Windfall
Page 28
An Opportunity for U.S.-Sino Cooperation
China is emerging as a critical global actor. After decades of insisting it is only a developing country that needs to focus only on its internal challenges, President Xi Jinping now speaks determinedly of promoting “the Chinese dream.” While China’s intention to assume a larger role on the international stage is clear, the country and its leadership do not yet seem to have constructed a grand strategy to guide its emergence. One can discern elements of China’s desired regional order, but the leadership’s thinking on the international order seems more nascent. Given China’s size, the way in which China develops itself as a global power will have massive implications for countries around the world.
How and to what ends China seeks to wield its influence in the world will be of great consequence to the United States in particular. Many factors will determine whether the United States and China emerge from this historical juncture as partners or adversaries. Graham Allison, a renowned professor at Harvard, describes the momentum toward conflict between the United States and China as “the Thucydides trap.” According to the Greek historian, it was the rise of Athens, and the fear it inspired in Sparta, that triggered the start of the Peloponnesian War in 431 BC. Allison studied sixteen historical cases in which a rising power challenged a ruling one and found that in a dozen of these circumstances, the outcome was war.
Energy will not be the only factor weighing in one direction or the other as the United States and China chart a new course. But it is an important one, and one that—in a dramatic shift from the predictions of less than a decade ago—leans squarely in favor of the two powers successfully negotiating some sort of peaceful coexistence, or at least finding common cause in some strategic arenas. There are several spheres in which these two countries, thanks to energy, can find mutual interest if their leaders so chose. These areas have value in their own right, but are even more important as they represent possible points of collaboration in an otherwise increasingly fractious bilateral relationship, which happens to be the most significant relationship in the world today.
Notably, the new energy abundance will align China and the United States more closely on the question of the appropriate international order. China is likely assessing whether it can satisfy its global ambitions under some modification of the current international order or if it needs to challenge and remake the international order entirely to serve its interests. While the jury is still out on this hugely consequential question, the new energy abundance at least increases the chances China will find a comfortable home in some version of the current order. If, as predicted, the new energy abundance contributes to China revising its “going out” policy, that, too, should diminish China’s rationale for supporting rogue states and therefore potentially remove one arena in which China has been at odds with established norms and institutions. More sanguine about their ability to meet energy demands, China’s leaders need not feel the same impulse to cultivate recalcitrant regimes—and shield them from the concerns of the international community—in order to maintain access to their resources.
As discussed, the new energy abundance has also increased the confidence of the Chinese leadership in one of the main principles of the current international order: the primacy of the market. A decade ago, China mistrusted the market as the mechanism to deliver energy to the country. Washington’s denial of the 2005 attempt by China National Offshore Oil Corporation (CNOOC) to purchase the American oil company Unocal, the U.S.-led war in Iraq—which Beijing viewed as being motivated by energy—and the perception of diminishing global energy resources collectively pushed Beijing to look to nonmarket means of acquiring the energy so essential to China’s prosperity and the Communist Party’s legitimacy. A decade later, Chinese companies have invested more successfully in North American energy companies, and the United States looks chastened from its robust military action in the Middle East. But most significantly, the dramatic shift from scarcity to abundance greatly diminishes the chances that the market will be unable to manage the allocation of resources and keep China from getting the resources it needs.
The new energy abundance also provides grounds for recasting ties between the United States and China. For starters, it helps deflate the “China conflict narrative” that had become the dominant lens through which nearly all Chinese overseas activity was viewed by the United States and other Western countries. In April 2005, Mikkal Herberg, the director of the Energy Security Program at the National Bureau of Asian Research, told a group of academics that he could not foresee any future scenario where there would not be confrontation between the United States and China over energy. This perspective became common among U.S. policymakers and the main framework for evaluating China’s rise within the international system.
According to U.S. defense officials and members of the American Congress, competition for energy was one of the most commonly cited potential flash points for the inevitable conflict between a rising China and a declining West. In 2006, the Pentagon’s annual report Military Power of the People’s Republic of China broadened its analysis of drivers of Chinese militarization beyond Taiwan to include the need to potentially use force to secure resources. Two years later, a new version of the same Pentagon annual report noted that growing Chinese resource needs could spur China to develop more robust defense capabilities and a “more activist military presence abroad.”
The advent of the new energy abundance has shifted the framework from one of inevitable competition and possible conflict between the United States and China, to one of potential and actual cooperation around energy. Neither country has to see the energy-inspired actions of the other in a zero-sum light. China’s foreign policy need not be dominated by its desire to secure resources at all costs. The possibility to pursue other aims—ones not so likely to create friction with the United States—opens up.
Of course, it is conceivable that a China with a wider foreign policy agenda will challenge U.S. interests in other, perhaps even more fundamental, ways. Growing tensions over the South China Sea suggest, at least in that part of the world, this will be the case. But the new energy abundance not only removes the old lens through which American policymakers viewed Chinese actions abroad, but it also offers new grounds for cooperation.
Indeed, some of the most direct and obvious new avenues for fruitful U.S.-Sino cooperation are in the development and trade of energy. For instance, U.S.-Sino cooperation could dull Russia’s heavy-handed use of energy to shape politics to its advantage. Rather than seeking to curb China’s efforts to extend its energy influence in Central Asia through initiatives like the Asian Infrastructure Investment Bank, the United States and its allies might pursue just the opposite tack. Yes, it would be nice if the energy-rich Central Asian republics built closer ties to their west rather than to their east, but energy realities—and geopolitics—simply do not make Europe a realistic alternative to the Chinese market for these countries in the coming decades. Central Asian oil and natural gas, however, will be the best counterweight to Chinese overdependence on Russia, especially given that this energy comes overland, not via sea lanes Beijing views as insecure. Pipelines from Myanmar and, potentially, via Pakistan will also have this advantage.
In addition, the United States also should be vested in helping China meet its natural gas needs, as the resource is key to China’s ability to realize its climate goals and keep its economy growing—both of which are in the interest of the United States. The United States has made some efforts in this direction; as discussed in Chapter Six, the U.S. government engaged early on with China in an effort to help the country assess its unconventional resources and to provide advice on how to develop them.
Yet, the United States should also do what it can to see that China has diverse, secure, and affordable LNG sources. The U.S. shale gas boom and the advent of U.S. LNG exports will continue to exert downward pressure on the price that China will pay for its LNG, partially eroding the cost advantage
of Russian gas. But the United States could be more forward leaning in making it clear that it welcomes China as a customer and investor in U.S. LNG. Early signals were not encouraging. During a Senate committee hearing in 2015, Senators Debbie Stabenow and Angus King expressed reservations that U.S. LNG exports to China were consistent with U.S. interests. That same year, some American companies working on LNG export projects were left with the impression that involving Chinese companies or customers could make their projects politically untenable. Michael Smith, the CEO of Freeport LNG, said there was Chinese interest in Freeport’s project, but recalls that “We were advised by the DOE to be careful who our customers were, because this is very political . . . a political hot potato we couldn’t take the risk on.” As of early 2017, China had received ten shipments of LNG cargo from Louisiana’s Sabine Pass facility, but all through third parties. There did not appear to be direct contracts between Chinese companies and U.S. LNG facilities, however, suggesting that both parties saw an interest in keeping a distance.
Instead of seeing Chinese involvement as customers and investors in U.S. LNG as politically undesirable, Congress and the U.S. administration should welcome it. If China wants to create a dependency on U.S. energy in the interest of diversifying its sources—however small it would likely be in the context of China’s overall needs—the United States should be more than happy to oblige, particularly if it helps weaken Sino-Russia links.
Finally, members of Congress and the administration could make it clear that Chinese investment in U.S. energy companies is welcome—except under extraordinary circumstances in which most foreign investment would be curtailed. While Chinese investment has quietly flowed into the American energy sector, episodes such as the 2012 forced reversal of a Chinese investor in a wind farm may leave the opposite impression.
Reimagining the Strategic U.S.-Sino Relationship
Looking beyond questions of investment and trade, the new energy landscape has generated further opportunities for the United States and China to recast their bilateral relationship in a new light. President Nixon and Henry Kissinger orchestrated the United States opening to China in 1972 with a big idea in mind. Recognizing Beijing and building a relationship with China would generally provide the United States more flexibility in the international arena, help ease the “pain of an inevitably imperfect withdrawal from” Vietnam, and would specifically give Washington more leverage in its dealings with the Soviet Union. For China, the opening brought equally important strategic gains, from securing military assistance to increasing the international standing of the People’s Republic. Both countries were motivated by the need to check the Soviet Union, and were united in that strategic objective, even if they still had major differences in other arenas.
The geopolitical context has now changed, and the agenda between the United States and China is exponentially more complex. Policymakers in both capitals seem in need of bigger, animating ideas to underscore why a closer relationship between the two countries is in their strategic interests. The new energy abundance offers just that by generating opportunities for cooperation in two areas that together offer sufficient grounds to reimagine the bilateral relationship: climate and cooperation on the Middle East.
On November 11, 2014, after the 2014 Asia-Pacific Economic Cooperation summit, President Obama accepted a rare invitation to visit the Zhongnanhai government complex in the Imperial Garden next to the Forbidden City. The heart of the Communist Party, Zhongnanhai remains somewhat of a mystery to Chinese citizens and foreigners alike. In stark contrast to the White House on Pennsylvania Avenue in Washington, D.C., Zhongnanhai is believed to encompass the home of the Chinese president, although his exact address is unknown. President Obama was to meet President Xi Jinping on Yingtai, an idyllic island in the South Lake of the Imperial Garden. The two leaders were not the first to use this spot to address pressing issues; the Qing emperor Kangxi was believed to have formulated his strategies to ease civil strife amidst the beauty of the place. The choice of Yingtai was clearly meant to deliver a message.
The two leaders took some time before getting down to business. Despite the cold and the wind, the evening began with Xi’s giving Obama a personal tour of the island and a lesson in Chinese history. A formal meeting between the two leaders, flanked by their advisors, followed and flowed into a dinner banquet. Afterward, the pair retired for a private chat over tea. The private meeting lasted almost twice as long as the presidents’ schedulers had anticipated, as the leaders spoke about matters spanning the Chinese economy, Chinese reforms, human rights, and sovereignty. According to the Chinese press, at the end of the night, Obama allegedly remarked to Xi that “this evening has given me the deepest, most thorough understanding of the Communist Party’s history and governing philosophy that I have ever had in my life, and allowed me to see your perspectives.” While this quote is likely embellished, it demonstrates the cordial tone that set the stage for the historic announcement Obama and Xi would make the next day.
A mere few hours later, at a press conference at the Great Hall of the People, Obama and Xi presented the U.S.-China climate agreement to a surprised world. With the stroke of a pen, the prospects for real international action addressing climate change went from fanciful to possible or even probable. As discussed in Chapter Six, the United States transformed earlier domestic goals into international commitments, pledging to reduce greenhouse gas emissions 26 percent to 28 percent below 2005 levels by 2025. China, for its part, announced its intentions not to reduce carbon emissions, but at least to ensure that they peak by 2030, and to expand its share of zero-carbon energy by 20 percent by the same date.
At least until President Trump stated his intention to withdraw America from the Paris Agreement, both Washington and Beijing needed one another. President Obama sought to make climate one of his legacy issues, and China’s willingness to constrain its carbon emissions removed one of the largest and longest-standing American arguments against U.S. action to address climate change. Since Kyoto, opponents of action to address climate change have argued, with some justification, that it makes little sense for the United States to take potentially costly measures to curb its own emissions if China and other large emitters refuse to do so. For President Xi Jinping, addressing carbon emissions, and environmental hazards more generally, is critical to bolstering the legitimacy of the Communist Party. But doing so will create challenges to vested interests, ones that can be better neutralized if Beijing is adhering to commitments made at the international level, not only the domestic one. Beijing would not be the first capital to use international agreements to force a domestic political agenda. As the United States calculates the cost of jettisoning such goals, it should take the impact of backtracking from these goals on its relationship with China into account.
The Middle East is another matter. To date, there is limited U.S.-Sino cooperation in the Middle East. But it is not difficult to imagine how a closer bilateral partnership could bring a greater measure of stability to the troubled region.
China’s ties to the Middle East go back more than two millennia, to Emperor Hu of the Han Dynasty and his decision in 138 BC to dispatch Zhang Qian, a soldier and diplomat, to build economic and political relationships far to China’s west. This initiative blossomed into the Silk Road, which, for more than a thousand years, was the route by which endless numbers of merchants, soldiers, nomads, and pilgrims made the journey across deserts and mountains from the Mediterranean to China. In the fifteenth century the expansion of sea trade—which was quicker and better suited to transporting larger quantities of goods—led to the Silk Road’s decline, as did China’s inward reorientation and subsequent preoccupation with the arrival of European imperialists.
Today, the ancient links between China and the Middle East are being resuscitated. Trade has burgeoned, fueled largely by China’s ever-growing dependence on Middle Eastern oil; China’s trade with the Middle East increased more than sixfold in the decade following 2004. T
hese links will continue to grow. As North America becomes increasingly self-sufficient, Asia is becoming a more and more important market for Middle Eastern oil. In 2040, the U.S. EIA anticipates that 90 percent of Middle Eastern oil will be destined for Asia. And it is not just trade flows that are increasing, but also investment. The 2017 decision of Saudi Aramco to invest $7 billion to build a massive refinery in Malaysia is indicative of what will be a larger trend as Saudi Arabia and other Gulf states look to ensure markets for their crude in this new energy abundant environment.
China’s vision for closer economic and political ties with Arab states was laid out clearly by President Xi in a keynote address to the China-Arab States Cooperation Forum in June 2014. Against a backdrop of pledges of China’s commitment to peace in the region and the establishment of a Palestinian state based on the 1967 borders, Xi advocated a new “1+2+3” mode of cooperation between China and the Arab world. Energy cooperation would continue to be the core of the relationship (1), but infrastructure construction, and trade and investment facilitation would build upon it (+2), with an additional focus on three high-tech fields (+3): nuclear energy, space satellites, and renewable energy. Harking back to historical cooperation between the East and West along the Silk Road, Xi predicted that Sino-Arab trade would grow from $240 billion in 2013 to $600 billion over the next decade; such trade had stood at less than $6 billion in 1996.
With this growing economic interdependence will inevitably come greater pressure for Chinese political involvement in the Middle East. China still maintains that its political relations with the region are rooted in the well-worn adage of “noninterference in the domestic affairs of other countries.” But there are indications that such a stance is slowly yielding to greater activism, as China’s vital economic interests and its concern over its restive Muslim-majority province, Xinjiang, give Beijing a growing stake in stability in the Middle East.