Energy prices fuel US-China strains

June 17, 2008 5:17:04 PM PDT
Not quite an ally, not quite an adversary, China with its exploding appetite for energy is helping drive up world oil prices - and putting still more strain on its relationship with the United States.

The importance stretches far beyond the gas pump, although that is where Americans are left wondering what's behind the run-up, why it can't be stopped and who is to blame. China is just one factor. Also at play are worries about future supplies and production disruptions in Africa or the Mideast.

Still, the "China factor" is big. By some estimates, car ownership in China is growing so fast, with the expansion of its middle class, that by 2030 its traffic will be seven times or more what it is today. China already is the world's second largest energy consumer, after the United States.

That explains why senior-level economic officials from Beijing and Washington are meeting in Annapolis, Md., this week to discuss a range of hot-button issues, including the $256.2 billion U.S. trade deficit with China - an all-time high - and prospects for increasing cooperation on energy issues.

Looming in the background to these and other discussions about U.S. competition with China is the prospect of armed conflict - if not over China's demand for the return of Taiwan, then over energy resources. China has invested greatly in modernizing its military in recent years, although its budget - even by the Pentagon's high-end estimate - is hardly one-quarter what the U.S. spends on defense.

At present it sounds far-fetched to think of rising oil demand as a trigger for war with China, and some of the United States' more experienced China watchers say that makes little sense.

"Really what it comes down to is not whether the last barrel of oil goes to them versus us because there is always another barrel of oil - it just gets more expensive, just like gold or copper or what-have-you," said Drew Thompson, the director of China Studies at the Nixon Center, a think tank.

In a sense, U.S. consumers have a stake in seeing China's energy needs met. Americans can't seem to get enough of China's exports, from toys and clothes to computers and car parts. That's an expanding appetite that is part of the reason China is looking far and wide for additions to its energy supplies.

"So long as we're buying Chinese goods to our own benefit, much of the Chinese international raw material purchases are there to serve us," Thompson said. "That's a political realization I don't think we've yet made, but American consumers make that fairly regularly with every trip to Wal-Mart."

The soaring trade deficit with China is cited by critics as a major contributing factor in the loss of more than 3 million U.S. manufacturing jobs since 2001. Many in the U.S. say the undervalued yuan makes Chinese goods cheaper in this country and America's products more expensive in China.

The United States is China's largest trading partner; China is the United States' second-largest.

Where some see peril in the competition for energy sources, others see possibility.

James Jones, the retired Marine four-star general who is president of the U.S. Chamber of Commerce's Institute for 21st Century Energy, was in Beijing last month for a U.S.-China energy conference.

"While the United States and China are two vastly different countries, energy and the environment can be, and should be, unifying factors as we seek mutual solutions to our common problems," Jones told the conference.

The United States has urged China to promote energy efficiency as a way of reducing strains on global supplies, but that has met with little success. The Chinese have been moving in the opposite direction, providing ever greater subsidies to keep energy costs low as global prices have surged.

One aspect of the energy problem that China and the United States have in common is concern about security of supplies from abroad. As the world's two largest net importers of oil, both rely on imports from the Middle East and other areas of the world were stability is far from assured.

Chinese oil producers are trying to increase total global supplies by investing billions to develop oil and natural gas sources in Africa, Central Asia and other areas that might otherwise be considered too difficult or expensive.

In the Pentagon's view, access to oil and other energy resources is influencing China's strategic behavior, including its approach to developing air and naval forces that can reach far beyond China's shores.

"At present, China can neither protect its foreign energy supplies nor the routes on which they travel," David Helvey, a top China policy official at the Pentagon, told the U.S.-China Economic and Security Review Commission, a congressionally chartered group that studied China's rising energy consumption.

Pentagon officials also foresee the possibility that in its search for additional energy resources, some elements of China's market-based economy will clash with the Chinese Communist Party's desire to retain its monopoly on political power and control of its most important industries, including energy. And that, in the Pentagon's view, could raise questions about the stability of the Communist regime.


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