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China and the Persian Gulf: Energy and SecurityAuthor(s): John CalabreseSource: Middle East Journal, Vol. 52, No. 3 (Summer, 1998), pp. 351-366Published by: Middle East InstituteStable URL: http://www.jstor.org/stable/4329217 .

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CHINA AND THE PERSIANGULF:ENERGY AND SECURITYJohn Calabrese

Energy cooperationis the dominantaspect of expandingrelations between Chinaand the Persian Gulf countries. Propelling this is China's increasing reliance onGulf oil imports.In pursuing its objectives in the Gulf, Chinahas encounteredasmany challenges as opportunities-in the form of regional crises and conflicts, aswell as US pressure. In seeking to balance its geopolitical and economic interestsin the Gulf, Chinahas proceededcautiously and pragmatically.Yet,thepossibilitythat China's arms transfersto Gulfcountriesand itspositions on Gulf issues mayhave a negative impact on regional security cannot be ruled out.

Since he Cold War ended, the debate in the West, especially in the United States,about the nature and implications of China's foreign policy has sharpened. Thedisintegrationof the Soviet Union, coupled with the robust growth of the Chineseeconomy, have prompteda reexaminationof China's role within as well as outside theAsia-Pacificregion. Some have arguedthatChina'smilitarymodernizationprogram, hehegemonyand values of the Chinese CommunistParty (CCP),andthe tendencyof greatpowers to act boldly make Chinaa potentialsecuritythreat.Othershave maintained hatChina's internalproblems,non-imperialisticradition,andcomparativelyimitedabilityto

John Calabrese is Scholar-in-Residence t the Middle East InstituteandAdjunctProfessor of Foreign Policy inThe WashingtonSemesterProgramat The American University n Washington,DC.

MIDDLE EAST JOURNAL* VOLUME52, NO. 3, SUMMER 1998


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project military power will ensure that China will behave more cooperativelyin worldaffairs.

The debate over the "China threat"has focused on the Asia-Pacific region, whereChina's cultural and economic links are most extensive, where its military assets areconcentrated,and where its claims to sovereignty over territory (Tibet, Taiwan andMacau,and the SouthChina Sea islands) arelodged. Yet, China'sforeign policy and theconcernsthat it has raised also encompassthe PersianGulf. Indeed, throughouthe 1990s,Beijing's policy towardthe Gulf has been closely scrutinized,particularlyby US officialsandprimarilybecauseof Chinese armstransfers o Iran,andChina'scooperationwith thatcountryin the field of nuclearenergy.

China's commercial military activities certainly deserve the attention they havereceived, but the preoccupationwith those activities has tended to obscurethe context anddistortthe content of Chinese policy toward the Persian Gulf. The Gulf is no longer ofperipheral trategicsignificanceto China,nor is Chinaany longera marginalplayerin theGulf or, for that matter,in the Middle East. In recent years, Sino-Gulf relations haveentereda new andimportant tageof development.A decadeago, armssales werethecoreof China's interactionwith the region. Today, however, complex energy linkagesbetweenChina and the Gulf countries are developing. Before long, these linkages will constitutea major, if not the dominant,feature of Sino-Gulf relations. This study addressestwoimportantquestions:How have these growing energyties shaped,andbeen shapedby, thepolitical and strategic aspects of China's interestsin the region? And, will intensifyingSino-Gulfenergy interdependence xert a moderatingnfluence on Chineseforeign policybehavior both in the Gulf and Asia-Pacificregions?GEOPOLITICS ND MODERNIZATION

Since the early 1980s, China's leaders have soughtto develop a foreign policy thatreconciled the requirements of modernization with geopolitical considerations. Withrespectto China's policy towardthe Persian Gulf, balancing these interests has becomemorecomplicated n the 1990s because of shifts in the global strategicbalance of power,and the widening scope of China's economic involvement with the Gulf region. Chineseofficials have long regardedthe Persian Gulf as an area of global strategic importance.Theirviews on the significance of the Gulf have been derived from periodic assessmentsof the majortrendsin worldaffairsand their probable mpact on China. In the post-ColdWar period, China's leaders have identified three dominant features of internationalrelations: an intensification of economic competition, the ascendancy of ethnic andreligious sources of political identity and expression, and a tension between the forces ofmultipolarityand unipolarity.These assessments have served as the frameworkwithinwhich formerpremier Deng Xiaoping and his successors have interpreted vents in thePersian Gulf and have fashioned responses to them.

1. For a good review of this debate, see Denny Roy, "The 'China Threat'Issue,"Asian Survey36,no. 8 (August 1996), pp. 758-86.


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Chinese officials assert that economics has takenprecedenceover politics, and thatthis is reflected in the foreign policies of governments worldwide. Chinese leadersthemselves emphasize the economic aspects of 'security' and define power in 'compre-hensive,' rather han in strictly military,terms. They regard he accumulationof nationalwealth as vital to China's military modernization,to its enhanced global status andprestige, and no doubtto their own legitimacy.2They are committed o building a socialistmarket economy and, while they view the world situationas generally favorable to thecountry's development,3they have expressed misgivings about "sharpeningeconomiccompetition"4and the possibility that China might lag behind global economic andtechnologicaladvances.5

The critical importanceof oil (and gas) to the global balance of power has not beenlost on Chinese officials. They recognize that Russia's economic transition, Asia'seconomic growth and, increasingly,China's own economic developmentdepend on theseenergy resources. They also recognize that oil exporting countries are redefining theirrelationshipswith the world marketand with international il companies. Because of theGulf's vast energy reserves, Chinese officials regardthe region to be of long-lastinggeo-economic and geopolitical significance.6As will be shown, because of the energychallenges China itself faces and the foreign commercialopportunities hat the Chineseenergy industryseeks, the Gulf has become important o the country'seconomic future.Accentuating his importances the Gulf's potentialas a market or Chineseproducts,andas an access pointfor the re-exportof this merchandise o the restof the Middle East andEast Africa.

Second, the increased incidence of ethnic- and religious-basedturmoil around theworld has worriedChinese leaders.Theirapprehension temsfromthe close proximitytoChinaof some of these conflicts, such as those in AfghanistanandTajikistan;and fromthe transnational ies that furnishseparatistand otheropposition groupswith moral andmaterialsupport.Of special concern to China's leaders is the potentially destabilizingeffect of these conflicts and transnational orces on China itself, and especially on theXinjiang province,wherea comparatively argenumberof Muslim minoritiesreside andwhere political disturbanceshave occurredwith increasing frequencyin recentyears.7

Historically,Chinese rulershave regardedCentral Asia and the Gulf as partsof asingle entity.From as earlyas the 1979 IranianRevolution,and with heightenedurgencysince the collapse of the Soviet Union, Chinese officialshave wrestled with the issue of

2. See, for example, Robert Taylor,"Chinese Policy towards the Asia-PacificRegion: ContemporaryPerspectives,"Asian Affairs25 , no. 3 (October 1994), pp. 261-63.3. See, for example, remarksby Qian Qichen, Xinhua News Agency, ForeignBroadcastInformationService - China (FBIS-CHI),30 May 1996.4. See remarks y ForeignMinisterQianQichen,XinhuaNews Agency,FBIS-CHI, 2 December1995.5. See Bonnie Glaser, "China's Security Perceptions,"Asian Survey 33, no. 3 (March 1993)pp. 262-63.6. RegardingChina's oil needs and oil industry,see Premier Li Peng's remarksat the 15th WorldPetroleumConference in China, FBIS-CHI,30 October 1997.7. See Raphael Israeli, "A New Wave of Muslim Revivalism in China,"Journalof Muslim MinorityAffairs 17,no. 2 (October 1997), pp. 269-82. See also Hong Kong Agence FrancePressein FBIS-CHI,11 June1997, and South China Morning Post (Hong Kong) in FBIS-CHI, 19 March 1997.


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how to maintaintheir tenuous control over the country'swesternprovinces.In an effortto containunrestthere,Chineseauthoritieshave tried to buildgoodwill with theirIranian,Saudi and Central Asian counterparts. Largely in order to combat the potentiallydisintegrativeeffects of underdevelopmentn the frontierregions, China has taken stepsto create an "Islamic circle" of development8that links the economies of its borderprovinces with those of CentralAsia and the Persian Gulf.9

Third,as in the past, Chinese officialsdisapproveof the presenceof foreign militaryforces in the Gulf. They characterizeUS militaryinvolvement there as "interference."10They suspect the United States of wanting to dominate the region in order to exercisecontrol over the Gulf's energy resources.1' The expandedUS military presence in theregion,and the absenceof a strategiccounterweight o the UnitedStates,have fueled thesesuspicions.

The role of Russia in the Gulf is an additionalconcern for China.Recently, Russiahas made a strong bid to restore and expand its involvement in the region. BecauseChinese and Russian positions on salient Gulf issues (e.g. UN sanctions against Iraq)closely correspondand, because Sino-Russianrelationsgenerally areproductive,Russiadoes not representan immediate threat to Chinese interests in the Gulf. However, thepossibility that China and Russia may become rivals rather hanpartnersn the Gulf andelsewherehas bolstered China's determination o consolidate its relationshipswith Gulfcountries.THEECONOMICDIMENSION

Duringthe 1990s, energy cooperationemerged as the dominant eatureof Sino-Gulfrelations. This evolving energy relationship s itself part of the changingpatternof theglobal energy market, n which Asian-Pacific countries are on their way to becoming theGulf energy producers'most importantcustomers.'2The expansion of Sino-Gulf energy

8. In 1988 China'scentralplanners"opened" he economy to the outside world by designatingcoastalareas as developmentzones and by integratingthese with the economies of its Asian neighbors.Recently,Chinese officials have extendedthis model to WesternChina,a comparativelybackwardarea thatthey hope tobind to the economies of the Gulf and Central Asia. The "development circle" signifies China's zone ofdevelopmentand its neighbors'economies. See GayeChristoffersen, Xinjiangand the GreatIslamic Circle:TheImpact of TransnationalForces on China's Regional EconomicPlanning,"ChinaQuarterly133 (March1993),pp. 130-51.9. For a discussion of the connection between domestic unrest and China's relations with Islamiccountries,see LillianCraigHarris,"Xinjiang,CentralAsia and theImplications orChina's Policy in theIslamicWorld," China Quarterly, 133 (March 1993), pp. 111-29; and Dru C. Gladney, "Sino-Middle EasternPerspectives and Relations,"InternationalJournal of Middle East Studies 26, no. 4 (1994), pp. 677-91.10. "Round-upOn Developments in the Gulf Region,"XinhuaNews Agency, FBIS-CHI, 26 December1995. 11. See Asia Times, 12 November 1996.12. The Sino-Gulf energy relationship s markedby four main trends. First, the Asia-Pacificregion asa whole has become an "energydemandgrowth center."Second, surging oil consumption s eroding the abilityof Asian-Pacificcountries o meet theirrequirementsmerely by relying on domesticproductionand imports romwithin the region. Third, importedoil forms a growing share of Asian oil supplies, and oil from the Gulf is agrowingproportionof these imports. Fourth, he United States and WesternEuropeancountrieshave begun toshift theiroil purchasesaway from the Gulf and towardotherproducingareas. For discussionsof energy trendsin the Asia-Pacific region, and the energy-securitynexus, see, for example, FereidunFesharaki,"TheEnergy


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ties is propelled primarilyby changes in the Chinese economy. China's interest in Gulfenergy resourcesreflects a widening gap between its energy needs and its ability to fulfillthem. Although coal is China's leading energy source, oil is nonethelessvitally importantto the well-being of the Chinese economy. Oil already represents 17 percent of China'stotal primaryenergy requirements.'3 t is likely to become an even larger fraction of theenergy mix as China struggles to cope with environmentalchallenges. Meanwhile, thevolume of oil consumed in China is sharply rising. Between 1990 and 1995, China'saverage annualoil consumption volume rose at a rate of 6.4 percent.14The Centre forGlobal Energy Studies (CGES) in London estimates thatChineseoil demand will reachseven million barrelsper day (bpd) by the year 2005.15 China's crude oil imports areexpectedto rise from 440,000 bpd in 1996 to perhapsas high as one million bpd in theyear 2000.16

ParallelingChina's increasing demand for crude oil is its growing appetite for oilproducts,'7which has outpacedthe growth of China's processing capacity. Since 1985,China's crude oil refining capacity has expandedat the uncommonlyfast rate of fivepercentannually.Althoughby the early 1990s Chinahad attained he fourth argestcrudeoil processingcapacityin the world (afterthe United States,Russia and Japan),'8 t hadnonethelessbecomea net importerof plastics, fibers,naturalandsyntheticrubbers,a widerange of other petrochemicalproducts,and petrochemical eedstocks.'9Chinese energy analystshave assertedthat,because of the expanding gap betweendomestic productionand demand, increased reliance on oil imports is "unavoidable."Anticipating he need to import50 million tons of oil annuallyby theyear2000 (ordoublethe amountpurchased n the mid-1990s), they have urgedthe government o develop an"outward-lookingoil economy."20Some have advocated comprehensive changes inChina's oil policy, includingthe developmentof a "strategicoil-supply securitysystem"2'thatwould entail the constructionof new loading, storageandprocessing facilities, andpossibly tankerfleets.

In the interestof ensuring energy security,Chineseauthoritieshave endorsedmajornew effortsby the domestic oil industry o engage in overseas activities; moreover, theyhave authorizedand promoted foreign participationn China's oil sector.22As a directSupplyand Demand Outlook n the Asia-PacificRegion,"OPEC Review 16,no. 3 (Summer1992), pp. 119-3 5;Masayasu Ishiguro and TakamasaAkiyama, Energy Demand in Five Major Asian Developing Countries(Washington,DC: The World Bank, 1995).13. See remarksby Hu Angang, research ellow of the NationalConditionsAnalysis and StudyGroupof the Chinese Academyof Social Sciences, XinhuaNews Agency, FBIS-CHI, 3 March1997.14. Ibid.

15. Cited in Middle East EconomicDigest 41, no. 44, (31 October 1997), p. 3.16. Middle East EconomicSurvey 40, no. 24, (16 June 1997), p. A3.17. PetroleumEconomist, March 1995, p. 10.18. Ibid.19. See Kang Wu andJames P. Dorian, HydrocarbonProcessing 74, no. 3 (March1995), pp. 40-46.20. See, for example, Shen Qinyu and Wu Lei, "Focus on the Gulf Region in Developing the OilIndustry,"FBIS-CHI,6 February1995.21. See remarksby ZhuYu, presidentof SINOPEC'sEngineeringand PlanningInstitute,Xinhua NewsAgency, FBIS-CHI, 11 June 1997.22. XinhuaNews Agency, FBIS-CHI,28 December 1995.


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resultof the decisions to acceleratecooperationwith foreignentitiesandexpandoverseasoperations,China's energy ties with the Gulf countries have grown.

Althoughuntil theearly 1990s Chinaobtainedmost of its importedoil from southeastAsian producers mainly Indonesia),this has begun to change.An increasing proportionof the oil outputof Asian producersserves their own domestic markets.China, therefore,is unsureabout how much oil it can import,and for how much longer it can rely on itsneighborsfor its energy needs. For this reason,China has had to look elsewhere.Of thepotentialalternative uppliers,Chinese officialsregard he Gulf countriesas "keysourcesof China's crude oil imports."23They are attracted o Gulf producersbecause of thelatter's large proven reserves, idle surplus capacity and relativelylow developmentandproduction costs. Other suppliers (i.e., Latin American, Central Asian and Russianproducers)do not offer China this complete set of advantages.

China's dependenceon crude oil from the Persian Gulf has alreadyrisen and isexpectedto continue to do so. Between 1994 and 1997, China's reliance on the Gulf rosefrom 40 percent to 60 percent of its total oil imports.24According to one study, theproportionof Middle Easternsupplies in China's oil imports may surpass90 percent bythe year 2005.25 Based on this estimate,one can arguethat China's initiatives towardtheGulf represent he early stages of a long-term nvolvement in the region's energymarket.It is important o note thatthis involvement is not confinedsimply to Chinesepurchasesof crudeoil, butalso includesparticipationn oil explorationanddevelopment.Accordingto its ninthFive-Year Plan (1996-2000), China aims to produce 5-10 million tons of oilabroadby the year2000.26Thisplan targets he Gulf (alongwithRussiaand CentralAsia)as an area in which Chinese oil firmsmust carve a shareof the petroleum prospectingmarket.27

Chinahas adoptednew approaches o securinga strategic oothold in the Gulf energymarket.Chineseoil firms have negotiated ong-term supply contractsandhave concludedproductionsharing agreements28 irectly with Gulf countries as opposed to internationaloil companies.29 n May 1995, for example, China negotiated directlywith Iran to tripleits oil purchases rom20,000 bpdto 60,000 bpd.30China's importsof crude oil from Iranare expected to increase 43 percent during the period 1997-98, and graduallyexpand to200,000 bpd by the year2000.31 In October 1997, Saudi ArabianAmericanOil Company(ARAMCO) announced hat China would triple its crude oil imports from Saudi Arabia

23. Li Yizhong, executive vice presidentof SINOPEC, quoted by Xinhua News Agency, FBIS-CHI,28 October 1994.24. KangWu and FereidunFesharaki,cited by Oil and Gas Journal 95, no. 35, 28 August 1995.25. Ibid.26. ZhongguoXinwenShe, 22 March 1996, in FBIS-CHI, 26 March 1996. See also remarksby ZhouYongkang,vice president of CNPC, Agence FrancePresse, 28 December 1995, from Lexis-Nexis.27. Ibid.28. See ZhongguoXinwen She, in FBIS-CHI,9 November 1996; andXinhuaNews Agency, FBIS-CHI,10 November 1997.29. See statementby SINOCHEMpresident,ZhengDunxun, XinhuaNews Agency, FBIS-CHI, 6 July1993. 30. Platt's Oilgram News, 31 May 1995; and TheInternationalHerald Tribune, 15 July 1995.31. See MiddleEast EconomicDigest 41, no. 21, (23 May 1997), p. 22.


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to 60,000 bpd, and that this could increaseto as much as 350,000 bpd withinthe next threeyears.32 n 1997, the China National PetroleumCompany (CNPC) concludeda prelimi-nary production agreement with Iraq to develop the Al-Ahdab oil field southeast ofBaghdad.33Chinese oil enterpriseshave also been active in Gulf downstreamprojects.Forexample, the China Petrochemical Corporation SINOPEC) successfully renovated theAl-Ahmadi refinery in Kuwait after the 1991 Gulf War. Chinese firms have exhibitedinterest in building a fertilizer plant in Saudi Arabia similar to the Sino-Arab facilityalreadyin operation n Hebei province in northernChina.34

Although Chinese officials recognize that increasedoil importsare unavoidable, heyare determinedto ensure that foreign supplies are used mainly to support domesticproduction.China'scentralplannershave takenstepsto centralizecontrol over foreign oilpurchasesand to liberalize access and procedures or foreigninvestmentandparticipationin domestic oil development.35Foreign firms, such as ARCO,Mobil and Shell, are nowengaged in petroleum prospectingand development projectsin 21 Chinese provinces.36Oil companies from the Gulf, such as ARAMCO, the National Iranian Oil Company(NIOC) and the Kuwait PetroleumCompany (KPC), have joined other foreign firms inbidding for such projects n China.This breaksnew ground n Sino-Gulfenergy relations,for up to this point, there had been no historyof joint ventures n China'senergysector.KPC has a 14.7 percentstake in the Yacheng offshoregas field, the first such projectinwhich China has cooperated with foreign companies since its implementation ofreforms.37n 1997, officials of the CNPC andthe NIOC exploredthe possibility of suchcooperation.38Thus, activity by Gulf companies in China's domestic oil industry isdeveloping simultaneouslywith the involvementof Chinese firms in Gulf oil industries.

In order to handle an increasein the volume of oil imports,Chinamust expanditsrefining capacityand reduce the operational nefficiencyof existing facilities. The risingproportionof Middle Easternoil in China's imports presentsan additionalcomplicatingfactor, since only a few of China's coastal refineriesare designed to process sulfur-containingcrudes from the Gulf.39Centralplanners, following a tight monetarypolicy,have generally tried to restrict petroleum product imports and to augment domestic

32. See announcementby Beijing sales manager or Saudi ARAMCO, cited in Middle East EconomicDigest 41, no. 44, 31 October1997, p. 3.33. The ReuterAsia-PacificBusiness Report,14 August 1996; MiddleEast EconomicDigest 41, no. 24,(20 June 1997), p. 26; MiddleEast EconomicSurvey40, no. 23, (9 June 1997), pp. 4-5; and The WashingtonPost, 24 May 1997, p. A25.34. ChinaEconomic Review,May 1995, pp. 22-30.35. Regarding Gulf investment, see remarksby Li Ben, Ministry of Foreign Trade and EconomicCooperation MOFTEC),Xinhua News Agency, FBIS-CHI, 8 February1997. Note thatdetermining he extentof Gulf investment in China is difficult, given that it tends to be channeled throughHong Kong and UScompanies.36. XinhuaNews Agency, FBIS-CHI,13 May 1996.37. XinhuaNews Agency, FBIS-CHI, 10 January1996.38. Reuters,26 May 1997, fromLexis-Nexis; BBC Summaryof WorldBroadcasts,Far East, 28 May1997, from Lexis-Nexis; andMiddleEast EconomicSurvey40, no. 24, (16 June 1997), p. 13.39. Oil and Gas Journal 93, no. 18, 8 May 1995, p. 8; and China Chemical Reporter, 10 September1995, p. 4.


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production mainly through revamping (as opposed to constructingnew) refineries.40SINOPECofficials,on the otherhand,have lobbiedcentralplanners n orderto avoid thecreationof potential oint venturecompetitorsand to obtaincapitalupgraderefineries.41Saudi ARAMCO has emergedas a majorbeneficiaryof this domesticpoliticalwrangling.ARAMCO s the largestshareholder n theThalinrefineryproject n northeasternChina,42and has entered negotiations with SINOPEC to expand the refinery at Maoming inGuangdongprovince.43t has arrangedo build a $1.5 billionrefinery n the northeastportcity of Qingdao in Shangdongprovince, along with the China Chemicals Corporation(SINOCHEM)and the South KoreanfirmSsangyong.44

The importanceof this last project should not be underestimated.Significantly,central plannersapproved he project, despite the fact thatit grantedthe majorityequitystakes to the foreign participants, and involved SINOPEC's major Chinese rival,SINOCHEM.The deal to construct he Qingdaorefinery ncluded a commitmentby SaudiARAMCO to supply 10 million tons of crude oil over a 30-year period.45Althoughsomeof this oil will be dedicatedto the new refineryat Qingdao,SINOCHEMplans to processthe rest at its Dalian facility in Liaoning province on China's coast. This agreement,therefore,represents he convergenceof threestrategicdecisions: the first,on the partofChina's centralplanners, o establish a long-termupstream-downstreamelationshipwithSaudi Arabia thatwould involve purchasingSaudi crude oil and cooperation n refiningoil; thesecond,on thepartof SINOCHEMofficials,to lock in crudeoil imports n aneffortto penetrate he domesticmarket, raditionally he strongholdof SINOPEC;andthe third,on the partof Saudi ARAMCO, to establish a platform from which to gain a shareofAsia's growing energy market.

Saudi Arabia s not alone amongGulf countries n seekingto exploit the potentialofthe burgeoningAsia-Pacificenergymarket.China andIranreachedan agreement n 1997on ajoint ventureprojectto upgradea refinery n Guangdongprovince in southernChinato expand ts capacityto processIranian ourcrudes.46China s already hebiggestmarketfor Gulf fertilizers-the leading customer for Kuwait as well as SaudiArabia.47Kuwaitis involved in upgrading heQilupetrochemical acility in ShandongProvince.Like SaudiArabia,other Gulf producersare positioning themselves to penetratethe China energymarketby enteringstrategicupstream-downstreamgreements.Kuwait, for example, hasreportedlystruck a deal to construct a pipeline that serves Chinese refinerieson thecondition that it carriesexclusively Kuwaiti crude oil.48Thus, Gulf cooperationin thedevelopmentof China'soil industryreveals a competitivestrugglefor sharesof the China

40. Quoting a SINOPECofficial, TheReutersEuropeanBusiness Report, 26 November 1995, p. 6.41. See remarksby DennisEklof, seniorconsultantatCambridgeEnergyResearchAssociates, in Platt'sOilgramNews, 10 February1995, p. 3.42. Middle East EconomicDigest 39, no. 37, 15 September1995, p. 25.43. XinhuaNews Agency, in FBIS-CHI, 6 April 1995.44. Deutsche-PresseAgentur, 11 November 1996, from Lexis-Nexis; FBIS-CHI, 29 January1997.45. See remarksby Chineseeconomic andcommercialcounsellorZangDimo, SaudiGazette(Riyadh),17 January1995.46. Middle East EconomicSurvey40, no. 24, 16 June 1997, p. A3.47. China EconomicReview, May 1995, pp. 22-30.48. Ibid.


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energymarketwaged primarilybetweenthe two leading Chinese oil enterpriseson the onehand, and Persian Gulf producerson the other.

It is also important o mentionthe linkage between China's energyimportsfrom theGulf and its economic activities in the Gulf in non-energy sectors. Increasingpurchasesof Gulf oil and gas require China to devise ways to maintain balancedtrade. Chineseofficials have energetically sought to increase merchandise exports and industrialcooperation with Gulf counterparts.They have held discussions with Iraqi officialsregarding ooperation n expandingIraq'sexportfacilities.49They havealreadysucceededin boosting trade with Iran, and are exploring furtheropportunities or export growth.50

AlthoughSino-Gulf energycooperation s in its early stage of development,evidenceof its sources, scope and ramificationshas alreadybegun to emerge. Those Sino-Gulfenergyties not only reflect globalenergy market rends,but also represent omplementarychanges in the structuresand growthpatternsof the Chinese and Gulf economies. Thestruggle by the Gulf's oil producingcountries to diversify theirenergy-centeredecono-mies has intersected with the struggle by China's central planners to sustain theircountry'seconomic growth.THEPOLITICALDIMENSION

In the 1990s, China developed its ties to the Middle East more rapidly andextensively than it had at any previoustime.It establisheddiplomaticrelationswith SaudiArabia n 1990, completingthe projectof normalizingrelationswith all of the Gulf statesthatbegan in the early 1970s.51 This was an importantbreakthroughor several reasons.First, it occurredwhile Chinese authoritieswere strugglingto emergefrominternationalisolation as the result of the TiananmenSquaremassacre.Second, it was accompaniedbythe severingof diplomatic inks between SaudiArabiaandTaiwan,markinga victoryforBeijing's "one China" policy.52 Third, it laid the groundworkfor the expansion ofcommercial ies withSaudiArabia,with thehopethatthis wouldstimulatecommercewithother Gulf states as well.

The multilateralrackof the Arab-Israelipeaceprocessthatbeganin Madrid n 1991providedChinawith the opportunity o play a constructiverole in the peace process andthereby earn political credit with the Arab Gulf states. China participated n the fivemultilateralworking groups,chairedthe WaterCommittee, dispatchedobservers to the1996 Palestinianelections,andbid formembershipn theMiddle EastDevelopmentBank

49. See Iraq News Agency, in ForeignBroadcastand InformationService, Near East and South Asia(FBIS-NES),7 August 1997; and XinhuaNews Agency, in FBIS-CHI,4 June 1997.50. XinhuaNews Agency, FBIS-CHI, 11 November 1996; and Iran Focus, no. 3 (March 1998), p. 3.51. For a general discussion of Chinese diplomacy in the 1990s, see James Hsiung, "China'sOmni-DirectionalDiplomacy,"Asian Survey 35, no. 6 (June 1995), pp. 573-75.52. One of the majorstumblingblocks to China'snormalizationwith any countryhas been the "Taiwanissue." China has consistently conditioned its establishmentof diplomatic ties on its prospective partners'willingness simultaneouslyto breakor downgraderelationswith Taiwan. China considers such a concessionproof that its partnersendorsea "one China"policy. The Saudis, like others, agreedto this.


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(MEDB).53China also capitalizedon the initial progresstowardpeace to normalizeitsrelationswith Israel n 1992, ata pointin time when the risk of offendingArab sensibilitieswas relativelylow.The 1990 Iraqiinvasion of Kuwait, however, posed more challenges thanopportu-nities for China.As a permanentmemberof the UN SecurityCouncil,Chinabecamea keyplayer in efforts to mobilize an internationalresponse to Iraq's aggression.54In thisrespect, the Kuwait crisis provided China with an occasion to show supportfor thevulnerableArab Gulf monarchies.In otherrespects,however,the crisis was a setbackforChina. In their initial responses to Iraq's aggression, Chinese officials advocated an"Arab"resolution of the crisis, which in fact never materialized.Beijing's subsequentdiplomatic nitiatives to persuadeIraqipresidentSaddamHusaynto withdrawIraqi orcesfrom Kuwait were, like those of other countries, fruitless. Clearly, China preferreddiplomacy to economic sanctions, and sanctions to the use of force. Ultimately, Chinasupported he first ten UN SecurityCouncil resolutionsagainst Iraq,but stoppedshortofendorsing UN Resolution 678 to go to war against Iraq, and steadfastly refused toparticipate n the militarycoalition.55The cost to China of the sanctions and of the waritself was substantial.Accordingto some estimates,China incurred osses in assets andearnings in excess of $2 billion. In addition, Kuwait suspended $300 million indevelopment loans to China, in retaliation for China's abstention on the UN votemandating he use of force againstIraq.56

The secondpolitical challenge thatChina faced in the regionoccurredafter the 1991Gulf War. This challenge relates to the "unfinishedagenda"of the war, that is, thatSaddamHusaynremains n powerandthatIraq s widely believed to have the capacitytoproduceweaponsof mass destruction.To address heseconcerns,the United Stateshas ledthe effortin the UN SecurityCouncil to broaden,maintainand enforce sanctionsagainstIraq,the most severeof which arethose prohibiting raqi oil exports.This has meant thata highly intrusiveweapons inspectionand monitoringregime was set up; "no-fly zones"in the northernand southernparts of the country were imposed; and the use of forceagainstIraqin retaliation or violations of UN authoritywas permitted.

AlthoughChineseofficialshave calledupon Iraq o comply fully with all the relevantUN resolutions,they have also expressed strongreservationsabout many of the measurestaken by the UN Security Council. The infringementof Iraqisovereignty, for instance,which China regards as an unwelcome precedent, is a subject of particularconcern.Chineseofficialshave objected to punitivemilitary strikesagainst Iraq.They have stated

53. For a statementon China's contribution o the peace process, see remarksby Wu Sike, directorofthe Chinese foreign ministry's West Asian and North African affairs department,Xinhua News Agency,FBIS-CHI,4 January1997.54. For a discussion of China's changing attitudesand role in the United Nations, specifically withreference to the Middle East, see Yitzhak Shichor,"Chinaand the Role of the United Nations in the MiddleEast,"Asian Survey31, no. 3 (March1991), pp. 255-69.55. See Lillian Craig Harris,"TheGulf Crisis and China's Middle East Dilemma,"Pacific Review 4,no. 2 (1991), p. 118.56. See ibid., pp. 116-25.


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that "thereasonableandlegitimate securityconcerns"57f Iraqshould be "respected," ndthatIraq'sterritorial ntegrityand political independence houldbe "safeguarded."58heyhave maintainedthat sanctions have taken a huge toll on the Iraqi population andeconomy, and have arguedfor the removal of sanctions at the earliest possible date "onthe basis of humanitarian onsiderations."59

China has benefited from the fact that, over time, these sentiments have becomewidely sharedin the Gulf and the Arab world. For the most part, however, China hasavoided challengingthe United States alone on these matters.Instead, China has joinedranks with France andRussia in calling for the early lifting of sanctions, andin opposingtighter sanctions or the use of force in response to SaddamHusayn's defiance of UNauthority.The November 1997 crisis stemming from Iraq's expulsionof the UN SpecialCommission on Iraq(UNSCOM)weapons inspectors s illustrative.China,whichheld theSecurity Council chair that month, encouragedIraq to "play by the rules."60China'sdiplomats,who opposedmilitarystrikesagainstIraq,conferredclosely with theirRussianand French counterparts.However, China confined itself to managingthe UN SecurityCouncil's deliberationsand serving as the voice of restraint.It was Russia, ratherthanChinathat sought andplayed the key diplomaticrole in defusing the crisis.6' Similarly,duringthe February1998 crisis, whenIraqagaindefiedthe United Nationsandpreventedthe inspectorsfrom visiting certain sites, China workedbehind the scenes to discouragethe use of force. It also supportedUN Secretary General Kofi Annan's diplomaticintervention and his visit to Baghdadto convince the Iraqi leader to abide by the UNresolutions.

The thirdpoliticalchallengethat Chinahas faced in the Gulf pertains o Iran,whereChina's policy of engagementis directly at odds with the US policy of containment.Unlike the case of Iraq,US policy towardIran s not based on a multilateralnstitutionalarrangemento which Chinais a party.Nor, as in the case of Iraq,has thereever existeda strongregionaland international onsensusin favorof isolatingIran.For these reasons,Chinahas enjoyed a comparatively ree hand in strengtheningts relationshipwith Iran.

Chinese leaders view the US policy of containing Iran as a unilateralinitiative,designedby the United Statesto ensureits predominancen the Gulf and impose its willon others.62This has served as a catalyst for China's policy of engaging Iran.Chineseofficialsalso characterizeUS policy toward Iranas "unhelpful"o regionalstability,and

57. See remarksby WangXuexian,memberof China'sUN SecurityCouncildelegation,WangXuexian,12 June 1996, UnitedNations Documents,SecurityCouncil, no. S/PV.3672.58. Ibid.59. See statementby Li Zhaoxing,memberof China's UN delegationto the Security Council, 14 April1995, UnitedNations Documents,Security Council, no. S/PV.3519.60. See remarksby Foreign MinisterQian Qichen, Xinhua News Agency, FBIS-CHI, 14 November1997. 61. See, for example, The New YorkTimes, 21 November 1997, p. Al; and The WashingtonPost,21 November 1997, p. A46.62. See, for example, remarksby ForeignMinister Qian Qichen,XinhuaNews Agency, FBIS-CHI,22February1994.


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maintain hatexcludingIranfrom Gulf andCentralAsian affairsmay backfire, eadingtomore disruptivebehaviorby Iran and more turmoil in the region.63

China'srelationshipwith Iran s conditioned,but not determinedby the 'US factor.'In contemporary istory, cooperationbetween Iranand China dates from the 1970s, whenthe Shahof Iran was still in power. Since the fall of the Shah, this cooperationhas beenbased on a confluence of geostrategic interests and views, of which objection to USmilitaryinvolvement in the Gulf is only one element. Chinese officialsregardIran as aregional power, and treat this as an unalterablegeopolitical fact. They also view Iran asa "natural"gress route for CentralAsian oil andgas, and a pivotalplayerin determiningthe extent of Russia's control overthese energy resources,and in meetingthe Asia-Pacificregion's energy requirements.64 learly,Iranconsidersits relationshipwith Chinato be avaluableasset in thwarting he US containmenteffort.Its ties to Chinagive Iran'sforeignrelations an "easternorientation,"which has become partof post-KhomeiniIran's "Asianvocation."65THE MILITARY IMENSION

In consolidatingrelationswith Iran,China has assumedcertainpoliticalrisks. One ofthese is causingfrictionwith theUnited States.Another s arousingmisgivings amongtheGulfCooperationCouncil(GCC)states,whichareambivalentaboutIran.It is not China'sengagementof Iranperse, however,that has posedthe greatestriskof damagingrelationswith the United States and with the region's otherstates.Rather, t is specific aspects ofthe militarydimension of that relationshipthat are troubling.As previouslymentioned,China'spenetrationof the Gulf arms marketbeganduringthe Iran-IraqWar. The marketwas primarilydemand-drivenand remains so today. Before turning to the question ofChina's role as an armssupplierto the Gulf, it is useful to discuss briefly the climate ofinsecuritythatprevailsthere,which is spurring he demand for weapons.

In the 1990s, the Gulf has become a highly militarized region. Although thecease-fireagreementthat ended the Iran-IraqWar has held for nearly a decade, the twocountrieshave not yet signed a peace treaty. Iraq'smilitary defeat in the 1991 Gulf Warand its continuing subjectionto international anctions have merely provideda breathingspell for Iran o re-equip ts armed orces. The survivalof the SaddamHusaynregime,thepossibility thatIraq'sweaponsof mass destructioncapabilitymight escape UN detection,and the unstablesituation in northernIraq,have provided incentives for Iran'smilitarymodernizationprogram.In turn,Iran'srearmament fforts, in the context of Iraq'smilitaryweakening,havereinforced the demand for armsby the GCC states. These conditions of insecurityhavealso made the GCC states more dependenton US forces and more willing to acceptthe

63. Ibid.64. See, forexample,remarksby NationalPeople's CongressChairmanQiaoShi,XinhuaNews Agency,FBIS-CHI, 31 December 1996.65. See, for example,remarksby ForeignMinisterVelayati,IranianNews Agency, FBIS-NES, 18 May1997.


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stationingof these troopson their soil, whichthey had previouslyeschewed. Furthermore,there exist various sources of friction among the GCC states themselves, includingunresolvedterritorialdisputes.Thus, the security environmentof the Gulf is such thatallof the region's states areintent upon acquiringweaponsas means of deterrence, f for nootherpurpose.In the context of a contractingglobal armsmarketand in spite of nationalbudgetary constraints exacerbatedby flat (or even falling) oil prices, the Gulf regionremains one of the world's most lucrativearms markets.66

Following the collapse of the Soviet Union, Russia joined China in aggressivelymarketing ts military hardware n the Gulf. In terms of their monetaryvalue, China'sweaponssales to the Gulf in the 1990s were roughlyon a par with thoseof Russia. Despitethe inroads made by China and Russia into the Gulf arms market,Western suppliers,especiallyUS defensecontractors, ontinued o dominate t. In fact, afterpeakingin 1988,China's earningsfrom armssales to the Gulf fell steeplyfor seven consecutive years,67npartbecauseChina s competitive n only a relativelynarrowrangeof militaryproducts.68Of the weapons sold by China to the Gulf countries, ballistic missiles are among itshighestmoney earners.These weapons-especially if equippedwith biological, chemicalor nuclear warheads-have the greatestpotentialto destabilize the region.Thus,it is notChina's involvementperse, but the natureof its involvement n the Gulf armsmarket hatis controversial.China's proliferationactivities, specifically with respectto Iran,its most importantcustomerin the region,have emergedas a majorbone of contentionbetweenthe UnitedStates and China. In fact, US officialsconsider Chinese cooperation n this field to be a"coreissue" in Sino-US bilateralrelations.69Consequently,China's leaders have had toweigh the advantagesof a continuationof these arms transferpracticesagainstthe riskofseriouslydamagingSino-US relations.

Overtheyears,andespeciallysince Chinaentered heGulf armsmarket n the 1980s,China'sattitudes owardnon-proliferation ave changed,and so has its policy. Withintheperiod 1992-93, China signed the Nuclear Non-ProliferationTreaty (NPT), agreed toobservethe Missile TechnologyControlRegime (MTCR)guidelines,and alsojoined andratified the Chemical Weapons Convention (CWC). In addition, China promulgatedregulationsconsistentwith international tandards or the transferof nuclear materials.70

66. In 1995, the Middle Eastremained he world's leadingarms importingregion.In thatyear,its shareof global arms importsclimbed, even thoughits real growthrate declined. Within this regionalmarket,Gulfcountriesaccounted or over 80 percentof arms mports.See WorldMilitaryExpenditures nd ArmsTransfers,1996 (Washington,DC: Arms Control and DisarmamentAgency, 1997), pp. 11-13.67. Ibid., Figure 16, Leading Exportersby Countryand Year, 1985-95, p. 21.68. For a discussion of China's sales to Iran,see Michael Eisenstadt,"ChineseMilitaryAssistance toIran: Trends and Implications,"in Barry Jacobs, ed., Chinese Arms and Technology Transfers to Iran:Implications or the United States, Israel, and the Middle East (Washington,DC: Asia-Pacific Rim Institute,1997), pp. 1-2.69. See, for example, Robert Einhorn, US deputy assistant secretaryof state for nonproliferation,"TestimonyBefore the Subcommitteeof InternationalSecurity,Proliferationand FederalServices of the USSenate Committeeon GovernmentalAffairs,"10 April 1997.70. For a backgrounddiscussionof Sino-US nuclearcooperation, ee JenniferWeeks, "Sino-USNuclearCooperationat the Crossroads,"Arms Control Today (June/July1997), pp. 7-13.


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Nevertheless, throughouthe 1990s, armscontrol ssues have remaineda source of frictionin Sino-US relations.

Withregard o missiles, US concernshave focused on proliferationactivitiescoveredby, as well as outside the scope of, the MTCR. In 1995, TheNew YorkTimesreported hat,according to an internal CIA document, China provided Iran with missile guidancetechnology.7'In 1997, The WashingtonPost cited an unclassifiedCIA reportto the USCongress that alleged a variety of Chinese assistance to Iran's missile programs.72USofficials have also expressedconcernabout China's sale to Iranof C-801 anti-shipcruisemissiles, which pose a threatto oil tanker trafficand US naval vessels deployed in thePersian Gulf.73

The case of China's cooperationwith Iran in the nuclearenergy field perhapsbestillustratesthe complexity of the triangular elationshipbetween China,the United Statesand Iran. Chinese officials have admittedcontributing o Iran's nuclearenergy program,but have denied supplyingfissionable material or other weapons-related echnologies.74They have also denied knowing of any attempt by Iran to divert nuclear materials toweaponsproduction.Furthermore,hey, like their Iraniancounterparts, ave assertedthatIran has satisfied InternationalAtomic EnergyAgency (IAEA) monitorsthat its nuclearprogram s intended for peaceful purposesonly.75

In October 1997, China took what might be a significant step to accommodatetheUnited States: It provided a written pledge to refrainfrom engaging in "new nuclearcooperationwith Iran of any kind."76 t is unclear,however, which of China's suspendednuclear contracts or projects in progress this pledge encompassed,or whetherUS andChinese officials held identical views aboutwhat the pledge specifically prohibited.

The context in which China's nuclearnonproliferation ledge was madereveals theways in whichChineseproliferationpractices n the GulfregionandSino-US relationsareintertwined.China made this commitmentduringChinese presidentJiang Zemin's visit toWashington in October 1997.77 This summit meeting, the first held in eight years,followed a difficultperiodin Sino-US relations,the low point of which had been the crisisover Taiwan.78Significantly,in January1998, US presidentBill Clintonannounced hathe would certifyto the US CongressChina'snonproliferation redentials.This paved the

71. The New YorkTimes, 18 September1995, p. Al.72. The WashingtonPost, 2 July 1997, p. A20.73. Regarding he dangers posed by Chinese assistance to Iranto improve the latter's missile guidancesystems, see PaulWolfowitz, formerUS undersecretaryof defense for policy, "StatementBefore the US SenateForeignRelationsCommittee,"7 October 1997.74. This cooperationincludes a Sino-Iranianagreementto build two Qinshan-class300MW powerreactorsat Darkhovin,and the sale of calutrons or Iran's 27MW and 30MW researchreactors.75. For an example of reportsof "secret"Sino-Iraniannuclearcooperation hatsurfaceperiodically, seethe discussion of a 1991 "secret"agreement n which Chinapledgedto supply Iranwith a uraniumhexafluorideplant, in Al Venter, "Iran's NuclearAmbition:InnocuousIllusion or OminousTruth?" nternationalDefenseReview (Supplement),19 September1997, p. 23.76. James P. Rubin,US State DepartmentPress Briefing, 30 October 1997.77. For furtherdetails on China-USnuclear energy cooperation,see TheFinancial Times,23 October1997, p. 3; The WashingtonPost, 25 October1997, p. Al; andTheWashingtonPost, 30 October1997, p. A15.78. In response to statementsby Taiwanese officials in support of Taiwan's independence,Chinaconducted large scale military exercises and missile tests in the Taiwan straits. This precipitateda crisis inSino-US relations.


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way for Sino-US nuclearcommerce to resume underthe US-China Nuclear CooperationAgreement, which authorizes American firms to engage in China's nuclear energyindustry.79These quid pro quos are illuminating n two respects. First, they demonstratethat China's proliferationpracticesin the Gulf region are sensitive to, if not dependentupon, the overall state of Sino-US relations. Second, they suggest that China's prolifer-ation practices, at least in the nuclearfield, may be responsiveto changes in the incentivestructuregoverningthe US approach o China.

The apparentprogressmade by China and the United States in the nuclear field,however, has not carriedover into the areas of ballistic missiles and chemical weapons.In neitherof these two cases has China provided explicit assurancescomparable o thoseofferedin the nuclear field. It is also premature o conclude that China will strictlyabideby its nuclearpledge, or that it is even likely to do so over the long term. On 13 March1998, six days before President Clinton's certificationbecame official, The WashingtonPost reported that the National Security Agency had intercepted messages concerningnegotiations for sale by China of uranium enrichmentchemicals to Iran.80AlthoughChinese authorities responded quickly to a US demarche, halting the transaction, hisepisode casts doubtsupon China's intentions to respect its promises.

What, then,are theprincipal actors thatmight spurthe continuationof China's armsproliferationactivities in the Gulf region? Clearly, it is impossible to separateChina'sproliferation activities from the totality of Sino-US relations. Chinese leaders have arespect for, but a residualmistrustof the use of US power. Arms sales provide a wedgefor China into the Gulf, a region of global geopolitical importanceand of growingsignificanceto China itself where the United Statesis the preeminentpower.Those salesserve as a lever for Chinato ensurethat ts interests n theGulfaregiven due considerationby Washington. They are also a hedge against the possible deteriorationof Sino-USrelations.

Economic considerationsalso apply, thoughnot in exactly the same manneras in thepast. Whereascommercialarmsexport earnings n the 1980s mainlyserved China'sownmilitary modernizationprogram,possible new economic motivationscould exist beyondthe horizon. Until now, flat or declining oil prices have largely sheltered the Chineseeconomy from the adverse effects of rising dependenceon oil importsfrom the Gulf.China'soil bill is sure to rise,due to increased uture mportsandperhapshigheroil pricesas well. This in turn could lead to an arms-for-oilarrangement, lthoughthat is by nomeans inevitable. Innovative payment schemes could be developed to alleviate tradeimbalances between Chinaand the region. In the longer term,the expansionof China'smerchandiseexportsto the region could absorbsome of the cost of its oil imports.

A finalimportant,butneglected factor, s pressureby Gulfoil-producingcountriesonChina to continue its arms sales. The case of Iran is instructive.Iranian eaders have

79. The WashingtonPost, 18 March 1998, p. A21.80. The WashingtonPost, 13 March 1998, p. Al.


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describedtheir relationswith China as "fundamental" nd "strategic,"8' nd have soughtto formalizethis relationship o a degree which, until now, China has resisted.82Kuwaitalso reportedlysoughtto extractsecurity guarantees rom China in exchangefor pledgesto invest in the latter's energy industry.83Therefore,in the absence of a modus vivendiamongthe Gulf countries hemselves,and between individualGulf states,such as IranandIraq, and the United States,Chinais likely to face pressure o acceptsome sortof linkagebetween its own energy securityand the military securityof its Gulf partners.CONCLUSION

In the 1980s, China laid the foundation or multifacetedrelations with the countriesof the Persian Gulf. Chinese diplomacy in the region was geared towards buildingcommercial ties to the region and remainingat a cautious distance from the region'scomplicatedpolitical problems.Within the spanof less than a decade,Chinabeganto winlaborandengineeringcontracts,andpenetratedheGulfarmsmarket.These achievementsmarkedthe beginningof a permanent nvolvementby Chinain the region.

In the 1990s, China'srelationswith the Gulf countrieshavebecome more substantialand nuancedthan is generally recognized.On the political front,China has succeededinopening and maintaininga dialogue with all of the region's states, despite and perhapsbecause of their conflicts with one another.On the economic front, Sino-Gulf businesslinkages have become more complex and consequential,especially in the energy sector,where China's growing reliance on Gulf crude oil is the key element of intensifyingcooperation.On the militaryfront, China has retaineda primarycustomer,Iran, and thusits foothold in the Gulf arms market.

Yet, as China's interestsand activities in the Gulf have developed,they have becomemore difficult hanin thepastfor Beijing to manage. The 1991 Gulf War and its aftermathhave illustrated hatit is impossiblefor Chinato insulate itself fromthe adverseeffects ofevents thattranspiren the region.The case of Iranhas demonstrated hat it is impossiblefor China to prevent its policy towards the Gulf from impinging on its bilateralrelationshipwith the United States. As the scope of China's involvement in the Gulfwidens, China may encountermany more economic opportunities,but may also incurhigher political risks.

81. See remarksby Iranianvice presidentHasan Habibi,IranianNews Agency, FBIS-NES, 30 August1994. 82. See commentsby ChinesepresidentJiang Zemin,who referred o the "commonoutlooks"of Chinaand Iran, but indicated that Sino-Iranianrelations were not directed against third countries, IranianNewsAgency, FBIS-NES, 28 March 1995.83. These were the concernsthatreportedly ay behind the March 1995 Sino-Kuwaitmemorandumofunderstanding n militarycooperation. See Reuters World Service, 14 March 1995, from Lexis-Nexis.