The Oil Cooperation Between China And Russia Constraints

Energy cooperation is one of the key cooperative fields between China and Russia, not just at present but in the future. With the most favorable conditions for the cooperation, China and Russia are strongly complementary to each other in terms of supply and demand of energy sources. Apart from this, there is an obvious joint of interests between two nations as far as energy security strategy is concerned. As China's economy is rapidly developing, the consumption of oil is on the increase. A grave shortage of energy sources and inadequate output of petroleum for its rapidly increasing domestic demand might impose a direct restraint on Chinese economy. As China more and more relies on the international oil market, the issue of oil safety becomes increasingly prominent. At the moment, China's energy security strategy is focusing on diversification of overseas oil supply channels. Petroleum collaboration with Russia has been one of the important choices made by China to relieve its problem of oil safety. Apart from OPEC, Russia is the largest oil producer and exporter, the country abounds in truly rich oil resources and remarkable production potential. An excess of demand for petroleum over supply in Russia affords huge potential export opportunities. According to the newly formulated energy development strategy, Russia firmly committed itself to diversification of its energy sources market and stimulation of foreign investment in its energy projects. The Asia-Pacific area with its booming economy is one of the key regions where Russia is planning to extend its energy export market. Facing a great increase in demand for petroleum and petroleum products in Asia-Pacific area, Russia is not satisfied with its small market share in this region. Within two decades to come, Russia plans to intensify its export to this area. China, which attracts Russia with its great potential for energy consumption, certainty is the most important target client for Russia. On the international oil market among all competitors and partners, the advantages of Sino-Russian cooperation in the oil industry are very obvious. Due to Russia's unique geographic advantage, comparing with other regions where China is developing its offshore oil industry, Sino-Russian oil cooperation in terms of geographical location is extremely advantageous. At present, Sino-Russian strategic partnership of cooperation has reached an unprecedented level. Both countries agree that China-Russia relation right now is in the best period in history. Such a friendly relationship between two nations entails a favorable political atmosphere for oil cooperation between China and Russia. Great achievements have been made in the oil cooperation recently; a further cooperation will be of great benefit to both sides.Although there are many advantages in oil cooperation between China and Russia, the cooperation still remains at the initial stage, which is far below the expectation of both sides. At the moment, there are many complicated restrictive factors in Sino-Russian oil cooperation. In order to achieve in the future new substantive results in the energy cooperation, both sides should earnestly analyzethe existing problems and identify the restrictive factors that exist in Sino-Russian oil cooperation. Such an analysis would be significantly important for both sides, in order to take timely measures and promote the cooperation to a brand-new development stage.The oil cooperation between China and Russia is challenged with complicated domestic environment and keen international competition. First of all, specific national conditions of both countries pose many obstacles. Although Chinese oil companies have made remarkable achievements in implementing the"Go global"policy, they remain beset with difficulties in their overseas businesses. On the international energy market, China has to rival with the world's most powerful oil companies that have over 100 years of international operating experience. China's overseas investment in oil is late-initiated, in comparison with western world-famous transnational group companies, the international operating level of Chinese oil companies still remains in infancy stage. In other word, in the international competition China's oil enterprises are not competitively strong. At the same time, China faces a dilemma of whether to use the limited capital resources to encourage the domestic exploitation of oil resources or to"Go global"and invest in overseas oil resources. In addition, there is still a problem: Where should the capital resources go, Russia or Middle East and Africa, which are China's traditional suppliers of oil. To a certain extent, China's hesitation affects the development of Sino-Russian oil cooperation. Most importantly, the administrative system for Chinese overseas investment, unfavorable for the development of overseas investments in oil, imposes serious restraints on the oil cooperation between China and Russia. In China, the liberalization of policy on overseas investment is not carried out in an all-round way and the"Go global"policy is progressing step by step. Currently, China is in the phase when overseas investment is restricted by a certain limit and is under the guidance of the state's relevant policies. China's operating qualification examination and approval for ventures engaged in oil cannot meet the requirements for overseas investment, which usually is characterized with high timeliness and intensity. As for the foreign exchange management regulations, China has not yet authorized the full capital account convertibility, and therefore, the maximum foreign exchange amount for Chinese enterprises investing overseas remains limited. As far as Russian investment environment is concerned, there are two main factors that affect the oil cooperation between China and Russia: interest groups and legislative environment. Numerous political forces, organizations, interest groups and oligarch groups have different policy orientation, their influence on Russian politics, economy and life cannot be underestimated. The different attitudes of these groups toward China have a great influence on the economic and trade relation between China and Russia. These influences can also be found in Russian energy diplomacy with China. Disagreement and competition among different interest groups hinder the progress in Sino-Russian oil cooperation. On the other hand, in recent ten years, frequently changed energy law and regulations in Russia, especially complicated energy legislation in the oil sector, were criticized by someforeign investors as unsystematic and incomplete; Chinese investors are not an exception. After President Vladimir Putin took office, the government gradually strengthened its control over the oil industry, built a license management system for operating activities in energy business, such as: production, product processing, transportation, storing and marketing. Russia also imposed some restrictive clauses on foreign investment in exploitation of oil resources, raised the natural resource exploitation and export taxes. At the same time, Mr. Putin's government decided to follow the principle of ensuring national interest. Ensuring the maximization of national economic interest has become an important principle in Russia's diplomatic decision-making process; Russian energy diplomacy is not an exception. Russia's new oil diplomacy is simply based on this principle. Some experts even believe that"Oil has replaced Russia's military force and has become a new source of power."If Russia keeps playing its energy card, such behavior will certainly do no good and will only be a hindrance to the oil cooperation between two nations. In addition, the international environment for Sino-Russian oil cooperation is quite complex as well. Cooperation between China and Russia faces tough international competition. Inevitably, China has to rival with the world's largest oil consumers. On Russian energy market, US, Japan and India are the most powerful rivals for Chinese oil companies. In the future, these three countries are very important external factors that can not be neglected in oil cooperation between China and Russia.Although there are numerous unfavorable factors in Sino-Russian oil cooperation, this cooperation has a huge development potential and opens up highly promising prospects. Therefore, it is firmly believed that this cooperation will continue and be further strengthened in the future, as it has a significant importance for both countries. This thesis is an attempt to propose some suggestions how to reduce or eliminate restrictive factors in oil cooperation between China and Russia and to promote the Sino-Russian energy cooperation to a new stage. Both sides should make joint efforts to ensure a smooth cooperation. China and Russia should maintain a cooperative attitude, build the relationship on principle of equality and mutual benefit and create a new cooperative mode for reaching a truly win-win situation for both countries. By doing so, the energy cooperation might become a vigorous growing point of the local economies in China and in Russia.