other foreign policy objectives to take a seat alongside secure energy in China’s list of top priorities. First, as noted, the new energy abundance means China is more comfortable relying on the market to secure its needs and thus can place less of a premium on establishing equity oil arrangements, particularly given their many drawbacks. Second, efforts to rebalance China’s economy away from energy-intensive industries means that China’s officials are less preoccupied with sating rapaciously growing energy demands. This reality has opened the door for China to place a new, pressing priority at center stage in its foreign policy: the need to create demand for Chinese goods, services, and companies to soak up the excess capacity that has emerged now that the economy is no longer booming at the same rates of earlier years. The lower growth necessarily accompanying the transition to a less investment-driven and more consumption-led economy has left Chinese steel, gas, and concrete makers with far too little demand to satisfy. Booming infrastructure projects supported by the One Belt, One Road initiative outside of China’s borders could at least temper the pain of the transition.
Africa neatly illustrates how Chinese economic restructuring at home is replacing energy security as a significant driver of foreign policy. The combination of the downsides of the “going out” strategy and the diminished need to seek equity oil investments in an energy-abundant world appear to be opening the door to a new Chinese approach to Africa—one in which oil assumes a less prominent role. President Xi Jinping signaled this new approach in December 2015 when speaking to the triennial Forum on China-Africa Cooperation in Johannesburg. Nervousness about the trajectory of China’s relationship with the continent preceded his speech, stoked by a 40 percent decrease in Chinese investment over the previous year. Chinese imports from Africa—more than four-fifths of which are commodities and crude material—had fallen in value by a third due to the crash in prices and weaker Chinese demand growth. Xi’s speech was intended to squelch anxiety that China was a fair-weather partner for Africa. His pledge that China would invest $60 billion in the continent surprised even African optimists. At previous summits, Chin
a had consistently doubled the figure from three years earlier; the 2015 commitment, in contrast, tripled it. But what is most remarkable about Xi’s speech, and most telling, is the virtual absence of any mention of natural resources.
Why, then, such generosity toward Africa? Because, rather than acquiring equity oil, China is focusing on markets into which it can export the excess industrial capacity it has built up at home during what Daniel Yergin calls “the great build out of China.” Now that the age of breakneck industrial expansion and infrastructure development is slowing, China has many firms that are underutilized and would benefit from new markets and contracts overseas. As China seeks to move to a more service-driven economy, it is eager to shift its labor-intensive (and energy-intensive) industries to Africa. “Industrial capacity cooperation” and “strategic complementarity” are not just new words for describing an old relationship. They signal China’s intent to broaden its engagement with Africa to better meet its own needs beyond the energy equation.
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