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CHINA’S ENERGY POLICY STRATEGY:
SEEKING SUPPLIERS IN LATIN AMERICA
Overview
Energy security has become a main goal in the making and planning of energy policies of several countries,
leading governments and strategists to develop analysis about the risk of an economic paralysis. Energy security may
be understood as a policy which seeks adequate stable (foreseeable) energy supplies through sustainable and
economically viable sources. In the last years, Chinese energy policy has aimed at strengthening energy security and
widen Chinese presence in new markets, modifying the correlation of global forces by means of foreign trade. In the
specific case of China, energy security relates to the guarantee of supply to support the high growth rates which the
country has been displaying in the last three decades. The growing dependence on fossil energy resources has forced
China to assumer a lead role in its foreign policy in what refers to countries with large oil and natural gas reserves.
China’s energy policy seeks three primary objectives: 1) finding new sources of energy to meet growth demand; 2)
switching to a cleaner energy profile; 3) minimizing vulnerability to US pressure. These objectives may not be
obtained by market mechanisms alone, so China is also pursuing: a) acquisition of overseas energy assets and
international experience; b) construction of a strategic petroleum reserve; c) massive investment of research dollars
in alternative energy projects including micro-hydro, CTL, clean coal and wind.
In the next years, the main Chinese energy demand drivers will be: expansion of the light vehicle fleet,
increasing the participation of the transport sector in oil consumption; growth of the urbanization rate, by means of
migration from rural to urban areas; increase in the ownership of electrical equipment and, as a consequence,
increase in coal-based power generation; growth in the number of petrochemical plants, propelling naphtha demand
as raw material for the new plants in the country. These facts indicate a growing demand for energy resources,
mainly oil, which must be met by imports, turning its strategy more aggressive in relation to the search of oil in
foreign territory. That is so that its large oil companies (CNPC, Sinopec, CNOOC), which used to concentrate their
efforts in acquiring companies or wells already in production, have begun to invest in exploration and production.
The Chinese foreign direct investment (FDI) flows have increased 30-fold between 1990-2007. The
acceleration happens starting from 2003 when a series of modifications in the policy of incentives to the
internationalization take place. These changes would be based, among other things, in the need to diversify gigantic
international reserves, whose estimates vary between 2.1 to 3 trillion dollars. In a sector standpoint, investments
concentrate in natural resources, given the scarcity in Chinese territory. In recent years, China has engaged in an
aggressive natural resources-oriented external investment policy. The entry means in other countries are through
subsidiaries, joint-ventures, loan-for-oil contracts and, more recently, mergers and acquisitions.
Latin America emerges as one the privileged regions for Chinese interests as it shows complementary
aspects to the Chinese economy. Firstly, the region is rich in natural resources, having presently 9.8% of global
proven oil reserves, of which China is a great demander. Secondly, with a population above 500 million inhabitants
and a US$ 5.3 trillion purchasing power parity (PPP) GDP it constitutes a potential consumer market for Chinese
products. The Chinese approach to Latin America has begun in the trade arena, where it has made efforts to increase
its participation in commercial organizations of Latin American countries by setting formal relations with
MERCOSUL. China has also pursued to sign Free-Trade agreements with some countries in the region. As a result
China’s trade flow with Latin America has jumped from US$ 13 billion in 2000 to US$ 103 billion in 2007. In 2007,
China already was one of the five major destinations of Brazilian, Argentinean, Peruvian and Chilean exports.
Another characteristic of trade between the countries is the concentration of exports in a few commodities.
The objective of this paper is to assess Chinese foreign direct investment in Latin America in the energy
sector, according to the Chinese energy policy strategy.
Methods
The article begins from the analysis of data referring to the Chinese foreign direct investment flow, of investment
made in the last years by Chinese state-owned companies in Latin America, especially in Venezuela, Peru, Ecuador,
Argentina and Brazil. Furthermore, it makes use of official documents about energy policy and information about the
volume of proven reserves Latin America and the last discoveries in the region, which somehow may intensify
Chinese interest in the region.
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Results
Chinese FDI has been growing in Latin America and the Caribbean. In 2003, the stock added up to US$ 4.6
billion, what represents 14% of all Chinese FDI stock in the world. In 2008 this value has increased to US$ 32.2
billion or 17% of the Chinese FDI stock. The resources are concentrated in Brazil (US$ 217 million), followed by
Venezuela (US$ 195 million), Peru (US$ 194 million), Mexico (US$ 173 million), and Ecuador (US$ 88 million).
Much of these investments have been directed to the energy and mining sectors, following the Chinese strategy of
keeping its investments concentrated in natural resources-rich developing economies.
Conclusions
As a conclusion, the Chinese energy policy has focused, in the last years, in the search for the reduction in
the dependency on oil imports, reflecting prospect that this upwards trend in fossil demand remains in medium and
long term. Chinese leaders fear that this growing coupling of oil imports may bring foreign interference and
economical pressure which may threaten national security and political and social stability. The Chinese strategy has
been seeking policies in order to diversify suppliers and transport routes, as well as a growing emphasis in energy
efficiency and energy conservation. These actions may reduce the vulnerability of oil offer, limiting the damage
caused by possible offer disruptions and price shocks.
Thus, Latin America emerges as an important supply area due to its potential as a large supplier of oil and
other commodities in the next years. The need for natural resources to keep up with its growth has led China to seek
a strategic positioning in the region through a foreign direct investments policy for the region.
This posture is beginning to cause reactions in countries with a populist orientation which see in the alliance
with China an alternative to the traditional partner USA. The proliferation of governments with an anti-American
bias has accelerated the entry of China in Latin America, even though the Asian country is careful in order to avoid a
direct confrontation with North-American interests. The discovery of resources in the Brazilian sub-salt and the need
for massive sums of resources for the development of these reserves opens a space for an even greater activity of
China in the region over the next years.
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