Irrational Indian-Chinese energy security relations?

Studienarbeit von Moritz Rudolf

Introduction:

India and China are the raising giants of the 21st century. Both countries are ancient civilizations with a rich cultural heritage. Their interactions date back more than 2000 years, when Buddhism got introduced to China through various channels of the Sutra-Route, followed by economic interactions during the Silk Road period . Both countries perceived themselves as the center of their known universe and both countries suffered defeat from European colonial powers.

After independence in 1949 and 1947 respectively China (independence indicating the Communist revolution causing Jiang Kai-shek to flee to Taiwan) and India choose the same approach of autarkic state controlled economic development .

At the Bandung Conference in 1955, China and India called each other brothers . The Sino-Indian border war of 1962, actually being the aftermath of British dominion over Asia caused a deep-rooted split between the two nations and Asia . Mistrust remained and the border issue has not been solved.

In 1978 and 1991 respectively China and India turned themselves towards the global economy, leading to a still ongoing integration and reform process .

However, since China’s reform started 13 years earlier than India’s, various asymmetries exist between the two Asian giants. Economic indicators reveal that China is not only more than one decade ahead of India, it is also gaining distance . Regarding global integration, China has become a core player in the global economic structure, while the same cannot generally be said about India. Another difference between China and India is the way they are governed. India is a democracy , while China is ruled by the Chinese Communist Party (CCP) . As a result China is considered more pragmatic in its decision making process compared to India . On the other side India’s system could be considered superior to China’s in terms of exogenous shock resistance, for instance in a period of economic recession, China has not experienced since the beginning of reform.

India hosts many unused resources and has a demographic advantage . Therefore it is quite likely that in the future India’s role in the world will be equal to China’s.

Sino-Indian relations have been following the pattern of a roller-coaster ride. In 2005 a Strategic Partnership Agreement was signed between India and China . However since that event mistrust has dominated their relationship again .

Asymmetries in perception are also evident.

India perceives China as a threat that aims to encircle it (string of pearls strategy), regarding China as an equal opponent .

China on the other side fears India, which it considers merely a regional power, being a tool of the USA’s China containment strategy .

Nevertheless it is questionable if this perception is in the best interest of India and China or if a cooperative strategy would yield higher benefits for both countries.

In that regard Sino-Indian energy policy will serve as the key example. Both countries highly depend on imports and it is in both countries best interest to cooperate in that matter .

However, apart from some examples of cooperation, military upgrading especially of the navy , media reports and political statements imply mutual mistrust.

The question is, if this behavior is irrational or if there are rational forces to be identified, gaining from Sino-Indian resentments.

Table of Contents:

Text Sample:

Costs Securing transport of energy resources:

It is rational to secure transport of energy resources if the costs of securing are lower than the benefits of the final use of the resource.

Securing transport of energy resources will be analyzed as a function of expected instability in the region bordering supply lines, terrorism, piracy, decreasing role of the USA, alternative transport routes, alternative energy sources and mutual suspicion.

Most of the world’s energy resources are transported on bulk carriers passing through the Indian Ocean. It is commonly argued that China as the world’s largest exporter and second largest importer of manufactured goods has a strategic interest in the Indian Ocean. 80% of China’s oil imports, accounting 40% of total Chinese oil consumption, pass through the Strait of Malacca.

Due to several security issues within the region transport through the Indian Ocean causes various security costs.

First of all there are concerns of regional instability. Instability in the Middle East, East Africa, South- and Southeast Asia is notorious. Most of the countries bordering the Indian Ocean are low- and middle income countries with a very high share of under 30 year olds to the total population.

Countries like Kenya, Somalia, Yemen, Iran, Pakistan, India, Bangladesh, Burma, Thailand and Indonesia are facing political instability and are vulnerable to terrorism.

In the area bordering the Indian Ocean most terrorist attacks occur in global comparison.

In addition the Gulf of Aden and the Strait of Malacca are infamously struggling with piracy. Capturing tankers has become a lucrative business model in those regions.

The USA is still the superior power in the Indian Ocean, with strong military presence and modern naval military facilities at Diego Garcia, in the middle of the Indian Ocean.

However this superior position is likely to decrease in the foreseeable future forcing other countries like India, China, Korea, the European Union or Japan to secure their imports.

Other costs are investment costs. In that regard it is important to note that China is currently building an oil tanker fleet in Tianjin. China has also been investing serious amounts in port facilities in the Indian Ocean. Due to these investments opportunity costs of not securing Indian Ocean transport are increasing.

Increasing security costs could trigger substitution effects towards alternative energy supply routes.

These opportunity costs of transport through the Indian Ocean will be analyzed for China and India separately.

Regarding China alternative routes of transport include a pipeline connecting Gwadar (which is a port facility China has been developing for Pakistan) to Xinjiang (China).

However due to high construction costs, instability (political chaos) and poor infrastructure, (recent floods in Pakistan) and the vulnerability to terrorist actions (from the Pakistani, but also from the Chinese side) this option does not seem cost-effective at the moment. However the pipeline from the Iranian South Pars field to Multan (Pakistan) could get extended to China in the future.

Another option would be a Canal through the Isthmus of Kra. In that respect is it noteworthy that no further progress has been made recently. It remains an option which could also be beneficial for Japan, Korea and the USA, but would oppose the interest of Singapore and Malaysia.

On the other side constructions for a pipeline project connecting Kunming in Southern China with the Kyaukryu port on the west coast of Myanmar started on September 11th 2010 (the construction of the Myanmar part of the pipeline stated in June 2010). The pipeline is expected to carry 22 million tons of crude oil per annum to China from the Middle East and Africa and will be completed by 2013.

Alternatively China could be interested in increasing its supplies through Central Asia. Given significant oil and gas supplies expected in Turkmenistan, Uzbekistan, and already reasonable connections with Kazakhstan (operating oil-pipeline since 2005), Sino-Central Asian energy trade is very likely to increase further. The Turkmenistan-China gas pipeline for instance is expected to be operational by the end of 2010.