China's Energy Policy for the 21st Century

Swaran Singh, Research Fellow, IDSA


The year 1998 was characterised by a historic slump in international oil prices with experts describing gasoline prices as reaching the lowest (in real terms) in the last 40 years and lowest (at current 1998 prices) since 1972, thus, warning world leaders of the coming world energy crisis.1 By initial estimates on the world oil prices for 1998, the Organisation of Petroleum Exporting Countries (OPEC) were expected to face a $50 billion slump for 1998 which would bring their international petro-dollar trade down by over one-third of their trade for the preceding year i.e. from $148 billion for 1997 to $97 billion for 1998.2 This, apart from affecting those involved in the energy sector, has the potential of plunging oil-exporting countries into a major economic crisis that may prove far more devastating than what these aforesaid statistics project. Indonesia--an OPEC member--already witnessed its economic crisis, leading to an unceremonious exit of its three-decade-old revered patriarch, President Suharto, and other oil-exporting countries like Venezuela and Mexico have been forced to announce major budget cuts. Saudi Arabia, where one-third of state revenues come from oil exports, was expected to have a $10 billion budget deficit for 1998 compared to its surplus budget for the preceding year, and in Iran, this plunge in oil prices has disrupted the economic policies of President Mohammed Khatami, with Tehran now desperately trying to open its energy sector for foreign investments.3

As regards China, this rapid fall in international prices sharply reduced the pace of progress in China's energy sector earnings for 1998. Especially, China's oil industry had to undergo a massive revamp in the middle of 1998, spawning two newly integrated companies--China National Petroleum Corporation (CNPC) and China Petrochemical (Sinopec). Both companies made a combined profit of $2.4 billion in 1997, but for 1998, Beijing had already revised their combined profit target of $1.2 billion. There was, of course, money to be made in China's controlled domestic market where prices remain regulated in many regions and also from the help that has been provided by China's successful war on oil smugglers. However, the crude oil prices, deregulated by Beijing during mid-1998, were so weak that, during the second half of 1998, some oil-fields were producing at a cost higher than that of imported crude oil. Chinese crude oil price, deregulated on June 1, 1998, had taken a free fall during the second half of the year. China's main Daqing crude which was valued at $17 per barrel in February 1997 had come to as low as $13 per barrel thus becoming equal to the international price before the end of 1998. This gloom had hammered the stock prices of the CNPC's listed vehicle in Hong Kong (the CNPC Hong Kong Ltd.) where its share had fallen from HK$10 at the end of August 1997 to HK$0.62 by August 1998--a plunge of almost 90 per cent in a period of one year.4

China's Rising Energy Consciousness

The second half of 1998 witnessed China organising a string of high-profile international conferences on energy issues thus highlighting the rising energy consciousness amongst China's policy-makers. This has also brought into focus the question of evolving blueprints on China's long-term energy policies which have come to be a prerequisite for the development of its energy resources. Looking from the other end of the spectrum, these deliberations aptly represented early signs of China beginning of extend its "comprehensive national strength" policy to cover the entire gamut of its energy management. What reportedly distinguished most of these deliberations was the increasing stress on adopting an integrated approach to the whole position of energy management and overall national development.

During the last few years, this stress on developing an integrated and long-term thinking on energy policy has also been clearly reflected in some of China's recent official studies and statements that have repeatedly highlighted the dilemma of the constantly increasing gap between demand and supplies as being the number one problem for China's energy sector. According to one recent estimate by China's Academy of Social Sciences, for example, its entire energy supplies would have to grow at the rate of 7 per cent as compared with an actual rate of 4 per cent during the 1979-1988 period. And, if no breakthroughs are achieved by the end of this millenium, the current growth rates are likely to lead to a shortage of about 10 to 15 per cent energy resources by the year 2000 AD.5 In this, the most visible shortfall is expected to occur between the demand and supply of China's oil and gas sector. Even in the most optimistic scenarios, it is estimated that China's oil production will reach 165 million tons per year by 2000 AD while the demand will be 205 million tons by that year. And this apparently 40-million-ton gap for the year 2000 is expected to grow further to reach 100 million tons per annum by the year 2010. Similarly, China's natural gas production is estimated to reach 30 billion cubic metres by 2000 AD which will still fall short by 2 to 5 billion cubic metres.

Secondly, China's leaders today have a greater realisation on how the current trends in their energy sector suffer from uneven development. Accordingly, in most recent studies and statements by China's officials, far greater stress has been laid on achieving a balanced growth in China's energy sector as also for developing alternative cost-effective, efficient and cleaner energy sources to achieve what has come to be known as "sustainable development." As of today, while in the developed countries coal, oil and natural gas provide respectively 27 per cent, 37 per cent and 22 per cent of their primary energy needs, in China coal, oil and natural gas provide 75 per cent, 20 per cent and 2 per cent respectively. This clearly highlights how it is not so much the lack of development of energy resources as the lack of their balanced development that poses a far greater problem. It has also become increasingly clear how the oft-repeated explanation of China's rapid industrialisation and the consequent rising demand has, therefore, been only partly responsible for China's projected energy crisis in the coming years.

And finally, the ideas for developing more and more efficient and environment friendly energy sources have only recently begun taking roots in China's energy policy planning. There has been greater realisation on how, despite 50 years of central planning, the potential of some of China's energy sector has been completely neglected by China's successive planners. One sector where this contradiction seems most vivid is that of hydroelectric power projects where, despite major projects like the controversial Three Gorges Dam, China's progress has been least impressive. China's total exploitable hydropower potential is estimated to be 378 million kilowatts per year, ranking it first in the world. But to date, only 14 per cent of its hydropower resources have been exploited which is extremely low when compared to the world average of 22 per cent. Similarly, China is currently the world's largest coal producer and the sixth largest producer of crude oil, but its gas production capacity is only 22nd worldwide. Even in the case of the coal and crude oil sectors, China has failed to fully exploit its potential and in the absence of the required political will to obtain them sufficient funds and appropriate technologies, China has come to be a net importer of petroleum since 1993. And, going by the current lack of efficiency and conservation, its production and its ever increasing consumption levels, China--the largest producer of coal--might also become a net importer of coal by the year 2010 and the same may be true of natural gas and other energy sectors.

China's Recent Initiatives

As detailed earlier this rising energy consciousness and resultant spate of studies and recommendations from various academic and official organisations have resulted in China's leaders providing greater attention to China's energy issues. And this new awareness is partly reflected in some of the fresh initiatives by China's policy-makers. In the Ninth Five-Year Plan (1996-2000), for example, the primary role of China's energy sector, has been clearly highlighted as being the locomotive for the country's overall economic growth and modernisation. This is to be accomplished by implementing the following five objectives: (i) alleviating the energy industry's bottlenecks; (ii) building power plants (primarily coal-fired); (iii) strengthening oil and gas exploration and development; (iv) improving energy efficiency; and (v) developing rural energy (including small hydropower, solar, geothermal, and biogas). However, while much needs to be done to improve the quality of China's coal exploitation, it is the other energy sectors like electricity, oil and gas that have been completely ignored and deserve greater attention. Taking the first step forward, China, during 1998, completely re-organised its governmental structures dealing with the oil and gas sectors, by creating two monolithic corporations--CNPC and Sinopec--fashioned on typical multinationals of the Western countries. These were previously China's state oil producer and refiner respectively that were integrated into giants with interests spanning from upstream production to marketing of petro-chemical products.

China has also been working hard to obtain more and more foreign involvement which is aimed at alleviating the major two problems of funds and technologies for its overall energy sector. This has already begun to result in a gradual improvement in China's energy scenario though restrictions like those on allowed rates of return as also the uncertainties involved with some of China's major projects like the famous Three Gorges Dam on the Yangtze River have so far kept foreign investments in this sector relatively very small.6 The crisis, as also the initiatives, have been perhaps most visible in China's oil sector. And here, apart from seeking external assistance in terms of technology and funds, China has gone into it in a big way, obtaining concessions for oil and gas fields outside China and signing contracts for joint ventures in other countries. The China Petroleum Engineering Construction Enterprise Group (CPECEG), a subsidiary of the China National Petroleum Corp. (CNPC), has already signed overseas construction contracts worth $1.67 billion and it has been listed amongst the world's top 225 construction companies for five consecutive years. China has already carried out successful oil exploration/production projects in countries like Canada, Kuwait, Peru and Thailand and it has become increasingly active in the oil-rich regions of Central Asia and West Asia where it is expected to sign new contracts with countries like Iraq, Sudan, and even Russia. Among others, China has been particularly successful in building confidence with the Central Asian Republics where its energy projects have come to enhance its inter-state ties as well as its confidence in dealing with its internal security problems. Besides, in terms of economic benefit, China's much talked about cooperative gas project in Central Asia is expected to provide China with 25 billion cubic metres of gas every year. Under the agreement, China will build a long-distance gas pipeline running from Central Asia through China to Japan and the Republic of Korea. A similar Sino-Russian gas project involves another long-distance gas pipeline from eastern Siberia that will bring another 25 million cubic metres of gas for China every year.

In fact, in its rush to tap the world's energy reserves, China has been snapping up oilfields and bidding up their prices at a rate that surprises even Western oil giants. During the year 1997 alone, CNPC had pledged more than $8 billion for oil concessions in Sudan, Venezuela, Iraq and Kazakhstan--plus $12.5 billion to lay four oil and gas pipelines (a total length of 13,500 km). Starting from October 1997, China began to receive crude oil from its now Chinese-owned oil fields outside China. This marks a fundamental change in Beijing's energy policy wherein instead of simply buying oil on the world market, China is buying oil fields across the globe and shipping the crude back home to meet the surging demand. During the last two years alone, China has signed the following major contracts:

l CNPC signs joint venture with Italy's AGIP to develop oil fields in Central Asia and Africa.

l CNPC buys the Caracoles block for $240 million, and the Intercampo Norte block for $118 million. Total estimated reserves: 100 million tons.

l CNPC buys 50 per cent of Al Ahdab field for $1.2 billion. Estimated reserves: about 140 million tons.

l CNPC holds talks with Iran's National Oil Co. on a joint venture to explore for oil in Iranian waters.

l CNPC negotiates joint venture with Bashneft State Oil Company of the Bashkir Autonomous Republic of the Russian Federation.

l CNPC buys 60 per cent of Aktyubinskmunai Production Association of Kazakhstan for $4.3 billion. Estimated reserves: 140 million tons.

l CNPC buys 60 per cent of Uzen field of Kazakhstan for $1.3 billion. Estimated reserves: 200 million tons.

l CNPC negotiating with government of Turkmenistan for oil concessions.

l CNPC and India's Oil and Natural Gas Commission, Videsh, set up a joint venture to explore for oil in western Kazakhstan.7

At the same time, China has also been making major strides in its domestic exploration and development. Amongst the more immediate problems, the recent international slump in oil prices has only further added to China's worries. At the least, this has begun to administer a serious setback to China's recent efforts towards expanding its domestic energy production and supplies. According to the China State Statistical Bureau, the recent slump in international oil prices has created a parallel problem of oversupply in their domestic markets leading to an actual slump in energy production to the extent of a decrease of about 5.1 per cent for the period between January-September 1998. Similarly, the production of coal dipped by 7.4 per cent while the production of oil was down by 0.9 per cent during this period. The China National Petroleum Corporation (CNPC), the China National Offshore Oil Corporation (CNOOC), and the China National Star Petroleum Corp (CNSPC), for example, have already announced their plans for cuts in crude oil production costs by about 10 per cent this year.

China's Oil and Gas Sectors

China has proven oil reserves of 24 billion barrels and an estimated potential of up to 69 billion barrels.8 These estimates, of course, do not include reserves and production for China's claimed areas of the South China Sea over which the issue of jurisdiction remains a disputed matter. However, China's leaders have been extremely confident on both their territorial claims to the South China Sea as also to the potential of its oil and gas resources. It was reported by the China Geological Newspaper way back in 1989 that surveys by China's Ministry of Geology and Mineral Resources indicated the presence of an estimated 130 billion barrels of oil in this region.9 Taken together with China's existing reserves, this should make China the world's largest possessor of oil reserves, surpassing even Saudi Arabia and Iraq. However, these estimates continued to be contradicted by various independent experts and agencies while the wells drilled so far have also not shown very encouraging results.10

In terms of consumption patterns, China has already come to be Asia's second largest consumer of oil and petroleum products, next only to Japan. And, given the current rate of growth in its consumption levels, China will become Asia's largest consumer of crude oil before the end of 1999 (see Table 1). According to one estimate, during the last one decade the production of oil has increased annually by 1 per cent while consumption levels have increased by over 8 per cent.11 Also, it was only since the mid-1980s that China began to explore other oil related energy sectors like heavy oil, methane gas and other non-conventional energy resources. By 1994, over 74 per cent of China's crude oil output came from just three aging oil fields in the coastal areas of the north-east: Daqing, Shengli in the Yellow River and Liaohe.12 Nevertheless, China has recently emphasised exploration and development of its interior areas like Xinjiang which is believed to have significant resources at Tarim, Turpan-Hami and Junggar. Though the remoteness, lack of infrastructure and the topography in this region have created many difficulties, a fair amount of progress in oil exploration has been made. Already, a series of large oil and gas fields newly found in west China, especially in the Tarim and Qaidam basins, have added large amounts to China's proven reserves. China's biggest desert oil field in Shixi in Gurbantunggut Desert in the north-western province of Xinjiang, for example, is expected to produce over 1 million tons of crude by the end of this year. This oil field is expected to hold 840 million barrels of oil and 1 trillion cubic feet of natural gas which has to be exploited.

Table 1. Principal Asian Oil Consumers

(in 1,000 barrels/day)

Country 1990 1997 %age increase %age share

Japan 5,305 5,735 8.1% 31.0%

China 2,255 4,010 77.8% 21.7%

South Korea 1,040 2,250 116.3% 12.2%

India 1,210 1,750 44.6% 9.5%

Indonesia 645 970 50.4% 5.3%

Thailand 410 800 95.1% 4.3%

Taiwan 550 756 37.5% 4.1%

Singapore 390 560 43.6% 3.0%

Malaysia 270 430 59.3% 2.3%

Philippines 235 375 59.6% 2.0%

Pakistan 220 330 50.0% 1.8%

Source: British Petroleum Statistical Review of World Energy cited in Petroleum Economist, July 1998.

Heavy oil is another oil-based fuel that boasts of higher viscosity though it contains less hydrogen and more carbon, sulphur, nitrogen and heavy metals than conventional oil. China's heavy oil industry accounts for about 25 per cent of China's total reserves. China's heavy oil industry has achieved rapid growth since its birth in the early 1980s. In 1997, China's heavy oil output hit 13 million tons, making it one of the largest producers in the world.13 China has four main heavy oil production facilities in the Liaohe, Shengli, Xinjiang and Zhongyuan oil fields. Liaohe oil field is the biggest, pumping over 8 million tons every year. However, industry only focusses on developing the known heavy oil reserves: it is technically much more difficult to explore, develop and refine heavy oil because of its physical characteristics. Also, no specific plan for a comprehensive survey of China's heavy oil has been drawn up, says Jiu Jiayu, Deputy Director of the Geology Department of the Petroleum Exploration and Development Research Institute of the CNPC. In addition, compared to natural gas, drilling heavy oil can cause serious environmental pollution. The current slump in the international oil prices poses a significant challenge for heavy oil development, which usually involves higher production costs than conventional oil.

And finally, it is natural gas that is all set to assume a far more significant role in China's economy in the coming years. It is also an environment friendly fuel source and is expected to cut down on China's environmental pollution which has come to be another major bottleneck in China's energy sector. Accordingly, the leadership has drawn up ambitious plans for the exploration and development of China's natural gas. According to Mu Fucai, President of CNPC, who was speaking at the opening ceremony of the Sixth International Oil and Gas Conference held in Beijing during November 4-6, 1998, by the year 2020, China is expected to use gas for 8 per cent of its energy needs--up from the present share of 2 per cent.14 However, as of now, China's natural gas industry has lagged behind in the world trends during the last few years. Currently, only 6 per cent of China's total gas geological reserves have been proven, and more than 80 per cent of these are believed to be in the basins of central and west China as well as coastal waters. It has established three major gas bases in the Sichuan Basin, the Ordos Basin as well as in Xinjiang and it has an annual production capacity of 23 billion cubic metres of natural gas.15

Lately, the World Bank has been assisting China in a major way to rebuild the natural gas industry of Sichuan province and notable new efforts have also been made to develop offshore gas fields and the gigantic Shan Gan-Ning gas fields in China's north-west. China also recently discovered three large gas fields with estimated combined reserves of more than 800 billion cubic metres at the Tarim Basin in north-west China's Xinjiang Uighur Autonomous Region. The Tarim, covering 560,000 sq km has 10.8 billion tons of oil and 8.4 trillion cubic metres of gas lying beneath the surface. A string of recent geological prospecting results suggest that the proven gas reserves of Tarim are now 500 billion cubic metres, making it the largest onshore gas field in the country.16 China is also now actively pumping offshore gas reserves in the Yacheng 13-1 and Ledong-1 gas fields in the South China Sea, the Pinghu oil field in the East China Sea and Jin 20-2 gas field in the Bohai Bay. China is also ready to use foreign technology to develop its rich coal bed to develop its methane gas resources, which are estimated at 30,000 billion cubic metres.17

Coal Still the Main Source

China is both the world's largest producer and consumer of coal (see Table 2). This is despite the fact that it is the other energy sectors like hydropower, oil and gas that have lately received maximum attention from China's leadership. Coal remains the most important source of primary energy that supplies about 75 per cent of China's total energy needs with the largest coal-consuming sectors being industry and power generation. Most of China's coal reserves are located in Shanxi Province, and over 80 per cent of these are located in China's north and north-west regions with more than two-thirds of all recoverable reserves being bituminous. China also has abundant coal reserves. According to estimates by China's State Planning Commission, China's total reserves may exceed 5,000 billion tons, with proven reserves at about 1,000 billion tons, sufficient for mining over a 200 to 300-year period. This long-term potential is estimated to be more than 50 times that compared to China's petroleum and hydro resources reserves. According to China's current Five-Year Plan, the target for coal production for the year 2000 has been put at 1.6 billion tons which, more than the development of additional coal deposits, requires expansion of the country's railways system and other transportation infrastructure. Amongst the world's major coal exporting countries, China controls over 60 per cent of international trade in coke which is produced from coal. The ten top importers of China coke for 1996 included the following: USA—1.5 million metric tons (mt), India—1.2 million mt, Japan—680,000 mt, Germany—640,000 mt, United Kingdom—600,000 mt, Switzerland—580,000 mt, Belgium—450,000 mt, Netherlands—400,000 mt, Spain—340,000 mt, and Peru—230,000 mt.18

Table 2. Principal Global Coal Producers, 1994

(in million tons)

Country Annual Production

1. China 1,250 mts

2. United States 1,028 mts

3. Russia 316 mts

4. Germany 314 mts

5. India 250 mts

6. Australia 222 mts

7. Poland 198 mts

8. South Africa 175 mts

9. United Kingdom 87 mts

However, despite projected output reaching 1.6 billion tons for the year 2000 and 2.1 billion tons by the year 2010, the gap between demand and supply is likely to only increase from 100 million tons to 300 million tons during this period. This is partly because the focus today is not so much on expanding coal exploration as on converting it into clearn energy usage such as power-generation, coal-power and water mixtures and coal liquification. Apart from this, the coal industry's other main concerns include inefficiency, transportation bottlenecks, and large regional imbalances between supply and demand with nearly one-third of the major state-owned coal mines running in losses. According to China's leaders themselves, the share of coal in the total primary energy is all set to decline due to slow progress in advanced technologies, alternative energy development and restrictions of environment protection.19

However, China has since been encouraging local mining operations as also state-owned enterprises by providing them access to international financing and international markets. Also, just like in other energy sectors, the Chinese government has been encouraging foreign funds and technologies in China's huge coal industry. Three principal areas for which China has been seeking foreign assistance are coal cleaning (washing), adding scrubbers to standard pulverised coal combustion and other advanced clean coal technologies. Amendments to China's Mineral Resources Law of 1986 encourage additional foreign investment by providing a comprehensive legal framework for coal exploration and exploitation. China is also seeking foreign investment and technology for construction of pilot plants to convert coal to liquid fuel and has approved construction of the country's first coal slurry pipeline (to be built by China Pipeline Holdings Ltd., a joint venture between the China Strategic Investment Group and the US based companies of Custom Coals and Williams Technologies Services).

Electricity: Thermal, Nuclear and Hydropower Plants

At present, 80 per cent of China's electric power is generated by conventional thermal plants and 18.3 per cent by hydropower while nuclear power plants are a new phenomenon and contribute as yet only 1 per cent to China's electricity. China has abundant coal reserves and currently one-third of its coal production is used in its thermal plants. The remainder of China's thermal power stations are mainly fuelled by oil or natural gas. Also, while greater emphasis has been laid on expanding coal-fired thermal stations and increasing use of gas and other clean energy sources, it is China's hydropower that has increased its share impressively during the last few years. Hydropower is expected to increase its share to about 30 per cent of China's energy sector by the year 2000, though much of this hope hinges on the completion of China's famous Three Gorges Dam project. But meanwhile, the State Power Corporation (SPC) plans to build four large hydropower projects with total installed capacity of over 16 million kilowatts by 2010.

However, while the growth of China's electricity output has not always been in line with China's underlying economic growth, there has been a steady increase in per capita electricity consumption since the early 1980s. China's electricity consumption levels have remained very low both compared to international consumption levels as also in the face of its rapid industrialisation during these last two decades (see Table 3). Generally, annual per capita electricity consumption in developed countries tends to measure over 5,000 kilowatt hours (kwh), below 3,000 kwh in developing countries, and below 500 kwh in lesser developed countries which shows that China will has a long way to go even to obtain the consumption levels of developing countries. Also, despite a more than doubling of per capita electricity consumption over the past decade, per capita electricity consumption in China remains very low by world standards, which suggest a substantial development potential.

Table 3. International Electricity Consumption, 1992

(per capita comparison amongst top ten Asian countries)

Country Consumption (kwh)

1. Japan 7,167

2. Singapore 6,221

3. Hong Kong 5,356

4. South Korea 3,000

5. Malaysia 1,721

6. Thailand 987

7. China 631

8. Philippines 408

9. India 346

10. Indonesia 244

Source: The World Competitiveness Report, 1994, issued by the World Economic Forum, International Monetary Fund.

Accordingly, China's State Planning Commission has been forecasting that electricity shortages will become China's major problem. During the last 20 years, between 1976-1996, while China's electricity generation has grown by 8.3 per cent, it has lagged behind the rise in demand owing to still faster rise in China economic growth levels during this period. China's Ninth Five-Year Plan calls for the Ministry of Electric Power to become a national company and for electric power-generating capacity to equal 1,400 billion kwh per year by 2000 compared to 1,000 billion kwh in 1995.20 But, in addition to obtaining foreign funds and technologies for this sector, China's official strategies for power generation have increasingly focussed on the following areas: (i) power development should fit local conditions; (ii) equal emphasis on both hydro and thermal power development; (iii) appropriate development of nuclear power; and (iv) simultaneous development of distribution networks.

As regards China's nuclear power plants, though these currently contribute only about 1 per cent to China's total electricity generation, they are expected to double their share by the year 2005 and to reach 6 per cent by the year 2020.21 Despite problems of accessing technologies, nuclear power plants have lately become a top priority and are projected as the most reliable, safe and clean energy providers for the 21st century world. Also, China's recent access to Russian technologies followed by major contracts with US and other Western companies, have all proved very encouraging. China has already begun construction of its largest-so-far 2,000 MW nuclear power project in its north-east province of Lioning which will have two Russian-made nuclear reactors of 1,000 MW capacity each.22 The following have been described as the major objectives in promoting nuclear power in China: (i) using foreign capital to purchase foreign equipment and technology; (ii) developing nuclear power with internal investments which come from all profits generated from nuclear power plants themselves; (iii) economic scales for site selection and future expansion; (iv) adopting "safety first" as the motto in all phases of construction and requiring highly restricted quality management; (v) introducing foreign capital and technology, tracking advanced technology development in the world; and (vi) strengthening self-capability in the development of the overall nuclear power sector.23

And finally, there are other energy resources for power generation like wind power, solar power, tidal and geothermal power. Some of these programmes and projects are in the experimental and demonstration phases, and some of them are in operation. These projects are local, and are expected to meet local conditions.

Problems and Prospects

It is common knowledge today that China has been experiencing a dramatic shortfall in energy and that scarcity of energy sources is going to be a major problem in China's smooth rise as the next global power of the 21st century. Accordingly, formulating new energy policies for the 21st century has come to involve an ambitious task of bridging the ever widening gap between rapidly rising energy demand in China's fast industrialising society versus the limitations of exploring new reserves and providing cost-effective, efficient and environment friendly energy resources.

As regards its major problems, apart from lack of funds and technologies, environmental restrictions have come to be a major concern leading to tremendous rise in the costs of providing cleaner energy sources. Considering that coal is the source for 70 per cent of China's industrial fuel and power generation and 90 per cent of the household energy needs of China's 1.2 billion population, this obviously presents the single greatest challenge if the world has to delay or decrease the onslaught of acid rains and other man-made disasters. This has further heightened international anxieties with the result that these patterns of China's energy consumption have adversely affected China's chances of attracting foreign investment and technology. Accordingly, the recent years have seen China emphasising on achieving optimum efficiency by implementing balanced development as well as conservation of existing resources. There is lot of potential in these areas and they have come to be especially important in China's long-term perspective policy planning. Amongst some of the old persistent problems, differences of perceptions and policies with its own ethnic communities and its neighbours have been the other stumbling block in the smooth development of China's energy sources. This is because much of China's largest reserves of energy sources happen to be in regions of ethnic disturbances.

Lately, however, China has not only provided increasing attention to its regions of ethnic minorities which have come to be neglected but taken an important U-turn and begun to emphasise on building peace with its external adversaries who were believed to be having a hand in flaring up the grievances of China's ethnic communities. China has also improved its ties with neighbouring countries. Beijing has gradually come around and begun to participate in various regional multilateral forums where everyone shares views on ways and means of achieving common prosperity. Despite continuing differences in perceptions, occasional harsh policy statements and even skirmishes, China has repeatedly resorted to continuing with its proposals for joint development of resources in disputed areas which shows an extremely important positive sign compared to its traditional approach of seeking military solutions to such crises. All this clearly shows that, apart from the oft-cited explanations of lack of finances and technology, it is perhaps the lack of appropriate energy management that had been mainly responsible for the slow progress in China's energy projects making China all the more dependent on continuing with the primitive use of nature's primary products. In rural areas, for example, millions of people still rely on grasses, stalks and other biomass for cooking fuel purposes. China's large population has resulted in per capita energy consumption levels leaving a lot to be desired; the overstaffing of its energy industry and the recent clamour for cutting down on its workforce presents another difficult challenge for China's policy-makers.

Thus, apart from contributing towards China's economic development, China's emerging new cooperative approach to energy development is a sure sign of the new positive thinking in Beijing. Even if belated, this integrated approach to energy exploration, energy development and energy security with its overall "comprehensive national development" thinking as also its more conciliatory foreign policy clearly conforms to the current global thinking on cooperative security. This gives hope that with such change of heart amongst the leadership of the world's emerging global power, Asia will be that much less likely to fall prey to energy becoming the flashpoint for any uncontrollable crisis amongst Asian countries.


1. "Oil's Well that Ends Well," The Economist, August 15, 1998; "Cheap Oil: Who Needs it?," Financial Times, April 1, 1998, "The Coming World Oil Crisis," The Khaleej Times, June 16, 1998.

2. "Oil Slump to Cost OPEC $50 Billion in 1998," The Khaleej Times, August 21, 1998.

3. Kesava Menon, "Change, Amidst a Cacophony of Divergent Voices," The Hindu, November 30, 1998, "Riyadh Faces Cash Flow Crisis as the Outlook Darkens for Arab Light Prices," Financial Times, June 16, 1998, "Falling Oil Prices Heighten Struggle for Power in Iran," Financial Times, April 7, 1998.

4. "Low Prices Hammer China's Oil Earnings," Khaleej Times, August 15, 1998.

5. Vaclav Smil, China's Environmental Crisis: An Inquiry into the Limits of National Development (Armonk, NY: M.E. Sharpe, 1993), p. 122.

6. For details on the environmental impact of the three Gorges Dam, see Richard Louis Edmonds, "China's Environment," in Joseph ed., China Briefing 1994, (Boulder, Colorado: Westview Press, 1994), p. 143-70.

7. "Beijing Gusher: China Pays Hugely to Bag Energy Supplies Abroad," Far Eastern Economic Review, February 26, 1998.

8. Strategic Review of World Energy (London: British Petroleum, June 1994), p. 2, also China Energy Study, (Honolulu, Hawaii: Wast West Centre, 1988).

9. Michael Leifer, "Chinese Economic Reforms and Security Policy: The South China Sea Connection," Survival, vol. 37, no. 2, Summer 1995, p. 44.

10. Mamdouh G. Salameh, "China, Oil and the Risk of Regional Conflict," Survival, vol. 37, no. 4, Winter 1994-95, p. 134.

11. Ibid., p. 135.

12. Ibid.

13. Zhao Shaoqin, "Heavy Oil Resources Vital to China's Energy Strategy," China Daily Business Weekly, November 1-7, 1998, p. 8.

14. Zhao Shaoqin, "Natural Gas to Fuel the Economy," China Daily, November 4, 1998, p. 5.

15. Ibid.

16. "Large Gasfields Found in Tarim," China Daily, November 4, 1998, p. 5.

17. n. 10.

18. Raoul Oreskovic, "The Emergence of China as a Major Coke Supply Source," Paper presented at MACI Conference on "Coping with the Tightening Coke Supply: Is a Crisis Looming?," held at Charlotte, NC, USA, during March 5-7, 1997.

19. Li Peng, "China's Energy Policy," People's Daily, May 30, 1998, (translation by Dr. Fuqiang Yang of Lawrence Berkeley National Laboratory, USA at http//

20. William A. Joseph, ed., China Briefing: The Contradictions of Change, (Armonk NY: M.E. Sharpe, 1997), p. 66.

21. "China Plans 2000 MW N-Station," The Tribune, October 26, 1995, p. 7.

22. Ibid.

23. n. 18.