21 June 2020, NIICE Commentary 5389
Pooran Chandra Pandey
The year 2020 marks the 70th anniversary of India-China diplomatic relations which was established in the year 1950 , when India was among the first countries to end formal ties with the Republic of China (Taiwan) and recognize the People’s Republic of China (PRC) as the legitimate government of Mainland China. The two nations, often referred to as ‘Asian Giants’, are the two fastest growing major economies of the world. Cultural and economic relations between India and China date back to ancient times. The Silk Road (now routinely referred to as China’s Belt and Road Initiative) not only served as a major trade route between the two nations, but is also credited for facilitating the spread of Buddhism from India to East Asia. Relations between modern India and China have also been characterised by recurring border disputes, resulting in three military conflicts and occasional border skirmishes.
Economic Reforms in China (1978) and India (1991)
Both, India and China introduced their economic reforms and a path to trade liberalization in a bid to put their economic growth and development on a fast track under their top political leadership in a bid to provide the economic dividends to their people primed on the goals of poverty reduction and economic growth. China began this process in 1978 under the leadership of Deng Xiaoping with wide ranging market driven economic reforms and market liberalization process. Prior to 1978, private sector in China was virtually non-existent; it however, contributes to 70 per cent of the Chinese gross domestic product (GDP) at the moment. Special Economic Zones, Made in China (2025), establishment of efficiency of the manufacturing sector and poverty reduction as a consequence has come to be known as the China Model, which over the last 40 years successfully lifted 750 million Chinese out of the poverty cycle posting a sustained economic growth of double digit. Chinese growth rate possibly for the first time in decades has begun to show the signs of tapering off and a debate on whether the nation could continue to post as impressive growth rate as earlier. In 2020, the Communist Party of China, in its annual congress did not set up any growth target, potentially clearly indicating slowing down of economy and international economic scenario.
India on the other hand initiated its full-fledged economic reform measures in 1991 (though the liberalization discussions began in 1980, coinciding almost with the opening up of Chinese economy in 1979). India (from 1951-1991) followed a centralized economic planning through its 5 year annual plans growing its economy by 2.5 to 3.5 percent on annual basis. The year 1991, thus, was a watershed year in India’s economic history through decentralizing its economic policies, introducing wide ranging reforms leading to trade liberalization, industrialization and subsequently opening up foreign direct investments. These measures have supported India’s development, growth prospects and halving its poverty rate since 1990s and achieving over seven-plus percent growth rate over two decades.
Energy Security Complexities and Middle East
India and China, the two of the Asia’s largest populous nations, with each estimated to be 1.4 billion in numbers, and accounting for approximately 40 of the earth’s population, are estimated by all accounts to continue to grow and expand economically. Their growth and expansion both domestically and internationally would necessitate them to look for stable, reliable and secure primary source of energy (oil and gas) and search for partners and collaborators based on quantities of supply, secure routes, regional control and influence based on geopolitical considerations, among other factors. Energy supplies in future would potentially determine international relations and become a part of national security plans and potentially a major determinant of making of a new world order based on strategic interests and energy security of the importing and exporting nations, around the world. According to IEA, India will soon (as of July of 2020) overtake China in its oil demand growth priming it more for refinery investment. The two nation’s approach to secure energy supplies is expected to depend on a number of factors such as their demographic dividend, domestic demand and consumption, geo-political developments, growing quantum of renewable in energy mix, new innovations in energy research and supplies and pricing of the energy in international markets.
India- China Energy Security Conundrum
India and China are among the world’s fastest growing oil consumers and depend increasingly on imported oil, mainly from the Middle East as evidenced in the table above. The two nations’ besides buying oil from the region, their state owned oil companies also compete with each other and other international oil companies to secure Oil contracts to produce it in many countries. In Angola, in 2004, Indian and Chinese state owned oil companies rivalled to acquire a 50 per cent stake in BP-operated Block 18, purchased from Shell. Subsequently, in order to avoid rivalry over production contracts, which drove prices upwardly, India and China decided to develop energy cooperation in 2005. In 2006, five comprehensive memoranda including bidding for oil reserves in third countries were signed between the two sides, making it operational involving five state owned oil companies. The Indian and Chinese state owned oil companies, in January 2006, set up a 50:50 joint venture company (Himalaya Energy Syria) covering 36 production fields in Syria, purchasing the entire production shares of Petro-Canada, a Canadian oil company.
Subsequently, both the nations, acknowledging the volatility of pricing of the oil and to put up a joint bargaining capability, have taken initiative of forming the Oil Buyers’ Club (OBC) in 2018 and a Joint Working Group on Energy (JWGE) in 2019 to cooperate in the benefit of their commercial oil interests. Additionally, India and China have been in discussions over setting up of a regional grid to their mutual commercial benefits. Mutual lack of trust and absence of a rule- based alliance in area of energy cooperation have eluded India and China over the years and all subsequent efforts have not been able to succeed.
Energy Security and Foreign Policy Interface
Energy security is now high on the foreign policy agenda of both India and China, and this element defines their pursuit of their efforts to provide equity of access of electricity to rising population and to keep their economic development on track. Energy security strategies of both the nations are similar on intent and its escalation that include import source diversification, production and fuel diversification and build up of Strategic Petroleum Reserves (SPRs) as stated strategic goals. In their bid to secure their needed energy supplies, both the nations are constantly searching for sustainable solutions ranging from domestic and home grown solutions to continue to find new markets, dependable source of supplies, building alliances, cheaper pricing, cleaner fuel, securing their strategic goals including sea routes to transport energy to lay pipe lines on the sidelines of pursuit of intertwined objects, geo-politics and geo-economics along the way. Among the key issues also include the ties between the two nations, their primary sources of imported oil, the Persian Gulf countries including other importing countries such as Japan, the US and EU member states as well as countries that provide alternative oil and gas imports including Russia, Kazakhstan, Sudan and Myanmar.
Way Forward
Given the resource endowment and their growing population, both India and China are likely to face evident challenges in pursuit of their energy security goals in near future with medium to long term consequences in the region. The world would, however, like to necessarily avoid ‘Carter doctrine’ of 1980 (that seemed to suggest justifying the use of force in securing energy availability) in the Middle East between the two nations, given the volatility of the Middle East and their routine use of sea routes to transport bulk of their oil supplies.
How New Delhi and Beijing seek to address the issue of their energy security will largely be vital to political stability in Asia and may likely contribute to development of a new resource-based commercial oil regime premised on principles of transparency, mutual trust, respect for sovereignty and openness.
