Center for a New American Security

A potential energy deal between Russia and North Korea may alter the geopolitical balance in Northeast Asia. Over the weekend, North Korean leader Kim Jong-il visited the Russian Far East in what may be a sign that Pyongyang is willing to develop a lucrative energy deal with Moscow. Though no official deal has been announced, The New York Times reported Monday what the broad contours of an energy deal could look like:

For years, officials in Moscow and Seoul have urged North Korea to let the two countries build a pipeline through the North to carry Russian natural gas to meet the rising demand in South Korea and perhaps to also supply Japan. North Korea can expect to earn as much as $500 million a year in transit fees from the pipeline, according to South Korean analysts.

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After years of hesitation, North Korea has recently shown interest in the proposals. Executives from the Russian gas firm Gazprom visited Pyongyang, North Korea’s capital, in July. This month, the Russian foreign minister, Sergey V. Lavrov, said that North Korea was “positive” about the pipeline project, and North Korea’s media acknowledged last week that Mr. Medvedev had called for greater cooperation involving energy and railways among Russia and the two Koreas.

An energy deal could change the geopolitical balance in a variety of ways. In particular, Russia would reap significant benefits from wielding its oil and natural gas reserves to develop its Far East. For years Moscow has struggled to maintain strong ties to its eastern hinterlands, in part because of the geographic distance (nearly 4,000 miles – or seven time zones – separate Moscow from its most eastern population). As a result, Russians in the Far East have looked to China for everything from agricultural goods to jobs. Indeed, Chinese influence in Russia’s east has steadily increased, worrying some in Moscow. A lucrative energy deal that would enable Moscow to invest in its Far East may help tip the balance of influence away from the Chinese.

I did most of my reading of China’s Energy Strategy: The Impact on Beijing's Maritime Policies in airports and on planes to and around Asia earlier this year. I can honestly call this book invaluable in my prep for maritime security roundtables and for speaking to individuals and groups about resources in the evolving South China Sea picture.

China’s Energy Strategy was edited by Gabriel B. Collins, Andrew S. Erickson, Lyle J. Goldstein and William S. Murray from the Naval War College for the Naval Institute Press. It is part of a phenomenal series on China co-edited by Erickson, one of the security community’s great up-and-coming analysts. Published in 2008, it includes 4 sections: on energy’s role in China’s national security strategy; its global approach to accessing energy (including chapters on Iran, Africa and the Indian Ocean); ties between its energy needs and access denial/naval development; and U.S.-China relations with regard to energy. All of the authors in this volume know both the natural resources and area studies games well – a rare combination of individuals who can get the China analysis and energy analysis right.

The glory of this tome isn’t just that it pulls together all the globally-dispersed pieces of China’s energy strategy into a comprehensive picture. The book includes a fair bit of new material and concepts not addressed in the mainstream Western press because a fair bit of material is translated from Chinese-language sources. This adds a new, more nuanced layer to China’s energy thinking than portrayed anywhere else.

The South China Sea chapter in particular is prescient, if pessimistic. Its author, James Garofano, Dean of Academic Affairs at the Naval War College, ends on a section reviewing why this body of water is “Ripe for Renewed Confrontation.” Specifically:

A trio of motivations – in particular, nationalism and territoriality, energy security, and influence over vital SLOC – will naturally drive Beijing to exert greater presence and control…when China is confronted with problems that have no win-win solution and are matters of important national interests – as in dam-building along the Mekong River system – Beijing has shown that it chooses brutal self-interest over cooperation with smaller states.

I’m afraid, based on our months of research, that pressures pushing away from cooperation go beyond “motivations” and countries safeguarding their interests. In China I heard much discussion over fossil fuel-related cooperation with no real acknowledgement of structural impediments, such as financial and legal restrictions by countries and national oil companies on joint development and investment. I hope Garafano’s pessimism turns out to be unwarranted, but I also have yet to see a clear path to ensuring that cooperation most often prevails over confrontation.

If I could make any request from the NWC to improve this volume, it would be to make each chapter available for individual download (which I don’t believe they do now) as the National Bureau of Asian Research does with its wonderful Strategic Asia series. Anyone serious about China or energy or both should invest in the hard copy of this book, but its influence could be multiplied if researchers could more easily access or purchase chapters specifically relevant to their work. The unusually high quality and readability of each chapter warrants a little extra effort to ensure that it is read as widely as possible. 

Photo courtesy of andrewerickson.com.

Two weeks back I was in Beijing and Shanghai to nerd out on maritime security issues with some great thinkers from the United States, Japan, South Korea, and, obviously, China. While I can’t give you much specific detail, I can provide some general impressions. One of them was certainly that the growing water stress – and related energy stress – in China weighed heavily on the minds of several locals I spoke with. The morning of May 25^th I read this in China Daily over breakfast:

Data indicated that rainfall in [several regions along the Yangtze] is 30 to 80 percent less compared to normal years, while the provinces of Anhui, Jiangsu, Hubei, Hunan, Jiangxi, Zhejiang and Shanghai municipality continue to suffer the worst drought since 1954. Between January and April, the Yangtze River basin received 40 percent less rainfall than the average level of the past 50 years. The water area of Dongting Lake in the middle reaches of the Yangtze River was 73 percent less on May 20 than the same day last year, according to statistics from the administration.

This news is spreading rapidly into the Western media now as well. As I heard from several fellow conferees, talk in the blogosphere and chatter among folks in China are rising to new heights as a confluence of water woes are combining with this year’s particularly harsh weather to stir public dissatisfaction. Its urbanization and rapid economic growth are depleting freshwater rapidly near some cities. Glacial melt in the Himalayas is changing, altering water flows. Many believe that the massive Three Gorges Dam has altered the Yangtze River in ways that are contributing to water shortages. And while news on this is minimal as far as I've seen in English-language media, it sounds like salt water intrusion into freshwater systems may be on the rise as well in some coastal areas.

Last night, Christine emailed me this story from the China Daily reporting that China has proposed a tsunami warning system that would link vulnerable countries in the South China Sea region, including China, the Philippines, Malaysia, Brunei, Indonesia, Thailand, Vietnam, Cambodia and Singapore. Yu Fujiang, deputy director of the National Marine Environmental Forecasting Center with the State Oceanic Administration (SOA), warned an audience at the International Coordination Group for the Pacific Tsunami Warning and Mitigation System in Beijing that seismic activity in the region could have devastating consequences for China and its neighbors.  Yu noted that “The March 11 earthquake and tsunami, which wiped out coastal communities in northeast Japan and left more than 25,000 dead, caused alarm in countries with exposed coastlines and highlighted the urgent need for some type of warning system,” according to the China Daily . “The system would help these countries share data to reduce the damage caused by a tsunami,” Yu said. “If the proposal is passed by the group, the system will probably be in operation within five years,” the China Daily reported. 

CNAS is currently leading a project on the South China Sea region where CNAS researchers will analyze evidence of conflict and cooperation in an effort to judge, on balance, where trends in the region may be leading. That China is prepared to cooperate with its South China Sea neighbors, at least around natural disaster preparedness, may be a positive sign that the region is tilting more toward cooperation. Yet it is too early to tell. Indeed, it is hard not to see that while the tsunami warning system is a positive development for cooperation in the region, it also helps China buttress its interests in the region, including offshore drilling and other resource extractive operations that could be exposed to potential tsunamis. According to the China Daily, “After the Japan tsunami, the SOA proposed to the State Council, China's Cabinet, that assessments be carried out on the consequences of potential marine disasters to key offshore projects,” the kind of offshore projects that could bring states into competition with each other over access to resources in the region.

Christine is in Asia this week to conduct research for the South China Sea project the Natural Security team is working on with some of our CNAS colleagues. One place she’ll be visiting during her time abroad is the Lower Mekong River Basin (LMRB), an area shared by Laos, Cambodia, Vietnam and Thailand. The LMRB was recently in the news when Laos’s plan to build a hydropower dam sparked tensions with its neighbors. Having researched this for our South China Sea project, it’s worth discussing some of what we’ve learned.

First, what makes the river so important? The river serves as a lifeline for the region’s 60 million people in two ways: agricultural production (primarily rice) and fisheries. Together these two industries employ 85 percent of the population and feed nearly everyone. While it is well known how important rice is in the daily diets for people from these countries, perhaps less known is how important fish is as well. In Cambodia, for instance, fish accounts for 80 percent of the nation’s total animal protein consumption. It’s therefore no trivial matter that the lower Mekong River, the world’s largest inland fish source, accounts for 20 percent of the world’s freshwater fish.

The river’s importance and the shared threat China’s economic growth may pose to the river have led Laos, Cambodia, Vietnam and Thailand to, in general, adopt a cooperative approach in developing the region’s water resources. In 1957, these states established the Mekong Committee, which existed until 1995 when it was supplemented and expanded by the Mekong River Commission. These regional organizations have provide a forum to resolve any controversies that arise, the most recent example being Laos’s decision to delay the construction of a new dam project.

This week the Chief of the General Staff of the Chinese People’s Liberation Army, General Chen Bingde, visited Washington to hold two days of meetings with some of his U.S. counterparts. This was the first time a Chief of the General Staff visited the United States in seven years. Although the issues that got most of the media coverage were General Chen’s statement that China’s military wasn’t strong enough to challenge the United States, as well as his statement on U.S. arm sales to Taiwan, there were indications that natural security issues emerged as potential areas of cooperation between the United States and China.

For example, in his joint press conference with General Chen on Wednesday, Admiral Michael Mullen described five areas where the Chinese-U.S. militaries had shared concerns, including around “nuclear proliferation, terrorism, climate change, energy security and piracy,” according to the China Daily. In a statement released by General Chen and Admiral Mullen, they listed combined natural disaster relief missions as an area ripe for cooperation, according to CNN. Although little reported, these sentiments seem to have been echoed in General Chen’s speech at the National Defense University. One recap of the speech, for instance, noted that General Chen said cooperation around food security and climate change were potential opportunities for future collaboration.  

Photo: Admiral Michael Mullen and General Chen Bingde shake hands outside the Pentagon on Tuesday. Courtesy of U.S. Army Staff Sgt. Sun L. Vega and the Department of Defense.

Chinese Premier Wen Jiabao delivered a speech on China’s five year plan at the Eleventh Party Congress on Saturday. (The Wall Street Journal provided a transcript here.) His remarks covered the gamut of state policy issues, but natural security challenges played a prominent role throughout. Since China plays a vital role in the topics we address on this blog, Premier Wen’s remarks are worth recounting at length.

Environment

Wen’s speech linked China’s economic growth and energy policies to environmental issues like climate change. This emphasis on climate change and environmentally friendly policies was one of the more noteworthy parts of the new five year plan, with Wen boldly pledging to “actively respond to climate change.” It seems that dealing with climate change is now seen by the Party leadership as an important element for sustaining economic growth. In fact, in a February 27, 2011 webinar, Wen told citizens that rapid economic growth would not come at the expense of the environment, according to Xinhua News.  At times, Wen’s speech implied that dealing with environmental issues was also important for social stability. This was particularly true with regard to pollution. On pollution, Premier Wen said that Beijing would address marine, water, air and heavy metal pollution. Wen also pledged to “carry out major ecological restoration projects, intensify the protection and management of major functional ecological zones…. [and] protect natural forest resources.”

China is experiencing one of the worst droughts in 60 years experts say, in part a consequence of the Asian giant’s insatiable appetite for energy and water resources that are needed to sustain economic growth and newly accustomed standards of living.  Beijing appears to be working to alleviate these conditions, spending more than a billion dollars on agricultural subsidies and farming irrigation to counter food shortages, deploying weather modification teams that cloud seed the atmosphere to generate precipitation (despite potential consequences from this and other geoengineering activities) and “moving heaven and Earth” to divert water from the south to bring it north to Beijing. But one thing Beijing should do is look for opportunities to cooperate with regional partners to help the country deal with its water woes. And with the Obama administration increasingly elevating water issues in bilateral relations with key partners around the world, Washington could use this as an opportunity to strengthen ties with Beijing.        

Last month, Circle of Blue reported on the cascading effect that China’s energy demand is having on water scarcity. “Underlying China’s new standing in the world is an increasingly fierce competition between energy and water that threatens to upend China’s progress,” Circle of Blue’s Keith Schneider wrote. As Schneider pointed out, China’s history is fraught with challenges stemming from scarce fresh water resources, writing that it is nothing new for a state where “80 percent of the rainfall and snowmelt occurs in the south, while just 20 percent of the moisture occurs in the mostly desert regions of the north and west.” But what is different, Schneider noted, is the expanding industrial sector that consumes 70 percent of the nation’s water, and the need for the government to tap into its coal reserves in the north in order to feed this growth. The problem is that mining coal and coal-fired power plants themselves are water-intensive, and according to government officials, “there is not enough water to mine, process, and consume those [coal] reserves, and still develop the modern cities and manufacturing centers that China envisions for the region.”

Far more so than with Latin America, China has historical ties to the Middle East dating back to the Silk Road trading route and beyond. Over the past two decades China has been working hard to reestablish its historical presence in the region, and for good reason: The Middle East is critical for China’s energy security. In fact, its entrance into Africa, which Bailey discussed on Tuesday, was driven by a desire to decrease its dependence on Middle Eastern oil.

More so than in other regions, China must compete with already well entrenched oil relationships in the Middle East. Consequently, it has not been able to purchase stakes in oil fields to the same extent it has elsewhere. One way in which Beijing has tried to overcome the established interests in the region in recent decades is by courting the countries the West has shunned, most notably Iran. Chinese companies have replaced the Western and Asian companies that have by and large left Tehran to comply with sanctions (though in the past year its position on sanctions compliance has laudably changed). As a result, Iranian-Chinese trade spiked from 4 billion dollars in 2003, to over 20 billion dollars in 2009. That same year, Iran constituted 11 percent of China’s total oil imports, making it Beijing’s third largest supplier.  

Hu Jianto is in Washington this week having already spent much time in the Western Hemisphere. Along with his previous trips to the United States, Hu has visited numerous Latin America (LATAM) countries as China has cultivated an increasingly strong relationship with the region. Although China is not as established in Latin America as in other regions around the world, trade between Beijing and America’s neighbors to the South have grown substantially in recent years. Driven in part by the United States’ own indifference to the region, PRC-LATAM trade grew tenfold between 2000 and 2007. By 2008, it had reached 142 billion dollars.

Although over half of the countries in the world that formally recognize the Taiwan government's rule are located in Latin America and the Caribbean, this is at most a secondary interest for China in the region. Instead, Beijing’s interest in LATAM is driven by the same concerns that have caused it to increase its presence elsewhere: the need to secure the primary commodities that are essential to its economic growth.

Unsurprisingly, energy plays an important role in the PRC-LATAM relationship. Chinese companies have purchased large stakes in the oil fields of countries such as Ecuador, Argentina, Peru, Columbia, Brazil and Venezuela. In some cases, the LATAM states are unable to extract this petroleum without the assistance and resources of these foreign companies. In some ways then, the active presence of China benefits the region. At the same time, it impairs indigenous development. Additionally, because Chinese companies supply their own labor, which they bring over from China, it also impedes employment for the indigenous labor market.