Models of oil barrels and a pump jack
Credit: Reuters File Photo
London: In the eastern Chinese port of Dongying, the start of 2024 has often seen several tankers docked simultaneously discharging Russian crude oil into a new 31.5 million barrel storage facility completed late last year.
It is, traders say, all part of a concerted and deliberate Chinese effort to build up strategic stockpiles for a perhaps uncertain future.
Estimates of China's total strategic energy reserve vary from 280 to 400 million barrels, the upper amount exceeding the US Strategic Petroleum Reserve at roughly 364 million. China consumes some 14 million barrels a day of oil in peacetime.
What does seem clear, however, is that China is deliberately stockpiling at speed, part of a much wider national effort to accumulate essential raw materials and resource.
When it comes to energy, much of the new inflows now come primarily from Russia, whose energy exports to China rose by roughly one quarter last year to a record 2.14 million barrels per day.
That makes the Kremlin Beijing's largest energy supplier for the second year running, overtaking Saudi Arabia – and allowing China to benefit from substantially discounted Russian oil as US and Western sanctions have turned away multiple other buyers since Vladimir Putin’s 2022 invasion of Ukraine.
Beijing’s stockpiling of oil is just one example of what appears a broad national effort to significantly increase the holdings of key raw materials. It is a move that some increasingly suspect is intended to help insulate Beijing against any future war or international sanctions, such as those that might be sparked by a potential Chinese invasion of Taiwan.
In a piece for international affairs and conflict blogging site “War on the Rocks” published April 17, Mike Studeman, former commander of the US Office of Naval Intelligence and intelligence and director of the US Indo-Pacific Command, argued that this was part of a much wider process.
"Xi Jinping is preparing his country for a showdown," he wrote, describing the Chinese leader as "militarising Chinese society and steeling his country for a potential high-intensity war."
Part of that, he suggested, included building up strategic stockpiles of essential goods and resources, protecting China against the kind of sanctions imposed on Russia after its Ukraine invasion – or, indeed, a militarily enforced blockade as part of a regional or global war.
Other examples of heightened preparedness, he said, included the much higher tempo of Chinese military operations around Taiwan – designed to both exercise China’s military and implicitly threaten the government in Taipei with the consequences of its own total military blockade.
US officials say they believe Xi has given his armed forces until 2027 to be prepared to invade Taiwan, although those inside and outside the US government remain divided on whether a decision to actually attack has genuinely been made.
This week, the outgoing head of the US Indo-Pacific Command said Beijing was continuing to plough resources into its military despite economic turmoil caused by a real estate crisis and a slump in US-China trade.
"Despite a failing economy, there is a conscious decision to fund military capability," Admiral John Aquilino told a naval conference in Japan. "That's concerning to me."
What is clear, Western experts and officials say, is that the government in Beijing has learned multiple lessons from Russia’s troubled experience in Ukraine.
These include the desirability of managing any military takeover extremely quickly, presenting the outside world – and particularly the US – with a lightning change of government in Taiwan’s capital Taipei before anyone can truly react.
Communications
Over the last year, US President Joe Biden and counterpart Xi have held one relatively cordial meeting in California in November and at least one follow-on bilateral telephone call, while military officials have held direct meetings aimed at finding ways to ensure communication and reduce tensions in any future crisis.
So far, neither Washington nor other Western states have moved to significantly cut China off from raw materials, although the US has increasingly worked to strip Beijing of access to high-tech microchips, particularly those that could be used for weapons.
European states remain publicly divided over their approaches to Beijing, with German Chancellor Olaf Scholz visiting China this month in what appeared to be an effort to maintain ongoing trade links.
German officials say Scholz pressed Chinese counterparts including Xi on multiple issues including human rights and Beijing's support for Russia in Ukraine.
More broadly, however, Western-Chinese relations continue to deteriorate – and not just over Taiwan, which Beijing views as a rogue province with which it vows to pursue “reunification” either peaceably or by force.
This month, US Secretary of State Anthony Blinken told fellow NATO foreign ministers that ever more Chinese components were being found inside Russian weapons in Ukraine. Beijing’s support for Moscow, Blinken said, was approaching the threshold of delivering lethal weapons systems.
This week also saw two rounds of arrests in Europe linked to alleged espionage by China, including two parliamentary researchers in Britain and three Germans working on defense programs. China’s embassies in both countries denied involvement in spying.
Having initially recovered following the Covid pandemic, US-Chinese trade nosedived in 2023 and so far shows little signs of recovering.
Officials in both the US and Europe also say they are considering introducing trade tariffs on Chinese production of electric vehicles in particular, accusing Beijing of deliberate overproduction in a way that threatens US and European rivals.
Should such tariffs be introduced, relations would almost certainly deteriorate still further.
China’s government buyers have never been ones to turn down a bargain, frequently building up their national stockpiles when short-term prices fall. Newly imposed Western sanctions on Russian nickel, aluminium and copper that entered force this month are seen as likely to spur further Chinese buying.
When it comes to lithium, a vital component in many types of battery, Beijing has bought up not just stock but also processing facilities and mines, including overseas.
In March, investment bank UBS estimated that China might control a third of all global lithium supply as soon as 2025, again exploiting a price crash to further build its holdings.
A US Geological Survey report from 2016 showed China's mineral deposits containing aluminium, cadmium, cobalt, copper, gallium, germanium, iridium, tantalum, tin, tungsten, zinc and zirconium as well as other rare earth elements.
Since then, China has sometimes sold off elements of its strategic reserves when prices have been particularly high, thereby reducing the costs for Chinese industry. More broadly, however, those stockpiles have continued to grow.
When it comes to one particular commodity, those purchases appear to go well beyond the government. Chinese consumers and companies, as well as state institutions, have been on a particular buying spree this year for gold, pushing its global price to a record high above $2,400 an ounce.
That has prompted speculation that China is about to make a concerted effort to wean itself and other major emerging economies off their long-term dependence on the US dollar.
But it may also be a reflection that China’s elite expect a more dangerous-feeling world over the rest of the 2020s and beyond, and would rather consolidate their wealth within Chinese borders well before that situation worsens.