Linking China’s Energy Strategy with Venezuela:
Transnationalization of Chinese NOCs and Geopolitical Implication of
China-Venezuela Relations
Author: Changwei Tang (10866825)
Supervisor: Dr. M. (Mehdi) Parvizi Amineh Second Reader: Prof. Dr. Kurt Radtke Date: 26th June 2015
Master Thesis Political Science: International Relations Research Project: Political Economy of Energy
Table of Content
Abstract ... 4
Acknowledgement ... 5
Maps of the Selected Countries ... 6
List of Figures and Tables ... 8
List of Abbreviations ... 9
Chapter 1. Research Design ... 10
1.1 Introduction ... 12
1.2 Literature Review ... 12
1.2.1 Chinese Energy Security ... 13
1.2.2 China’s Going-Out Policy ... 14
1.2.3 Chinese NOCs ... 14
1.2.4 China-Venezuela Relations ... 15
1.2.5 Post-Neoliberalism and Chavismo in Venezuela ... 16
1.3 Theoretical Framework ... 17
1.3.1 Energy Security and Scarcity Model ... 18
1.3.2 Nature of National Oil Companies ... 19
1.3.3 Transnationalization ... 20
1.3.4 Critical Geopolitics ... 21
1.4 Hypotheses ... 23
1.5 Operationalization and Methodology ... 24
1.6 Organization of Work ... 25
Chapter 2. Chinese Energy Security and National Oil Companies ... 27
2.1 Introduction ... 27
2.2 China’s Energy Situation ... 28
2.3 China’s Energy Policy ... 30
2.4 Governance of Chinese NOCs ... 32
2.4.1 Overview ... 32
2.4.2 State-led or Hybrid Corporate Governance? ... 33
2.4.3 Dual Responsibility ... 39
2.5 Conclusion ... 42
Chapter 3. China-Venezuela Economic Relations ... 44
3.1 Introduction ... 44
3.3 Economic Relations ... 50
3.3.1 Sino-Venezuela Oil Trade ... 50
3.3.2 China’s Investment in Venezuela ... 56
3.4 Financial Mechanism ... 62 3.5 Conclusion ... 64 Chapter 4. CNPC in Venezuela ... 66 4.1 Introduction ... 66 4.2 CNPC in Venezuela Since 1997 ... 66 4.2.1 Intercampo-Caracoles Oilfield ... 67
4.2.2 MPE3 (Orimulsion Project) ... 69
4.2.3 Zumano Oilfield ... 70
4.2.4 Orinoco Oil Belt ... 70
4.3 Competition between CNPC and IOCs in Venezuela ... 73
4.4 Corporate Social Responsibility of CNPC ... 75
4.5 Conclusion ... 76
Chapter 5. Strengthening China-Venezuela Relations: Potential Risks and Geopolitical Implications ... 78
5.1 Introduction ... 78
5.2 China-Venezuela: Problematic ‘Comprehensive Strategic Partnership’? ... 79
5.2.1 China’s Intention of Engaging with Venezuela ... 79
5.2.2 Venezuela: Obtaining Benefits by Allying with China ... 82
5.3 Potential Risks and Challenges for Chinese Government and NOCs ... 84
5.4 Geopolitical Implication of Sino-Venezuela Relations: US Perspective ... 87
5.5 Conclusion Remarks ... 90
Chapter 6. Conclusion ... 91
Abstract
This thesis intends to link China’s energy strategy with Venezuela. With the growing demand for energy resources, Chinese government has been adopting a different way, comparing to western countries, in assuring its energy security, in which the state ruling elites effectively controls China’s NOCs and connect them with overseas market. Meanwhile, as a resource-rich country, Venezuela has the largest oil reserve in the world, thus establishing an energy partnership is fundamentally beneficial for China. However, whether the expanding commercial activities of Chinese NOCs in Venezuela or China-Venezuela political and economic cooperation have provoked some challenges for China, and caused geopolitical implications for the United States. It deserves to research as how those factors are influencing China’s energy strategy towards Venezuela, and how should China adjust the energy policy in order to realize its energy objectives in the near future.
Acknowledgement
Upon my 22nd birthday and completion of the master thesis, my study life in Amsterdam has
officially come to an end. During the past 10 months, I’ve experienced innumerable challenges and difficulties in my life and study, which are actually transformed into my endeavor for the master program. The four-month research project Political Economy of Energy has molded me into a person with more comprehensive research knowledge, academic insights, and problem-solving skills. Hereby, first and foremost, I would like to thank my supervisor Dr. Mehdi Amineh for his dedicated help and guidance, without whom I could never finish this thesis smoothly. Secondly I want to give my special thanks to Dr. Barbara Hogenboom. Through participating in her course Contested Extractivismo: Conflicts and Governance of Mining and Oil in Latin America, I’ve gained different perspectives in regard to the development of oil industry in Venezuela, which better helps me constructing my arguments in the thesis. Also, I would like to thank Dr. Kurt Radtke for agreeing to be my second reader. Moreover, I really appreciate the support from my family, especially my mother, who always stands by my side and helps me get through difficult times during my research. Fourthly, I would give thanks to my friends from China, who have helped me find and collect relevant data. Last but definitely not least, a special thanks is given to my classmates from the research projects---Neal, Guido Weisfelt, Justus, Guido van Linschoten and Svens, with whom I’ve spent intensive but interesting study and research time together.
Changwei Tang
Maps of the Selected Countries
Map One: China
Map Two: Venezuela
List of Figures and Tables
Tables:
Table 2.1: China’s Oil Production, Consumption and Trade, 2003-2012 ... 28
Table 2.2: Political-Corporate Positions of Selected Persons from CNPC ... 40
Table 3.1: Key Political and Business Leaders Presented at Annual Meeting ... 48
Table 3.2: China-Venezuela Trade Value (Billion Dollars) ... 51
Table 3.3: Percentage Share of China’s Oil Import From Venezuela, 2004-2014 ... 52
Table 3.4: Venezuela's Oil Export to Major Regions and Countries ... 54
Table 3.5: Major Chinese Invested Projects in Venezuela ... 60
Table 3.6: Chinese Invested Engineering Projects in Venezuela, 2005-2013 ... 62
Table 3.7: China-Venezuela Joint Fund ... 63
Table 3.8: China-Venezuela Long-Term Volume Fund ... 63
Table 4.1: CNPC’s Projects in Venezuela ... 73
Table 4.2: Participating IOCs in Orinoco Project Since 2007 ... 74
Figures: Figure 2.1: China’s Energy Consumption by Fuel Type, 2012 ... 29
Figure 2.2: Major Government Decision-Making Bodies for Chinese NOCs ... 37
Figure 3.1: China's Crude Oil Import by Source ... 52
Figure 3.2: Percentage share of Venezuela’s oil export by country (%) ... 54
Figure 3.3: Chinese FDI in Venezuela (Million Dollars) ... 57
Figure 3.4: Chinese FDI in Venezuela by Sector ... 57
Figure 4.1: Annual Production of Caracoles Project ... 68
Figure 4.2: Annual Production of MPE3 Project ... 70
Figure 4.3: Oil Reserve and Division of Orinoco Oil Belt ... 71
List of Abbreviations
APEC bbl/d BCF FDI FONDEN CCP CDB CITIC CNOOC CNPC ECLAC EIA EU FDI FONDEN GDP IMF IOC MOC NDRC NEA NOC PDVSA PSUV SinopecAsian Pacific Economic Cooperation Barrels Per Day
Billion Cubic Feet
Foreign Direct Investment
El Fondo del Desarollo Nacional Chinese Communist Party
China Development Bank
China International Trust and Investment China National Offshore Oil Corporation China National Petroleum Corporation
Economic Commission for Latin America and Caribbean Energy Information Administration
European Union
Foreign Direct Investment El Fondo del Desarollo Nacional Gross Domestic Product
International Monetary Fund International Oil Companies Ministry of Commerce
National Development and Reform Commission National Energy Administration
National Oil Company Petróleos de Venezuela S.A.
Partido Socialista Unido de Venezuela China Petroleum & Chemical Corporation SOE State-Owned Enterprise
Chapter 1. Research Design
1.1 Introduction
Since China commenced its economic reform and open-up policy in the early 1980s, it has been gradually playing a pivotal role in the global economy. It is predicted by IMF (2014) that in the coming few years China will overtake United States as the world’s biggest economy. However, compared to other western countries, China adopts different methods in developing its economy, embracing social changes, and implementing its foreign policy. China’s pursuit for energy resources, which can fuel its economic growth and industrialization, has become a salient factor that shapes its foreign policy and relations with other countries.
In 1993, China transformed into a net oil importer (IEA, 2012). Its growing demand for energy resources, resulted from speeding urbanization and industrialization, motivates Chinese government to engage with many resource-rich countries, in order to seek large quantities of resources like crude oil and natural gas. Countries like Saudi Arabia, Iran, Angola and Venezuela all have been maintaining an energy partnership with China.
It is noteworthy that in recent years China has been enhancing its relations with Venezuela, which is estimated to have the largest oil reserve in the world (BP, 2013). With the exploration and exploitation of the Orinoco Oil Belt, Venezuela now holds 17.7% share of the global oil storage, surpassing Saudi Arabia and Iran (EIA, 2012). The engagement between China and Venezuela mainly concentrates on energy sector, and it also extends to technology, transportation and agriculture. The tightening Sino-Venezuelan relationship is mostly characterized by ‘loan-for-oil’ cooperation mechanism, as the percentage of oil import from Venezuela towards China consistently rises from 2.4% in 2006 to 5.3% in 2013 (BP, 2006-2013). In a broader context, China not only actively establishes its relations with Venezuela, other Latin American countries such as Brazil, Mexico and Ecuador are all not squandering the opportunities to cooperate with China. Furthermore, in the beginning of 2015, the first China-CELAC Forum was initiated (Chinacelacforum, 2015), suggesting China’s
full embark in Latin America.
This master thesis intends to comprehend China-Venezuela relations from a political economy perspective, with energy cooperation in the axis. Before understanding the bilateral relations, it is rather important to oversee China’s energy situation and its energy policy. Since early 1990s, China government has implemented a series of policies in which Chinese national oil companies serve as a pivotal player to help China assure its energy security. The expanding transnationalization achieved by Chinese NOCs deserves further research regarding its policy, structure and nature. Meanwhile, as one of the outcomes of China’s energy policy, China has been actively cooperating with Venezuela since the presidency of Hugo Chávez (1999-2013). Numerous joint ventures have also been established between Chinese NOCs and Venezuela’s national oil company PDVSA (Petróleos de Venezuela S.A.). As a consequence, China is importing more and more crude oil from Venezuela. In exchange for more oil, China initiated the ‘loan-for-oil’ cooperation model with Venezuela in 2007, from which Venezuela can obtain certain amount of loan to support its economic development. Notwithstanding the economic complementarity constantly encouraging two countries to strengthen their bilateral relations, several problems have emerged from Venezuela that are hampering the Sino-Venezuela relations: imbalanced economic structure, high-dependency on oil revenue, social instability and incapability of repaying China’s loan. The year 2014 witnessed huge slumping of international oil price. As a country whose 90% of government expenditure comes from oil revenue (Corrales and Penfold, 2011), the price downfall has caused grave impact on Venezuela’s economy. Meanwhile, the rapprochement between the United States and Cuba in 2014, to some extent, has made Venezuela reflect upon its anti-US foreign policy proposed by Chávez. All these very recent developments are not taken into consideration by scholars in analyzing China-Venezuela relations, as demonstrated in the preceding literature review. Therefore, I will contribute the research by providing more assessment on recent events and changing dynamics. Through the reevaluation on China-Venezuela relations, I will offer a better understanding of its foundation, future trends and its geopolitical impact for the United States.
Based on the aforementioned descriptions, the main research question for this master thesis is:
What core factors have contributed to shape China-Venezuela partnership since the presidency of Hugo Chávez and what are the geopolitical impacts of this relationship for Latin America?
Sub-research questions:
1. What policies have been formed by Chinese government concerning its energy security; 2. What is the nature of Chinese national oil companies;
3. What are the key imperatives within the China-Venezuela cooperation model in regard to energy sector;
4. What are the risks and challenges faced by Chinese government and its NOCs in Venezuela;
5. What is Venezuela’s objective in establishing strategic partnership with China;
6. What are the geopolitical implications for China’s engagement with Venezuela, or in a broader context, Latin America?
1.2 Literature Review
It is ubiquitously believed that the surging demand for energy resources in China originates from its fast industrialization and urbanization. However, the rising per capita income in China also leads a growing amount of the middle-class, who has high demand for energy resources. Under the circumstance, Chinese government implemented numerous political and economic reforms in which its energy security is cautiously taken into consideration. However, as the fickle international situation (conflicts, volatile oil price, supply security, etc.) consistently affecting China’s energy security and its going-out policy, discussions concerning Chinese energy security are still diversifying and augmenting.
1.2.1 Chinese Energy Security
China has adopted its energy policy in order to guarantee its energy security has remained in a multidisciplinary discussion. Despite various definitions with respect to energy security, this thesis intends to adopt Yergin’s (1988) delineation of the concept as ‘the availability of energy at all times in various forms, in sufficient quantities and at reasonable or affordable prices, without an unacceptable or irreversible impact on the environment’. Moreover, this availability is mainly susceptible to three types of scarcity: supply-induced scarcity, demand-induced scarcity and structural scarcity, as manifested by Amineh and Houweling (2007). Among the three factors, supply-induced scarcity and demand-induced scarcity have become the most salient elements in discussing China’s energy security (Amineh & Houweling, 2007; Zhao & Chen, 2014; Chen, 2011; Shi & Li, 2013; Speed, 2009), while structural scarcity relates more with geopolitical strategies of those resource-rich countries, which should be assessed on an individual case.
Meanwhile, Zhao and Chen (2014) incorporate energy supply and energy price as two crucial factors in supply-induced scarcity, which are further parsed into ‘availability, accessibility and affordability’, and they point out that the energy affordability is still insufficient in the current debate. Demand-induced scarcity, at the same time, needs to take into account the ability of the energy system itself to resist energy disruption, in which states opt to improve energy supply structure and energy efficiency. Dannreuther (2011) and Almeida (2010) deconstruct Chinese diplomatic strategies with respect to energy sector, and have partly identified their implications and perceptions by western countries; other scholars concentrate on the challenges faced by Chinese government in dealing its surging demand for energy resources: such as the oil transportation through Malacca strait (Zhang, 2011), energy efficiency (Bambawale and Sovacool, 2010), institution reforming (Almeida, 2010), over-expanding of automobile and industrialization (Ma, et al., 2012), and the pessimistic perception of other countries towards China (Kennedy, 2010). More importantly, scholars such as Joseph (2008) and Li et al. (2010) offered policy recommendations for decision-makers in China as to further alleviate the aforementioned challenges and risks, such as accelerating the development of renewable energy, enlarging international cooperation,
establishing coordinative energy-related institutions, reforming economic structures and initiating energy conservation programs.
1.2.2 China’s Going-Out Policy
Against the backdrop of increasing energy demand and low energy reserves, Chinese government officially adopted the going-out policy in the late 1990s, whose continuum scale and intensity has resulted in China’s involvement with various regions like Africa, Middle East and Latin America (Armony and Strauss, 2012). Although the merits of Going-Out policy initiated by Beijing has been questioned and debated by public and scholars, a comparative vision provided by Chinese and western scholars have presented detailed descriptions regarding its nature and context. Based on China Council for the Promotion of International Trade (CCPIT, 2014), the Going-Out policy is divided into various periods that are incorporated into different stages of the Fve-Year plan. With this evolvement and perfection of the Going-Out mechanism, China’s low-level reserves and ambition to become a world-class economy obliges China to seek energy resource outside its territory (Houser, 2008). What is more noteworthy is the enhancing role played by Chinese NOCs in participating in the Going-Out policy, which has proactively transnationalized themselves in recent years to compete with other international oil companies (IOCs) for acquiring more energy resources, and while being keen on government support (Amineh and Guang, 2014). Despite few scholars (Salidjanova, 2011; Francisco, 2013; Houser, 2008) touching upon the correlation between Going-Out policy and Chinese national oil companies (NOCs), most researches for Chinese energy policy, as concluded by Chen (2011), assume that Chinese government and NOCs can be treated as a monolithic actor, which necessitates more detailed explanation and research.
1.2.3 Chinese NOCs
In defining the relationship between Chinese government and national oil companies, some scholars uphold the view that they can be treated as a unitary actor in the process of
China’s engagement with resource-rich countries, since the Chinese government remains decisive in enacting NOCs’ strategy of investing in other countries. The hierarchical relations are further unwrapped by Francisco (2013), Liou (2009) and Lewis (2007), and in their explanation, the decision-making process in Chinese NOCs is affected by State Council, Central Organizational Department, and State-owned Assets and Supervision Commission. In addition, the dual responsibility of the directors or board members in Chinese NOCs obliges them to comply with government policy and national strategy regarding energy security (Francisco, 2013). Meanwhile, other scholars such as Jiang (2012) contests that Chinese NOCs, such as CNPC, characterizes ‘hybrid corporate governance’. She further assumes that Chinese NOCs are more autonomous in their overseas development, since they are mainly driven by commercial interests, rather than realizing government’s goal of assuring China’s energy security.
Although these researches have offered a broad understanding of the relationship between Chinese government and its NOCs, further case study is necessary to operationalize these argumentations for China-Venezuela energy partnership.
1.2.4 China-Venezuela Relations
It was not until the 21st century that scholars began to pay attention to China’s
involvement in Venezuela, since the bilateral relation was strengthened only after Hugo Chávez inaugurated as the president. The research on China-Venezuela relations is rather limited due to linguistic difficulty (Chinese and Spanish) and non-transparent economic data, which, meanwhile, makes my research more valuable and contributive.
Sun (2014) identifies three crucial entities in Sino-Venezuela relations: China-Venezuela High Level Mixed Joint Committee, China-Venezuelan Joint Fund and China-Venezuelan Long-Term Volume Fund. The joint committee coordinates bilateral political and economic cooperation, while the two types of fund characterizes ‘loan-for-oil’ cooperation model. However he merely touches upon the potential risks for this cooperation model. Giacalone and Briceño Ruiz (2013) synthesized the oil contracts signed by China and
Venezuela since 2007. With respect to oil agreements, China plays a versatile role in helping Venezuela to boost its oil production, ranging from oil exploration and exploitation, infrastructure building, to oil transportation and services related to oil sector (Giacalone and Briceño Ruiz, 2013). On the other hand, few Chinese scholars analyze the current risks in the China-Venezuela cooperation model: domestic unrest, regime instability, volatility of international oil price, and cultural clashes (Gu and Wang, 2012). In addition, Li and Chen (2013) have identified Venezuela’s strategies concerning its energy policy, which intends to diversify its oil exporting market, increasing equity share of those joint venture established by PDVSA and its foreign counterparts, and attracting more investors from China, Russia in the foreseeable future.
1.2.5 Post-neoliberalism and Chavismo in Venezuela
It is rather important to bring in Venezuela’s rationale of engaging with China. Traditionally, scholars intend to explain the heterodox political economy of the global South
comparing with neoliberalism. From the beginning of 21st century, several Latin American
countries have switched their government to a more left or central-left type to promote an end to the cautious pro-elite era of democratization and a more expansive approach to welfare spending (Panizza, 2005, 2009; Przeworski, 2011). Countries like Venezuela and Ecuador undergo social changes that makes states rebuild its capability in managing their economy and market not only to ensure economic growth but also responsive to social need and citizenship demands (Grugel and Riggirozzi, 2007). Thus the definition for post-neoliberalism is: an evolving attempt to develop political economies that are attuned to the social responsibilities of the state whilst remaining responsive to the demands of ‘positioning’ national economies in the global political economy (Grugel and Riggirozzi, 2007). In explaining the policy of Venezuelan government, Corrales and Penfold (2011) regard Chavez’s government as of a hybrid characteristic that seeks to undermine checks and balances by building en electoral majority, formed by radical social inclusion and property redistribution. Although the above-mentioned authors do not authentically question the
longevity of post-neoliberalism in Venezuela, it is rather significant to incorporate it into the discussion of potential risks and challenges for China-Venezuela energy partnership.
These aforementioned literatures have offered broad knowledge to comprehend China’s energy security and its energy partnership with Venezuela. However, the vast majority of those researches were conducted prior to Venezuela’s recent economic crisis in the late 2014. The dwindling oil price in 2014 has squarely devastated Venezuela’s national economy, whose government spending relies largely on oil revenue. Compared to China’s previous strategy of generously offering loan to Venezuela, the status quo has changed. The stagnated oil production in Venezuela and its incapability of repaying the loan has resulted in China’s reluctance of enhancing the bilateral relationship. Thus it necessitates bringing more dynamics of assessing the potential risks and challenges faced by China in sustaining its relations with Venezuela. Moreover, the United States, as an external geopolitical actor, constantly adopts corresponding strategies in response to China’s engagement with Latin America. China’s engagement with Latin America and recent US’ engagement with Southeast Asia, can be comparatively analyzed in a broader context, when China is deliberately avoiding confrontation and conflict with the United States, but also strengthening its power projection in the global south.
1.3 Theoretical Framework
The research thesis will mainly examine the energy partnership between China and Venezuela from a political economy perspective, and provide an evaluation of the geopolitical implications for Latin America, based on the strategic response from the United States. First and foremost, in analyzing the process of seeking energy resources outside its border, the energy security and scarcity model will be discussed as to demonstrate the rationale behind China’s energy policy. As Chinese national oil companies (NOCs) gradually transnationalize themselves in the global energy market, and compete with other international oil companies (IOCs) investing in Venezuela, it is therefore important to touch upon the
concept of transnationalization. In addition, discussing the constellation of Chinese NOCs---whether they are state-led or of hybridity, will contribute to my research. Lastly, critical geopolitics can be utilized in manifesting the geopolitical impact of China’s engagement with Venezuela, whilst radical geopolitics can be incorporated into the discussion of geoeconomic and geopolitical logic that are supporting the trans-border activities of Chinese NOCs.
1.3.1 Energy security and scarcity model
China transformed to net oil-import country in 1993, under the condition of growing domestic demand for energy resources in supporting the speeding industrialization and urbanization. As it is manifested by Yergin (2006), the energy security for China ‘locates in its capability to adjust to its dependency on global energy markets.’ The relations between China and those oil-exporting countries can largely affect Chinese energy security, and in this research scope, China expands its transnational network with Venezuela in securing and diversifying its oil purchasing market. However, various types of energy scarcity are affecting China’s energy security: demand-induced scarcity, supply-induced scarcity and structural scarcity (Amineh & Houweling, 2007). In the case of Sino-Venezuela energy partnership, the demand-induced oil scarcity in China can be mainly attributed to population growth, rising per capita income and price of substitutes (Amineh & Yang, 2014). As China still remains in a transitional period towards industrialized and developed country, most social projects such as transportation, housing, and manufacture necessitate large quantities of oil, and to a large extent, the energy efficiency remains relatively low. Meanwhile, it is rather significant to concretize state reaction to demand-induced scarcity, which triggers a competitive power projection to ensure access to energy resources. The power projection strategy implies that government-ruling elites create various routes through which they can have access to energy resources outside its border, which in reverse help them maintain domestic order and meet energy consumption demand (Amineh & Houweling, 2007). Under the circumstance, Chinese government removes vast political and economic obstacles for
Chinese NOCs during their transnationalization and competition with IOCs.
By the same token, supply-induced scarcity indicates that limited and dwindling energy resources can also motivate states to initiate national power projection in seeking for oil and gas (Amineh & Yang, 2014). Normally states will adopt peaceful strategy like investment or cooperation with oil-export counterparts, but via military force, states can also pursue the access to energy reserves in other countries.
In essence, the intertwined characteristics between supply-induced and demand-induced scarcity offers a concise insight for capturing the relations between oil net-importer (China) and net-exporter (Venezuela). At the same time, analyzing the reason that China is prioritized by Venezuela as an advantageous power projector is also pivotal for the research.
Lastly, the structural-induced scarcity signifies that major industrialized countries or oil-produced cartels can control or disrupt the conditions via which another country will gain access to energy resources (Amineh & Houweling, 2007). The structural-scarcity can be incorporated into the analysis of potential geopolitical implications for China-Venezuela energy partnership, as United States can, to some extent, affect or disrupt the transportation route of China’s vessels that carry crude oil, passing through Malacca Strait or Panama Canal.
1.3.2 Nature of National Oil Companies
It is ubiquitously believed that Chinese NOCs conduct its oversees activities in accordance with the interests of Chinese government. In regard to the governance of NOCs, as identified by Downs (2008), the ‘nomenklatura system’ accurately construes the hierarchical system within government, business, and other social sectors in China. The nomenklatura system forms a de facto elite network whereby the appointment and management of the Politburo Standing Committee. Those key persons involved in Chinese NOCs possess a dual responsibility as both party members and corporate managers, which oblige them to establish firm ties with Chinese government.
NOCs characterize hybrid corporate governance, public administration and regulation, especially regarding their transnationalization. However, despite the fact that Chinese NOCs is partly corporate autonomous, and the government is loosening its grip regarding its cross-border activities (Liou, 2009; De Graaf, 2011), it is noteworthy that the personal incentive mechanism inside the nomenklatura system in China stipulates that board members in NOCs should strike a balance between corporate interests and Communist Party’s interest. In most scenarios, the political interests will outweigh the commercial interests, when they are incompatible and discrepant. Therefore, the Chinese Communist Party is still decisive for the transnationalization of Chinese NOCs. And the intertwined structure of Chinese NOCs and central government is the key dynamic in interpreting the transnationalization of Chinese oil companies and their embark on cooperating with Venezuela, and meanwhile NOCs’ corporate performances and local response from Venezuela can also have an impact on its transnational and localization strategy. These internal and external variables will both be clarified in this thesis as to give a full sketch of the nature of Chinese NOCs.
1.3.3 Transnationalization
The international expansion realized by Chinese NOCs has drawn widespread attention and spurred chunks of debate by scholars, as these transnational actors have been playing a significant role of shaping global geopolitical order. Initially, discussions regarding the transnational corporations (TNCs) or multinational corporations (MNCs) focuses on whether they have a positive or negative impact on global economic development, while in 1990s this discussion has taken place in the context of globalization and internationalization (Risse, 2013: 431). The globalization or ‘governance turn’ has redefined the role of state in international system, which, under the influence of non-state actors, is no longer the only entity in international relations (Risse, 2013; Zürn, 2013). The impact of TNCs and MNCs can be visualized in their capability of shifting production and allocating financial and energy resources towards other regions (Risse, 2013). However, the emergence of TNCs or MNCs does not equate the fact that state is no longer significant in the global system, instead it can
‘shed new light on governance contribution of those non-state actors’ like TNCs or MNCs (Risse, 2012: 439).
With respect to the transnational activities of Chinese NOCs, it should never be overlooked that Chinese government is authentically manipulating them, in order to assure China’s energy security. Furthermore, the transnationalization of Chinese NOCs can be better comprehended through geoeconomic logic referred to by Mercille (2008), as market forces and global capital flows encourage state to initiate power projection outside its border. Either by economic cooperation or military forces, government serves as the catalyst for transnationalizing their NOCs, who reduces political and economic obstacles for NOCs’ cross-border activities. In the case of Sino-Venezuela relations, the direct consequence of the transnationalization of Chinese NOCs can be visualized into a drastic increase of Chinese government’s Foreign Direct Investment in Venezuela and the loans and funds provided by China Development Bank. Based on the above-mentioned arguments, it should be emphasized that Chinese NOCs are relying on the government for their transnationalization, otherwise they will be incapable of competing with IOCs.
1.3.4 Critical geopolitics
While traditional geopolitics tends to analyze the effects of geographical variables in international relations and regard state as the key actor in a struggling-for-power world, critical geopolitics, hard as it may be captured in a bold term, intends to understand the world politics in terms of the ways in which elites and public actively construct the spaces of political action that are the medium for the policies of states and other actors (Agnew, 2010). The critical geopolitics further doubts the state-centrism supported by realism or liberalism, and assumes that the geopolitical imaginaries produced from visual images, language, and political performances can influence political behaviors of state elites, and induce certain social changes (Agnew, 2010). Therefore, the amalgam of changing global politics and China’s perception of itself as a late industrializing country in the world can be analyzed from the perspective of critical geopolitics.
Furthermore, one embranchment of critical geopolitics---radical geopolitics is initially elaborated by Mercille (2008), who argues that the orthodox geopolitical theory neglects the ‘why’ (underlying causes) and ‘how’ (how they unfold) of policies and political events, in which he incorporates geopolitical and geoeconomic logic in interpreting them. Compared to geopolitical logic, geoeconomics concerns about the flow of capital due to lateral pressure released by market forces and socio-economic demand (Amineh and Yang, 2014). Thus in order to secure economic growth and obtain sufficient resources, state will initiate cross-border activities which connects its national economy with foreign markets. At the same time, geopolitical logic concerns state’s policy to develop political, diplomatic and security relations with other states, usually by military intervention or political interaction, creating a context in which state can maintain its credibility internationally and maintain domestic public support (Mercille, 2008).
However, in comparison with western countries, China implements a different way of proceeding its industrialization and power projection. Chinese ruling elites effectively controls state-owned enterprises and connects them with foreign counterparts in those resource-rich countries, so as to secure more access to outside market and resources. At the same time, diversifying its outside-border activities is vital for China and its NOCs, thus it seeks to establish strategic partnership with Venezuela, a country with vast crude oil reserves.
Adopting radical geopolitics to explain China-Venezuela strategic partnership, geoeconomic and geopolitical logic are both significant (although the former is more important) to analyze the rationale of the relationship. The lateral pressure originated from China’s domestic socio-economic demand has motivated government to engage in cross-border activities that connect Chinese NOCs with Venezuelan counterparts. Meanwhile, this power projection can further trigger geopolitical implications which can be construed under the critical geopolitics logic, with respect to the responses of United States, since maintaining economic ties with Venezuela and sustaining its hegemonic status in Latin America has always been vital in US’ foreign strategy. China is deemed to face certain challenges in the process of combating its domestic lateral pressure and seeking to change the
unipolar world system dominated by United States.
1.4 Hypotheses
Based on the above literature reviews and research questions, it is imperative to propose relevant hypotheses in order to concretize China-Venezuela relations:
1. The bilateral partnership between China and Venezuela mainly focuses on the cooperation in energy industry, with ‘loan-for-oil’ serving as the primary collaborative mechanism, which has also extended to other social and economic fields.
It was not until Hugo Chávez became the president that Venezuela and China began to engage with each other. As an oil-abundant country, the cooperation model between China and Venezuela signifies economic complementarity for both sides, through which China can have access to more oil while Venezuela can obtain more loan to support its economy.
2. The increased transnational activities of Chinese NOCs does not equate that they are (partly) autonomous, on the contrary, Chinese NOCs are still dependent on the government; It should be contested by assuming that Chinese NOCs are gradually autonomous of its policy-making process regarding its transnational activities. Chinese ruling elite has been effectively controlling Chinese NOCs, which can be concretized into the nomination of senior leadership positions in NOCs, governmental co-management of NOCs’ strategies and policies.
3. For Venezuela, alienating the United States and allying with China can, on one hand, obtain more governmental revenue that can be utilized to support social projects and maintain regime stability, while, on the other hand, diversify its oil export market.
The volatile international oil price can always directly devastate Venezuela’s economy, where 90% of the government expenditure comes from oil. Since the loan-for-oil cooperation model between China and Venezuela has provided the latter abundant fund to offset the
negative impact caused by the plunging oil price, Venezuela will continually stick to its policy of reducing economic and political dependency on the United States.
4. The United States will adopt rapprochement policy with Venezuela and other Latin American countries in order to alleviate China’s influence in the region.
This argument tends to analyze the geopolitical impact of Sino-Venezuela relations, in which United States is the main involved actor. Traditionally Latin America is regarded as the backyard of United States, and their close relations are build upon political, economic and security cooperation. However, with China’s embarking on LA in recent years, US has initiated series of policies and actions to alleviate Chinese influence in Latin America, and the polies necessitate further analysis.
1.5 Operationalization and Research Methodology
In order to answer my research question and testify the previous hypotheses, it is necessary to classify different units of analysis for each chapter.
First of all, in assessing the constellation of Chinese National Oil Companies, I will analyze the relationship between Chinese government and its NOCs, in which individual example of CNPC will be touched upon. Secondly, in analyzing the bilateral relations between China and Venezuela, a three-fold level of analysis will be presented: diplomatic relations (mutual official visit by leaders), trade and investment, and security. The diplomatic relations will be examined through official visits made by presidents and ministers of government, official and unofficial cooperation, interaction regarding international affairs. The economic relations will be looked through the trade and investment in oil and non-oil sectors. The units of analysis include bilateral trade data, investment projects and their scale, with special focus on CNPC’s joint venture with PDVSA in Venezuela. Lastly the security relations will be concretized based on the arms trade, joint military exercises between both countries. Concerning the geopolitical implication of China-Venezuela cooperation, I will mainly look at the policy response and strategies of the United States.
As for the research methodology, this research paper will utilize quantitative and qualitative method in evaluating the bilateral relations between China and Venezuela. Data collection for energy cooperation and investment will come from several Chinese official departments such as National Bureau of Statistics, State-owned Assets and Supervision Commission, and the yearbook of Chinese outward foreign investment report composed by Chinese government. In addition, the oil export and project establishment between both countries can be synthesized from PDVSA’s annual report, in which the oil export to different regions can be observed.
In evaluating the hierarchical structure of Chinese NOCs and their relations with different Chinese government departments, a qualitative analyze will be conducted based on the dual responsibility of the board members in NOCs and their role in Communist Party of China. Moreover, in the chapter of assessing the cooperation between China and Venezuela, Venezuela’s economic structure, social unrest will be touched upon to further demonstrate how these factors affect the cooperation prospect with China. Furthermore, to better analyze the geopolitical impact of Chinese investment in Venezuela, news report, individual interviews, presidential speeches and other IOCs’ report will be assessed.
1.6 Organization of Work
This master thesis consists of six chapters. The first chapter has insofar presented an overview of the research design, which includes introduction, theoretical framework, literature review, in order to underpin my further research. Chapter two mainly focuses on China’s energy security (current situation and corresponding policy) and the nature of its national oil companies. Explaining the interaction and relationship between Chinese government and NOCs is of great importance to comprehend the latter’s activities in Venezuela, thus I will sketch the decision-making mechanism relevant to Chinese NOCs.
Chapter three addresses the economic relations between China and Venezuela, in which the trade and investment in oil and non-oil sectors will be mapped out. Chapter four elaborates in particular the commercial activities conducted by China National Petroleum
Corporation (CNPC), which is the main Chinese oil company investing in Venezuela. Chapter five aims to evaluate the potential risks and geopolitical implications of Sino-Venezuelan partnership, adopting critical geopolitics theory to analyze the key dynamics affecting this bilateral relationship. At the same time, I will briefly discuss the United State in ways that it responds to Chinese engagement with Venezuela and Latin America. The concluding chapter will sketch a summary of preceding chapters and present a conclusion for my initial research questions, and testify those above-mentioned hypotheses.
Chapter 2. Chinese Energy Security and National Oil Companies
2.1 Introduction
With the successful implementation of the Going-Out policy, Chinese state-owned enterprises (SOEs) have made great progress in involving themselves in the global market. In regard to energy sector, China Petroleum & Chemical Corporation (Sinopec Group) and China National Petroleum Corporation (CNPC) have been ranked as the top five companies in the world, making annual profits of 8.9 billion and 18.5 billion dollars respectively (Fortune, 2014). As opposed to other International Oil Companies (IOCs), Chinese NOCs seems to be more ‘formidable and indestructible’ in the global economic slowdown. The fruitful transnationalization of Chinese NOCs signifies that they are more capable in shifting oil production and allocating energy resources in those resource-rich regions, which assures China’s energy security. However, as discussed earlier, the emergence of transnational corporations has given the state a new role in conducting global governance, thus it should be analyzed in more details concerning how Chinese government manage its NOCs in securing its energy resources.
In this chapter I will mainly address the following questions: What is the energy situation in China? How is the Going-Out policy implemented and incorporated into the development of Chinese NOCs? What is the nature of Chinese NOCs and what factors can be ascribed to affect their transnational activities?
The structure of chapter two is as follows: Section 2.2 briefly discusses about the energy situation in China, adopting energy security and scarcity model (especially demand-induced security). Section 2.3 sketches the energy policy of Chinese government, mainly addressing the Five-Year plan and Going-Out policy. Section 2.4 analyzes the nature of Chinese NOCs. Using a case study of CNPC, I will demonstrate its ownership and relationship with Chinese government. Additionally, the dual responsibility of those board members in Chinese NOCs will be mapped out, since they are the crucial actor in implementing the transnational activities of the company.
2.2 China’s Energy Situation
Since China transformed from a net oil exporter to a net oil importer in 1993, its energy demand has been increasing sharply, resulted from its speeding industrialization and urbanization. In 2014, China’s appetite for energy resources leads to an oil import of 6.1 million barrels per day (EIA, 2015), ranking as the largest net oil importer in the world. Meanwhile, China’s domestic oil consumption has almost doubled from 2003 to 2012 (see Table 2.1), while domestic oil production only undergoes a small increase of 40 million tones during the past 10 years, which makes China’s energy structure extremely vulnerable, as the oil-import dependency has exceeded 60%. It is estimated that in 2020, China’s oil import dependency will reach 80% (EIA, 2015).
A country’s energy security, defined by Yergin (2007), locates in its capacity to adjust to its dependency on global energy markets. Domestically, China’s energy security is continually threatened by the demand-induced scarcity and supply-induced scarcity, which can be ascribed to the growing population, rising per capita income and dwindling resource reserves (Amineh & Houweling, 2007).
Note: Import dependency stands for the percentage of the amount of net oil imports over the amount of total oil consumption. Source: China Energy Statistical Yearbook.
Table 2.1 China’s Oil Production, Consumption and Trade, 2003-2012
Million tons
Year Production Consumption Import Exports
Import Dependency % 2003 169.6 271.3 131.9 25.4 39.3 2004 175.9 317 172.9 22.4 47.5 2005 181.4 325.3 171.6 28.9 43.9 2006 184.8 348.8 194.5 26.3 48.2 2007 186.3 366.5 211.4 26.6 50.4 2008 190.4 373.2 230.2 29.5 53.8 2009 198.8 408.3 251.5 33.1 53.5 2010 203.1 432.5 294.4 40.8 58.6 2011 202.9 453.8 315.9 41.2 60.5 2012 207.5 476.5 330.9 38.8 61.3
From 1980 till 2013, China’s population increased from 987 million to 1,361 million, achieving nearly 38% growth rate and accounting approximately 20% of the world’s population (World Bank, 2014). Meanwhile, China’s GDP per capita income was recorded at 6,560 dollars in 2013, which was less than 300 dollars in 1980 (World Bank, 2014). The boost of China’s population and its surging per capita income requires large quantities of energy resources, to support daily work such as construction of housing, transportation and infrastructure. On the other hand, as the second largest oil consumer in the world, China only has around 91 million barrels of oil reserve in its four main oilfields (NBS, 2014). The dwindling energy reserve of China has posed great challenges for Chinese government, who aims to achieve modernization and industrialization in a rather short period.
Based on the energy consumption composition, it is coal and crude oil that are mainly advancing China’s economic development. Compared to crude oil, China is the biggest consumer of coal in the world, holding approximately 13% of the world’s coal reserves (EIA, 2015). Although coal used to satisfy the domestic consumption demand in China, the
negative impact it produces has resulted enormous CO2 emission and other environmental
pollution issues. Additionally, coal burning indicates relatively low energy efficiency compared to oil, gas and renewable energy resources. It is therefore China’s key energy strategy to reduce its dependency on coal, and increase the usage of oil, gas and other renewable energy.
Figure 2.1 China’s Energy Consumption by Fuel Type, 2012
Source: US Energy Information Administration (EIA)
Briefly concluding, the growing population and rising per capita income signifies that China necessitates more energy resources. The consumption structure, in which coal accounts for more than 50% of China’s total energy usage, has brought about chunks of pollutant issues and relatively low energy efficiency. Thus replacing coal with crude oil is the primary task for Chinese government to meet the consumption demand, which obliges itself to connect with international energy market and participate in energy-related activities. Meanwhile, the high import dependency (Table 2.1) implies that China has been making great strides in connecting with those resource-rich countries, like Saudi Arabia, Angola, Kazakhstan and Venezuela. The energy partnership has largely prevented China from suffering from energy resource shortage, which can negatively affect its economic development.
2.3 China’s Energy Policy
In order to better solve the demand-induced and supply-induced scarcity, Chinese government has to increase its dependency upon foreign energy market, and actively engage with those resource-rich countries. This goal can be mainly achieved by Chinese national oil companies, which is capable of shifting production and allocating energy resources in other
resource-rich regions (Risse, 2013). However, before 21st century, Chinese NOCs were rather
impotent of competing with other IOCs for establishing energy trade and investment with resource-rich countries, due to lack of corporate development and technological expertise. Thus, against the background, Chinese government proposed the idea ‘Going-Out’ in 2000, which is incorporated into its Five-Year Plan.
The Five-Year Plan plays a pivotal role in planning and regulating the economic development since the establishment of People’s Republic of China in 1949. The first Five-Year Plan was composed in 1953, and until now there has been 10 Five-Year Plan and 2 Five-Year Scheme successfully implemented. More specifically, this plan covers numerous developmental projects, ranging from economic development, education, and technology to social welfare, medical and cultural programs (Hu. et al., 2011). With respect to the
Going-Out of State-Owned Enterprises (SOEs), different policies have been incorporated into the Five-Year Plan.
The origin of Going-Out policy can be traced back to 1979, when Chinese State Council first proposed the idea of establishing enterprises abroad (State Council, 1980). In April
1984, the former Foreign Trade and Commerce Ministry issued a policy paper1 authorizing
Chinese companies to conduct their investment in Hong Kong, Macao and other foreign countries. However, Chinese companies were rather unwilling to participate in those transnational activities, and China’s Foreign Direct Investment (FDI) stagnated before 1995 due to lack of incentives, and underdeveloped financial mechanism (Yu and Zhao, 2007).
Gradually with the success of Reform and Open Up Policy, Chines companies began to
participate in overseas project and investment. During the 9th Five-Year Plan from 1995 to
2000, the annual growth rate of Chinese FDI was 70.71% (Ministry of Commerce, 2014).
Under the circumstance, the official proposal of Going-Out was put forward at the 15th Party
Congress in October 2000, in which Going-Out and Bringing-In were incorporated into the
10th Five-Year Plan. As president Jiang Zeming declared at the 16th Party Congress that
‘going out’ and ‘bringing in’ a number of multinational enterprises and brand names is important in the new stage of Reform and Opening-up. We should encourage and help relatively competitive Chinese enterprises to invest abroad in order to increase export of goods and labor services. China should take an active part in regional economic exchanges and cooperation while paying great attention to safeguarding its national economic security2.
From 2000 to 2005 the annual growing rate of Chinese FDI reached 56.36%. Entering
into 11th Five-Year Plan, Chinese overseas investment underwent an unexpected augment
with the support of Ministry of Commerce, Ministry of Finance and China Development Bank. The year 2005 witnessed a major increase of FDI in more than 184 countries.
Meanwhile, although the 12th Five-Year Plan is still being enacted, the previous achievement
1 Information about Approving SOEs establishing Joint Enterprise with Other Companies Abroad.
2 Full text of Jiang Zeming’s report: Build a Well-‐off Society in an All-‐Round Way and Create a New Situation in Building Socialism with Chinese Characteristics at 16th Party Congress can be accessed on: http:/
and success has made China become the second largest economy in the world, with huge potential of surpassing United States in the foreseeable future (World Bank, 2013).
The success of China’s Five-Year Plan or Going-Out Policy can be ascribed to the institutionalization initiated by Chinese government during the management of those macro-economic policy and strategy. Those key state actors involved in the Going-Out Policy, such as National Development and Reform Commission (NDRC), China Development Bank (CDB), China Export and Credit Insurance Corporation (Sinosure) and most importantly, the State Council, have largely reduced the obstacles and provided political and financial support for SOEs to engage themselves in transnational activities. These government departments are also vital for the cross-border activities for Chinese NOCs, which will be discussed in the following section.
2.4 Governance of Chinese NOCs 2.4.1 Overview
Before the foundation of People’s Republic of China, oil production and refinery infrastructure remained in a less-developed status. From 1904 to 1948, the total oil production in China only accounted for 2.7 million tones, while the oil import was 28 million tones (CNPC, 2009). It was not until 1955 that Chinese government established Ministry of Petroleum Industry (MPI), which was in charge of making investment decisions, coordinating the transportation of oil products, and allocating oil resources (Jiang, 2012: 387). Later on, with the successful exploitation and oil production at Karamay and Daqing Oil Fields, China transformed to an oil self-reliant country, as the Premier Zhou Enlai announced at the National People’s Congress in December 1963: From now on, China can be totally self-reliant on its own oil production, and this is an official ending of importing and using ‘foreign oil products’.3 The surging production of oil at Daqing Field made it possible for China to export oil to Japan in 1973, contributing to the stagnated economy during Cultural
3 Translating from People’s Daily, accessed from: http://www.people.com.cn/GB/historic/0925/315 5.html.
Revolution.
To better coordinate and implement the Five-Year Plan and oil-related development, the State Council merged Ministry of Petroleum Industry, Ministry of Coal Industry and Ministry of Chemical Industry into Ministry of Fuel and Chemical Industry in 1970. However, the short-lived Ministry of Fuel and Chemical Industry was again dismantled into MPI and MCI in 1978. In 1982, China National Offshore Oil Corporation (CNOOC) was established from the offshore assets of Ministry of Petroleum Industry; In 1983 China Petroleum and Chemical Corporation (Sinopec) was created from the downstream assets of MPI and MCI; and in 1988 China National Oil and Natural Gas Corporation was unfolded for onshore and upstream oil and gas production, which later became CNPC (Houser, 2008). Furthermore, CNPC was assigned the assets and responsibilities of MPI, and this partial corporatization signified that CNPC could not only be in charge of operations such as oil exploration, foreign investment, and overseas cooperation, but also enact regulations and policies in regard to oil industry development (Jiang, 2012: 387).
It is against this background that Chinese NOCs were established. Compared to other International Oil Companies (IOCs), Chinese NOCs characterize quasi-governmental organizations, which refutes some scholars’ assumptions that Chinese NOCs are of hybrid corporate governance (Jiang, 2012). To better comprehend the constellation of Chinese NOCs, it is rather important to analyze the intertwined relations among Chinese NOCs and different government departments. The proceeding section will give a case study of CNPC, in which I will try to argue that the governance of CNPC is neither (partly) independent nor hybrid, on the contrary, CNPC is still firmly controlled by Chinese government and ruling elites.
2.4.2 State-led or Hybrid Corporate Governance?
China National Petroleum Corporation (CNPC) is one of the three main NOCs in China. So far, it has 87 subsidiary enterprises, of which the functions range from upstream to downstream oil service like exploration and exploitation, oil refinery, technological research,
equipment manufacturing, transportation and supplement (Zhang, 2004). China National Petroleum (known as PetroChina), the largest subsidiary enterprise of CNPC, holding assets and profits of 352 billion dollars and 8.9 billion dollars respectively in 2014 (Fortune, 2014). It is rather difficult to capture the decision-making process inside CNPC, since officially its corporate structure is similar to many International Oil Companies (IOCs), but, essentially, the de facto decision-maker for CNPC is Chinese government. Moreover, it has long been presumed by scholars that Chinese political structure is not well institutionalized and the decision-making process is always out of public perception. In China, there is neither a legal system nor a moral order that has been adequately internalized so as to regulate the behavior of state officials (Pye, 1995). Therefore, defining political structure as a binary term of either formal and informal, or legal and moral cannot accurately capture the characteristics of Chinese political culture. Externally, different institutions are responsible for managing macro-economic policy and social development, while internally, Chinese Communist Party is embedded into the elite network inside the government, which features more informal decision-making process (Pye, 1995; Francisco, 2013).
In oil sector, as it has been elucidated in the previous part, the nomenklatura system has proven that Chinese Communist Party (CCP) plays a pivotal role in the establishment and management of NOCs, so investigating the concrete responsibility of each government department regarding NOCs’ domestic or transnational activities is vital for the research. In addition, the dual responsibility in business and political sector of those board members in NOCs has further regulated their behavior, who must outweigh the political goal over commercial interests, thus getting promotion within CPC.
In China, the Communist Party is omnipresent in managing and controlling the society in every field such as government, military and business. As it has been synthesized in Figure 2.2, the Politburo Standing Committee (PBSC) is the top decision-making body in all spheres of governmental and social affairs. Currently, PBSC consists of seven members, including the President Xi Jinping, Prime Minister Li Keqiang. The process of electing members for PBSC is technically in the charge of Central Committee, according to Communist Party’s
Constitution4. However, practically PBSC members are chosen by current leaders and Party elders, who engage in heavy horse trading to ensure their allies and protégés are chosen (McGregor, 2014: 278). Therefore, it is Chinese ruling elite, though fragmented, that masters the choice of personnel in government departments and national oil companies.
From a macro-level analysis, Chinese NOCs are mainly under the supervision of several governmental bodies including State Assets Supervision and Administration Commission (SASAC), National Development and Reform Commission (NDRC), National Energy Administration (NEA) and Ministry of Commerce (MOC), which are all attached to the State Council.
From a micro-level perspective, the aforementioned political ruling elite is entrenched in every part of government bodies, thus exerting their influence to ensure their political and economic interests. Furthermore, the dual responsibility of those board members in CNPC stipulates that they must be obedient to Chinese Communist Party, and making choices according to CCP’s interests. This duality will later be shown from the identity of the board members in CNPC.
State Council
The State Council is the highest executive government body in China, which is the locus of Chinese state system. The cabinet-like State Council is headed by Primer Minster, four vice-premiers, four state-councilors and one secretary general (gov.cn). Besides, it has 25 subordinated departments such as Ministry of Foreign Affairs, SASAC, National Security Ministry, Ministry of Commerce, etc. However, it is noteworthy that not every ministries and commissions were created equally. Some departments such as SASAC and Ministry of Industry and Information Technology (MIIT) are considered as ‘supreme ministries’ that are more influential as opposed to other departments (Lawrence and Martin, 2013).
State Assets Supervision and Administration Commission (SASAC)
Established in 2003, SASAC is the only department that is directly subordinated to State Council. Under the supervision of State Council, SASAC was created intending to take the investor and administrative responsibilities over the SOEs (Naughton, 2006). Meanwhile, SASAC is responsible for supervising NOCs, establishing corporate regulations, perfecting company structure, adjusting national economic layout and reforming SOEs (SASAC, 2008). Currently, the SASAC holds around 3.7 billion dollars of assets of its 116 flagship SOEs, including CNPC, Sinopec and CNOOC (Francisco, 2013).
Notwithstanding the fact that the SASAC is less influential in CNPC’s transnational activities like oversees oil exploration and exploitation, localization, and corporate social responsibility, it retains absolute executive control over CNPC’s performance and choice of board members (Francisco, 2012). The SASAC exercises its controlling power over allocation of remuneration, assets disposal and enactment of plans regarding commercial merges and acquisitions belonging to CNPC and its subsidiaries (Francisco, 2012). CNPC must obtain the permission from the SASAC before conducting overseas investment, establishing joint venture and mobilizing its assets.
As it is demonstrated in Figure 2.2, despite different subordinated ministries of State Council are also capable of influencing the decision-making process of CNPC, SASAC is still the key body that exerts its ultimate control over the choice of top executives (Jiang, 2009: 395). Though CNPC partially has autonomy in upstream oil service, the SASAC must guarantee that CNPC is performing according to its political and commercial interests.
This internalized hierarchical relations between SASAC and CNPC can be further observed through a handful of events. For example, in March 2015, the chairman of SASAC, Zhang Yi, paid an official visit to CNPC headquarter in Beijing, in which he expressed importance of ‘purification of corruption, industrial reform, evading investment risks, strengthening security regulations’ (Xinhua, 2015). This short but meaningful speech has made it clear that SASAC definitely have the right to oversee and regulate the behavior of CNPC and other NOCs.
Figure 2.2 Major Government Decision-Making Bodies for Chinese NOCs
Source: Chinese Government Website (http://www.gov.cn/), http://china.fathom.info/, composed by the author.
NDRC, NEA and MOC
According to Figure 2.2, the other three significant government bodies related to CNPC are National Development and Reform Commission (NDRC), National Energy Administration (NEA) and Ministry of Commerce (MOC). More concretely, the NDRC, formerly known as State Planning Commission, is in charge of the overall macro-economic development of China and enacting guidance for restructuring Chinese economic system. So far it has 31 branches ranging from business, technology, agriculture, climate, and transportation. Meanwhile, for CNPC and other NOCs, the Energy Bureau branch under National Development and Reform Commission (NDRC) announces policy recommendations for NOCs’ overseas investment and other transnational activities (Liou, 2009). Established in 2013, the National Energy Administration (NEA) is a new government
