Transnationalization of Chinese national Oil Companies : the case of Angola

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Transnationalization of Chinese national Oil Companies:

The case of Angola

China – Angola - NOCs - Energy policy – Trade & Investment

Author: Guido Weisfelt

Student Number: 10893857

Master Thesis: International Relations

Research Project: The Political Economy of Energy Supervisor: Dr. M.P. Amineh

Second Reader: S. Hardus

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Map I: China’s major foreign oil supply sources

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Map II: Oil concession blocks in Angola

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Acknowledgement

This Thesis is the result of five months research on China’s, supply security the

transnationalization of its National Oil Companies applied to the case of Sino-Angolan bilateral relations. Chinese growing engagement in Africa in terms of trade, investments, foreign aid and migration has brought about a lively debate in the media. It has been a challenging process to engage this topic from an academic angle, a topic I was only slightly acquainted to. I am therefore pleased, that I have gained a comprehensive understanding of China’s energy security challenges, and the strategies China applies to gain access to foreign markets. While I do not consider myself an expert. It is satisfying to be able to explain and discuss this, generally unknown, topic with my friends.

I would like to thank Dr. Amineh. His guidance and encouragement throughout this research project have been essential for completing this thesis in good order. I furthermore thank him for introducing me to this topic and the enthusiasm he expressed throughout this period. I like to thank Ms. Sarah Hardus whom I met at a seminar in Leiden. I like to thank her for acting as a second reader and her insights she passed on to me at the seminar in Leiden.

At last I would like express my gratitude towards three persons who have aided and supported me in one way or the other, throughout my passed studies. Nicole, Annieke and Sven; it would have been a much harder endeavor had you not been around.

G.W. Weisfelt

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List of Acronyms

AFRICOM Africa Command BBl/d Barrels per day

CBRC China Banking Regulatory Commission

CCB China Construction Bank

CEO Central Executive Officer CNOOC China National Oil Corporation

CNPC China National Petroleum Corporation

CPC Communist Party of China

EIA Energy Information Administration E&P Exploration and Production FDI Foreign Direct Investment

FNLA Frente Nacional de Libertação de Angola

GDP Gross Domestic Product

GNI Gross National per Capita Income

GoG Gulf of Guinea

IOC International Oil Company IR International Relations

JV Joint Venture

MNC Multinational Corporation MOF Ministry of Finance MOFA Ministry of Foreign Affairs MOFCOM Ministry of Commerce

MPLA Portuguese Movimento Popular de Libertação de Angola MPI Ministry of the Petroleum Industry

NDRC National Development and Reform Commission NEA National Energy Administration

NEC National Energy Commission

NOC National Oil Company

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7 Politburo Political Bureau

PRC People’s Republic of China PSA Production Sharing Agreement PSC Politburo Standing Committee

RBL Resource Backed Loan

SASAC State-Owned Assets Supervision and Administration Commission

SDPC State Development and Planning Commission

Sinopec China Petroleum & Chemical Corporation

SOE State-Owned Enterprise

SSI Sonangol Sinopec International ODA Official Developmental Assistance

UNCTAD United Nations Conference on Trade and Investment UNHDI United Nations Human Development Index

UNITA União Nacional para a Independência Total de Angola US the United States of America

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List of Figures

Figure 2.1 Chinese governance structure of China’s petroleum Industry Figure 2.2 China’s energy consumption mix (1978-2013)

Figure 2.3 China’s yearly energy consumption and yearly growth rate of consumption Figure 2.4 China’s oil production and consumption

Figure 2.5 China’s dependency on oil producing regions as percentage of total imports

Figure 2.6 Total value of imports and value of imported fuels and lubricants from Sub-Saharan Africa in billion US$

Figure 2.7 Angola's oil production and Consumption in Kbbl/d Figure 3.1 Volume and value of oil exports from Angola to China Figure 3.2 Value of exports from China to Angola in US$ billion Figure 3.3 Net FDI inflow in Angola

Figure 3.4 Chinese total investments by sector in Angola

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List of Tables

Table 2.1 Ownership of China's major National Oil Companies

Table 3.1 Percentage of oil imports by China from Angola in relation to the total value of imported products

Table 3.2 Amount of Chinese FDI in Angola

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Introduction

The global energy challenges of today have two principle common features at their basis: global energy demand is foremost being supplied by fossil fuels which take up approximately 80 per cent of global energy demand (United States Energy Information Administration1_{2015a) and there is} a great discrepancy between the regions where the majority of these fossils are located and the regions where the majority is consumed. The People’s Republic of China (PRC), established in 1949, has viewed its oil industry since its founding as pivotal to national security. It accomplished, through massive projects in the Daqing region, to become self-sufficient in 1965 (Kambare and Howe 2007). The economic reforms that were initiated by Deng Xiaoping, who came into power in 1978, led to an impressive rate of economic growth while domestic fuel production stagnated. Consumption quickly rose to the point in 1993 that the PRC, after a period of almost 30 years, became reliant again on foreign sources of oil. While throughout the 1990s most of the imports originated from South-East Asia and the Persian Gulf region, China has sought to diversify its supply sources. The Persian Gulf region remains the most important region for China’s oil supply, but Africa, particularly Angola has provided an increasing share of China’s oil supplies.

China and Angola established diplomatic relations officially in 1983. The deepening of relations, however, started in 2001 which marked the start of multiple visits from high level diplomats and state officials from both countries to one another. The start of the 2000s brought essential change in China’s foreign policy with regards to its state owned enterprises. The ‘‘going out’’ policy that was implemented sought to support the best performing state owned enterprises, among others the nationally owned oil companies, to acquire foreign assets. This new state policy was implemented to connect the domestic economy with the rest of the world in order to retain domestic economic growth and to enhance China’s oil supply security. This policy coincided with the end of the Angolan civil war in 2002, which devastated most of Angola’s economic sectors and infrastructure. However, Angola’s oil industry remained untouched throughout the war due to the fact that most oil fields are found offshore. This setting, in which China is increasingly relying on foreign sources of fossil energy. And on the other hand Angola, which was desperate to find creditors to fund its post-war reconstruction and boost its oil production levels, is part and parcel of the current bilateral relationship between China and Angola.

1_{The United States Energy Information Administration (EIA) is committed to the collection, analysis and}

publishing of independent and impartial energy information to promote policy making, efficient markets and greater understanding of energy (EIA 2015b): http://www.eia.gov/about/

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11 In this thesis, I will analyze the nature of the bilateral relationship between China and Angola with special focus on the cooperation between the two countries in the oil sector since the start of China’s ‘‘going out’’ policy. The research will include a political and economic analysis of the

relationship between the two countries. It aims to outline how the political and economic structure of the Sino-Angolan relations impacts the energy trade between the two countries. In addition I will assess the geopolitical challenge that arise from the Sino-Angolan relationship. The domestic challenges in Angola which arise from the socio-economic situation in Angola, will be assessed as well.

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Chapter 1. Research Design

1.1 Overview of the research

The design of the research will be presented in this chapter and carried out in the three subsequent chapters. The crucial component of the research design is the main research question that will be introduced below. It is the result of an assessment of the current academic debates, recent events in international politics and their geopolitical implications. More specifically the rise of China on the global stage, China’s energy security and the expansion of China’s National Oil

Companies (NOCs) into foreign markets are the main topics that are the foundation of this research. In this research it will be assessed if why and how the Chinese NOCs have gained access to the Angolan market. The relevance of this research will be the contribution to the understanding of China’s energy relation with oil producer countries, with a focus on the governmental and corporate level. The research will lead to a better understanding of Chinese energy supply security and the transnationalization of Chinese NOCs by focusing on their trade and investment behavior in Angola. It will add to our understanding of the forces that shape the China-Angolan relationship and assesses the linkages between the NOCs and the Chinese governmental structure. Furthermore, I will assess the geopolitical challenges that China will encounter as it intensifies its relationship with Angola.

With the aim to carry out the objectives outlined above, the following research question is advanced: What are the geoeconomic and geopolitical implications of Chinese NOCs activities in Angola, and the growing economic and political relationship between China and Angola? Three sub questions are forwarded to help answering the main research question:

- How can we assess the state-market relationship in China with regards to the oil industry? - How can we assess the trade and investment interactions between China and Angola? - Why, how and to what extent has Sinopec expanded its operations in Angola?

- Which challenges are a threat to Chinese NOC activities in Angola and to the energy security of China?

The Chinese-Angolan energy relation will be studied in the time-period of 2001-2015. This time-frame is chosen because it marks the starting point of an intensifying relationship between Angola and China, politically and economically. Politically as since 2001 the number of state visits intensified resulting in a strategic partnership between the two countries in 2010. Economically the value of trade between China and Angola has risen quickly. In terms of Chinese imports from Angola it rose from less than 1 billion US$ to almost 25 billion in the time-scope of ten years. The research will give a short historic overview of the China-Angola relation going back to 1983, the year

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13 diplomatic relations were formally established. 2015 is choses as I am aiming to provide the reader with the most up-to-date data.

1.2 Literature Review

China’s energy security has not solely been an important driver in Chinese government policy making but has raised an extensive scholarly debate as well. One can distinguish between two separate fields of focus in the study of China’s energy security. The majority of scholars focus on the implications of energy security for the economic development of China (Kennedy 2010; Shaofeng 2011). Other studies take a broader angle when examining China's energy security, among others Downs (2007) takes interest in the consequences of the growing Chinese oil imports on international politics. Up until now scholars have not been able to unanimously agree on what the concept energy security means for China, for which the main responsibility is the ambiguity and evolution of the concept of 'energy security'. Traditionally the concept was associated with the securing of oil supplies and the imminent depletion of fossil fuels (Kruyt et al. 2009). However, the conception of energy security has widened over time. Due to the increasing use of other sources of energy besides oil, political events like the oil crises of the 70s, and natural events like hurricane Katrina.

The United Nations Development Program (2000, p. 11) defined energy security as 'the0 availability of energy at all times in various forms in sufficient quantities, and at affordable prices'. However, broader definitions have been advanced that incorporate institutional and environmental dimensions into the definition of energy security. In order to measure energy security and because of the varying definitions on energy security a variety of indicators haven been put forward to measure energy security. Kruyt et al. (2009) provide a general overview of the indicators that are currently being used in order to measure energy security. The security indicators put forward by different scholars can be put along a four-dimensional scale with four general categories being: availability, accessibility, affordability and acceptability, which are in interplay with each other (Ibid). Jansen et al. (2004) provide four indicators for long-term energy security which, for the greater part, overlap with the indicators provided by Kruyt et al. (2009). They emphasize diversification of resource locations, resource sources, political stability in the country of origin and estimates of resource consumption and production in the consumer and supply country. In accordance with the scholarly work, policy-makers have viewed the diversification of suppliers as the main tool to increase their energy security, although this is not a foolproof strategy as events that cause major disruptions on the supply side will lead to higher prices for all countries that rely on imports (Vivoda, 2009).

Foreign Direct Investment (FDI) theory suggests that FDI has three main motivations being: foreign-market-seeking FDI, efficiency (cost-reduction) FDI and, resource-seeking FDI (Buckley, Clegg and Wang 2007, p. 501). China’s economic growth and its demand for resources has led to a growing

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14 use of ‘soft power’ diplomacy, in order to broaden its influence in Africa following the ‘going out’ of which its State Owned Enterprises (SOEs) have been the main targets and beneficiaries (Power 2012; Gonzalez-Vicente 2011). China has also used credit lines, which usually tend to interweave the Central Government with state owned banks and National Oil Corporations, to obtain energy supply contracts (Alves 2013, Corkin 2011a). The relationship between NOCs and the state is however fragmented and China’s NOCs are able to tailor policies to suit their own vested interest (Houser 2008; Kong 2010). Urban et al. (2012) groups the Chinese actors which are important for the Chinese energy policy into three categories being: regulators, SOEs and financiers. The key Chinese

institutions regarding the Chinese energy policy are the Communist Party of China (CPC), the State Council, the National Development and Reform Commission, National Energy Administration, the National Energy Commission and the Ministry of Foreign Affairs (Burke, Jansson and Jiang 2009). The above scholars see a change in political system and accredit the Chinese NOCs political clout. Xu (2012, p. 75) however, defines the relationship between the Chinese and its NOCs ultimately: as collaboration governed by hierarchy in which the NOCs are embedded in a top-down relationship with their government.

Much of the literature on China-Arica relations involve a generalized analysis between China and Africa as it were a relationship between two countries (Power 2012). Corkin (2007) notes that in the Chinese-Angolan partnership might be unique in regards with the relationship China holds with other African countries as financing comes from three different sources within China.

This research will contribute to the existing literature on China’s energy security. It will cover three important aspects of the academic debate. It uses the case study of Angola, to assess China’s energy and diversification strategy, the position of its NOCs, and the main motivations for China’s FDI’s. It will add to the understanding of the current Sino-Angolan relationship and the impact of Chinese activities in Angola and the geopolitical challenges that arise from it

1.3 Theoretical Framework

China is increasingly dependent on gas and oil imports to fuel its transition to a modern industrial society. This has led to increased investments in resource-rich countries. The rising import dependency of foreign energy sources is shaping China’s energy security policies as it tries to create and defend its energy supplies (Amineh & Yang 2014). This research focusses on the political and economic structure of the bilateral relationship between China and Angola in the context of energy scarcity. While a realistic or liberal perspective on the Sino-Angolan relationship could have been viable, I will explain in the following section why the critical geopolitical perspective is the best approach for this specific topic.

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15 In the practice of international relations (IR) the concept of ‘the state’ has been the principle concept, and has been the most prominent unit of analysis in international politics (Biersteker 2013, p. 245). One cannot ignore the concept of sovereignty when discussing the state because the origin and history of sovereignty is closely linked to the history and sovereignty of the state (Ibid, p. 245). In the Weberian conception, the state is an institution that possesses a monopoly over the legitimate means of coercion and the ability to extract tax revenues in a given territorial space. This concept, disputed by predominantly the Marxist tradition, has been widely utilized in the scholarly discourse of IR. And both traditions regard the state as a set of institutions and relationships of governance closely connected to, but analytically distinct from, society’ (Ibid, p. 247-248).

In the paradigm of realism ‘the state’ has been the key structural arena, both at the domestic and international level within which collective action has been situated and undertaken. The state is self-interested, power-seeking and attempts to maximize its security and survival (Ibid). Because of the nature of both the Chinese and Angolan state, it is tempting to use a realistic perspective when conducting research on their relation. In both countries the governments, or ruling elite, have extensive control over the political, economic and security related activities and issues within their national border. Cerny (1995, p. 595) however states that the state is being partially eroded and fundamentally transformed in a structural context, making the international system no longer simply a state system. The key problem with realism, for my research, is that it focusses on the power balance of states within the international system, making the size and military capability of the state the principle unit of analysis. Realism fails to account for other forces like market actors, including NOCs activities, which act besides the state. Furthermore, the central part of my research will be the analysis of the economic relationship between China and Angola which is not a central theme in realism and therefore makes it a less viable framework to work with.

Liberal theory places state-society relations at the center of world politics. State behavior, in liberal theory, reflects the relationship between the domestic and transnational society in which it is embedded and has three core assumptions: (1) the fundamental actors in international politics are rational individuals and private groups who organize and promote interests, (2) states represent a subset of domestic society whose interests state officials pursue through world politics, and (3) the configuration of the state preferences determines its behavior (Moravcsik 2001). Liberals, like realist, accept that the state is the primary unit of analysis and the key actor in IR but unlike realist they believe that peace can originate from the interaction of self-interested rational actors (Toft 2013, p. 681). Moreover, market actors play a key role in shaping the landscape of international relations (Doyle 1986). The key problem of liberal theory for my research is its focus on liberal values. Liberal theorist believe that values like democracy and free market economies are central in order to have

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16 friendly relations between states (Ikenberry 2009). Furthermore, liberal democracies are in contrast to authoritarian states more able to cooperate for mutual gain (Ibid). Because liberal theorists focus on liberal democracies, it is problematic to apply this branch of theory in my research. Both China and Angola do not pass as liberal democracies, but are authoritarian state-led societies in which the government and market actors are intertwined rather than clearly distinct forces.

The third narrative, which after realism and liberalism is frequently used in IR, is ‘critical theory’. Critical theory has a broad scope and has been used to research a broad range of subjects. Cox (1981) argued that the problem-solving theories, realism and liberalism, take the world as it is and try to solve the problems within it. Critical theorists’ principle concern has always been the here and now, and how it came about (Rengger and Thirkell-White 2007, p. 11). Critical geopolitics, which is rooted in the poststructuralist tradition of critical theory, ‘intends to understand world politics in terms of the ways in which elites and publics actively construct the spaces of political action that are then the medium for the policies of states and other actors’ (Agnew 2010, p. 569). It is furthermore the synthesis of the forces of the global political economy and the classical geopolitical concerns of the concentrations of resources which are required for war potential and to achieve dominance by conquest (Amineh & Yang 2014, p. 505). Radical geopolitics is a recent offshoot in critical theory, trying to alleviate shortcomings of critical geopolitics in particularly in the sphere of the political economy.

In radical geopolitics, the international political economy plays a pivotal role in explaining policy, more than in other branches of critical theory (Agnew 2010). Governments of states are primarily concerned with upholding their domestic legitimacy and social order within society. Economic growth is key in order to meet these concerns, hence states will try to engage in a process which is called ‘sequential industrialization’ in order to transition into an industrialized based political and economic society (Amineh & Yang 2014: 501). Industrialization leads to an increase in the use, of particularly, fossil energy resources. While fossil fuels can be viewed by economists as regular commodities, which are traded on the world market, fossil fuels are not by any standard ordinary commodities. They are the key to the functioning of a modern society and their continued availability is therefore of principle concern to all states (Amineh & Yang 2014). The concern particularly arises from the scarcity of fossil fuels and the specific regions of the world in which they are found. This leads to a situation in which countries, that are dependent on imports, need to secure the resources abroad (Ibid). Naturally this can lead to competition between countries over these resources, as domestic actors within the society demand that the state secures the resources needed for the economic development (Ibid). The states’ ruling elites have an interest in meeting the pressure from domestic actors, called lateral pressure, as they want to maintain domestic order and protect the

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17 state from international competitors (Ibid, p. 509). The Lateral pressure increases through:

population growth, rising per capita income, technological change and domestic resource scarcity (Amineh & Yang 2014). This dynamic ultimately leads to states that project power over their national borders, or in other words: states’ which invest resources in actions abroad, to meet domestic demands (Amineh & Yang 2014). Power projection, with regards to energy security, incorporates the creation of routes abroad, to access of stocks and the protection of them by either military or peaceful cooperative means (Ibid).

‘Radical geopolitics’ proposes two logics which are followed by major power-actors as the domestic economic reality of a state, shapes its overseas policies towards acquiring resources and entering markets to protect the domestic power-wealth structures (Amineh & Yang 2014). These logics are (1) the ‘geoeconomic logic’ which adheres to the tendency of capital to expand

geographically as domestic capital must search access to markets and resources abroad. This almost obligatory quest shapes the ‘geopolitical logic’ or in other words the policy to protect the domestic power-wealth structure and the ability to project power over the domestic border (Mercille 2008; Amineh & Yang 2014). The geopolitical logic can again be discerned into two levels being: (1) the exercise of power beyond the domestic border by the use of military force and (2) the exercise of power beyond the legal border. Or in other words, the influence of the political economy through trade and investments (Amineh 20152_{). In this research it will be analyzed in what way China is} capable of projecting power in Angola, and to what extent.

As a late industrializing country, China is in the process of catch-up industrialization in a world that is shaped by the current hegemon, the United States (US), which sees its order-making capacity being limited by contender states such as China (Amineh & Yang 2014). The status of domestic social actors as well as their capacity to express their interests in the transnational space is currently dominated by advanced capitalist industrialized actors (Ibid). Therefore a distinction between liberal democracies, authoritarian regime and petro-states is an important one to make. Unlike liberal countries, in nations with an authoritarian regime the sovereign state and not the self-regulating market will determine the long-term strategic orientation of society (Ibid). In this author’s opinion the critical, defined more narrowly as the radical geopolitical approach, is extremely useful in this research as it identifies the geographical expansion of capitalism as the principle driver behind policy choices and is able to interpret the buildup of relations between China and Angola. In this research it gives attention to the economic reasons behind the state policy of China regarding its energy policy and foreign policy in relation to its supply security of energy resources.

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18 Energy security is, in this research, assumed to be the key driver behind the acquisition of foreign assets by Chinese NOCs. Because Chinese NOCs are new players in an international industry in which the traditional Western IOCs have been active for over a Century. Chinese NOCs have started venturing outside of their home base in China only after 2002, making them less experienced and possessing lesser knowledge than their IOC counterparts. The energy scarcity model by Amineh and Houweling (2007) provides a framework in which the intensifying cross-border interaction can be explained. According to the energy scarcity model three types of scarcity arise from the global

competition for natural resources namely: Demand-induced scarcity, supply-induced scarcity, and structural scarcity. Demand-induced scarcity is caused by population growth in consumer countries, rising per-capita income in high income societies and late industrializing economies in mainly South and South-East Asia, and lastly by technological change as the historical resources are largely being replaced by oil and gas (Ibid). Supply-induced scarcity is caused by the dwindling of stock and thus interacts with demand-induced scarcity. Because awareness of the dwindling of stock might provoke a process of competitive power projection by capable and import-dependent nations to secure stock by means of regime change or military force. The last form of scarcity, structural scarcity, is a form of supply-induced scarcity by a major power, non-state actors or producer cartels (Ibid). In the current global system the United States is capable of inducing structural scarcity by means of its naval power with which it controls vital waterways. Accordingly China is building up its own naval capabilities and has designed an energy strategy of ‘going out’ in which its NOCs are increasingly undertaking cross-border activities (Amineh & Yang 2014). In liberal democracies a clear distinction exists between the economic and state class, where companies pursue the interests of their shareholders. In China this distinction cannot be made as the state class has greater control over all sectors of society. As a consequence, China uses SOEs to connect its economy with the global economy and to acquire the resources necessary continue its industrialization and economic development (Ibid). This the key to explaining why China is investing in various resource rich countries, like Angola, to diversify its sources of energy supply.

Angola has gone through two important transitional periods. As a colony of Portugal it went through a war of independence in the 1960s until the mid-1970s. Following independence it quickly succumbed to civil war between the MPLA (Portuguese Movimento Popular de Libertação de Angola) and UNITA (União Nacional para a Independência Total de Angola) movements, which lasted 28 years and was only ended with the death of the leader of the UNITA movement, Jonas Savimbi. The leader of the MPLA and President of Angola, Jose dos Santos, has through his extensive years in power created a system, that is often being referred to as a petro-state (Reed 2009; Kennedy 2014). In this system, the political elite has turned itself into the country’s key entrepreneurs who disregard the

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19 distinction between public and private property (Morais 2012). This elite clique which revolves around the president, relies on the petroleum industry for its own survival as it forms the backbone of the Angolan economy and wealth.

When examining the bilateral relationship between China and Angola one has to use a framework which incorporates the importance of both; market and state forces. Both the Angolan and Chinese state are characterized by a system in which business and politics is intertwined. Political elites in both countries effectively control the economic class or are a central part of it. The Radical offshoot of critical geopolitics provides a viable framework in which the diplomatic and economic relationship between the two countries can be examined through the geoeconomic and geopolitical logic. By applying critical geopolitics one is able to understand the circumstances under which the relationship is being built and what implications it has for industrialized countries in general and the United States in particular. In order to carry out this research I will analyze more thoroughly the state-market relations within the two countries and will from then analyze the diplomatic and economic ties which have been built between China and Angola following the sequential industrialization of China and the lateral pressure that originates from it.

The geoeconomic logic implies that the transnationalization of production and capital has created a global energy market in which oil companies are the key actors that connect oil producing and consuming countries. The transnationalization of oil companies is principally the result of lacking energy resources in their home countries. This applies to the Chinese NOCs as well, as China’s domestic reserves are not sufficient to supply China’s industrializing economy. The discussion on transnationalization has predominantly taken place in the bigger context of globalization and internationalization. The discussion has brought consensus on the ability of multinational corporations to shift production elsewhere and to circumvent the autonomy of national

governments on economic decision (Risse 2013, p. 431). Zürn (2013, p. 410) helps us in defining transnationalization as he refers to the transnationalization of governance as the ‘process in which transnational non-state actors develop political regulations and activities without being formally authorized by states’. This are regulations that are based on the principle of self-governance and create private authority. This means that we can understand transnationalization of NOCs as the increase of their cross-border activities and a loosening relation between state and corporation. In this study on the transnationalization of Chinese NOCs, one cannot ignore that in IR we can discern two ‘ideal’ types of society-market complexes of which the first is a ‘liberal state-society’ and the second ‘authoritarian’, in which the political class has greater control over the executive, legislative and judicial branches of government (Amineh & Yang 2014). This cannot be disregarded because the interaction between state and non-state actors is influenced by the legal framework in which the

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20 interaction takes place. The Chinese NOC on which this research will focus isthe China Petroleum & Chemical Corporation (Sinopec) as it is the primary Chinese investor in Angola.

Gonzalez-Vicente (2011) helps to understand the state-market relations by introducing the concepts ‘entrepreneurial statehood’ and ‘decentralized internationalization’. Entrepreneurial statehoods refers to the idea that China wishes to become a capitalist market economy in which the state is not only a regulator but a participant as well, of which the ‘‘going out’ policy’ is the key element of this agenda (Hardus 2014). Decentralized internationalization ‘highlights the importance of disaggregating the different actors that represent the Chinese state abroad’ through which the study of agency and the divergent interests of state actors becomes clear (Ibid, p. 492). The Chinese state, and the Angolan as well, classify as ‘authoritarian state-led’, or authoritarian dominant party system. China is a one-party system in which the government controls many facets of society and while Angola has adopted formally democratic institutions and has introduced multiparty elections it measures low on indicators such as political rights, competition and civil liberty (Hakenesch 2015; Freedom House, 20143_{). The term petro-state, can be applied to Angola and is conceptualized as the} ability of the state to opt for state policies and actions that triumphs oil interests over the general public good, or the benefit of other segments in society (Kennedy 2014, p. 264). The petro-state is mostly characterized by single-resource dependency, coupled with state ownership of the national resources from which the state extracts high rents (Ibid). This results in a condition in which the state becomes the primary objective of rent-seeking behavior, and where state institutions primary goal come to be the expansion or maintenance of oil revenues (Ibid).

1.4 Brief argument and Hypotheses

The scarcity model outlined above, is part of the puzzle in explaining why Chinese NOCs have started to make great efforts in acquiring foreign assets, spurred on by the government of the PRC from 2002. It explains the growing interaction of China with producer countries, including Angola as China is suffering from demand-induced scarcity. The hypothesis which are derived from the theory are as follows:

Hypothesis 1: The increase in transnational activities of Chinese NOCs has not led to a greater autonomy from the Chinese state, which remains the principle decision making actor for the Chinese NOCs.

Chinese NOCs have since the beginning of the 2000s started venturing out of China,

increasingly transnationalized and increasingly compete with Western International oil companies.

3_{Freedom House is an independent organization which measures the progress and decline of freedom in the}

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21 Transnationalization as it has been outlined by Zürn (2013), would implicate that through the

increase in cross-border activities of Chinese NOCs they become increasingly autonomous from the Chinese state. In this thesis it will be assessed if this holds true for Chinese NOCs. In this author’s estimation; the Chinese political elite regards its energy security as pivotal for its own survival. Therefore it will not implement legislation that will lead to a situation in which the NOCs become truly independent from the state; but they will remain closely monitored by the state’s political elite, in order to safe-guard the objective of a continuous supply of oil for the Chinese domestic market.

Hypothesis 2: The Sino-Angolan relationship is founded upon mutual economic and political interests of which energy trade is the vital component of this relationship.

The relationship between China and Angola is based upon two pillars: economic relations and diplomatic relations which have evolved significantly over time since 2002. The economic

relationship is the key pillar of the bilateral relationship which is founded upon oil trade, making the bilateral relationship primarily a relationship through which China increases its goal of securing its growing energy needs.

Hypothesis 3: China is increasing investments in infrastructural works and is increasingly offering other non-energy related payments. This outflow of Chinese capital into Angola has the goal to strengthen political ties with Angola, in order to further China’s geoeconomic interest.

While Chinese officials stress that their dealings with other developing countries is founded upon a win-win basis for both countries. Chinese investments in Angola, especially in non-energy related economic sectors are primarily aimed at strengthening political ties and protecting its domestic power-wealth structure. As has been outlined by Amineh and Yang (2014), the domestic power-wealth structure is, among others, being protected through a geoeconomic logic that is shaped by capital which needs to expand geographically. The conditions under which Chinese loans are disbursed gives reason to belief that China is predominantly opening up the Angolan market for Chinese companies.

Hypothesis 4: In reaction to the growing involvement of China in Angola, The US will react in order not lose its influence in the Gulf of Guinea region and Angola in particular.

Oil is, and will be in the foreseeable future, important for industrializing and industrialized countries alike. The Gulf of Guinea4_{(GoG) region is an important link in the overall global oil supply}

4_{There is no clear definition of the GoG Region, its widest definition includes the region from Guinea to Angola}

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22 chain, a fact of which the United States has been well aware (Raphael and Stokes 2011, p. 912). The increased Chinese geoeconomic influence in Angola will cause the United States to react, by either diplomatic or militarily means, in order not to lose influence in a region which is of strategic interest to the United States and its industrialized allies.

1.5 Conceptualization and operationalization

In order to test the hypothesis outlined above I need to elaborate on specific concepts. Agnew (2010) argues that the ‘rise of China’ is not comparable to the rise of hegemons in the past and claims that China’s rapid economic development is predominantly the result of globalization. Globalization is described as the process in which the world moves towards an integrated global society in which the importance of national borders decreases which, in the political sciences, is measured by the number of transaction (Zürn 2013, p. 406). In this research the scope of integration between China and Angola will be measured by primarily the indicators: trade, and investment. These variables are furthermore essential in assessing to which extent China is capable of projecting power in Angola by means of the political economy.

The economic relationship or economic structure is discerned, in this research, in two subcategories: (1) trade and (2) investment (FDI). Statistics on trade will be given in this research in absolute terms of volume, value in US$ Dollars and relative terms to get a complete picture of the dependence of the two countries on one another. FDI figures will focus on FDI in the oil sector made by Sinopec. Trade and FDI statistics will primarily be addressed in the third chapter of this this whereas. The economic relationship is used to understand to what extent the geoeconomic logic applies to Angola.

Supply security is a concept at the foundation of this research. It refers to the fact that in every supply chain there are risks of disruption. In this research supply security refers to two subjects; the first being, that risk is averted by having multiple sources of supply. Because a disruption in one chain has less effect on the overall supply and the potential loss of supply is more easily replaced. The other topic of supply security refers to the potential risk to which the Chinese expose themselves to, through their dealings with the Angolans. The concept of supply security will be important in all the coming chapters in this paper, as it is perceived as the key driver for the internationalization of Chinese NOCs and the ‘going out’ policy.

The state-market relationship which was mentioned in the first sub-question is also applicable to the first hypothesis. It focuses on the interaction between the Chinese specialized companies and its state-owned financial institutions vis-à-vis the political leadership. In this thesis it is assessed how the state-market relation influences decision-making on strategic investments in Angola. In this research three Chinese state actors will be discerned being: regulators, SOEs and financiers. The

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23 regulators for this research are defined as the (1) CPC, (2) the State Council, (3) the National

Development and Reform Commission, (4) National Energy Commission and (5) the Ministry of Foreign Affairs. The first four are important in order to understand the legal framework and the energy policy under which Sinopec operates in China. The Ministry of Foreign affairs is important as it provides assistance to NOCs in their global activities. This distinction allows the analysis of the hierarchical structure between government and the company Sinopec. The aim is to assess which changes in this framework have been implemented over time, to assess the reasons for these changes and to assess if these changes have led to more autonomy for Sinopec from the Chinese state. The category of SOEs in this research consists of the NOC Sinopec which is China’s 2nd_largest oil company. It has been active in Angola since 2004 and is responsible for the majority of assets acquired by Chine NOCs in Angola. Chinese NOCs in general have started ‘‘going out’’ in a remarkable pace after the ‘‘going out’ policy’ was implemented by the CPC in which the central government of the PRC would promote its nationally owned companies in foreign investments and support them in acquiring foreign assets. The state-market relations focusses on the Angolan system as well. In the research it will be assessed in what way the principle Angolan NOC, Sonangol, is intertwined with the political elite of the country.

State financiers, or the Chinese financial institution which will be analyzed in this research is the China Eximbank because it is the primary Chinese benefactor regarding oil-backed loans in Angola. Oil-backed loans or resource backed loans (RBLs) are loans provided to foreign energy companies or government entities which are to be repaid by revenue originating from oil which is sold to Chinese NOCs. This thesis will focus on the time-period 2001-2015. However to come to deeper understanding of the development of the contemporary state of affairs, it will shortly address the period before 2001.

1.6 Methodology

This research will combine several crucial elements of energy security studies applied to the case of Angola. To gain new insights a qualitative research analysis is conducted of the available sources on China’s energy security, state-market relations in China and Angola regarding their energy sector. Furthermore Chinese investments in Angola and the domestic and geopolitical challenges that arise for China and can potentially disrupt its energy supply from Angola are analyzed. Primary sources, such as observations and interviews, will not be incorporated in this research due to the limited time-scope. A secondary approach, however, allows for a quick collection and analysis of data which is beneficial to this thesis. The single case study helps to understand the impact of China’s growing involvement in the global political economy and its consequences at a domestic and geopolitical level. While it is problematic to generalize from a single case study this method is

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24 essential if we want to gain an understanding of China’s growing geoeconomic influence across the world and the responses by other nations to this.

Four different sources have been used in finalizing this thesis. The first source of data is academic literature. Academic literature refers to books and articles that are theoretical or speculative based on formal education and higher learning. The second source of data consists of reports from governments, research institution and non-governmental organizations that relate to the topic of China’s energy security, the Chinese state and market relations, Angola’s oil industry and its governance. For example: Data on the Chinese energy demand, supply and reserves, including future prospects, will be derived from the country analysis for China and Angola by the United States Energy Information Administration and data from the Chinese statistical yearbook. The third data-source is represented by media outlets. In this thesis primarily newspaper reports and magazines have been used such as the Wall Street Journal and the Economist. The last source that is used in this thesis, are quantitative data-sets on trade, FDI and foreign aid.

To analyze the extent of the economic relationship quantitative data for trade has been derived from the United Nations Comtrade international trade statistics5_{(UN Comtrade). In 2014 a}

new data-set was published to create more in-depth insights in China’s FDI and financing activities called ‘China Aid Data-set’ (Aiddata)6_{which collects ‘open-source’ information about development} finance flows including investments and loans. This data-set will be assessed for the analysis of China’s loan disbursements to Angola. To complement this data-set the China Global Investment Tracker by the Heritage Foundation will be used to come to a comprehensive understanding of China’s investments in Angola7_.

1.7 Structure

In Chapter two China will be introduced. The political and economic issues concerning China will come to the fore. A historic overview of China’s energy situation and security will be presented. From here on it will be discussed in what way the relation between the Chinese state and market is organized with special focus on the energy market and China’s NOCs. China’s NOCs are the central actors as they are politically driven actors that play the pivotal role for China’s energy security. Hereafter Angola will be introduced. A short history will be given of its tumultuous history in the second part of the 19th_{century. At the center of attention will be the evolution of Angola’s oil} industry and its relation and importance to the central government.

5_{UN comtrade SITC 1 revision was used in acquiring data because trade statistics, for different years, are}

missing in later revisions.

6_{Available at:}_{http://www.china.aiddata.org}

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25 In chapter three the bilateral relationship between China and Angola will be discussed along three lines namely: Trade, investments and aid. It is discussed how energy scarcity in China and the geoeconomic logic has shaped the Sino-Angolan relationship. It will be examined how Sinopec secured its entrance into the Angolan oil market and to what extent it has managed to expand its operations in Angola and in what way China has managed to connect its domestic economy with the Angolan market.

Chapter four addresses the challenges china faces in Angola, and what the principle threats to its business interests in Angola are or potentially will be. Chinese challenges are discerned as

domestic and geopolitical. Domestic challenges represent the challenges that arise from the contemporary socio-economic situation in Angola being; employment, durability and corruption. Geopolitical challenges arise from China’s competitors. This will be discussed in the last section in which the scope of enquiry will be widened to the GoG region which, as we will see, is a region of strategic interest and pivotal for the continuous global oil supply.

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26

Chapter 2: State-Market Relations, Energy Policy and Security

2.1 Introduction

In Chapter one, the general framework of this thesis has been explained. This Chapter serves as an introduction to the case study of this thesis and aims to answer the question: How can we assess the state-market relationship in China with regards to the oil industry? To answer this question, China’s energy policy with regards to its oil supply security will be addressed. China’s energy situation, its state policy, and its institutional framework towards energy in general, and the oil industry in particular will be analyzed on the domestic and geopolitical level. This chapter begins with a historic overview of the evolution of China’s domestic policy towards its oil industry. Hereafter the contemporary policy of the PRC towards its oil industry will be discussed including its tools to tackle the energy scarcity problem. This will lead towards an analysis of China’s NOCs and their relations with the government of the PRC. Because the energy policy depends on the domestic needs of the country, an overview will be given on the China’s economic development and how China’s economic growth rates have influenced the PRC’s energy policy and its dependence on foreign sources. This will be followed by an analysis on China’s strategy to secure its growing need of

resources in general and how Angola is incorporated into this strategy in particular. In the last part of this chapter the host country Angola will be introduced with emphasize on the state-market relations and the dependency on its oil industry. This research predominantly focusses on the time-period between 2001 and 2015; in order to gain a complete understanding of China’s policy tools that are in place today, we need to look into the evolution of how these came to be.

2.2 State-market relations in China

For the greater part of human recorded history China has been among the world’s most advanced nations in economic and technological terms but in the 19th_{century China underwent} humiliating events inflicted by Western industrialized powers and civil strife (Dent 2011; Landsberger 2014). This discrepancy in China’s history came to an end in 1949 which was marked by the 65th birthday of the PRC in October 2014. It brought an end to a century long time-period in which the Chinese nation perceived itself as being oppressed by Western powers, and was ravaged by civil strife (Landsberger 2014). The victory of the CPC, over the Kuomintang in 1949, marked the end of the civil war in China after which the CPC tasked itself with the modernization of China’s economy. A socialist model was implemented in which no aspect of the cultural, political and social life would be excluded to bring the nations’ century of humiliation, backwardness, underdevelopment and poverty to a hold (Ibid).

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27 The time-period 1953-1978 can be perceived as one of the largest economic policy and

development programs in modern history. The ‘great leap forward’, set off by Mao Zedong, resulted in a widespread famine due to loss of agricultural productivity and can be seen as a disaster

(Cheremukhin et al. 2014). The development of the Chinese petroleum industry started in the 1950s. In 1955 The Ministry of the Petroleum Industry (MPI) was established, under the authority of the State Council, and was given the responsibility of all exploration activities, development of oil fields and the construction of refineries (Kambara and Howe 2007). The initial development of the Chinese oil industry was accomplished by extensive technical support from the Soviet Union. The impact of the Soviet support, was not limited to the transfer of technical know-how and equipment. It also had an impact on the administrative arrangements of the petroleum industry as China adopted soviet-style administrative arrangements in which planning was highly centralized (Ibid, p. 11). When the Sino-Soviet relationship deteriorated in the late 1950s, ‘self-reliance’ became a matter of national prestige and centre in the new Maoist model of economic development (Ibid). Self-sufficiency was realised through a ‘massive campaign’ in developing oil resources in Daqing. Daqing is a remote area in North-eastern China, which reached an annual production of 6 million tonnes in three years and enabled China to become a self-sufficient oil producer country in 1965 (Zhang 2004). Next to the physical environment challenges of the site, being remote to food supplies and missing basic infrastructures such as transportation and harsh winter conditions, the loss of Soviet support on the Daqin oil field presented the Chinese with an enormous technical and human resource challenge. These challenges were met by the Party degree that technical shortcomings and capital shortages would be overcome by mobilizing thousands of men, controlled by ‘military work methods’ and driven by Maoist ideology (Kambara and Howe 2007). The Daqin project, which was given supreme priority by the Communist Party, was not only the means for the PRC to become self-sufficient in its oil consumption but it became a supreme test of political strength for the Communist Party itself to stand the crisis of the years after the Russian retreat (Ibid).

1978 marks a turning point in the PRC’s economic system as China’s economy gradually transitioned from a socialist state-planned economy to a more capitalist market-based, and outward looking economy in which the Chinese government’s restrictions on outward FDI were liberalized (Zhang 2011, p. 148). This shift, with Deng Xiaoping as its instigator, had an unprecedented effect on economic growth and a swift re-emergence of China as a world power, becoming the principle contender to the United States’ hegemony. When Deng Xiaoping came into power in 1978 the Chinese economy was in a bad shape and change in the economic system was inevitable. The productivity of the petroleum industry, despite its priority status, was in decline. The reforms the government brought about, to reverse the declining growth in output of the petroleum industry,

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28 were amounted essentially through the decentralization of petroleum prices, production, and

administration (Kong 2010). The decentralization of oil prices is particular important because artificial low prices cause overconsumption, prevent efficient allocation of resources, and result in low

profitability of producers. Therefore producers have little incentive to increase production subsequently hurting the domestic oil supply. But there is risk involved in the removal of price distortions. Fast rising energy prices can result in high inflation rates, slowdown of the economy and risk of a revolt against the government when the poor populace is not able to afford the new prices (Ibid). In essence the central government withdrew itself from managing production and rendered all supply and demand decisions to three newly created NOCs that would, from then on, be responsible for creating modern corporations. This included the responsibility for their own profits and losses, and the embracement of market competition (Ibid). While China, in the time-period under Mao wished to become a power to be reckoned through centralized planning, it failed delivering on this goal. Deng Xiaoping realised that China had to open up its economy to the global system to hold off further economic decline, with the prospect of losing legitimacy at home, in a system dominated by capitalism. Furthermore, opening up the economy was necessary to increase China’s standing in the world and increase its geoeconomic and geopolitical capabilities.

The central government of the CPR introduced a two-tier model, through which the drop in oil production was reversed in 1982, in which the MPI had an annual production target of 100 million tons. The oil produced above target was allowed to be sold on the international market of which the revenue was used to acquire foreign equipment and technology (Ibid). The decentralization policy of the 1980s saw the creation of three NOCs, China National Oil Corporation (CNOOC) to be in charge of the exploration and production (E&P) and offshore cooperation with foreign oil companies. Sinopec, established in 1983 from downstream assets of the MPI, was given charge over the formulation of production policies for refined oil products and petrochemicals. At the same time Sinopec was given the supervision on construction and operation of refining and petrochemical plants and marketing these products in China (Ibid; Downs 2010, p. 74). In 1988 The MPI was restructured to become China National Petroleum Corporation (CNPC), which inherited all administrative functions including the formulation of quality standards for oil products and environmental protection policy (Kong 2010). China’s petroleum industry was from here on formed by four NOCs including Sinochem Corporation which was already created in the 1950s as China’s oil trading enterprise (Ibid). The central government adopted a gradual and cautious approach which was accelerated, by increasing the amount of oil to be sold on the international market, in the beginning of the 1990s. This was done at a time when inflation was at a 3 percent mark which allowed energy prices to rise.

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29 From 1994 onwards Chinese NOCs and other large centrally owned companies were allowed to keep their profits and in 1998 new reforms linked the Chinese domestic oil prices to international prices. Although these prices were still government controlled as the State Development and

Planning Commission (SDPC) set guiding prices, based on the product prices at the Singapore market, for the country’s oil product prices (Kong 2010). In the 2001 reform, which is largely still in place today, the SDPC linked the domestic oil prices to the weighted average oil prices traded on the Singapore, Rotterdam and New York markets and allows the NOCs to adjust prices in a range of 8 percent at the petrol station (Ibid). This mechanism is flawed however, as the prices determined always lag behind international market fluctuations. This can result in a situation in which refineries on the Chinese mainland will rather sell their products on the international market, potentially leading to shortages on the domestic market (Ibid).

Since 1978 the Chinese government passed multiple decentralization policies in order to modernize its economy but without the CPC losing its effective control over the country. The CPC remains omnipresent in managing virtually every field of Chinese society. The main political structure of the PRC incorporates two vertically integrated but interlocking institutions namely the CPC which is headed by the Politburo and the state government apparatus which is headed by the Premier who chairs the State Council (Martin 2010). At the top of the CPCs political structure, and regarded as the most important political institution in China, stands the Politburo which is the leading decision-making body in China (Ibid, 2010). Even of more significance is the Politburo Standing Committee (PSC), which currently has seven members including the president and the prime-minister. The decisions the PSC makes cannot be overruled and its members are in charge of all major governance pillars making it the key decision-making and operational body. According to the constitution of the CPC, the PSC and the Politburo derive their power from the Central Committee whose members officially elect the Politburo and the PSC. In practice, however, top officials provide a list of nominees which is than ratified by the Central Committee (Lawrence and Martin 2012).

As a result of China’s reforms, discussed above, the NOCs have become a group of enterprises which are closely intertwined in China’s bureaucracy. When examining the governance structure of Chinese NOCs; the State Council is the principle government administrative body. The State Council functions as a cabinet, essentially managing the country’s economy on a day-to-day basis, and

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30 oversees the majority of ministries, and organizations like the: People’s Bank of China, SASAC8_{, MOF}9_, MOFA10_{, NDRC}11_{, NEA}12_{, NEC}13_{, and the CBRC}14_{(Lawrence and Martin 2012; Jiang and Sinton 2011).}

Figure 2.1 provides a schematic overview of the governance structure of China’s petroleum industry. The Organisation Department of the CPC, reports directly to the Central Committee and appoints the NOCs top leaders and Central Executive Officers (CEOs). This makes the NOCs leadership deeply connected to the top leadership of the government and the CPC (Jiang and Sinton, 2011). Because of the connection with the top leadership and the affiliation of the NOCs with former ministries. The top executives of China’s NOCs must wear two hats as they are simultaneously leaders of commercial enterprises and Party operatives (Ibid). The SASAC, created in 2003, is mandated to supervise and manage SOEs (including NOCs), and enhance the management of state– owned assets. The SASAC is the formal owner of the NOCs and holds, like the NOCs, a ministerial ranking and appoints high-level managers for to the NOCs (Ibid, p. 25). The NOCs pay dividends to the MOF while they receive diplomatic support abroad from the MOFA. The NEA and NDRC are responsible for the oil and gas prices and have the power to approve or disapprove (foreign) investment projects (Ibid, p. 26). The NEA was established in 2008 in an attempt to create an

effective national-level energy institution. It has been given a broad mandate including the managing of the country’s energy industries, drafting energy plans and policies, promoting research, regulation and supervision for primary and secondary energy forms, negotiation with international energy agencies and the approving of foreign energy investments (Somesfalean 2014, p. 9). However the NEA is not a ministry-level body and lacks the authority to coordinate the interests, commissions, and NOCS (Ibid).

8_{State-owned Assets Supervision and Administration Commission} 9_{Ministry of Finance}

10_{Ministry of Foreign Affairs}

11_{National Development and Reform Commission} 12_{National Energy Administration}

13_{National Energy Commission}

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31 Figure 2.1: Chinese Governance Structure of National Oil Companies

Sources: Jiang and Sinton (2011:25).

The governance structure of China’s petroleum industry is highly fragmented as there is no government body which has exclusive control over energy policy or the NOCs. In total there are 15 government departments dealing with energy issues (Leung et al., 2014). It is argued that this fragmentation makes it hard for the PRC to align government- and commercial interests, but Chinese leaders have often emphasized the political stability at home (Jiang and Sinton, 2011). Although it is presumed by many international observers that China’s foreign acquisition of oil assets has been well coordinated and state led, primarily Chinese analysts have complained about the incoherence in China’s energy strategy (Downs 2007). The principle concern is that China’s NOCs through the decentralization process have gained increasing independence from the government, with the government primarily having the power to appoint lead positions (Downs 2007). The NEC is China’s leadership’s attempt to improve coordination of its energy policy, coordinate domestic energy production and international energy cooperation and has the minister of foreign affairs, state security and finance (Bo 2010). The NEC is housed in the State Council which gives the suggestion that the power of the government especially that of the premier is rising and reflects the Chinese leaderships’ concern for energy efficiency, energy security and environmental protection (Ibid, 2010). The NEC is composed of the heads of 21 central bureaucracies and headed by the premier which gives it strong political clout but without budget, staff or residency it is an ad hoc body that has an advisory function rather than a decision making role (Leung et al. 2014; Somesfalean 2014).

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32 Political stability at home, as emphasized by Chinese leaders, is for a great part realized by steady economic growth. The geoeconomic logic explains that in order for China’s economy to grow, in a global capitalist system, it needs to connect it domestic economy with foreign markets. For this reason the Chinese government, at the start of the 2000s, set of the ‘‘going out’’ policy which is discussed in the following part of this chapter. Another key, and related issue, is that in the modern economy a state needs sufficient modern energy sources. Chinese leaders have always recognized that its NOCs are the principal means to secure these resources in the future. The decentralization of the energy industry throughout the 1980s and 1990s has formed the foundation of the NOCs ability to compete globally. However, Chinese NOCs have not become corporations resembling those of IOCs. The state and markets in the host countries of the IOCs are two separate entities. In China, as has been outlined above, we see a clear entanglement of Chinese state institutions with its NOCs. While they possess political clout as well, the NOC leadership is dependent on the state political elite which is responsible for their position, and further careers. Their companies are at the same time under scrutiny from multiple government bodies which can effectively block investments. On the other hand Chinese NOCs are able to wield support from their government to accomplish

commercial goals, but this will be discussed in more detail in the next section.

Another important facet of the state-market relation between the government and China’s NOCs is the question of ownership. While ownership does not automatically translate into direct control, it has an impact on the dealings of a company. SOEs and non-state owned enterprises (NSOEs), typically develop business opportunities for differing reasons (Bass & Chakrabarty 2014). NSOEs operate exclusively under the logic of market capitalism, focussing on short-term profitability and return on investments for share-holders (Ibid, p. 964). SOEs on the other hand operate under the economic logic of the state-capitalism, in which both business intent and geopolitical intent dictate where and how they compete (Ibid). Meaning that state-ownership make companies susceptible to wealth re-distribution, job creation, general economic development and it makes them sensitive to the home-countries foreign policy goals like energy-security (Ibid). While China’s NOCs have publicly listed subsidiaries, the annual reports published by the NOCs tell us that the majority of the shares are owned by the NOCs themselves, making them effectively state-owned as SASAC is in control of the states’ assets [see table 2.1].

Transnationalization of Chinese national Oil Companies : the case of Angola