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As Russia prepares for Chinese President Xi Jinping's first official visit, Deputy Prime Minister Arkady Dvorkovich said Monday that Beijing and Moscow will finalize an agreement in March for the delivery of 38 billion cubic meters of Russian natural gas per year to China starting in 2015. Even if it goes according to plan, the 38 billion cubic meters would constitute only about 30 percent of Chinese natural gas consumption, though would potentially account for nearly 90 percent of what China currently imports if those levels remain the same.
China is feeling the impact of a global economic slowdown, but Beijing's attempt to manage the economic stress by developing its interior will likely increase Chinese natural gas consumption over the next couple of years. The potential boost in Russian energy imports could help Beijing reduce its reliance on vulnerable sea lanes as supply lines and help China develop its interior.
Over the past two decades, China has invested heavily in modernizing its military. As Chinese economic power increased, the nation could afford to invest more in technologically intensive air and naval forces. China’s increased focus on securing its territorial claims in the South and East China seas also necessitated a greatly improved capacity to project its maritime force. Furthermore, the Chinese drive to create a powerful navy is linked to Beijing’s ever-expanding dependence on extended sea lanes of supply and communication.
Despite these developments, Chinese naval and air capabilities remain limited geographically. That is not to say that the Chinese have not also invested heavily in bolstering their oceangoing long-range force projection capabilities. The Chinese, for instance, are working to advance their nuclear submarine technology and have reportedly begun intensive studies on developing nuclear reactors for aircraft carriers.
These developments remain very much in the early stages, however, and in a worst case scenario of a war between China, Japan and the United States (however unlikely), the Chinese sea lanes would be effectively cut at numerous choke points, whether along the Ryukyu Islands, the Luzon Strait or the Strait of Malacca. A blockade of this scale, reminiscent of the Allied blockade of Nazi Germany in World War I and World War II, would necessitate an allocation of significant resources. But given that about 85 percent of Chinese imports arrive by sea, such a blockade would be crippling for China.
As China tests its new capabilities in the East and South China seas, it remains painfully aware that any extended and serious confrontation with the U.S. Navy would likely result in China's sea lane supply and communication effectively being lost. Because the Chinese are nowhere near the capability level necessary to break a naval blockade, they must consider seeking overland supply lines to Russia, Central Asia and even Iran as a beneficial option to help circumvent any strategic blockade.
China’s desire to secure and expand overland energy supply lines also reflects the Communist Party's efforts to industrialize the country’s vast, densely populated and heavily agricultural interior. For Beijing, developing the interior is a geopolitical imperative. As rising input costs make low-end, export-oriented manufacturing on the coast increasingly less competitive (compared with emerging regional economies like those of Indonesia and Vietnam, or even of Mexico), Beijing needs to shift at least some of that industry inland. In the short term, the cheaper input and labor costs in parts of the interior could make it a supplemental export base to the coast. In the long run, the Party hopes to develop the interior into a supply base for the increasingly wealthy, urban coastal consumer base of 400 million people.
But building and sustaining an inland industrial base will require enormous amounts of energy. Beyond the potential energy insecurity that overreliance on overseas supplies creates is the simpler fact that transporting energy from coastal ports into inland cars, factories and housing complexes is costly and inefficient. Beijing knows that overland oil and natural gas supplies (either from Myanmar through Yunnan province in southwest China or from Central Asia and Russia) would make up only a fraction of inland cities' energy mix for the foreseeable future. But any overland supplies are better than none, especially if Beijing is able to link supplies from Russia and elsewhere into its national pipeline infrastructure, thereby opening the possibility of re-exports through the coast.
Over the past five years, Beijing has moved energetically to develop domestic energy resources in the central, western and northwestern parts of the country. This includes shifting coal production from the coast to Inner Mongolia and surrounding regions, as well as ongoing efforts to develop shale gas resources in the Sichuan Basin. Both processes coincide with the government's efforts to expand inland pipeline and energy transport capacity, further facilitating any future plans to direct overland energy imports to the interior. These moves also constitute an early first step in China’s attempts to leverage alternative resource lines from its traditional seaborne ones.
While ongoing efforts to increase oil and natural gas imports from Russia, Central Asia and Myanmar are not necessarily connected to interior industrial development, the two processes' coincidence allows Beijing to potentially accomplish two goals at once. China's efforts bring a wider regional geopolitical imperative together with an internal economic and social process that is critically importance to the country's economy.
Courtesy : Stratfor (www.stratfor.com)