Refining policy
When United States Treasury Secretary Henry Paulson and Vice-Premier Wu Yi met for a round of strategic talks last month, Mr Paulson expressed 'impatience' and Ms Wu 'frustration' with US 'pressure' over a host of issues, ranging from the yuan exchange rate to trade imbalances.
Bookstore shelves are full of gong-beating titles predicting China's rise clashing with America's strategic interests. Conflict will inevitably occur, but not over old issues such as loss of American jobs or trade - or even exchange rates. It will turn on a new one - energy.
The mainland now relies on imports for 47 per cent of its oil consumption. This represents a 4.1-per-cent increase on 2005. As China's dependence on oil imports increases, it has no other choice but to draw upon its huge foreign exchange reserves not only for imports, but also for external investment in the exploitation and processing of oil reserves in other countries.
This is the point where Beijing and Washington will ultimately clash, not over Taiwan, North Korea or even trade imbalances.
As a sign of shifting capital flows, the National Development and Reform Commission - which four years ago absorbed the functions of state planning and economic reform - published an industrial guide to Chinese enterprises' investment abroad. In contrast, a few years ago, such ministerial organs published guidelines encouraging foreign inbound investment.
This new outbound investment manual clearly encourages - or insists upon - investment in oil and natural-gas reserves overseas; including in key Middle Eastern countries such as Kuwait, which is already under America's strategic umbrella.
The Ministry of Land and Resources conducted a survey recently of oil reserves in fields under the control of its key monopolies. By the end of last year, China's remaining commercially recoverable oil reserves stood at 2.043 billion tonnes.
Last year, China reported 195 million tonnes of oil in newly-found proved initial reserves, while mining 184 million tonnes. That gives it a reserve replacement rate of above 1, which means that its oil reserves could offset consumption.
China's reserves-to-production ratio last year - which reflects the length of time remaining oil reserves can be tapped under current production conditions - stood at 11 years. That is a drop from the 14-15-year average since 1990.
So, if China is to continue to offset consumption with its reserves, it needs to accelerate domestic exploitation, and import massive amounts of oil.
Alternative sources of energy are spoken of little in Beijing's halls of power, where brush paintings of smoke stacks towering over mountains still hang in gilt frames, echoing the ethos of industrial might overwhelming nature.
When leaders discuss alternative sources of energy, the subject inevitably turns to coal. Having once sought to eliminate coal because of its polluting effects, reliance is shifting back to this source. In March, China imported 5.67 million tonnes of coal, 53.2 per cent more than in the same month last year. China's coal exports dropped by 36 per cent, year on year.
In total, during the first quarter of this year, China imported 14.3 million tonnes of coal, a 60.4-per-cent surge over the same period last year. The state has since removed tax rebates for coal exports, to encourage imports.
The health effects of increased coal use will plague China. The massive increase in the number of people with lung diseases could, potentially, see the collapse of the mainland health system.
In the past, mainland Chinese greeted each other with the question: 'Have you eaten yet?' Today, they ask: 'How many cars do you have now?' The answer usually includes the manufacturers Mercedes, BMW and Audi. If you cannot include at least two, you will lose face!
So, when Mr Paulson and Ms Wu meet again, they might want to exchange similar greetings. In the end, the clash will be one of rivalry over economies of scale, not a clash over culture.
Laurence Brahm is a political economist, author, filmmaker and founder of Shambhala Foundation
