China has just overtaken the US as Australia's second largest export market.
China's trade with the African continent reached $18.5 billion in 2003, an increase of 50 percent since 2000, and it is on track for another big increase this year. #msg-3758175
This present administration will mark the time when the world turned to China.
-Am
In trade, Australia looks to China By John Garnaut August 9, 2004
The Prime Minister, John Howard, is not renowned for frustrating the foreign policy objectives of the United States.
But he's willing to do just that to cut a trade deal with China, which has just overtaken the US as Australia's second largest export market.
An epic contest between the world's great super power and its only potential challenger is developing around an obscure piece of trade jargon: whether China should be recognised as a market economy.
Market economy status would acknowledge China's progress and reduce the success of anti-dumping actions against it.
China wants it, America denies it and Australia has found itself in the middle of this tug-o-war, because China won't begin to talk about a trade agreement until Australia recognises its market economy status.
The issue goes to the heart of Australia's strategic choices: to engage with or shelter from the region; when to follow China in preference to the US; and - fresh from divisive debate over the US trade deal - whether Australia should be considering new bilateral trade agreements anyway.
China has become the No. 1 scapegoat for America's jobless recovery and anti-dumping laws the chief protectionist weapon. China has topped the global dumping charts for seven straight years.
China's classification as a market economy allows US anti-dumping claimants to test the price of Chinese goods against the "normal" cost of production in a third country.
The US Trade Representative, Bob Zoellick, has privately made it known to the Trade Minister, Mark Vaile, he doesn't want Australia to recognise China as a market economy.
But he has encountered the Government in an independent mood. Mr Howard said in an interview with the Herald last week that any American representations "wouldn't make any difference" to Australia's decision. "They are respectful of the fact that we have a close relationship with China."
Perhaps the greatest contest is taking place in business, and some of Australia's top 100 companies have received the message directly from US officials.
"The Americans are paranoid about granting market economy status," says a leading business representative, who did not want to be named. "Companies who have got linkages back in the US are getting heavy serves of that, even if their parents are not American."
An American Embassy spokeswoman says it is "very likely" the subject came up in recent meetings, although the message may not have been delivered "quite so strongly".
So far, Australia has viewed China more for its opportunities than its threats. The world's second largest economy (measured in purchasing power terms) is largely responsible for the boom in world commodity markets and the cheap imports that have held inflation and interest rates low.
But a subtle shift in perception is under way, captured by an Australian Industry Group survey last week.
One in five manufacturers believe they have encountered Chinese goods priced below cost. Only 13 per cent of manufacturers say a trade deal with China would be beneficial.
"The negative reaction to the possibility of an FTA with China reflects the enormous pressure from China on every manufacturer to further improve their competitiveness," says the AIG's chief executive, Heather Ridout.
Overwhelmingly, their concerns are that granting market economy status could reduce anti-dumping avenues.
Hugh Morgan, president of the Business Council of Australia, is also having second thoughts about confirming China as a market economy. He is expected to clarify his position later this week.
Geoff Raby, Deputy Secretary of the Department of Foreign Affairs and Trade, has been working to shore up business backing for recognising China as a market economy.
He has support from economists who point out that receiving cheap goods is in the national interest, especially for exporters and consumers. They also point out that production is more likely to be driven by market forces in China than in some recognised capitalist countries, like France.
Dr Raby also has support from Customs, which has successfully prosecuted only two anti-dumping cases against China since 2001 and treats China as a market economy anyway.
And he has the overwhelming support of the services, mining and farming sectors, which view anti-dumping prosecutions as old-style protectionism.
Whether or not a free trade deal with China will be beneficial, it is clear that Australia will have to make up its mind on China's economic status soon.
Beijing is turning countries one by one: New Zealand, Singapore, Malaysia, Thailand, Togo and now South Africa.
The Chinese Minister for Commerce, Bo Xilai, expects Australia "to acknowledge China as a market economy as soon as possible", as he told Mark Vaile at a APEC meeting in June. Which may have prompted Zoellick's counter-campaign. Pressure is building from both sides of the Pacific.
By Gerald Butt Special to The Daily Star Tuesday, August 17, 2004
NICOSIA: Few countries can be watching the Darfur crisis in Sudan with more anxiety than China.
At issue is its involvement in Sudan's burgeoning oil sector. China's investments there have become so important that Beijing might even feel inclined use its veto if the UN Security Council were at some point to recommend imposing sanctions on Khartoum.
Over recent years, China's state-owned firms have become active participants in Sudan's oil development. In 2000, the Khartoum government awarded a consortium led by the China National Petroleum Corporation (CNPC) a concession in the Melut basin east of the River Nile, about 700 kilometers south of the capital. This was in addition to CNPC's involvement in two producing blocks in the oil-rich Western Upper Nile region. The Chinese firm is the largest shareholder in the Greater Nile Petroleum Operating Company which dominates the country's production.
Despite the looming political crisis, the Melut development has begun, with production set to start next summer. By 2007, the expectation is that Melut will match Sudan's current output of 300,000 barrels a day - rising thereafter to 500,000 barrels a day. This would see total Sudanese production - somewhere in the region of 800,000 barrels a day - in roughly the same league as OPEC producers Qatar and Indonesia, and non-OPEC Oman. So the Sudanese prize is not inconsiderable.
Already, China is the largest importer of Sudanese oil and Beijing hopes to keep it this way. At present, imports from Sudan account for some 6 percent of China's total. It will be surprising if this figure does not rise sharply over the next decade.
China, in general, has a large and growing thirst for oil. Rising Chinese demand is one of the major factors behind the current high price of oil on global markets. Beijing knows that it needs to take action urgently to cope with this new state of affairs.
This is because, to quote a recent Deutsche Bank report, every aspect of China's energy industry seems to be on the rise except for oil production. "China was a net oil exporter during the last (1991) Gulf war and was insulated from the supply disruption that ensued," the authors said. "The US invasion of Iraq served as a wake-up call to China."
As a first step, the Beijing government decided it was time to stock up for a possible disruption of supplies. The plan is to build at least four coastal oil storage sites that will eventually give this vast country 50 days worth of imports in stock.
But another key ingredient in China's evolving energy strategy is to go out into the world in search of new reserves that its own oil companies can exploit. And that is how Sudan comes into the picture.
Such is China's commitment to the development of the Melut basin - a new oil province - that its companies are also involved in the construction of a 1,392-kilometer pipeline that will carrying the crude to Port Sudan. Furthermore, a Chinese firm has won the contract to build the $215 million export terminal where tankers will eventually be loading up for the long journey eastwards.
But that is by no means the whole story. China sees Sudan as a platform from which to launch its involvement in the Middle East oil sector as a whole. For a start, CNPC will be knocking at the door of the new government in Iraq in the hope of being allowed back to develop the Ahdab field that it was awarded in 1997. The firm did not carry out any oil exploration at the time because of UN sanctions, even though it was required to do so under the terms laid down by the Former Iraqi President Saddam Hussein's regime. While the fate of Ahdab is uncertain, China will be competing for other fields as they are put out to tender.
In neighboring Iran, CNPC is negotiating to take over a Canadian company that is carrying out development work in the Masjed-I-Suleman oil field. Other Chinese firms are working on drilling, refinery and oil terminal projects there. And on the other side of the Gulf, in Oman, CNPC has acquired the stake of a Japanese firm in a joint venture that is planning to develop an onshore block.
Chinese firms are also starting to make their mark on the North African oil scene. Last year, CNPC was awarded a contract for an integrated project in the Adra/Sbaa basin region of Algeria which involves not only exploiting the oil reserves there, but also the construction of a refinery. A few months later, the Chinese state firm was awarded two more exploration blocks. And another company from China is helping Algeria's state oil company Sonatrach boost production from one of its fields. Meanwhile, a Chinese petroleum engineering firm is involved in the construction of a pipeline in Libya, and CNPC is said to be preparing to bid for exploration blocks there.
All of a sudden, then, a region that is dominated by oil firms from the US and Europe has a new player from the Far East. Given China's fast growing demand for oil, the likelihood is that its presence in the Middle East will grow significantly over the next few years.
The broader implications of China's new energy strategy could be considerable. Huge investments of the kind needed for oil exploration and production involve risk assessment. That, in turn, means closely following political trends and, when necessary, seeking to influence them - a role that Beijing has not traditionally played in the Middle East. It also involves guessing what other major powers might be planning in terms of securing access to new reserves of oil, like those in Sudan, for example.
The Darfur affair is giving China its first close-up experience of a Middle East crisis. How it will react if the crisis deepens remains to be seen. Thus far it has shown its hand only in deciding to abstain when the Security Council voted last month to impose sanctions on Sudan if Khartoum does not take immediate and progressive steps towards ending the Darfur crisis.
But that could be an important signal. Even if the United States judges that Sudan's efforts have ultimately fallen short of what is required, Washington will still have to convince China that punitive measures should be taken. Aside from any other consideration, given the size of Chinese investments in Sudan's oil sector, Beijing will need a lot of convincing.
Gerald Butt, Gulf Editor of the Cyprus-based Middle East Economic Survey, writes a regular economic analysis for The Daily Star
The main investor in the Sudanese oil industry is the China National Petroleum Company, and China is Sudan’s biggest trading partner overall.[2] It has been alleged that there are Chinese soldiers in Sudan protecting Chinese oil interests there, and that these troops have engaged in skirmishes with the rebels.[3] Moreover, while there are numerous foreign oil companies present in Sudan, it is precisely in Southern Darfur that the Chinese National Petroleum Company has its concessions. USAID, the American humanitarian agency, has helpfully provided a map of Sudan showing precisely where the oil concessions are. http://www.usaid.gov/locations/sub-saharan_africa/sudan/map_oil.pdf) #msg-3678761
Chinese soldiers are possibly fighting U.S. supported rebels.
Zaman also alleges that some of the groups fighting the central government in Khartoum are supported by Sudan’s neighbours, by the US, European governments, and by Israel. The US is said to have given $20 million to the Sudanese People Liberation Army, led by a man who conforms perfectly to the model of the American agent. #msg-3678761
-Am
Sudan: Tricky balancing act for China By Michael Richardson
SUDAN is best known to the outside world for civil conflict that has created mayhem, most recently in the western region of Darfur. But Africa's largest country is also a significant oil producer and this has put China and the United States at odds over how to handle Sudan. The issue underlines China's growing thirst for imported oil from the Middle East and Africa.
The United Nations Security Council recently adopted a resolution threatening possible sanctions against Sudan. It also established a UN commission of inquiry to investigate human rights abuses in Darfur and to determine whether the Sudanese authorities and militias are responsible for alleged genocide there.
The US-drafted resolution passed in the 15-nation council on Sept 18 by a vote of 11-0, with China, Russia, Algeria and Pakistan abstaining. However it was adopted only after the US agreed, at China's insistence, to soften language that explicitly threatened sanctions against the country's oil industry and Sudanese officials if Khartoum fails to comply.
VITAL ENERGY SOURCE
THE major foreign oil players in Sudan are the China National Petroleum Corporation (CNPC) and its state-controlled counterparts from India and Malaysia, ONGC Videsh and Petronas. They provided much of the investment needed to build a 1,240km oil pipeline from the centre of southern Sudan to an export terminal on the Red Sea.
China's Ministry of Commerce forecast recently that the country's crude oil imports will reach a record 110 million tonnes this year, 21 per cent more than last year. In the first five months of this year, China's oil imports accounted for 42 per cent of its total oil consumption, up from 35 per cent for the same period last year. About half of these vital energy supplies are from the Middle East and 25 per cent from Africa. Sudan is not yet a mainstay supplier to China.
Of the 2.4 million barrels per day (bpd) that China imported in April, only 71,000 bpd came from Sudan. But Africa's largest country is already an important energy source for China and seems set to become more so as Chinese oil production and exploration expand in Sudan.
Moreover, Sudanese oil is easier, and therefore less expensive, for Chinese refineries to process than heavier grades of Middle East oil with relatively high sulphur content.
Foreign development of Sudan's energy resources has been controversial since large quantities of oil began to be exported through the pipeline in 1999. As Western oil firms retreated under pressure from their governments and human rights activists, the Asian companies moved in.
First, there was a long civil war between government forces and rebels in the mainly non-Muslim, non-Arab south of Sudan. Now the focus of international concern is on Darfur. Last February, two groups started an armed rebellion against the government in Khartoum, citing discrimination against the region's black African tribes. In response, the government recruited and organised Arab militias, known as Janjaweed.
It reportedly supported them as they killed tens of thousands of villagers and drove more than 1.2 million people from their homes. Some US officials, foreign human rights groups and aid organisations accuse the Sudanese government of using oil revenues to buy arms from China and elsewhere to crush its opponents and unleash widespread abuses. Oil now provides over 70 per cent of Sudan's total export earnings.
The UN Security Council vote followed a declaration by US Secretary of State Colin Powell that Sudan and government-backed militia in Darfur had committed genocide. Critics of America's position have said it is designed to attract African-American, Christian and Jewish votes for the Bush administration in next month's presidential and congressional elections.
The US draft resolution threatening sanctions against the Sudanese government and oil industry for non-compliance was opposed not only by China but also by Russia and the council's Islamic states, Pakistan and Algeria. They argued that the threat of sanctions was unwarranted in the light of the conclusion by UN Secretary-General Kofi Annan that Sudan had 'made progress' in resolving the crisis.
China, one of the five permanent members of the council, threatened to cast its veto until the US agreed to water down the language in the draft resolution it had circulated.
Sudan's estimated oil reserves have doubled since 2001. Output reached 345,000 bpd in June and the country's energy minister has predicted it will rise to 500,000 bpd by next year. According to officials in Khartoum, the central and south-central regions that account for nearly all the current oil output represent only 15 per cent of Sudan's oil reserves.
DIFFICULT DAYS AHEAD?
MEANWHILE, other promising areas are being offered for exploration. The US has imposed bilateral economic sanctions on Sudan since November 1997. They ban trade between the two countries as well as investment in Sudan by US business, including oil companies. But the US sanctions have so far excluded China's CNPC and its partners from Malaysia and India.
That may change if the situation in Darfur gets worse. On a recent visit to the region, US Senator Sam Brownback charged that by continuing to produce oil in Sudan, China was funding the military build-up by Khartoum and the arming of the pro-government militia in Darfur.
Beijing faces a difficult balancing act between preserving its energy position in Sudan and its international respectability, especially since the African Union demanded in early July that Sudan arrest and prosecute the militia groups.
China's UN Ambassador Wang Guangya said that although the council resolution was not a good one, he refrained from vetoing it because his government supported some of the text, including a provision that backed an African Union initiative to send tens of thousands of additional troops to Darfur to monitor a ceasefire between Khartoum and the rebels.
'As far as China is concerned, we don't like the idea of sanctions,' Mr Wang said. 'But I think that we don't want to throw the baby out with the bath-water.'
The writer is a visiting senior research fellow at the Institute of South-east Asian Studies in Singapore.
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