IEEJ: January 2011
Special Bulletin
November 5, 2010
A Japanese Perspective on the International Energy Landscape (17)International Energy Problem and China Risks
Ken Koyama, PhD
Director
Strategy and Industry Research Unit
Institute of Energy Economics, Japan

There have always been various uncertainties and risk factors for predicting the future
course of the international energy problems. Those attracting attention over recent years included theLehman Shock and the ensuing global economic crisis, deepening deflation fears in industrial
countries, growing uncertainties about the future of international negotiations on the global warming
problem, and the absence of global governance behind the uncertainties. More recently, theimportance of the so-called China risks has attracted global attention while having some links to theabove factors.
“China risks” range wide and are multifarious. But this report regarding the internationalenergy problem focuses on two points – (1) risk perception regarding China’s behaviors and (2) risk
perception regarding China’s economy.
The first risk perception is closely linked to problems featured by China’s recent diplomacy
or behaviors in the international community. There is an international concern that China with its
growing presence and influences in the international community has toughened its assertive
diplomacy/attitude and enhanced its enforcement of various political/economic powers (excessivelyin some cases) to achieve its views and objectives. The late Deng Xiaoping is known for his foreign
policy of “Tao Guang Yang Hui, You Suo Zuo Wei (be good at maintaining a low profile and doing
something worthwhile)”. As China increases its power and sees its growing nationalism, Beijing isviewed as switching to a more aggressive posture while retaining the low-profile policy1.
U.S. reactions and op-ed articles are useful gateways to looking into the awareness of risks
regarding China’s behaviors. Major U.S. newspapers (including The New York Times and The
Washington Post) have recently indicated that the Obama Administration’s China policy could betoughened due to not only China’s recent behaviors and the subsequent growth in a sense ofvigilance against China, but also the rise of revisionist views about China. In the November 2midterm Congressional elections, Obama’s Democratic Party lost a majority in the House ofRepresentatives while managing to retain a majority in the Senate. In connection with employmentand economic problems as the biggest factor behind the severe election results for President Obamaand his party, the Obama Administration is expected to pursue a tougher policy stance over theChinese yuan problem and huge U.S. trade deficits with China. This possibility is worthy ofattention.

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In his speech in July 2009, President Hu Jintao reportedly said: “Jian Chi (retain) Tao Guang Yang Hui, Ji Ji(positive or aggressive) You Suo Zuo Wei.”

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As is well known, such developments as China’s clashes with the United States and ASEAN
nations over the South China Sea territorial issues, the Senkaku Islands incident and China’s rareearth export restrictions in 2010 attracted attention in the international political arena. Thesedevelopments have been taken as international political and economic problems and have fallen
short of influencing international energy markets and supply/demand conditions. If China
implements its “assertive diplomatic posture” for energy markets more directly and strongly,
however, it may naturally exert great influences on international energy markets. As China hasincreased its presence as the world’s largest energy consumer, its resources/energy diplomacy withresource-rich and energy-consuming countries, its overseas expansion to secure resources interests,
and its energy resources procurement may inevitably become major factors influencing thesupply/demand balance and stability of international energy markets. Therefore, worries and fears
regarding China’s relevant behaviors might have potentially been growing.
The second risk perception regards the stability of China’s economy and society. Manyexperts have pointed to the instability of China’s economy and society, citing the widening income
gap disparities between urban and rural areas, corruption and other fundamental problems in addition
to recent macroeconomic problems including inflation and asset bubbles. Actually, however, theChinese economy has achieved high growth under the 4 trillion yuan economic stimulus package
and the government’s policy management even after the global economic crisis, while industrial
nations have been plagued with deflation. In this sense, the above-cited economic and social risks
have never come up to the surface.
Nevertheless, recent domestic developments, such as frequent strikes for higher wages in
the first half of 2010 and anti-Japan strikes, which came amid the important political event of thefifth meeting of the Communist Party’s 17th Central Committee and occurred frequently later, may
apparently indicate the presence and depth of problems and distortions in China’s economy andsociety. After achieving extraordinary economic growth under the so-called "the theory of allowing
individuals to grow rich first," China is now emphasizing a recognition that a "harmonious society"should be realized to secure future sustainable, stable growth/development. In this sense, China's
current social and economic situations may be worthy of attention.
China has recently announced its economic growth at 9.6% for the third quarter of 2010.
The growth rate is high, though lower than 11.9% in the first quarter and 10.3% in the second. A
year-to-year rise in the consumer price index accelerated from 0.6% in November 2009 to more than
3% in May and reached 3.6% in September. The problem of real estate and other asset bubbles has
been lingering in China due to large-scale economic stimulus measures and monetary easing within
China as well as the increase of money flows from abroad against the backdrop of competitive
monetary easing measures by developed countries. The Chinese economy's trends including thisproblem are attracting great attention. At a time when China as the center of emerging countries isdriving the world economy, the stability of China's economy and society is key to that of the world
economy, international politics and global energy markets.
As China’s presence and influences have increased so much, realization of “China risks”
may have great negative impacts not only on China but also on the entire world including Japan. Itshould be undesirable for everyone, and thus must be prevented or avoided. China itself should
secure its sustainable and stable development, and take domestic as well as external efforts as a
responsible power, and make due contributions to the international community through such efforts,2

IEEJ: January 2011
while the international community should further deepen dialogue, cooperation and coordination
with China. Particularly for Japan that has very close relations with China, the China problems are of
the most importance and a matter of urgency. Therefore, Japan may have to steadily promote
coordination and cooperation with China over energy and environmental problems on merit, while
adopting its basic policy that is unshaken and resolute.

Contact: report@tky.ieej.or.jp

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