Over the last 20 years, China has become a major player in the international energy markets, most notably in oil but also in natural gas and coal. The country buys increasing quantities of energy raw materials from abroad and its national oil companies have invested many tens of billions of US dollars in oil and gas fields around the world as well as in import pipelines from its Asian neighbours. At the same time, the government's diplomacy appears to be increasingly shaped by energy priorities and is often backed by substantial inter-government loans and bilateral agreements.
This growing outreach on the part of China and its national oil companies has raised two key questions amongst academics and policy analysts in the West: what is driving all this activity and what does it mean for the rest of the world? In this book, Øystein Tunsjø, an associate professor at the Norwegian Institute of Defence Studies, focuses on the first of these questions. Many previous accounts by other scholars and analysts have fallen into one of two camps: one which emphasizes the central role of China's government and categorizes the behaviour as being “strategic” or “neo-mercantilist”; and another which directs attention to the relative independence of the national oil companies as they go overseas as part of commercial business strategy and in search of profits.
Tunsjø dismisses these two images as invalid caricatures and instead presents a new framework which seeks to encompass the full range of “strategic” and “market” behaviours exhibited by China's government and its national oil companies. His thesis revolves around the concept of hedging: in other words a set of strategies designed to cope with uncertainty and which deliberately seeks to balance different approaches so that losses are not excessive whatever risks or threats materialize. Chapter two lays out the key elements of the argument, distinguishing between wartime threats and peacetime risks, and explains how hedging can act as an insurance policy. “Longs” are those strategies that seek to profit from the international oil market and to enhance China's engagement in the international system for energy governance. “Shorts” are more defensive, seeking to protect the country when markets fail and other international institutions fail.
In chapters three to six, Tunsjø applies this framework through a detailed analysis of, respectively, China's domestic energy sector, the global search for petroleum safeguarding China's seaborne petroleum supplies, and China's petroleum strategy for continental Asia. In these chapters Tunsjø draws on a detailed knowledge of the strategies and behaviours of China's government, national oil companies and banks to support his arguments. In chapter seven, he presents the implications of these hedging strategies, looking at the impacts on global markets and energy governance, maritime issues and Sino-Russian relations. The most important of these is his conclusion that during an international crisis China will have advantage relative to many other energy importers, not least because “… the Chinese government can instruct its NPCs and state-owned tankers to ship their overseas oil production back to China” (p. 220). This is a moot point. Retired oil company hands who lived through the oil crises of the 1970s would point to the fact that all most oil sales are governed by contracts that are not broken without cost unless they contain numerous escape clauses.
Whilst Øystein Tunsjø's account succeeds in providing new insights, it also raises a number of questions, some of which are not new. First, his analysis implies, though he does not say so explicitly, that the hedging strategies form part of a “grand plan” which has been drawn up in a coordinated way at the highest level of government (or the Party). Many Sinologists would probably argue that policy decision-making in China, as in most other countries, remains a process of “muddling through.” Which argument is more accurate in the case of international energy policy? A second concern relates to the principal-agent question. Is the tail wagging the dog? Which actor is the principal in the field of international energy policy, the government or the national oil companies? Has the undue influence of the national oil companies in the Politburo and State Council allowed them to steer government policy to their advantage? Finally, like all insurance policies, China's hedging policy is expensive. If the perceived threats and risks fail to materialize, will such expenditure be considered as good value for money, or would the government have been better advised to direct these funds towards health and education, for example? These questions are particularly relevant today when we see Xi Jinping's government trying to rein in uncontrolled capital spending by the national oil companies and to eliminate rent-seeking and corruption amongst senior executives of these companies.
It is refreshing to read a new and clearly presented perspective on a phenomenon which has been described and analysed many times over the last few years, often by the same small scholars. The book is well written and clearly argued and structured, with plentiful detail to support the author's case. The published sources are extensive and the author also draws on interviews with Chinese and foreign scholars and analysts. Øystein's book should be read by those researching China's energy and resources strategies, as well as those with a wider interest in international relations and global energy markets.
