Shedding Light on the Study of Energy Security
This is one of five essays in a book review roundtable on Elizabeth Economy and Michael Levi’s By All Means Necessary: How China’s Resource Quest Is Changing the World.
Combining their expertise on the politics of China and energy policy, Elizabeth Economy and Michael Levi have produced an excellent book that gives China security and energy policy analysts an up-to-date perspective on the growing body of literature in these fields. By All Means Necessary: How China’s Resource Quest Is Changing the World is a genuinely rare book for two reasons: First, it provides outstanding depth while examining wide-ranging topics on China’s energy trade, mineral acquisition, cross-border water issues, and acquisition strategies. Second, the book is a welcome contribution to the field because its analysis of complex issues maintains a high level of objectivity on policy topics easily politicized. Economy and Levi’s high standard of research and analysis is evident throughout each of the book’s distinct focus areas examining China’s energy-seeking activities.
China’s quest for resources has become difficult to ignore as it has increased in intensity over the past two decades, drawing greater international attention to the country’s questionable choices of energy trading partners and escalation of tensions in the South China Sea. In keeping with the objective and balanced nature of the book, Economy and Levi argue that while China’s actions are not entirely benign, many “pundits, scholars, and policy makers have too often blown China’s resource quest and its consequences out of proportion with reality” (p. 8). The authors find that China’s tactics do not differ greatly from previous attempts by other states to satisfy growing energy demand, though they do concede that Beijing’s strategy has and continues to create political challenges for its neighbors and the United States. The future of these strategies rests in Beijing’s guidance and in the institutions tasked with carrying out energy-seeking activities. Throughout By All Means Necessary, Economy and Levi ask how China’s natural resource quest is changing the world and if China itself is being changed as it seeks various forms of energy security. These are important questions, and the book examines each area of resource exploration with an in-depth understanding of the industries and politics involved in China’s resource-acquisition process.
The book places China’s resource quest in a historical context that helps observers better understand Beijing’s unwillingness to fully embrace international energy markets, commodity exchanges, and resource interdependence with the West. The authors’ historical narrative provides insights on China’s contemporary energy security strategy. China’s past international trade experience and the “unequal treaties” of the 1800s made the country inherently biased against global markets, which helps explain the recent leadership’s cautious attitude about increasing market dependence. By All Means Necessary makes note of the divide between Beijing’s early hopes for energy independence and the geoeconomic realities facing rising powers. Fortunately, China’s leadership has been coming to grips with those realities, evidenced by its steadily rising dependence on Western-backed international energy markets and sea lanes.
Economy and Levi point out that China’s nationally owned energy companies have been increasing their knowledge of corporate social responsibility norms and practices, which may help them seek more profitable and less risky investments in the future. As the authors observe, such practices must begin at home, because they influence the quality of governance that China exports to resource-rich states. In her work on this issue, Erica Downs has also noted that China’s national oil companies have been slowly gaining the necessary international experience and attracting business talent with the skills needed to avoid the politically and economically risky investments that have led to significant financial losses while damaging these companies’ reputations among future trading partners.
Energy trade typically consumes a small percentage of a country’s trade balance, and China is no exception to this rule. Despite this economic reality, energy and resource trading strikes a strong chord among pundits and politicians alike. Some of the early literature in this field focused on China’s potential impact on the oil markets and accused the country of seeking to lock up global oil supplies. Some of those arguments were based on intuitive rather than empirical assessments. By All Means Necessary does a great service to the field by providing empirical evidence that crude oil markets have held up rather well over the past two decades. Compared with other tradable energy and mineral products, global oil commodity exchanges are highly transparent and regulated markets, leaving little institutional opportunity for long-term manipulation of futures contracts. The authors’ findings add to and support already existing information about energy markets. The fears that China would lock up oil supplies thus never came to fruition. Even at maximum import rates, China’s equity-oil deals account for less than 5% of the country’s total oil imports, and that figure has increased by only 4% from six years ago.
Since three-quarters of the world’s oil reserves are off limits to direct equity-oil investments, the pursuit of equity oil as a long-term energy security strategy may have limited growth potential. Consequently, China’s energy-acquisition strategy has increased its dependence on traditional oil markets and recently heightened its focus on natural gas imports. Both conventional and unconventional natural gas are rapidly growing commodities, especially in North America, where they are increasing in availability and fungibility.
Economy and Levi’s extensive fieldwork provides a solid grounding for their description of the impact of these multifaceted resource-acquisition activities on relevant industries. The book’s even greater contribution, however, is in its analysis of the interplay between state political actors, national oil companies, and the financial institutions involved in China’s energy trade. The simple equity-oil explanation cannot explain the many drivers of institutional and political actors. All these activities occur inside the complex realm of China’s domestic politics, while interacting with global markets, regional commodity exchanges, and occasionally opaque bilateral contracts. The outcomes from these transactions have the potential to change the status quo, though in ways that may not necessarily advance Beijing’s preferences.
Economy and Levi have performed an outstanding service for China energy policy analysts and scholars. The book’s analytical depth and breadth is impressive, and it establishes an appropriate balance between historical narrative, empirical description, and contemporary analysis. The authors’ examination of the interplay in China between market forces, political preferences, and geoeconomic realities will undoubtedly inform both scholars and practitioners alike, as these dynamic variables continue to shape U.S.-China relations and each country’s resource-acquisition strategies.
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