Introduction: Asia's Energy Security and China's Belt and Road Initiative

Under Xi Jinping, Beijing has launched its ambitious Belt and Road Initiative (BRI), which envisions an enormous expansion of China’s investment, trade, and diplomatic engagement across the Eurasian continent, as well as through the Indo-Pacific sea lanes from China all the way to the Middle East and Europe. The “belt” consists of the Silk Road Economic Belt that will expand trade and investment overland to Central Asia and Europe. The “road” refers to the 21st Century Maritime Silk Road that will allow China to project economic, energy, and geopolitical influence throughout the East and South China Seas, the Indian Ocean, and the Middle East.

Nevertheless, despite many official pronouncements, much rhetoric, and a host of slogans, BRI remains something of an enigma. Chinese leaders present the initiative as a “win-win” economic strategy of promoting the collaborative expansion of regional infrastructure, trade, and investment in order to boost collective economic growth and raise the standard of living. Xi talks about creating an inclusive “community of common destiny” throughout Eurasia whereby economic integration supports political stability and peace. In many ways, BRI looks very much like an effort to replicate on a region-wide scale China’s development model of the past 30 years that led to such spectacular economic results.

Yet others see the initiative as less benign. Those who are suspicious of China’s growing power in Asia and globally are concerned that BRI is more about strategic ambition than commercial logic. They see it as a deeply mercantilist project to expand China’s economic power and geopolitical reach. Moreover, even if the initiative is not motivated by strategic ambition, this does not preclude it from having powerful strategic implications and outcomes. From this perspective, the expanding scale of Beijing’s efforts suggests that BRI is nothing less than an attempt to reshape the economic, geopolitical, and energy landscape of the Eurasian continent and Asian maritime environment with China at its center.

From an energy security and environmental perspective, BRI promises to substantially affect future trade and investment across Eurasia, with significant implications for regional geopolitical dynamics. China has vital energy security interests vested in accessing energy supplies, particularly from the Middle East; protecting the overseas investments and activities of its national oil companies (NOCs); securing overland oil and natural gas pipeline supplies from across Eurasia; and safeguarding the Indo-Pacific sea lanes through which roughly 80% of the country’s oil imports transit. China’s huge and rapidly expanding investment in ports throughout the Indo-Pacific maritime space as part of BRI raises important security issues for maritime Asia. Energy security is an important driver of China’s rapid expansion of its blue water navy, development of port access in the Indian Ocean, and creation of a new military base in Djibouti on the east coast of Africa.

Less noted but very important are the large-scale investments and financing by Chinese companies and policy banks for coal-fired power generation across the BRI region. For example, 60% of the over $50 billion in promised Chinese investment in the China-Pakistan Economic Corridor (CPEC) is for coal-fired power generation. This project will be enormously beneficial for Pakistan, which is disastrously short of electricity supplies. But it also highlights the important environmental implications of BRI for the region and host countries’ ability to meet their goals for reducing carbon emissions under the Paris Climate Agreement. So, ironically, while tackling its own air pollution problems at home, there is a risk China may be simultaneously exporting its carbon emissions to the rest of Asia through investment in coal-fired power generation.

Hence, BRI promises enormous energy benefits across the region as China finances and invests in new energy production and infrastructure that will help power economic growth and raise standards of living. On the other hand, the initiative also comes with deeply mercantilist implications insofar as it expands the scale, scope, and impact of China’s energy footprint and empowers Beijing to increasingly shape the future energy security environment across continental Eurasia and through the vital sea lanes of the Indo-Pacific.

In view of these complex and crosscutting implications of BRI for the region’s energy security and environmental challenges, the National Bureau of Asian Research (NBR) convened its 2017 Energy Security Program under the theme “Asia’s Energy Security and China’s Belt and Road Initiative.” Each year, this ongoing program assesses a major development in Asian energy markets and geopolitics to help policymakers better understand and respond to the implications for energy and environmental security. The 2017 program focused on a range of issues raised by BRI, including the expansion and reform of China’s NOCs, the energy geopolitics of CPEC, the investment in energy infrastructure across the Eurasian continental space, and finally the implications of China’s activities in the Indo-Pacific maritime space.

NBR commissioned essays by four scholars with expertise on these specific issues. The preliminary findings were discussed in detail at a workshop in Washington, D.C., on June 7, 2017, that included senior representatives from the U.S. and foreign policymaking communities and leading industry and geopolitical specialists. The panel discussions were preceded by a keynote presentation by Nadège Rolland, a senior fellow at NBR who recently published a powerful new study titled China’s Eurasian Century? Political and Strategic Implications of the Belt and Road Initiative. The authors then incorporated the feedback they received at the workshop to further strengthen their essays, which are published collectively here for the first time.

In her keynote presentation, Rolland laid out the basic dimensions of BRI and some challenges that Beijing faces. She suggested that despite the mantra about “win-win” economic prosperity, the initiative is not a development aid program or “globalization 2.0” but reflects China’s ambition to reshape Eurasia according to its own interests. BRI is a China-centric initiative to serve the country’s long-term economic interests, although not necessarily to disrupt the existing Western world order. Nevertheless, BRI remains a work in progress and faces huge challenges due to the diversity of the countries involved; the complexity of its projects; the mixed reactions among countries receiving aid and investment; the misgivings of larger powers like the United States, India, Japan, and Russia; and the highly uncertain security environment in which China is investing hundreds of billions of dollars. Rolland argued that the other major powers need to engage with China to try to shape BRI in support of common global development goals that promote future prosperity and peace across Eurasia.

In the opening essay, Erica Downs from CNA examines the interplay between BRI and the return of China’s NOCs to expanding their international investments and acquisitions. She suggests that the initiative is unlikely to markedly change the pattern of the NOCs’ overseas investment because their strategies are increasingly the result of disciplined decision-making driven by global oil industry competition rather than policy goals such as addressing resource scarcity. Nevertheless, Chinese NOCs are likely to look for opportunities to capitalize on BRI by rhetorically linking their investment plans to its goals to demonstrate that they are supportive of Xi’s signature foreign policy initiative. Ironically, other large international oil companies, including those from the United States, may be able to benefit from partnering with Chinese NOCs as well as from advancing business opportunities in China by linking their activities to the goals of BRI. Downs’s analysis shows that Chinese NOCs will tend to invest to the tune of the global oil industry rather than through opportunities presented within BRI alone, although their global growth will nonetheless reinforce China’s expanding Eurasian energy footprint.

In the second essay, Michael Kugelman from the Woodrow Wilson International Center for Scholars examines the scale and energy dimensions of CPEC, assessing the key obstacles and implications for South Asian energy geopolitics. CPEC was chosen for a special case study because it is one of the core BRI land routes and involves some of the initiative’s first and most fully elaborated energy projects to be operationalized. Therefore, it could help identify some of the real-world challenges and impacts of the energy dimensions of BRI. Kugelman suggests that BRI and CPEC have great potential to ease Pakistan’s chronic energy shortages and also increase China’s broader access to Eurasian energy markets. However, he argues that this project will not address the causes of these energy shortages, which are rooted in policy problems that extend well beyond supply issues. He also suggests that the success of the project for China is deeply dependent on the precarious and uncertain security situation in Pakistan. CPEC will deepen China’s already formidable presence in the country and clearly aggravate India-Pakistan tensions. In addition, real questions persist about Pakistan’s ability to finance its share of new energy investments.

In the third essay, Kaho Yu from the Harvard Kennedy School looks directly at the impact of BRI on the geopolitics of global energy cooperation. He argues that the initiative will lead China to adopt a more multilateral energy engagement strategy, one that has the potential to reshape the current international energy order. Yu suggests that the United States should look for areas where its businesses could benefit from Beijing’s poor coordination by joining the Asian Infrastructure Investment Bank or taking on a more active role with the Asian Development Bank and the World Bank in supporting energy infrastructure projects. Washington should not assume that all BRI projects are political and should remain open to those that are more commercially driven. Also, because BRI will strengthen the role of the People’s Liberation Army (PLA) Navy across the Indo-Pacific maritime space and China’s control over port facilities, the United States should consider ways to draw the PLA Navy into international maritime operations and partnerships. Given that China may eventually determine the rules for energy trade and investment in Eurasia, the United States will benefit from remaining engaged in the existing international energy order and seeking to maintain its flexibility in accommodating new powers.

In the report’s final essay, Christopher Len from the National University of Singapore focuses on the relationship between BRI’s maritime dimension—the 21st Century Maritime Silk Road—and China’s efforts to secure its maritime energy supply chain. He argues that China’s traditional emphasis on self-reliance has driven its three-decades-long energy diversification strategy, which depends heavily on Indo-Pacific maritime supplies and, in turn, reinforces the development of naval capabilities. The PLA Navy needs long-term access to friendly ports, and China is looking for overland transit routes to connect to Indian Ocean oil and gas shipments. It can only do so if it succeeds in co-opting the small and medium-sized littoral states through the economic statecraft of the Maritime Silk Road agenda. Consequently, a key component of this initiative is Beijing’s $20 billion in investments for control over port facilities throughout the Indian Ocean, into the Red Sea, and onto Europe. Future energy geopolitics in the Indian Ocean region will hinge on the accommodation by other countries of China as a rising maritime power or, alternatively, the development of a strategic partnership among India, Japan, and the United States to block China’s plans, with a potentially destabilizing impact on Asia’s future.

Overall, the essays, presentations, and discussions in this year’s program show the enormous range of China’s activities under BRI and analyze the implications for the Eurasian continental and maritime energy environment. Much of the long-term outcome will depend on how diligently Beijing continues to pursue this initiative, as well as on the reactions of the other major powers in the region—including the United States—to China’s increasingly large footprint across the regional energy landscape. It will be vital for the United States and regional powers such as Japan, India, Australia, and Indonesia, among others, to more actively engage Beijing on BRI and steer it toward supporting or augmenting existing multilateral institutions across the region to foster cooperation on energy security. If the United States and other countries join together to undermine BRI and frustrate Chinese aspirations, the result will likely be a less stable region, both geopolitically and in energy security terms.

The continuing success of NBR’s Energy Security Program is built on the efforts of a wide range of participants, partners, and collaborators, as we have sought to bring together many of the region’s leading experts from the research, business, and policymaking communities. We are grateful to the Asian Development Bank, Chevron, ConocoPhillips, ExxonMobil, and the Center for Energy Governance and Security at Hanyang University for their support of this program, which has enabled NBR to bring timely analysis of key energy security issues in the Asia-Pacific directly to policymakers and industry leaders in both the United States and Asia. We are also grateful to Michael Kugelman and the Woodrow Wilson International Center for Scholars for co-hosting this year’s Energy Security Workshop. NBR’s own Andy Nguyen again played a critical role in synthesizing this year’s final recommendations. His efforts were quite literally tireless and profoundly strengthened our program agenda and the report’s final essays.

Next, we would like to extend our deep appreciation to Admiral Jonathan Greenert—the John M. Shalikashvili Chair in National Security Studies at NBR and the U.S. Navy’s 30th chief of naval operations—and Dr. Charles Boustany Jr.—chair of NBR’s Center for Innovation, Trade, and Strategy and former congressman from Louisiana—for participating in our 2017 program. Their in-depth remarks offered valuable insights during the discussions, and we are grateful for their willingness to lend their leadership and expertise.

Finally, we are deeply indebted to all the program authors and panelists. Many of them traveled across the country or even across the world to join in these discussions. We appreciate the time, effort, and critical eye that they lent to testing and debating the core findings and recommendations in the report. This year’s program ultimately engaged more than 150 senior stakeholders representing a wide range of perspectives, countries, and professional backgrounds. We hope that you find the result as immensely rewarding as we do.

Mikkal E. Herberg
Research Director of the Energy Security Program
The National Bureau of Asian Research