Guest Column
Seeking the upper hand or shaking hands? China, India and energy
by Monique Taylor
Energy security re-emerged in the first decade of the twenty-first century as a major policy problem and central security issue for countries throughout the world. Although there has been a recent weakening in global energy markets, in the long-run economic expansion in Asia will continue to drive growth of the world’s demand for energy.
Trends such as rising demand for energy supplies in emerging markets, disruptions of gas supplies in Europe, continuing political instability in the Middle East, and pressure for countries to transition to low-carbon economies, all ensure that energy security will remain a pressing policy concern for decades to come.
China and India’s global quest for energy security has propelled their state-owned energy companies to seek energy footholds in far-flung regions, most recently the Arctic. While their energy companies have engaged in aggressive head-to-head competition for energy contracts abroad, recent developments suggest a subtle shift towards greater energy security cooperation.
Such a shift looks promising, but is also fragile given the inherent uncertainty and instability in China-India relations.
The staggering scale of China and India’s energy demand and consumption is considered a particularly daunting challenge for their continuing economic growth and development, as well for both the sustainability of global energy supplies and the environment. The energy decisions that these countries make now will be critical to determining the effectiveness of global efforts to stem climate change.
China and India are now the world’s first and fourth largest energy consumers, with a recent report by BP suggesting that together they will account for more than 50% of global energy consumption by 2035, as both will follow energy-intensive growth patterns as they continue to modernise.
These two Asian giants actually share many similarities and common interests in terms of their energy profiles, key energy concerns and approaches to energy security. Both are increasingly dependent on imported fossil fuels; are trying to reduce their heavy reliance on coal for primary energy generation; have enacted large-scale renewable energy industrial policies; and have embraced nuclear energy in order to meet surging domestic demand for electricity.
They also exhibit protectionist impulses, and pursue predominantly state-directed or neo-mercantilist approaches to energy security. Here energy security is defined largely in terms of the security of energy supply, which is ensured through state-led energy production and distribution.
State-owned enterprises (SOEs) play the central role in carrying out energy investments both at home and abroad, which are supported and promoted through energy diplomacy conducted by New Delhi and Beijing. This type of international energy behavior is largely motivated by the belief that gaining national control of foreign energy supplies through equity stakes in oil and gas fields will ensure energy security.
This energy nationalism is an obstacle to cooperation and has a tendency to give rise to the zero sum thinking that fuels energy competition and strategic rivalry.
For instance, in the past tensions have been evident between Chinese and Indian national oil companies (NOCs), which have competed for the same international oil contracts, and given the close links with these companies to their respective government, this competition has in the past translated into political tension. The financially stronger Chinese NOCs have frequently outbid their Indian counterparts, much to Delhi’s consternation.
While the commonalities that exist within the realm of energy policy between India and China evidently fuel competition (notably over foreign oil assets) it also serves as a basis for some nascent energy cooperation.
For example, in 2012 China National Petroleum Corp (CPNC) and India’s Oil and Natural Gas Corp (ONGC) signed a Memorandum of Understanding (MoU) agreeing to undertake joint exploration for oil and gas worldwide, combining their financial resources and expertise to secure energy supplies for mutual benefit. This agreement builds upon the experience of cooperation between these two companies working on a handful of hydrocarbon projects in Syria, Myanmar and Sudan.
There is considerable scope for China and India to cooperate in other areas such as clean energy technologies and renewable energy, and carbon capture and storage. It is easier to foster cooperation within these areas, as they are not as politicised and securitised as oil.
Both countries are also seriously committed to diversifying their energy mix, particularly through increasing the share of renewables. They have set ambitious renewable energy growth targets, to be achieved through large-scale green energy industrial policy agendas. Sharing scientific and technical expertise and best practices between China and India would accelerate their progress on renewable energy development.
Energy cooperation between India and China is still in its early stages and growing, but is also dependent upon the state of wider China-India relations. Cooperation on some hydrocarbon and renewable energy projects will hopefully lay the foundation for greater collaboration in the future, but at the same time Chinese and Indian energy companies (particularly in the oil industry) still compete intensively for energy contracts. But both countries continue to adhere to a protectionist mindset in strategic sectors like energy, which makes systematic and substantial energy cooperation more difficult to achieve
Monique Taylor is Postdoctoral Fellow in Public Policy and Global Affairs Programme, School of Humanities and Social Sciences, Nanyang Technological University.
The views expressed in this article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.
News Reports
Bilateral Relations
Chinese naval ships detected near Andamans
The Times of India, September 4
With ships of the People’s Liberation Army Navy (PLAN) snooping around the Andaman islands on routine basis, the ministry of defence is contemplating deploying more assets in the island chain in the days to come. According to sources, the Andaman and Nicobar Command (ANC) – the country’s only strategic command comprising the Army, Navy and Air Force – have detected Chinese naval ships very close to India’s territorial waters in the recent past. A report states that PLAN ships attempt to get close at least twice every three months. It’s not uncommon for Chinese naval vessels to get close to the 10 degree channel, which is a 150km-wide channel that separates the Andaman and Nicobar chain of islands. Officers feel that the Chinese may choose the Andamans for a sudden strike instead of the mainland.
India or China: Which Asian giant has more inclusive growth?
The Wall Street Journal, September 7
India and China are the world’s fastest-expanding large economies but which has been better at sharing the benefits of that growth with its people? A new World Economic Forum survey titled “Inclusive Growth and Development Report 2015” released Monday tries to go beyond gross domestic product figures to give a more detailed look at how different economies are doing. It lists and ranks 112 countries using 140 indicators. By pointing to relative performance on everything from labor productivity and women’s pay to the size of the middle class and health care coverage, the report is attempting to show how inclusive growth is in each country. While income distribution and GDP growth indicators in India and China are neck and neck most of the other numbers thrown up by the WEF survey suggest China is doing a much better job of taking care of its population of more than one billion people.
News Reports
China and India in the Regions
China praise for ‘true friend’ Pakistan as India snubs parade
India Today, August 28
China’s invitation to the Pakistani military and perceptions of an anti-Japanese sentiment may have led to India rejecting a Chinese request to send troops for a high-profile military parade on September 3. The Beijing parade next week will see as many as 1,000 foreign troops from 17 countries march in China for the first time alongside the People’s Liberation Army (PLA), which will hold a rare public display of some of its most advanced battle-tanks, bombers and missiles. China had earlier requested India, as well as Pakistan and several other countries, to send high-level representation as well as a contingent of 75 troops for the parade, which will mark the 70th anniversary of the end of the Second World War.
Immigration shift shows India, China outpacing Mexico
ABC World, August 29
Immigrants from China and India, many with student or work visas, have overtaken Mexicans as the largest groups coming into the U.S., according to U.S. Census Bureau research released in May. The shift has been building for more than a decade and experts say it’s bringing more highly skilled immigrants here. And some Republican presidential candidates have proposed a heavier focus on employment-based migration, which could accelerate traditionally slow changes to the country’s ever-evolving face of immigration. Mexicans still dominate the overall composition of immigrants in the U.S., accounting for more than a quarter of the foreign-born people. But of the 1.2 million newly arrived immigrants here legally and illegally counted in 2013 numbers, China led with 147,000, followed by India with 129,000 and Mexico with 125,000.
China advises Pakistan, India to practice restraint on border
The Times of India, September 1
“As a neighbour and friend of India and Pakistan, China calls on the two countries to exercise restraint, manage the situation through dialogue and consultation, properly deal with relevant differences and stay committed to the peace and stability of South Asia,” Hua Chunying said. The advice comes ahead of the military parade to be held in Beijing on September 3 to commemorate World War II, which will be attended by representatives from both countries; President Mamnoon Hussain from Pakistan and India’s minister of state for defence V K Singh. President Hussain met Chinese President Xi Jinping on Thursday as the nation observes the 70th anniversary of China’s war of resistance against Japan. Singh also plans to meet the Chinese president the day after the parade.
U.S. must consult India, China, Russia on tackling terrorism: Karzai
The Hindu, September 1
Former Afghanistan President Hamid Karzai on Tuesday called upon the United States and its allies to seek advice from and consult with the “three emerging great powers” — India, China and Russia — to tackle the problem of terrorism or extremism in the world. Addressing a gathering of senior Sri Lankan officials, both civilian and military, and diplomats of Sri Lanka and other countries at a seminar organised by the Sri Lanka Army (SLA) here, Mr Karzai said: “If they [the U.S. and its allies in the North Atlantic Treaty Organisation on the one hand and India, China and Russia, on the other] see eye to eye; begin to consult on the rights and wrongs of today’s world order to end human suffering, we will see without a doubt a more stable international order and less suffering for us.”
Australia flags naval drills with US, India and Japan in signal to China
Sydney Morning Herald, September 3
Defence Minister Kevin Andrews has flagged the revival of controversial four-way naval drills with the United States, India and Japan in a clear signal Australia is pushing back against growing Chinese assertiveness towards its neighbours. In what could stoke fears in Beijing of a “containment” strategy, Mr Andrews said during a visit to India this week that Australia would be keen to take part in such exercises, which were tried in 2007 but shelved after China reacted badly. Mr Andrews told an audience during a question and answer session in Delhi that it had been “a mistake” for the then Labor government to pull out of a so-called quadrilateral defence dialogue and naval drill. “It’s not the outlook of the current government,” he said. “If we were to be invited by India to observe or to participate in such an exercise in the future, it would be the clear disposition of both myself and the government to accept that invitation.”
China showcases 50 years of hold on Tibet with big parade
The Hindu, September 8
China marked 50 years of Tibet’s amalgamation with the Communist giant, holding a grand parade in Lhasa showcasing its grip on the strategic Himalayan region even as it adopted a tough stance against the Dalai Lama, Tibetan religious leader, calling for a crackdown on “separatist forces.” A big meeting followed by a grand parade was held in front of the Potala Palace, traditional home of the Dalai Lama from where he fled to India in 1959, attended among others by senior official of the ruling Communist Party of China (CPC), Yu Zhengsheng, to mark 50 years of Tibet being declared as an autonomous province of China. China says Tibet became a part of the country by “peaceful liberation” when Chinese troops invaded the Himalayan plateau in 1950 establishing Beijing’s control over it. Addressing the colourful ceremony, Mr. Yu, who is in-charge of minorities in China, stressed the legality of crackdown on separatists, the official characterisation of supporters of the Dalai Lama including Buddhist monks.
China flexes tech muscles before state visit with meeting of industry giants
The New York Times, September 8
As President Xi Jinping of China prepares for his first state visit to the United States this month, Washington has warned that it could hit Chinese companies with sanctions over digital attacks for trade secrets. Beijing is now pushing back in an unorthodox way: by organizing a technology forum to demonstrate its own sway over the American tech industry. The meeting, which is set to take place Sept. 23 in Seattle, is planned to feature China’s Internet czar, Lu Wei, the overseer of China’s restrictions on foreign technology companies. A number of Chinese tech executives, including Robin Li of Baidu and Jack Ma of Alibaba, along with executives from top American tech companies including Apple, Facebook, IBM, Google and Uber, have been invited, according to people familiar with the plan who spoke on the condition of anonymity because they were not authorized to speak about the meeting.
News Reports
Economy and Trade
India among the few bright spots in global economy: IMF Chief
The Hindu, September 5
International Monetary Fund (IMF) Chief Christine Lagarde has said that India is among the few bright spots in the global economy. Her remarks came at the meeting of G20 Finance Minister and Central Bank Governors on Friday where they discussed Chinese economic slowdown and monetary policy uncertainties looming large on global markets. Ms. Lagarde told the gathering that between advanced and emerging economies, there were problems in most of the places in advanced world, while in emerging economies, there were problems in China although not that big as stock markets were making it to be, officials present at the meeting said.
Modi tells billionaires ‘invest,’ says China’s pain is India’s gain
Reuters, September 8
Prime Minister Narendra Modi and his top economic team assured a group of billionaires that India could withstand global turbulence and China’s economic slowdown, then asked them to open their wallets. The meeting at Modi’s residence came as India’s rupee fell to two-year lows and a stock market sell-off wiped out most of the record gains made since he took office last year. Markets bounced back after the session. India’s projected economic growth of 8 percent is still viewed by the IMF as a bright spot among major economies and has attracted foreign manufacturers, but indebted domestic firms are pushing for rate cuts and protection. Modi sees a chance to attract more foreign cash as money flows out of China, but it will be tough.
China’s export data points to a deepening industrial downturn
The New York Times, September 8
China’s industrial slowdown is showing signs of worsening, as the country’s trade slump deepened further in August in the face of weaker demand from overseas buyers. Once seemingly indomitable as the world’s workshop, China is now facing its most protracted decline since the global financial crisis. Overseas shipments fell 5.5 percent last month compared with a year earlier. That has dragged total exports 1.4 percent lower in dollar terms in the first eight months of the year. It is a sign that the country’s sprawling manufacturing sector is losing competitiveness: Labor costs are rising relentlessly and the currency, the renminbi, remains relatively strong despite its devaluation last month. Despite the currency move, Chinese goods are notably more expensive for foreign buyers than they were even a year ago.
Market rises on merger news and a rebound in China
The New York Times, September 8
Traders were encouraged by a rebound in China’s stock market despite some disappointing news on the country’s economy. China’s exports shrank 5.5 percent last month compared with a year earlier; imports tumbled 14 percent. China’s trade has been weak for months, reflecting muted global demand and a domestic slowdown. But despite the disappointing reports, China’s Shanghai composite index jumped 2.9 percent in a rebound from losses earlier in the day.
India’s diamond industry hit by falling Chinese demand: Gem and Jewellery Export Promotion Council
The Times of India, September 8
The country’s diamond industry has been affected due to a 40 per cent fall in demand from slowdown-hit China, industry body GJEPC said. “We are feeling the pinch of slowdown in Chinese demand for diamond jewellery. Our market share in China has come down by 40 per cent due economic slowdown,” Gem and Jewellery Export Promotion Council (GJEPC) chairman Vipul Shah told PTI. India exports mostly polished diamond jewellery to China. “Things have not been great since April as demand has been continuously falling not only in China but other markets as well due to strengthening of the dollar against other currencies,” he said.
News Reports
Energy and Environment
China declares Indian oil exploration in South China Sea ‘illegal’
Breitbart, September 4
“India’s intention to once again explore for oil in the disputed waters of the South China Sea is an unwise move, as it will further complicate the maritime disputes and do a disservice to maintaining the positive momentum that has been achieved in China-India ties,” declared the state-run China Daily, as translated by the Times of India. “The Indian company should be told: Without the permission from the Chinese government, activities conducted by any foreign company in these disputed waters are illegal,” the editorial continued. The search is “illegal,” said China’s government. The Indian-owned oil company should “rethink its oil exploration plans,” China threatened.
China surges ahead of India on energy generation and consumption
Hindustan Times, September 4
As the world eagerly awaits India’s climate action, there is absolute clarity that the country’s intended nationally determined contributions (INDCs) will not be similar to that of China. The inter-governmental consultations on framing the INDCs have shown that India is nowhere close to China on energy generation and consumption — drivers for deciding a nation’s climate action. China’s installed energy capacity is five times that of India; every household in China has access to electricity unlike 56% households in India and just a quarter of households in China use biomass for cooking as compared to 85% of rural homes in India. When it comes to emissions, more than one-fourth of global emissions were by China as compared to just 6% for India in 2014. India’s per capita emissions are one-third of China’s.
Blue sky vanishes immediately after Beijing’s massive parade
CNN, September 4
Less than 24 hours after the end of China’s massive military parade, Beijing is back to its usual smoggy self. Starting late August, Beijing enjoyed a rare string of continuously clear days as authorities took drastic action to ensure an azure backdrop for the largest parade it’s ever held — a showcase marking the 70th anniversary of Japan’s defeat in World War II. Hundreds of factories were shut during this time, while half of Beijing’s five million registered cars were banned from the streets. On the morning of the parade, the air quality index (AQI) — an international standard for measuring the severity of air pollution — dipped to a pristine 17 out of 500, signifying very healthy air. But now the cars are back and the city is back to “Beijing gray.”
US Envoy to visit India, China for climate talks next week
NDTV, September 5
A senior Obama administration official will visit India and China next week to “consult” on climate change ahead of the crucial UN climate talks in Paris later this year, the White House has said. “Senior Advisor to the President, Brian Deese, will visit New Delhi on September 7 and Beijing on September 9 and 10. “He will meet with senior officials in both countries, including Foreign Secretary Subrahmanyam Jaishankar in India and Executive Vice Premier Zhang Gaoli in China, to consult on key international climate change issues,” a White House statement said.”In both countries, he will underscore the United States’ commitment to strong domestic action on climate change and the value of strong bilateral partnerships to help secure an ambitious outcome at the Paris climate conference,” it said.
Analyses and Commentaries
Paradox of a dwindling world economy and a growing India
The Hindu, August 30
There are three major crisis faced by the Indian financial markets since the opening up of the Indian Economy in 1992 — The South-east asian currency crisis in 1997; global financial crisis in 2007 with the fall of investment bank, Lehman Brothers: and the slump in the Chinese economy witnessed this week. While the intensity of the fall in financial markets was less in 1997 as the country was not exposed much to the global economy at that point of time, the impact was heavier in 2015. “We were able to protect our markets because of our strong macro-economic fundamentals,” says N. S. Venkatesh, Executive Director and Chief Executive Officer of IDBI Bank. The fears of China economy slump have made the market very nervous. “But I believe this (fear) has been overdone,” says Mr. Venkatesh. For Indian markets, as inflation has been climbing down, monsoon near normal and currency being one of the better currencies compared to Malaysian Ringgit, Indonesian Rupiah and South African Rand, the economy could withstand any financial onslaught.
Can fast-growing India ‘take the baton’ from China?
The Globe and Mail, August 30
Beijing’s market interventions and devaluation of the yuan, as well as waning economic indicators in China, have sent markets reeling – and prompted fresh worries about the global economy. But while China’s slowing growth will be devastating for a number of emerging markets, and more broadly for all of Asia, there is one notable and prominent exception shielded from the ongoing fallout: India. Indonesia, Malaysia and other commodity-rich countries, of course, have pumped endless amounts of coal and oil into China’s factories and power grid during the boom years. Other countries provided cement or steel, while African countries provided oil and valuable metals such as copper. Now that the cyclical boom is over, almost all of these countries are in trouble. But India is not an export-oriented economy at risk from cooling growth in China. And now might be India’s time to surge ahead and finally realize everyone’s long-standing expectations.
Charting a new Asian history
The Hindu, September 1
Until now, the political boundaries carved out on the geography of South Asia and South-East Asia had become barriers for the countries in this vast region to overcome socio-economic underdevelopment caused by history. Now, thanks to advances in trade, transport and technology, the geography of this region can be made an ally to create a new history of shared prosperity, progress and peace, in addition to a revitalisation of age-old, cultural-spiritual-civilisational ties. This is what has been envisaged, on a broader expanse of Asia-Europe-Africa connectivity, by the super-ambitious ‘Silk Road Economic Belt’ and the ‘21st Century Maritime Silk Road’ plans that have been unveiled by China’s President Xi Jinping. India also has been evolving its own regional cooperation initiatives such as ‘Mausam’ and the ‘Spice ‘Route’ in the Indian Ocean region and beyond, although these are nowhere as comprehensively projected, nor backed with requisite investments yet, as China is doing in the case of its ‘One Belt One Road’ vision.
WWII military parade: Ambitious China, divided Asia, uncertain India
The Indian Express, September 4
The spectacular military parade in Beijing was ostensibly about Beijing’s commemoration of the Second World War and the successful resistance against Japan’s imperial occupation of China during 1937-45. That China organised such a military parade for the first time, however, suggests that this very special event was as much about the past as it was about the present and the future. China’s neighbours did not need the parade to get a sense of China’s very impressive military modernisation. Three decades of double digit economic growth has made China the second largest spender on defence after the United States. India’s instinctive response to the unfolding tension between America and China is to reach for the comforting blanket of non-alignment. But the fact that China is a neighbour with which it has many outstanding disputes makes traditional non-alignment nearly impossible.
China’s economic slowdown – India’s opportunity?
Deutsche Welle, September 7
“The Chinese ‘normal’ has now changed. It is no longer the nine percent, 10 percent, 11 percent growth rate. So the world needs other engines to carry the growth process. And in a slow-down environment in the world, an economy which can grow at eight to nine percent like India certainly has viable shoulders to provide the support to the global economy.” These are the words of Indian Finance Minister Arun Jaitley, who recently spoke to the BBC on the impact of China’s recent stock market plunge. And there are strong arguments to support that claim. While both Brazil and Russia are in the midst of a recession, India’s economy has been growing at impressive rates, with last week’s release of GDP figures showing that India grew as fast as China last quarter (7.0 percent year-on-year).
To fix its economy, India must stop obsessing over China
Hindustan Times, September 8
In German, Schadenfreude means ‘the pleasure that is derived from the misfortune of others’. It can be aptly used to describe Indian reactions, official or otherwise, to China’s economic slowdown, its stockmarket meltdown and the yuan’s fall. Top Indian officials, including those in charge of economic planning, have been quick to declare that a Chinese slowdown is a big opportunity for India, which, they say, can capture the export market that China may vacate; and if India can manage 8-9% growth, it can replace China as the driver for the global economy. Another German word Fremdschämen means ‘the feeling of embarrassment on account of what others say or do’, something that such declarations can make you feel. Comparing India’s economy to China’s, which Indians love to do, is quite ridiculous. Because frankly there’s no comparison. China’s GDP is $10.3 trillion or five times India’s; its annual per capita income is $7,588 or 4.5 times India’s; China’s forex reserves are at $3.9 trillion or more than 10 times India’s; and China’s exports at $2.34 trillion are seven times India’s.
Books and Journals
How Can India Catch Up to China? The Importance of Social Investment
India Review, June 2015
After twenty years of economic reform and liberalization, is India now on pace to close the development gap with China? To assess this prospect, Devin Joshi analyzes multi-decade trends across six dimensions of human capabilities crucial to both individual and national development: 1) economic, 2) health, 3) infrastructure, 4) knowledge and technology, 5) public administration and 6) gender equality. I also conducted a focused comparison of two industrial sectors: software services and equipment manufacturing. The evidence shows that India is starting to catch up in several sectors, but overall China currently has a significant lead on most economic and technological indicators. Whereas most scholars studying this divergence have focused on shifting economic policies as the key to convergence, I argue that lingering development gaps may primarily be a result of India’s lower levels of social investment. Thus, if India is to catch up and surpass China, it will not only need supportive economic policies but must also concentrate heavily on expanding and improving rural infrastructure, education, and especially gender equality.
Disentangling the Ranges: Climate Policy Scenarios for China and India
Regional Environmental Change, August 2015
Greenhouse gas emissions in China and India have been increasing rapidly over the last decade. Scenario studies can provide insight into expected future trends and the emission reduction potential in these regions. The scenarios show that growing population, gross domestic product, and energy demand are likely to lead to a further increase in emissions. At the same time, a decreasing emission intensity would still allow to create decarbonization scenarios in line with the requirements for reaching a maximal warming of 2 °C. There is, however, a wide range of assumptions across these studies. Based on the literature review, this paper observes that key assumptions in scenarios developed by national institutes in China and India differ from those presented by international studies or modeling teams. This paper, written by Hof, Kumar, Deetman, Ghosh and van Vuuren, explore how this—and other factors like data availability—may influence the interpretation of the scenarios and how international and national modeling groups could learn from each other. Our main recommendation is for more extensive collaboration between national and international research groups, so that national and international scenario studies can be compared in more detail in order to support international negotiations.
Compiled and sent to you by Centre on Asia and Globalisation and
the Lee Kuan Yew School of Public Policy, National University of Singapore