Iliana Lantzou, Helena Tsiapa
Energy Profiles of India and China: Cooperation or Comptetition? Energy consumption is both a necessary condition for growth and a consequence of it. India and China are now being seen as two rapidly growing economic powers in Asia and globally, the former having got into this a little over a decade ago, whereas the latter had an early start, after post-cultural revolution disillusionment. It is necessary to mention that China has a certain indigenous production level of oil, which is expected to grow marginally in the future, whereas its consumption will be more than double. On the other hand India’s indigenous oil production seems unlikely to change significantly; India’s dependence on foreign oil will be more than China’s. Thus both countries have to depend on crude oil imports and realise reforms that will guarantee them their energy security. Economic reforms began in China by the end of the ‘70s with the political initiatives of Deng Xiaoping. These have permitted investments by foreign companies, first in the four Special Economic Zones, the provinces Zhuhai, Shenzhen, Shantou and Xiamen. In these provinces, various initiatives were offered in order to attract Foreign Direct Investments, such as reduced tax rates up to 15%, cheap labour and help in finding the right places to build factories and infrastructure. The first investments were realised by consortia of foreign companies and government-owned enterprises. Later, Deng encouraged investments in the shape of subsidiaries that would belong entirely to the parent company. This shift brought further rise in FDI in China. The huge inflows to the Chinese economy because of Foreign Direct Investments, combined with the growing needs of the industry in energy and the population in various comodities, have made Chinese state-owned companies also try to invest abroad. The majority of the Chinese investments concern the area of Asia and the Pacific, such as Hong Kong, South Korea, North America and Australia. Special attention should be paid to the investment activity of the Chinese in Africa. Chinese companies exploit the energy resources and raw materials from various countries, such as oil from Sudan, copper and wood from the countries of subSaharian Africa. The most common way of realising these investments is giving
massive loans to countries in exchange of mortgaging their oil. In Latin America, the Chinese investments concern also energy resources and agricultural products.
India is a rapidly emerging economy , with unexpected development on economic, investment and energy sectors explosion and a strong industrial framework. In recent years, the development on technology, the expansion of investments and an important reform on foreign policy, especially on the field of energy, have established India as a worthy competitor to China. Considering the fact that is one of the states with the largest economic growth and energy consumption globally, the necessity of technology improvement and new business co operations is obvious. 1 India imports great quantities of raw materials and gas from Central Asia, oil from Middle East and coal from South Africa, Australia and Indonesia. At the same time, the imports-exports and investments of India with Latin America and Caribbean are in an increasing trend for the last 6 years. Also India has cooperated in the past sporadically with Russia in the field of natural gas transportation. That collaboration was an action combining not only the Russian-Indian relations but mainly India’s supreme foreign policy concerning the isolation of Pakistan. Likewise, what is remarkable is India’s
ever-increasing interest in Africa. The
investments are touching many billions of US dollars and covering diverse sectors like oil and gas, pharmaceuticals, petrochemicals, fertilizers and infrastructure. China seems to focuses its interest in Africa’s raw materials access, and imports. On the contrary, India tries to spend money in aid to African countries to develop their economic and business growth. India combines both traditional and modern technologies in order to develop the renewable energy sector. Especially on the field of wind energy, India is one of the top five countries in the world along with Denmark, USA, Germany and Spain. However, India faces the additional challenge of raising funds for more investments in energy infrastructure, mainly in the power sector.
According to IEA’s calculations, India will increase its oil imports to 90%and gas imports to 40%in order to correspond to the huge energy demands. 1
It is a state less isolated politically than China, so, this has catapulted, not only its pace of growth, but also has strengthened its external relations. The great number of bilateral and multilateral agreements concerning oil and gas have helped India to build stronger neighboring relations with Central Asia and Middle East countries, and managed to stabilize its energy security. Economic and industrial developments in China and India have some positive and negative effects to the rest of the world and will increasingly affect global economy in the future creating a situation that will range between cooperation and hard competition. India-China cooperation will increase their bargaining power for oil & gas resources, the prices of which had earlier sky- rocketed with the China versus India scramble. It will make investments in upstream projects in volatile economies less risky. Previously, rivalry between Indian and Chinese companies was to the disadvantage of both regardless of who eventually won the bid. It always benefited the seller as happened in Angola in 2004. Here, India had bid US $ 600 million for a 50 percent stake in Shell’s Angola Block 18 field and had promised to include US $ 200 million to support Angola’s ongoing railway construction project. This was outbid by China with a US $ 2 billion offer. Due to the high cost of the economic competition, China and India have tried to cooperate in the energy sector several times in the past. The most successful effort was joint bidding with which the two countries were able to acquire energy assets in Syria, Sudan, Colombia, Iran and Peru. A memorandum of understanding for energy cooperation was signed by the then Petroleum Minister of India, Mani Shankar Aiyar, and China’s National Development and Reforms Commission Chairman, Ma Kai, in January 2006. Moreover, the two countries could cooperate in the field of renewable energy resources, something that the rest of the world demands from them too. Since 2009, however, the Sino-indian relationship has taken again the path of competition. State-run Chinese companies spent a record $32 billion acquiring resources overseas while a $2.1 billion purchase by Oil and Natural Gas Corporation (ONGC) was the sole energy investment by India. Furthermore Cnooc Ltd., China’s biggest offshore oil explorer, bought a stake in a Nigerian oil field in 2006 after India’s government blocked ONGC’s plan to do the same.
The Indian government decided to change its investment policy and support financially the most robust companies that want to invest abroad in ordet not to be outbid by the Chinese when competing for resources. That is why it has established a government classification system that accords companies the so-called “maharatna” status. Maharatna means “mega jewel” in Hindu and this status will be given only to state-run enterprises that have annual revenue of 250 billion rupees and profit of at least 50 billion rupees in the past three years. India’s oil ministry has also proposed creating a sovereign wealth fund using the nation’s $256 billion foreign exchange reserves to buy energy assets overseas. Last October, in a meeting of the Indian cabinet, both proposals were approved, as well as the creation of a committee of secretaries who will consider proposals that require additional government funding or involve multiple ministries. Furthermore Indian embassies overseas will offer assistance to the companies and the existing rules requiring the approval of the federal cabinet for purchases abroad may change in order to avoid delays. According to the World Energy Outlook of 2007, it is estimated that China will need to import 60 percent of its energy needs by the 2020; India will require importing 87 percent of its total needs. Hence, the level of dependence of both India and China on resources overseas is going to increase and the competition for such assets, which will become scarce by then, will continue.
Energy consumption is both a necessary condition for growth and a consequence of it. India and China are now being seen as two rapidly growi...