Don't Panic! China and the Second Energy Revolution
Llewelyn Hughes is affiliated with the Crawford School of Public Policy at the Australian National University. He is the author most recently of Globalizing Oil: Firms and Oil Market Governance in France, Japan, and the United States (2014).
Understanding the implications of China's rising demand for natural resources requires an appreciation of scale. If we focus on fossil fuels, Chinese oil consumption increased from 216,000 to over 10.7 million barrels per day in the almost five decades between 1965 and 2013, rising from less than 1% to more than 12% of aggregate global demand. Demand for natural gas, on the other hand, increased from 1.1 to almost 161 billion cubic meters. Most impressively, Chinese consumers' demand for coal grew from 114 to 1,925 million tonnes of oil equivalent (mtoe). By comparison, aggregate annual coal consumption in the next 50 countries—including the United States and India—stood at 1,802 mtoe. 
The rise of the United States, Europe, Japan, and Russia to current levels of wealth was matched by a similarly extraordinary growth in the use of natural resources, an increase that economic downturns, wars, and revolutions did little to halt. History thus suggests that while the rate of increase in China's demand may slow, it will not stop. BP's business-as-usual case for future growth in energy demand reflects this, projecting that China's demand for all energy sources will be double that of the United States by 2035 and almost four times that of India.  If the United States is a military superpower—investing more in military hardware than the next ten countries combined&mash;then China is surely the emerging superconsumer in natural resource markets.
Elizabeth Economy and Michael Levi's By All Means Necessary: How China's Resource Quest Is Changing the World thus does us a service by examining an important aspect of the ongoing transformation of the structure of global resource demand: the implications of China's rising consumption of natural resources for its external behavior. The book is structured around chapters describing the emergence of China as a large resource consumer and those analyzing the implications of this change for developing countries, developed countries, and the U.S. military and its allies.
By All Means Necessary has many strengths. Most importantly, it avoids simple conclusions about the implications of the rise in Chinese consumer demand for energy products. The authors rightly note that the structure of markets governing supply and demand differs markedly across natural resources, with important implications for the external impact of growth in Chinese demand. While China imports the bulk of the oil consumed domestically, for example, the authors show that the oil supply chain is more resilient than it was in the prewar decades when U.S. and European firms and governments sparred for control over the right to manage reserves and production outside the United States. Economy and Levi convincingly argue that this difference makes the market better able to accommodate the emergence of new demand centers and the firms headquartered in them. In contrast, they note that natural gas markets are regionalized, which implies less flexibility, but they also suggest that China's influence on these markets is constrained by the limits of infrastructure and the continued dominance of coal.
Economy and Levi are also careful to note the areas where problems remain. Chief among these is in maritime transport. They argue that while pipelines meet some of China's demand for oil and gas, shipping makes up the bulk of Chinese supply. U.S. military dominance of the sea and airspace—something that will not change in the near to medium term—means that there will be continued tension with the United States as Chinese officials look to enhance security along the supply chain.
The authors also offer a nuanced account of Chinese firms' behavior. They note that the behavior of firms such as Sinopec and the China National Offshore Oil Corporation (CNOOC) often does not differ substantially from that of other international firms. Chinese firms seek to secure access to more lucrative acreage internationally and are willing to use the support of their home government to manage political risk and to help them compete. This is a description that fits almost every firm headquartered in a major energy-importing state.
Economy and Levi further argue that the implications of increased levels of outward FDI for economic development in Africa and elsewhere are more complicated than simple labels might suggest. While the use of Chinese labor is a pattern less commonly seen in firms based in other countries and may impede developmental goals, for example, Chinese firms also provide capital and infrastructure, which can support developmental goals.
There are inevitably areas that cannot be given a full treatment in a book that seeks to cover this much ground. Three are worth highlighting. First, the authors note a number of levers through which governments seeks to influence the choices that firm managers make, but they do not convey a strong sense of how effective this control is and what the implications are for China's external behavior. The experiences of other countries that adopted interventionist approaches in natural resource markets suggest the ability of governments to make firms their agents is mixed and can lead to poor governance outcomes both at home and abroad. In the case of France, for example, Elf-Aquitaine's investments in North Africa led to multiple arrests for embezzlement and revealed a deeply problematic relationship between the firm and French foreign policy goals. Recent investigations into executives at PetroChina suggest similar dynamics may be at work in China. While less extreme, the Japanese government's intervention in domestic firms' investment strategies led to investments in an array of wasteful international projects.
Although the authors do give us some sense of how the balance between state and corporate power is changing in areas such as corporate social responsibility, I wanted to know more about how this is influencing behavior on the ground. To take the example of the French oil sector once again, the public listing of both Elf and the Compagnie Française des Pétroles (now Total) made managers simultaneously less dependent on the government and more unhappy about its inability to provide capital sufficient to retain state shareholding levels while allowing the company to grow. Eventually, this helped rebalance relations between firms and the government and led to real changes in the size and location of investments. Reforms of Chinese state-owned enterprises, including the public listings of firms in Hong Kong, New York, and elsewhere, are likely to have similar effects. By All Means Necessary left me wanting to know more about how this has changed Chinese firms' appetite for political risk, their willingness to overpay for assets internationally, and their incentives to cooperate with the government.
A second important issue relates to Chinese firms' entry into markets unrelated to fossil fuel–based resources. In addition to managing the rise of imports through diversification and improving firm competitiveness, states can promote a shift in the structure of energy demand. An HSBC Bank study from 2009 shows that China outspent all other governments in the amounts it allocated toward “green” spending in its fiscal stimulus package designed to respond to the global financial crisis.  Chinese manufacturers' ability to enhance their competitiveness in photovoltaics, nuclear power, electric vehicle technologies, and other sectors suggests that this is another important area of China's external behavior related to its growing demand for natural resources. While a comprehensive treatment of the efforts of both Chinese firms and the government in this area lies beyond the scope of a single volume, some discussion may have been warranted.
Finally, Economy and Levi begin the book by asking whether “China's quest for energy, minerals, land, and water…[is] fundamentally changing the world,” (p. 7) but they note in the preface that they have chosen not to discuss the problem of climate change (p. vii). Both authors have written extensively elsewhere on the environmental implications of natural resource demand, and I can understand this choice: writing about natural resource markets inevitably means narrowing the focus to something manageable. Yet it is only a mild exaggeration to state that we can solve climate change by meeting U.S., Chinese, and Indian demand in a non–carbon intensive way. I thus finished the book wishing the authors had discussed how the rise in China's growing demand for natural resources, and the changing relations between firms and the government, interacts with the country's approach to climate change. Are the greater size and competitiveness of Chinese firms increasing their influence over the government's approach toward climate change? Are the risks of China's maritime supply vulnerabilities leading policymakers to reduce exposure to imports by favoring coal over natural gas in power generation? Or are firms, and the government, trying to manage the risks of resource security and climate change together through the decarbonization of China's energy system? I reached the end of the book wanting to know more.
Regardless, Economy and Levi have produced an excellent volume that sheds light on the domestic sources of Chinese firms' and policymakers' strategies toward China's rising demand for natural resources and offers insight into the implications for the country's external behavior. Their book deserves to be read by all with an interest in the subject.
 BP, “Statistical Review of World Energy 2014,” http://www.bp.com/content/dam/bp/excel/Energy-Economics/statistical-review-2014/BP-Statistical_Review_of_world_energy_2014_workbook.xlsx.
 BP, “Energy Outlook 2035,” available at http://www.bp.com/en/global/corporate/about-bp/energy-economics/energy-outlook/energy-outlook-downloads.html.
 Nick Robins, Robert Clover, and Charanjit Singh, “A Climate for Recovery: The Colour of Stimulus Goes Green,” HSBC, February 25, 2009.