ARTICLE III-227 1 Els objectius de la política agrícola comuna seran:
SECCIÓ 5 MEDI AMBIENT
Much has been written about China’s vigorous oil diplomacy since top Chinese leaders endorsed and indeed demanded NOCs and other SOEs to “go out” and engage in overseas oil investments and other energy-security related projects in the early 2000s.221
218 There were indications that the state did try to reduce the moral hazard of wanton overseas
investments by NOCs and other SOEs, but not in a way that suggests tighter governance, or any fundamental change in orientation. In June 2011, the State-Owned Assets Supervision and Administration Commission of China (SASAC), the administrator of all central level SOEs, including NOCs, promulgated interim measures on the supervision and management of SOEs and their overseas assets. The part that is most pertinent to the current discussion stipulates that person(s) in charge of SOEs would be held legally liable for losses suffered due to such reasons of not exercising proper control of overseas enterprises, serious pitfalls in the internal control and risk-prevention mechanisms, or engaging in investments without following proper procedures or authority. See “SASAC Interim measures for the administration of overseas property rights of State-Owned Enterprises (Rule 27)”
[国务院国有资产监督管理委员会令第 27 号《中央企业境外国有产权管理暂行办法》].
Accessed 27 December 2016,
http://www.broadbright.com/pdf/%E4%B8%AD%E5%A4%AE%E4%BC%81%E4%B8%9A%E5 %A2%83%E5%A4%96%E5%9B%BD%E6%9C%89%E4%BA%A7%E6%9D%83%E7%AE%A1 %E7%90%86%E6%9A%82%E8%A1%8C%E5%8A%9E%E6%B3%95.pdf .
219 These three companies’ combined five-year average net profit is US$39,355.68 million. The
sources of information are these companies’ annual reports. See Table 14, Appendix C for detailed calculation. As noted in footnote 107 above, the figure for Indian NOCs is US$6,352.94 million.
220BP Statistical Review of World Energy June 2014.
221 The “going-out” (走出去) strategy was formally put forward for the first time in October 2000.
See Kong, China’s International Petroleum Policy, 46-47. For some other studies on the subject, see Andrew-Speeds and Dannreuther, China, Oil and Global Politics, 63-93; Tunsjo, “Hedging Against Oil Dependency: New Perspectives on China’s Energy Security Policy”; and Michel Gueldry and Wei Liang, “China’s Global Energy Diplomacy: Behavior Normalization Through Economic
150 Some of these efforts were done in concert with the investment projects in which Chinese SOEs and their subsidiaries overseas were involved, while others were more general in scope. An example of this latter category was efforts to enhance relationships with Indonesia, Malaysia, and Singapore, the three littoral states of the Strait of Malacca, to prevent “any great power, especially the United States and Japan, from extending its military presence” to the Strait.222
Some studies, such as Meckling et al’s, compare the oil diplomacy efforts of China and India.223 They all seem to agree that the Chinese effort has been more robust.224 Displaying more aggressive oil diplomacy and engaging in it more frequently can be interpreted either as proof of China adopting a higher level of strategic oil supply measures as defined here or as its higher implementation capability of those measures or both. In this comparative study, as in the comparison between India and Thailand, the specialty of and financial support to pertinent Chinese agencies are examined to investigate China’s oil diplomacy capability, which in turn is hypothesised to result in the adoption of strategic oil supply measures.
China spent less to maintain its Ministry of Foreign Affairs (MFA) than its Indian counterpart in absolute terms and especially as a percentage of its GDP between 2009 and 2013 according to publicly available official budgets.225 Unlike its Indian counterpart, the Chinese MFA did not have a department which name suggests specialisation in energy related matters.226 It appears that oil diplomacy functions are scattered over a number of subordinate departments, such as the Department of International Economic Affairs Department and the Department of West Asian and North African Affairs. The OPEC is one of the regional “cooperation organizations” which relationship with China is managed through the latter department. The Chinese MFA, however, likely has unpublicised groups
Interdependence or Resource Neo-mercantilism and Power Politics?” Journal of China Politics 21 (2016): 217-240.
222 Kong, China’s International Petroleum Policy, 131. Kong lists many other Chinese oil diplomacy
efforts beyond those directly involving NOCs, such as ports and other infrastructure projects overseas that may help secure oil transportation on pages 129 to132.
223 Some other examples include: Carl, Rai, and Victor, “Energy and India’s Foreign Policy”;
Powell, “Geo-politics of India’s equity investments in energy.”
224 This does not mean that the authors think the efforts were necessarily more effective in ensuring
oil supply security.
225 The five-year average of the Chinese MFA budgets is US$991.73 million versus Indian MEA’s
US$1,233.54 million during the same period (already minus the budget of foreign aid and loan). The Chinese MFA budget does not include foreign aid, which was listed in the Chinese Ministry of Commerce (MCOM) budget. The sources for these figures are all from the official websites of the respective ministries. This only amounts to 0.013% of Chinese GDP in the same period whereas the Indian MEA budget was 0.07% of its GDP. For detailed calculation of the Chinese MFA budgets, see Table A15, Appendix C.
226 For a list of all subordinate divisions, see “Organizational Structure,” Chinese MFA website.
151 or personnel that wielded great authority over China’s conduct of oil diplomacy.227 As pointed out in the last section, oil supply security had been elevated to a major concern of China’s top leaders soon after this century began.
In addition to the Chinese MFA, the Chinese (MCOM) also undertakes functions that may be considered as oil diplomacy, such as formulating international trade and economic cooperation development strategies and policies. 228 It also contributes considerable funds to such functions by footing bills incurred by “economic and commercial organization personnel stationing in overseas consulates.”229 For these reasons, the part of the MCOM budget these functions are assigned is also included in the calculation in this comparison.230 Even after this addition, China still spent less on foreign affairs and international trade related functions during the period studied than India.231 In fact, the average annual amount China spent as a percentage of its GDP was 4.67 times less than that by India.232 The MCOM, like the MFA, does not have a department with a name that suggests specialisation in promoting energy or oil investments or trade.
How can this lower government spending and apparently greater oil diplomacy capability of China be reconciled? There are a number of logical explanations. First, similar to the situation of China’s supposedly grossly under-reported official defence budget, the budgets of the two Chinese ministries examined here might actually be much larger. Still, according to an American think tank report, even the highest outside estimate made was less than double the official Chinese defence budget in 2015.233 If we assume the situation applies here, China’s spending on the two ministries with obvious oil diplomacy functions
227 For updated accounts and analyses of China’s extensive conduct of oil diplomacy while balancing
its overall relations with the United States, see David Zweig and Yufan Hao, ed. Sino-U.S. Energy Triangles: Resource Diplomacy Under Hegemony (New York: Routledge, 2016), especially Chapters 3 to 12.
228 See “Major Functions of MCOM,” MCOM website. Accessed 2 January 2017, [商务部的主要职 责]
http://www.mofcom.gov.cn/article/cwgongzuo/feiyqr/201407/20140700663702.shtml.
229 This is listed as an explanation of the expenditure under the category of “overseas organizations”
in the MCOM budget. See “Year 2013 Final Accounting of the Ministry of Commerce of the People’s Republic of China,” MCOM website. Accessed 2 January 2017, [中华人民共和国商务部，商务
部2013年度部门决算]
http://www.mofcom.gov.cn/article/cwgongzuo/feiyqr/201407/20140700663702.shtml.
230 Similar to the exclusion of India’s foreign aid and loans in the Indian MEA budget, the foreign
aid part of the MCOM budget is not included in the calculation.
231 The combined annual average of the relevant budget items of these Chinese ministries was
US$1,125 million versus India’s US$1,233.54 million. See Table 15, Appendix C for detailed calculation.
232 China spent about 0.015% of its GDP versus India’s 0.07%. See Table A15, Appendix C for
detailed calculation.
233 The official Chinese defense budget was US$146 billion, while the U.S. Department of Defense
estimated it to be US$180 billion and the Stockholm International Peace Institute estimated it to be US$214 billion. See “What does China really spend on its military?” Center for Strategic and International Studies website. Accessed 2 January 2017, http://chinapower.csis.org/military- spending/.
152 would be slightly higher than India’s in absolute terms, but still much less proportional to its GDP.
A second explanation is that the source of China’s oil diplomacy capability was as much from positive support the government provided as from the lack of procedural and other restraints it placed on ministry officials as well as NOC and other SOE executives. This is the conclusion of Meckling et al’s study as well as anecdotal complaints by Indian NOCs when engaged in bidding wars with Chinese NOCs in overseas investment projects. Third, China simply derived greater intangible capability that comes with its UNSC permanent membership as well as with its larger economy and denser trading relationships with foreign countries.
Fourth, there was other not-so-obvious oil diplomacy related Chinese organizations and agencies, most notably banks, that boosted NOCs’ overseas investment capability with no comparable counterparts in India. According to Erica Downs’ estimate, Chinese state-owned banks made US$74.6 billion “energy-backed loans” to NOCs and governments of oil exporting countries between 2005 and 2010.234 This, in turn, speaks to the 13 times more foreign exchange reserves China had over India, which has been taken into account in the preliminary study.235 Finally, a plausible but not probable factor: China actually did not have a higher capability than India, contrary to the conclusion of all known studies that examine the two countries’ oil diplomacy activities.
The truth likely is a mixture of all the above explanations, except possibly the last one. When all the sources of capabilities examined in this study and the preliminary analysis are viewed in totality, China’s overall implementation capability of strategic oil supply measures would still be at a higher trichotomous level than India’s. This would still be true if we assume Chinese oil diplomacy capability was actually more or less the same, not vastly superior than that of India as commonly assumed.
4. Conclusion
The in-depth comparison between India and Thailand with data from the years leading to 2013 confirms that they adopted a similar level of strategic oil supply measures.
234Inside China, Inc.: China Development Bank’s Cross-Border Energy Deals (Washington, D.C.:
John L. Thornton China Center, Brookings, 2011), 39. Also see this study for details of these oil-for- loans deals financed by the China Development Bank and the Export-Import Bank of China, and executed through CNPC and Sinopec.
235 Downs stresses that the realisation of these deals does not mean that the Chinese state actively
tried to push either the banks or NOCs to pursue them all the time and these entities engaged in these deals for a variety of reasons, including importantly to pursue profits. This conclusion does not diminish the fact that Chinese state-owned banks’ ability to make such large loans is a testament to the superior material capability of China in the short to medium term (if not its long-term financial health. See more discussion on the historical risks associated with artificially low interest rates to a particular sector in footnote 89 in Chapter Three).
153 Their OV levels, the overall strengths of private capital in their economies, their overall trust in the oil markets, and implementation capabilities all fell within the same trichotomous level during that period. These conditions again match those proposed by H1 of the vulnerability-interaction model as in the plausibility probe. Applied in a cross-economy situation such as this comparison, H1 suggests a causal pathway in which different net oil importing economies would end up adopting very similar levels of strategic oil supply measures during the same period. This pathway is that the levels of the four explanatory factors hypothesised by the vulnerability-interaction model of the two economies are very similar.
This does not mean that the magnitudes of all the variables of India and Thailand were exactly the same. Viewed in totality with the more cursory data examined in the preliminary study, India “caught up” in the magnitude of its intervention in its petroleum sectors in the form of the country’s more market-displacing oil product pricing regime. This, however, began to change with the deregulation of diesel prices in 2014. Private capital, but only in the form of international private capital, was even stronger in Thailand, especially in the petroleum sectors. There is no sign, however, that state capital in the form of SOEs, will be in the retreat any time soon.236 The differences between the two economies in the other three variables remained very slight, with India having a little higher OV, a little lower trust, and a little higher capability. Considering the great differences between the two countries in many other respects such as population, geographical size, political and economic systems, I argue that H1 passes the test of the most different research design.
The in-depth comparison of China and India with data from the same period confirms that China adopted a level of strategic oil supply measures and had a capability to implement them that were trichotomously higher than India’s. At the same time, their OV levels, the overall strengths of private capital in their economies, and their overall trusts in the oil markets all fell within the same trichotomous level. These conditions match the conditions stipulated and the outcome expected by H2 as in the plausibility probe. Applied in a cross-economy situation, H2 suggests one causal pathway that explains the variation in the levels of strategic oil supply measures adopted by different net oil importing economies during the same period.
Upon examination of more detailed data in this comparison, China seems to have adopted an even higher level of strategic oil supply measures in the form of international oil
236 See Jake Maxwell Watts and Nopparat Chaichalearmmongkol, “In Thailand, a Struggle for
Control of State Firms,” The Wall Street Journal, 17 June 2014. Accessed 5 April 2015,
http://www.wsj.com/articles/in-thailand-a-struggle-for-control-of-state-firms-1402930180; “The clash of public and private interests,” Thailand’s Sustainable Development website. Accessed 16 September 2016,
154 supply investments through its NOCs and a very restrictive upstream oil sector. China’s overall implementation capability was also higher because of its more profitable NOCs. While the magnitudes of China and India’s other explanatory variables were similar, China’s private capital appeared weaker than India’s, especially in the petroleum sector. China’s OV and overall trust in the oil markets were slightly lower. As detailed in Chapter Three, H2 derives from the most similar research design. The similarity between China and India in many aspects in addition to the three hypothesised variables accentuates the explanatory power of the variable that was markedly different – their implementation capabilities.
The two in-depth comparisons presented in this Chapter further support the validity of the vulnerability-interaction model. As discussed in Chapter Three, there are not many alternative theories that are specified enough that cover the geographic scope of this project. Due to the configurations of the variable levels of these particular case studies, the option to compare the validity of vulnerability-interaction model with alternatives is further limited.
The India-Thailand case is a case of no substantial variation in any of their variables’ levels. The structural realist/geopolitical perspective would also explain the similarity of the levels of strategic oil supply measures they adopted by their similar capabilities and OV levels. This perspective would also explain China’s higher DV with its higher capability and illuminate our understanding of its slightly lower OV with its much higher capability.
A conclusion that emerges from the data in this Chapter supports the proposition in Hughes’ study that when a domestic oil firm has grown to a size that is near parity with IOCs, it would behave more like them, meaning calling for a more liberalised governance of the country’s petroleum sectors. The sizable Indian private oil firm Reliance has shown signs of doing just that.237 While the subsidiaries of Chinese NOCs were even closer to parity in strength with IOCs than Reliance, they were still tightly controlled by their parents, which enjoyed overwhelming dominance in the domestic market through strict entry barriers. It is, therefore, unsurprising that subsidiaries of the “three barrels” have not clamoured for further liberalisation of the Chinese oil sectors.
237 For an example of Reliance behaving in the way IOCs would, see “RNRL fires fresh salvo, trains
guns on NELP,” The Economic Times, August 21, 2009. Accessed 25 September 2016,
http://articles.economictimes.indiatimes.com/2009-08-21/news/28452334_1_nelp-new- exploration-licensing-policy-roadshows/2.
BP bought 30% of Reliance’s interests in the 23 oil and gas blocks Reliance operated and the two formed a 50:50 joint venture in November 2011 for “sourcing, marketing and transporting natural gas.” See “Mukesh Ambani’s Reliance Industries inks $7.2 billion deal with BP,” February 21, 2011, Forbes website, http://www.forbes.com/sites/naazneenkarmali/2011/02/21/mukesh-ambans- reliance-industries-inks-7-2-billion-deal-with-bp/#305cf2c375b0. See the press release of the forming of joint venture company at, accessed 25 September 2016,
http://www.bp.com/content/dam/bp-
155