U.S. report raps Chinese energy tactic

Asian giant's aggressive approach seen as challenge to Washington's interests
SHAWN MCCARTHY
GLOBAL ENERGY REPORTER

OTTAWA -- China is increasingly challenging U.S. interests around the world with its aggressive effort to lock up foreign energy resources for its rapidly growing economy, a report from a congressionally appointed commission says.

The report says that, in its quest for secure energy supplies, China is befriending anti-American dictatorships, undermining global energy markets and expanding its navy to secure vital shipping lanes through which its imports pass.

"China's apparent willingness to value its own energy needs above the needs of international security is indicative of a nation as yet unprepared or unwilling to shoulder the burden of a responsible stakeholder state," said the report, from the U.S.-China Economic and Security Review Commission, submitted to Congress late last week.

In an interview from Washington yesterday, commissioner Patrick Mulloy said the bipartisan group did not perceive an immediate threat to the United States from China's overseas investment in energy supplies, but added it must make a greater effort to persuade its Asian rival to follow the norms of the global energy marketplace.

"The Chinese seem to be driven by a strategy of getting the source of energy under their direct control and not introducing it into the wider market," Mr. Mulloy said.

"If you have a limited energy supply and they're getting a larger and larger control over portions of it, then the rest of us, if you get into a tight market situation, are bidding for a smaller proportion, which then has an impact on price and other things."

More broadly, the report accuses the Chinese of following a statist approach to the global marketplace -- manipulating its currency, limiting foreign access to its markets, subsidizing strategic exports -- at the expense of U.S. firms and jobs.

Leading Democrats, whose party won control of both houses of Congress this month, have been far more critical of China's human rights record and trading practices than their Republican colleagues.

Sydney Weintraub, a fellow with the Washington-based Center for Strategic and International Studies, said he expects the Democrat-controlled Congress to act much more aggressively to counter what is seen as China's unfair trading practices, including in the energy sector.

In a world oil market of roughly 85 million barrels a day, China is now the second-largest crude oil consumer and accounts for 38 per cent of demand growth in recent years, each year increasing its appetite by half a million barrels a day.

From the mid-1990s to 2005, Chinese companies invested an estimated $7-billion (U.S.) in oil projects abroad, while in the last year alone, they allocated $12-billion to direct foreign investment.

The commission said those investment were aimed at 13 companies, including a small one in a Canadian oil sands project. Angola, which has been a major recipient of Chinese investment, this year surpassed Saudi Arabia as its leading source of imports.

The report criticizes China's willingness to do deals with oppressive governments in Sudan, Myanmar and Zimbabwe, and thwart international efforts to improve human rights in those countries.

It also raised concerns about Chinese naval expansion, which it says is driven in part by the desire to protect the Strait of Malacca, which connects the Indian and Pacific oceans and through which 80 per cent of China's imported crude oil pass. The "blue water" navy is "becoming a force capable of challenging the U.S. military in the western Pacific and beyond," it warned.

Joseph Dukert, a veteran Washington-based energy consultant, said the Chinese investments in global crude oil supplies should not raise alarms because that investment is stimulating production that may otherwise not occur.

He noted Chinese firms are being courted to invest in a Canadian oil sands project that would stimulate construction of a pipeline to the West Coast. He added that it would also serve California markets.