Sino-US Colloquium (VII)
Opening Remarks
Dr. Patrick Ho,
Deputy Chairman and Secretary General,
China Energy Fund Committee
Jan 24, 2015
How time flies. Once again, we gather here to bid farewell to the old year and usher in the new. Let me start by extending, on behalf of the China Energy Fund Committee, my warmest greetings to our guests who have traveled, from far and wide, to join us here in Hong Kong, and to all the participants here for the strong support you have given to CEFC’s work over the past years. With your active participation, it promises to be a stimulating and a productive weekend.
2014 Year in Review
2014 was a busy year filled with political challenges and international incidents. From disappearing planes to the Ebola outbreak and the mass protest; from elections, normalization, celebrations, to the inexplicable attraction of the“ice bucket challenge”, today indeed, we live in an increasingly interconnected and turbulent world.
What’s more, with the bloody rise of the ISIS and the Ukraine crisis, the past year brought a number of game-changing developments in international relations, characterized by the return of harsh geopolitics.
In North America, unconventional energy development has become an engine of job creation and economic growth, estimated by 2.6 per cent —higher than the previous five years of recovery. Moreover, with almost 3m jobs created, 2014 was the best year for the US labor market since 1999.
Turning to the Middle East, finally, Saudi Arabia made a geo-economics move by bringing the price of oil sharply down. Furthermore, King Abdullah passed away yesterday, leaving many questions unanswered. A new game is on.
In Europe, given the sharp dip in oil prices and the depreciating Ruble, Russia is suffering through one of its most serious economic downturns. The huge unemployment rates in Spain, Greece and Southern Europe profoundly affect large numbers of people and the integrity of the EU.
World of Uncertainty (Global Challenges)
Despite the collective efforts made by the international communities to cope with new challenges in an increasingly complex and uncertain world, the simple, linear, and ahistorical view of human development that has become so popular after the Cold War is now being challenged. “The End of History” proposed that markets and democracy were part-and-parcel of a single triumphant formula. But in the past two decades, history has proved to be more complicated than Francis Fukuyama’s imagination.
Market Economy
The faith in free markets was severely shaken by the financial crisis of 2008, but the exuberant belief in the ability of free markets to raise living standards all over the world has not returned. In much of the west, economic debate is instead dominated by discussion of income inequality. The belief that there is a market-based formula out there that all sensible policy makers can adopt has faded.
Electoral Democracy
Democratic evangelism, meanwhile, has been undermined by the horrors unleashed by the Arab uprisings. The wave of revolutionary change that hit the Middle East in 2011 initially looked like the Arab equivalent of the fall of the Berlin Wall. But the failure of Arab uprisings has undermined the unchallenged moral high ground of Western democracy and interventionism. Moreover, there is an emerging loss of faith in the ability of developed countries to deliver competent governments. In European states such as Italy and France, the political systems seem incapable of delivering reform or growth — and voters are now beginning to flirt with extremist parties.
Even Fukuyama himself was quick to amend some of his views that neither democracy nor free markets can flourish properly in the absence of a competent state.
Petrodollar
One thing that may be considered as a new challenge for the Post-War order led by the United States is the continuously weakening petrodollar system.
As we all know, the dollar's role as the world's reserve currency was first established in 1944 with the Bretton Woods agreement. After the 1973 oil crisis, the dollar was moved from a gold standard onto a crude oil standard. While the petrodollar arrangement worked well for more than 40 years, the arrangement began to face new challenges, not from the rest of the world but from the United States itself. After the 2008 financial crisis, the US Fed pursued a zero interest rate policy and "quantitative easing" so unrestrainedly. As some commentators noted, energy producers saw that the U.S. economy had now become so dependent on low interest rates that it could never again manage to keep oil prices steady relative to U.S. treasuries without blowing up the global financial system. Energy producers began to accumulate real assets (such as real estate), and returned to purchasing physical gold in lieu of U.S. treasuries. Finally this year, the long established re-circulation of petrodollars back into the U.S. financial system came to an end -- according to BNP. The petrodollar system, which had allowed the U.S. dollar to supplant gold as the backing for the oil trade since 1973, was being challenged.
China’s new initiatives
But the most epochal development of the year may turn out to be China’s new initiatives in pushing forward the world economy. Economic cooperation and common development has been at the heart of President Xi’s diplomatic policy.
One year ago, President Xi Jinping put forward his strategic vision of building the "Silk Road Economic Belt" and the "21st Century Maritime Silk Road", known shortly as the "One Belt and One Road" initiative. This year, the President announced that China will establish a Silk Road fund with $40 billion to strengthen regional connectivity along the Belt and Road.
In the same spirit as the Belt and Road initiatives, in 2014, China has worked with other regional partners to establish two new multilateral financial institutions. In July, it joined with Brazil, Russia, India, and South Africa to found a New Development Bank – the so-called BRICS Bank. In October, it enlisted 20 neighboring countries to launch an Asian Infrastructure Investment Bank (AIIB).
In addition, China has successfully hosted the Conference on Interaction and Confidence Building Measures in Asia (CICA) and the APEC Economic Leaders' Meeting. In these two major international events, the concept of common, comprehensive, cooperative and sustainable security in Asia, which called for efforts to shape the future through Asia-Pacific partnership, was introduced. Here, comprehensive security can be defined as protecting people’s life not only from the traditional form of military threat but also from other forms such as hunger, poverty, environmental disasters and scarcity of energy. Energy security has been the central issue among these non-military security concerns in Asian countries such as China, India, Japan and Korea which are heavily dependent on imported energy, especially, oil and gas. The common threats in energy security have created a strong incentive for future regional cooperation.
Furthermore, shortly after the APEC meeting, China’s State Council unveiled its Energy Development Strategy Action Plan (2014-2020), promising more efficient, self-sufficient, green and innovative energy production and consumption in the future. According to the plan, the share of non-fossil fuels in the total primary energy mix will rise to 15 percent by 2020 from 9.8 percent in 2013. Energy self-sufficiency will be boosted to around 85 percent. This has been regarded as an important document which links the 12th Five-Year Plan (2011-2015) with the 13th Five-Year Plan (2016-2020), and will no doubt create huge opportunities for the energy industry.
All these efforts have enabled China to make indelible contribution to the historical process of maintaining peace and security and advancing cooperation and development in the Asia-Pacific region. It is clear that China’s foreign relation has now adopted the approach of geo-economics in which a “win-win” situation is a most feasible goal, and shying away from geopolitical confrontations in which the ultimate outcome is likely a zero-sum game.
Win-win Cooperation – the spirit of China’s initiates
A few days ago, President Obama said that China wanted to write the rules for trade in the Asia-Pacific and the United State would not let that happen. This is a zero-sum vision of Asia-Pacific trade. But the Chinese had always emphasized the desire of win-win cooperation, hoping that all sides can make joint efforts to provide a fair, open and transparent environment for such cooperation, and contribute to the further improvement of global trade rules.
Simply put, China’s recent initiative is neither about competing for spheres of influence nor striving for hegemony. It is about connecting countries and peoples, accommodating differences, embracing diversity, realizing potential, and enabling various goals and prospects.
Challenges of the Asia-Pacific Region
All across the world, countries and people are facing new challenges every day. And the Asia-Pacific region is no exception. It is a place where diversified cultural backgrounds intermingle with global norms, where trade partnership mixes with strategic caution, which, when bluntly put, means everybody wants money and businesses from China, and military protection from the USA. There is domestic instability, international tension and suspicion, long-standing maritime and territorial disputes, not to mention acrimonious historical memories.
With a fast changing distribution of material capabilities and region wide economic growth, there is a global debate about power transition and resetting the world order. For 200 years, the world was essentially governed by a fragment of the human population. That's what Europe and North America represented. The arrival of countries like China and India -- between them 38 percent of the world's population -- and others like Indonesia and Brazil and so on, represent the most important single act of democratization in the last 200 years.
Civilizations and cultures, which had been ignored, which had no voice, which were not listened to, which were not known about, will have a different sort of representation in this world. As humanists, we must welcome, surely, this transformation. And we will have to learn more about these civilizations.
Modern China, with more than 20% of the world’s population, aspires to participate as a responsible stakeholder in the agenda setting of the new world order, and assumes its rightful place in the international arena of global governance.
By the same token, the global energy landscape is undergoing a remarkable transition. The center of energy consumption is decisively shifting away from developed economies in the West to the developing economies in the East such as China, India, and the ASEAN countries. The rapid rise in energy demand in the Asia-Pacific region, growing reliance on energy imports, and dramatically fluctuating energy prices have led to renewed concern over energy security in the region, and a desire for equal participation in rule-setting cartels around the world.
Indeed, perhaps energy can serve as the best entry point for regional cooperation by providing strong incentives to engage in strategic restraint, addressing each other’s national interests and managing competition and conflicts in a more peaceful way. And it is one of the reasons that we discuss energy cooperation in the same breath as we do geopolitics in our past colloquiums.
However, just as I earlier mentioned, geopolitics’ ultimate payout could most likely be a zero-sum game scenario, whereas geo-economics discussions, with stakeholders from the industries, academics, and communities, the outcome could well be a “win-win” situation.
Therefore, today, at this 7th Sino-US Colloquium, we are realigning our orientation to embark on a geo-economics approach to regional energy cooperation, in the very spirit of “One Belt and One Road”.
With the theme “Asian Energy Security Cooperation: Challenges and Opportunities”, today’s colloquium provides a good platform for us to address common challenges and opportunities in the Asia-Pacific region: What are the economic and structural factors behind the cheap oil? Is there a “price war of necessity” between OPEC and the US oil companies primarily over market share? How does oil price fall affect crude exporters such as Russia? What are their economic and political implications to the Asia-Pacific region? Where will oil prices go in 2015? Does oil price fluctuate simply just according to the supply and demand equation? How do China and other Asian oil consumers respond to the rising energy demand? What are the impacts of the US unconventional energy revolution to the Asian market? What are the factors behind the Asian premium? Can it be fixed? Will the U.S. Solar Ruling hurt clean energy development? Is it return of US trade protectionism targeting imports from other countries? How can the Asian-Pacific countries work together on promoting clean energy? How can Asian countries work together to increase flexibility, transparency, and the ability to adjust more quickly in the event of major supply disruptions and changing market conditions? Can Asian oil consumers band together for a common energy purchasing platform or a clearing house to bargain with the oil-producers? Should we all join IEA to safeguard our energy interests or should we form an Asian IEA instead? And many more questions will be asked.
Ladies and gentlemen, I am all ears.
Thank you!