January 12, 2017

Atlantic Council
Global Energy Forum

Session 2:  China’s One Belt One Road Strategy – Continental and Oceanic Energy Superhighways?

 

Introduced By:
Gov. Jon M. Huntsman, Jr.,
Chairman,
Atlantic Council

Moderated By:
Lubna Bouza,
Business News Anchor,
Sky News Arabia

Participants:
Dr. Ken Koyama,
Managing Director, Chief Economist, Strategy Research Unit,
The Institute of Energy Economics, Japan

Philip Lambert,
Founder & CEO,
Lambert Energy

Dr. Gal Luft,
Co-director,
Institute for the Analysis of Global Security

Dr. Lanxin Xiang,
Director, Center of One Belt One Road Studies,
China National Institute for SCO International Exchange and Judicial Cooperation

 

Location:  Liwa Ballroom, Four Seasons, Al Maryah Island, Abu Dhabi, United Arab Emirates

Time:  5:10 p.m. Local
Date:  Thursday, January 12, 2017

Transcript By
Superior Transcriptions LLC
www.superiortranscriptions.com


JON M. HUNTSMAN, JR.:  Thank you, all, for joining us for today’s session on China’s One Belt, One Road strategy.  I’m particularly delighted to be here to learn from some of the foremost experts on the subject matter.  We have a first-rate panel gathered to discuss this most important topic, which really does serve as one of President Xi Jinping’s cornerstone initiatives for promoting national revitalization and cementing China’s place as a leading global power.

One Belt, One Road focuses on fostering connectivity and cooperation between China and Eurasia and is viewed as one of President Xi’s signature foreign policy initiatives.  In addition to One Belt, One Road’s strong geostrategic component, its primary focus is geared toward advancing China’s key economic goals of developing underperforming regions and utilizing China’s industrial potential – efforts that will have vast impact on the region’s economic landscape.  While the One Belt, One Road presents a host of opportunities, it also comes with its fair share of hurdles to overcome:  China’s economic slowdown, coupled with an overly assertive foreign policy, will no doubt constrain – (inaudible) –  ambition, perhaps timeline, and regional credibility to assert leadership.

In a moment, we’ll hear from our excellent panelists who will delve into some of these challenges and outline policy recommendations to mitigate their adverse effects, as well as taking advantages of some of the significant challenge – or opportunities that lie ahead. 

So, without further ado, let me pass this program onto Lubna Bouza, a business news anchor with Sky News Arabia, who is here to introduce our panelists and kick off this discussion.

Thank you, all, for being here.  (Applause.)

LUBNA BOUZA:  Thank you, Governor Huntsman.

Good afternoon, everyone, and thank you for joining us today.  My name is Lubna Bouza.  I’m the anchor for Sky News Arabia, and I’ll be moderating the panel.  I’m really delighted to be joined by our distinguished panelists.  Let me introduce you.  Of course, Governor Jon Huntsman.  He’s the chairman of the Atlantic Council; Dr. Ken Koyama, managing director, chief economist, Strategy Research Unit, The Institute of Energy Economics in Japan; Mr. Phillip Lambert, founder and CEO, of Lambert Energy; and Dr. Gal Luft, the co-director of the Institute for the Analysis of Global Security; and Dr. Lanxin Xiang, director, Center of One Belt One Road Studies, China National Institute for the SCO International Exchange and Judicial Cooperation.

It has been three years since the official launch of the One Belt, One Road strategy and that provide us with a closer moment to reflect on what has been achieved, the opportunities and challenges that lay ahead.

Let me start with you, Dr. Lanxin.  Is there a better sense now of the size – or better understanding, I would say, of the size and the scope that this can reach?

LANXIN XIANG:  Well, officially the size is supposed to be very big and it will stretch about 30 years, according to Xi Jinping’s announcement.

Now, how much money will be involved?  My understanding is the projected funding – not funding, I’m talking about – not Chinese – sees money – I’m talking about the hope the Chinese sees money will be able to leverage in the next 30 years, something around 8 trillion.  So, this is a very, very ambitious project.  But you asked me, is this well understood?  I don’t think so.  So far, I’ve been traveling – at least giving 30 speeches on that subject.  Usually you have three reactions.  I go to Central Asia; I go to developing countries, Eastern Europe – they always ask me, what’s in it for us?  Then I go to Europe; EU countries, they usually said, it’s a wonderful idea, but we don’t understand.  When I give the speech in Washington, they usually said, tell me what’s behind it; meaning what’s the geopolitical motivation.  Is it supposed to replace the U.S. role – whatever.  So, it is very confused so far in terms of understanding what this project is.

MS. BOUZA:  You’ve raised a couple of very interesting points.  First, the funding, which I think is the main challenge for any project, any big project; and then –

MR. XIANG:  Right.

            MS. BOUZA:  – the feedback from other Asian countries; and, of course, the response of the U.S.  And we will discuss all that. 

            Let me start with the Asian countries.  How they have been engaging with the initiative so far?  (Pause.)  Yes, we will start and then we will move to –

            MR. LUFT:  To me.

            MS. BOUZA:  Yes.

            MR. XIANG:  Well, Asian countries are the – the first group of countries – I’m talking about Asia, including Central Asia.  The projects already started in full swing in a country like Pakistan, which has major projects underway:  the so-called China-Pakistan Economic Corridor, you know involving a lot of infrastructure works and port and so on; Central Asia as well.  But I want to make sure that this project is supposed to be an infrastructure-led economic development model, which many people think is something new, but personally I don’t think so because Europeans have done it before.  They forgot about it, but they did it during the 19th Century colonial time – they did the same thing – except it’s a very different context.  The Chinese project – some people criticize it as neocolonial context; but I will say, maybe a little neocolonial without colonies, without the territorial kind of ambition there.

            So, the idea, the design is to have three land-based roads.  One, the “Belt” is supposed to consist of three land-based silk roads.  The “One Road,” actually, is on water, which is a Maritime Silk Road.  So, this is not exactly the same thing – you know, when you think about maritime, and the idea, of course, coming from – supposedly the ancient Chinese market system, which was created many, many years ago – the so-called silk road concept.  So, this is where the project is moving, and hopefully, as I said, the key thing for this project to be successful is whether or not it’s credible enough to be able to leverage financing.

            MS. BOUZA:  Absolutely.

            MR. XIANG:  Yeah.

            MS. BOUZA:  This is something that we will –

            MR. XIANG:  That is the most difficult part.

            MS. BOUZA:  Yeah.  We will discuss –

            MR. XIANG:  Right.

            MS. BOUZA:  – when we discuss the challenges.  And I would like to move to Dr. Ken.  Because while China is – of course a very important part of the whole initiative, but Japan’s diplomatic and economic role cannot be understated.  What – where is Japan on all this, and what have you done so far?

            KEN KOYAMA:  Thank you for your question.  For Asian country – of course, including China, Japan – every Asian country is facing energy-related challenge, energy security, and environmental protection and economic energy market reform.  And to address these energy-related challenges, clearly that the key issue is to make appropriate energy investment.  But we all know that in the last three, four years, that the energy investment is really difficult to make a final decision because of the oil price environment, oversupply the situation – (inaudible) – in the market and rising geopolitical tension.  So, under the circumstance, I think that any international mechanism, including One Belt, One Road, can play a role to promote long-lead-time energy investment, which potentially promotes decarbonization as well as the energy markets stabilization.

            So, in this context, I think that Japan can expect any international mechanism, including One Belt, One Road, can play a role, and if – I think that Japan’s, say, technology – or experience is expected to play a role.  I think that it’s quite possible that Japan can cooperate with any counterpart, including China.  And of course, for example, bilaterally, we have some track record, even though the period of difficult – political difficult time to cooperate with China:  for example, in the area of energy-saving technology, energy-saving policy, and environmental protection, including the air pollution issues.  And recently we are cooperating in the area of LNG natural gas market.

            So, I think that this is kind of a regional and global challenge, and of course, everybody knows that Japan is pursuing our own unilateral approach.  We need to make our own international strategy to protect our national security, energy security and environmental protection.  But clearly this unilateral approach needs to be complimented by international cooperation.  So, I think that One Belt, One Road policy or concept can – should be viewed from that – (inaudible).  Of course, in reality the market is very complex and the political situation is always tough, but I think that from the area of energy and environment that our regional cooperation framework can play a role.

            MS. BOUZA:  Absolutely.  Gal, let’s just bring in the United States because Dr. Xiang did mention that he has been – there will always be a question of what is behind it.  The United States has been pursuing more involvement and engagement in Asia to counter the Chinese spheres of influence.  What has been so far the response of the Americans to this initiative?

            GAL LUFT:  I’m glad that you – your last word was “initiative” because that’s not what the title of the panel said, you know, and I think it’s very important to differentiate between a strategy and an initiative.  One Belt, One Road is not a strategy, and I think the Chinese will emphasize this, because a strategy, by definition, implies that there is some sort of a grand geopolitical maneuver here, and that’s exactly what the Chinese don’t want to be the impression.  And I think that for Washington – Washington is a city that is wired to think in geo-political terms, and Beijing is a city that is wired to think in geo-economic terms.  And I think we have sort of an operating system problem here between two capitals that are wired to think differently about the world.

            And maybe that’s why during all the years since 2013 when the initiative was announced until now, the Obama Administration has more or less ignored it altogether, and in some cases even used soft power tactics to undermine it, such as in the case of the AIIB – the futile opposition to it, and attempts to undermine and lobby against it.  That, of course, did not succeed.  And over all, if you see the response, the U.S. Congress has not held one hearing about this initiative.  The U.S.-China Strategic and Economic Commission that was established by the Congress to look at U.S.-China relations ignored it – not one hearing, not one – didn’t even appear in the reports.  The U.S.-China Strategic and Economic Dialogue, which is the main forum for engagement with China, has ignored it – not one resolution, not one mention of it.  I don’t think you’ll find any American official calling this initiative by name.  So, complete silence.

            Now, why is it disturbing?  A, because we live in today a world, the 21st Century, where 2.5 billion people don’t have access to electricity and sanitation.  Eighty percent of people in the developing world don’t have access to internet, phone lines, et cetera, so – and at the same time, we’re living in a world that’s barely growing, and fifty percent of the growth is carried by two countries:  the U.S. and China.  So clearly, we need growth; we need to lift billions in poverty, and China is this making this attempt.  They’re trying to take a bite of the apple and trying to deal with the core of the problem, which is lack of infrastructure, lack of connectivity, and the U.S. is not even trying to give it a nod.

            So I think overall it’s been a very disappointing response by the U.S., and I hope that the new administration will look at it a little bit differently.  And I hope – my hope is based on the notion that Donald Trump is a builder; that’s what he’s been doing all his life, builds stuff.  He’s not adverse to grandiose infrastructure project, and he may find this to be a way to also help the U.S. economy.  Because I really believe that there is a lot of opportunities here for the U.S. economy.  I mean, after all, we have great engineering companies.  We have a lot of companies, like Caterpillar and others, that can make a lot of money out of this.  We also have defense and cyber capabilities that can help enhance security in those regions.

            Think what it means to the American internet companies when, as I said, 80 percent of the people in the developing worlds don’t have access to internet.  Now you give them access to internet, what does it do to Facebook; what does it do to Google?

            MS. BOUZA:  Yeah.

            MR. LUFT:  So there’s a lot of opportunities here for America, and I think America would be much better off being part of this.  It doesn’t mean it has to embrace everything and to subscribe to every item, but it would be much better off being part, a constructive part – play a constructive part in this initiative than staying on the sideline and (sulk ?).

            MS. BOUZA:  Gal, in a piece you wrote recently, you said that the Trump presidency hasn’t even begun and the U.S.-China relationship already seems to be in trouble.  Does that – you’re saying that you hope that they will look at it differently, but on which basis if we’re already seeing, like, a lot of give and take between the Chinese and the Americans already?  So, it could really freeze a further challenge under the incoming Donald Trump Administration in the U.S.

            MR. LUFT:  Well, you know, there are always going to be tensions between the U.S. and China, and many of those issues are irresolvable.  But let’s look at things that we can work together to the mutual benefit of both sides.

            What happened during the Obama time?  Everybody was focusing on climate change.  You know, if you look at all of the meetings between Xi Jinping and Obama, by the end of the day it was – the only place where there was some major progress was climate change.  Every time they came up with some climate paper or agreement or communication – so climate change was the main issue that – the glue – what I call the glue that kept the two countries engaged.  Remember when Xi Jinping came to Washington it was right after this whole cyber-attack on the OMG, the Office of –

            MR.     :  OPM.  Office of –

            MR. LUFT:  Office of Personnel Management, sorry.  And everybody thought we were going to have a cyber war with China, and then they came up with this climate agreement and everything kumbaya.  But with Trump, climate is not going to be an issue he’s interested – he’s not interested in climate change.

            MS. BOUZA:  So what would be the issue with Trump?

            MR. LUFT:  Infrastructure should be, I think.

            MS. BOUZA:  (Laughs.)

            MR. LUFT:  You just read the line of my article, but read the rest of it.

            MS. BOUZA:  (Laughs.)  That’s why I’m asking.

            MR. LUFT:  That’s exactly the point I was making, that infrastructure is something that can be the alternative to climate change and sort of the glue that helps the relations move forward even in bad times.  And let me be – we’ve had very bad times, I mean, no doubt.  We have a lot of fights with the Chinese, a lot of disagreements, but if we don’t have an issue that we can fall back on and promote in hard times then it’s only going to be bad news.  And I think that Trump – as I said before, being a builder, being somebody who likes –

            MS. BOUZA:  Building.

            MR. LUFT:  Yes.  Maybe it will resonate with him and we’ll find ways to make money together.

            MS. BOUZA:  (Laughs.)  Let me bring in Governor Huntsman.  What’s your take on all this?

            MR. HUNTSMAN:  Well, I agree for the most part with almost everything that has been offered.  I would just say this about yi dai yi lu – One Belt, One Road.  It’s big, it’s bold and it’s real.  And for the United States to stand back and pretend that it doesn’t exist or that we shouldn’t somehow connect and influence its outcome, I think, is a huge missed opportunity, and the last couple of years would suggest that we’ve had a huge missed opportunity:  the way that we have put it aside, not necessarily recognized it, as Gal mentioned, in our various fora; the fact that we didn’t engage with AIIB.  So we had a choice:  you can either be within the organization and help shape its outcome or you can stay out and try to get others to kind of stay out as well.  Well that strategy failed.

            So this is a manifestation of Xi Jinping as a leader.  So, Xi Jinping rolled this out, this strategic framework in fall of 2013, and he’s been putting pieces together ever since.  He has a small group that he chairs that is responsible for where this goes.  So, if you look at the leadership structure of One Belt, One Road at the highest levels, at the top you have Zhang Gaoli, who is on the Standing Committee of the Politburo.  He’s kind of the chief operating officer of this enterprise.  And then you have Wang Yang, who’s a state counselor, who’s like a vice chairman of this enterprise.  And then you have Wang Huning, who is responsible for communication and messaging.  This suggests to me that they’re putting the best they have at the highest levels behind how this rolls out and is executed.

            So, it’s a manifestation of China arriving on the world stage, wanting to be seen as a global player, but also very pragmatically looking at the neighborhood in which they reside.  So, people forget that China’s surrounded by a few countries, maybe 15 or so; some of them poor and not well off, some of whom China has been at war with in the past, like India and Vietnam; a troubled relationship with Russia on the border.  So, what better way to build capacity and economic strength and resilience than building corridors of infrastructure that begin the process of bringing you together with some of your neighbors with whom maybe you’ve had traditionally rocky relationships.  So, I think it serves – from a regional political standpoint, I think it serves a purpose.  From an economic standpoint, let’s just consider for a moment the overhang of inventories that now exist in China with steel and aluminum and coal and just some of the basic commodities.  What better way to kind of draw down on those inventories than having a big, bold regional strategy that begins to put people to work and crank up your manufacturing base?

            So, I think it’s real, and I think the United States has a real opportunity to engage around something that is complimentary.  We don’t have to do mile for mile what they’re doing, but there are other areas that are left undone that clearly have opportunity for the United States, where we can bring to bear things that we do well.  I also believe that we’re uniquely strong in terms of our services sector.  Our advisory services, our legal services – there’s a lot that can be brought to bear in terms of how we jointly offer some value-added aspects to this overall undertaking.  What I don’t want to see happen is that the United States is left out of an opportunity that could provide jobs at home and export opportunities for companies that will want to participate.

            And I will tell you – getting back to your original question – I don’t think this is well understood in the board rooms of America.  I know it isn’t because I sit in a few of those board rooms, and people are scratching their heads, a little bit bemused by the whole thing.  And there needs to be greater clarity and focus brought to what this could mean to U.S. exports and U.S. engagement.  So, I – and I will just end with this thought – because I’ve always believed in, at least my involvement in the U.S.-China relationship over the span of four or five presidents, the U.S. and China do better when we’re working on something together.  When we don’t have a visionary project that keeps us out of trouble, we get into trouble.  This is a kind of bold visionary undertaking where the United States can play a legitimate role.  China obviously will be playing a legitimate role.  And it serves to lift and build capacity in countries where it is needed, and I think the Trump Administration would be well served to restructure government in ways that allow us to connect with the needs of One Belt, One Road, which today almost is impossible just given the way that government is organized, and to develop our own strategy in response to it.

            MS. BOUZA:  Absolutely.  You know, when you discuss the leadership of the U.S., you know, the first thing that comes to mind also the other main player, Russia, and let me direct this question to you, Phillip.  Is this strategy the threat or the boost to the Chinese-Russian relationship, especially when it comes to energy?

            PHILLIP LAMBERT:  Well, I think if you – you know, if you thought 10 years ago the project that would lead China into the heartland of Russia’s Central Asian sphere of influence, you’d have thought this would be an area of potential conflict and tension.  And remember, way before the One Belt strategy of 2013, the Chinese were already moving very, very heavily towards Turkmenistan and Uzbekistan for their gas supplies, and one of the most sort of wonderful things, in a way, is that it hasn’t led to an increase – or a tangible increase in tension between the two countries where it could have done.  And as the One Belt, One Road strategy increases, you would imagine that Russia would feel more and more sensitive about it, especially as it moves further west into areas in this region where Russia, as you know, is vying for some sort of leadership with Iran and other countries.  If China starts incurring into that area, maybe there will be tension.  But I think that at the moment it is not creating tension, and that’s partly because as China has tilted west, Russia has been tilting east.  And the sort of – the Venn Diagram meets in one elephant in the room, which is that, you know, 800 million people can’t breathe properly in China. 

            You know, COP21 unforgivably didn’t mention really urban smog, it was so committed to the religion of carbon as the only issue.  But for 800 million people not to see the sun, not to be able to breathe and for there to be a solution so obvious and so immediate and so affordable, which is a shift from coal to gas, that is the solution that could be done tomorrow by the American administration, by the Chinese administration, by the Russian administration – and countries like Turkmenistan, Uzbekistan, Iran will have a role to play in that.  But the great thing is that Russia sees its own role in sorting out that problem, and so while the One Belt, One Road policy has been developing, so has been in the Putin-Xi relationship around energy.  And it’s incredible to see Chinese ownership now in Yamal LNG, a sanctioned project under U.S. sanctions, 29 percent now owned by the Chinese.  Basically, as U.S. finance dried up, Chinese finances led that position.  The Power of Siberia line, 38 BCM, going into China. 

            So, actually, if everybody sat down and realized that this problem of 800 million people not having a proper existence in terms of – it’s never happened before where humans have been denied the right to breathe.  We’ve been denied many things, but not the right to breathe; but that could be sorted out partly by this wonderful One Belt, One Road strategy.  And Russia has, I think, seen that it isn’t a threat.  It may see it as a threat in the future.  If America sees the same thing then, I think, it can only be positive.

            MS. BOUZA:  Governor?

            MR. HUNTSMAN:  Yeah, just one thing on Russia because I think there were some real concerns initially and probably still are –

            MR. LAMBERT:  Yeah.

            MR. HUNTSMAN:  – in terms of the influence that China will wield in Russia’s traditional backyard.  When Xi Jinping spoke at the Boao Forum in 2015, the rollout, it was interesting that he sent Li Zhanshu, who is a member of the Politburo and his kind of chief of staff in a sense, to meet with Putin to assuage any of the concerns he had.  Now that tells me something interesting.  He didn’t send a bureaucrat, he didn’t send the ambassador; he sent his top advisor all the way to Moscow to sit down and have a conversation about what this was all about.  So clearly, they pick up the idea that there are sensitivities with Russia –

            MS. BOUZA:  Absolutely.

            MR. HUNTSMAN:  – and they’re willing to deal with those.

            MS. BOUZA:  Absolutely.  Another thing that I would like – on a different front now, we’re in Abu Dhabi, and the Middle East is a fundamental variable to the – and I would say, unlocking the initiative – or this initiative growth equation.  How do you see the region playing a bigger role in implementing this initiative, and what kind of leverage can this region offer in terms of financing services or logistics?

            I would like Dr. Xiang to answer this question.

            MR. XIANG:  The Middle East has become increasingly more important.  There is no question about that.  It used to be the Middle East only supplied energy resources to China.  Now China is very aggressive, even in the area of manufacturing, in the area of other investment.  I think the Chinese, however, are still very, very cautious not to get into any internal problems because they know how messy Middle Eastern internal problems will be.  The Chinese traditionally will hope that if there is some kind of internal balancing mechanism at work, no matter whom – you know, we have very good relations with almost everyone, including Israelis.  So, Israelis, Persians, Arabs and maybe some others – or Turks – the whole region, if they manage to balance each other in their relatively peaceful way, then the Chinese are more willing to engage.  But so far, I think that since the Iranian nuclear deal, if you’ll notice the Chinese really – and Iran on the quite massive scale, we are holding the high ground now in terms of investment in Iran.  Even if the Chinese calculations in this particular case – because we have a U.N. umbrella here, even if Donald Trump might rip up this treaty, we are still at high ground so the pie – the Iranian pie, the economic pie is smaller but we still got the biggest part of that pie if sanctions come back.

            So, Chinese have now begun to really try play, even diplomatically, more actively in this region, including Syrian situation, including Iraq and, of course, Afghanistan.

            MS. BOUZA:  That leads us to a different question now because you said about the new diplomacy of the Chinese now in the region.  However, if we go back to the initiative, it accounts for 70 percent of the world’s energy.  The reality is that those areas are definitely homes for, as you mentioned, instability, violence, turmoil, et cetera, et cetera, and that will be a bit of a pickle for the Chinese to handle.  What are you doing to mitigate the possible security issues related to the – whether land or maritime – energy roles?

            MR. XIANG:  You mean for Chinese what they have to do?

            MS. BOUZA:  Yes.

            MR. XIANG:  Well, my view is – my job in Shanghai actually is to offer advice to government on security issues.  That’s the name of my center.  I think this is the biggest challenge not just how will you deal with internal stability of another country, which you cannot do much anyway.  We can’t even do much in Africa.  But the thing is, simply, how do you secure your project, you know, security?  We cannot have a military unit there.  Pakistan is the exception.  Pakistan has sent two divisions to protect that economic corridor project, fine, but not every country can do that.

            So, what are we going to do?  I think the Chinese – the Xi Jinping Small Leading Group, they had, my understanding, several instructions already over the last few months saying – you know, asking for opinions of what we’re going to do.  So, one practical strategy is to get private security teams – you know, Blackwater type.  You know what I mean.  I’m talking about protecting our projects.  Because you don’t have any other way of doing this.  So, my understanding is Xi Jinping offers quite a few billion funding, just set aside for private security alone.  So, you can see how difficult this security challenge will be.

            So, it’s not easy.  It’s not easy.

            MS. BOUZA:  Funding will be a serious issue because I think the whole – the initiative or the scale is enormous.  But let me bring in Dr. Koyama.  Let’s hear from you.  What’s your perception of what we have said so far?

            MR. KOYAMA:  As my counterpart from China pointed out correctly, the Middle East energy supply to Asia, China, Japan is critically important for our market stability.  In 2015, 53 percent of oil supply to Asia; 37 percent of energy to Asia comes from the Middle East, so clearly the stability of this region is very, very important element for the energy security for this region as a whole, and I think that the situation is very similar to China.  If we look at the situation for overall primary energy supply, China’s energy independence is just 16 percent in total primary energy supply; but if we look at the situation for oil supply, China already depends on 60 percent of oil supply from imports.  And of that import, dependence on the Middle East is 50 percent, and if we add up the import from Africa, the overall MENA dependence for China is 75 percent.

            So these energy supplies need to pass through the Persian Gulf, Indian Ocean, Strait of Malacca, South China Sea.  So maritime safe transit of energy supply to China, to Japan, to Korea, to Southeast Asian countries is a key element.  So far, the United States plays a very, very important role to protect this safe transit of critical energy supply to the region, but what’s going to happen with the years to come?  So far, it’s very, very unpredictable or uncertain.  So probably the United States, China, Japan, India and Asian countries and other stakeholders need to deepen the discussion how we should, say, incorporate – or how we should address these increasing dependence on Asia and increasing dependence on Middle East issues.  But not only the maritime, but also probably from the viewpoint of international energy trade, that land-related energy trade through the electricity grid or national gas pipeline grid may play a role bigger for Asia if we think about the relationship with Russia or Central Asia.

            So, under the circumstances, again, the many Asian countries, including China, need to say pursue a strategy to diversify the energy supply route, but also we need to pay attention to in-house emergency preparedness.  And in this respect recently I noted very interestingly that IEA started to change its concept.  IEA is known as the organization to focus on oil supply security traditionally, but now IEA is trying to focus on natural gas supply security as well as electricity supply.  So probably we – people in Asia need to, say, look at the situation; and two understand and to examine the cooperation inside Asia as well as international organization like IEA.

            And finally, I would just like to point out, with my Chinese colleague, that now that the Middle East is not – is, of course, a very important energy provider to Asia, but again, from the viewpoint of the long-term sustainable development for this region, the Middle East needs a huge investment for diversified economic structure and energy supply demand structure upgrading as well as decarbonization.  So, energy efficiency, renewable and nuclear, can be a part of the very important energy investment climate for this region.  Probably Asian countries, China, Japan, and, of course, the United States may play a role to say.

            MR. LAMBERT:  Can I just –

            MS. BOUZA:  Sure, Phillip, go ahead.

            MR. LAMBERT:  The cohesion the Silk Road brings to Chinese energy strategy, I mean if you look at the last – this century, the Chinese – the companies, the main four energy, aircraft carrier – CMPC, CNOOC, Sinopec and Sinochem – spent just a colossal amount of money buying up oil and gas assets around the world.  No strategy, no rhythm, no cohesiveness; they were the investment banker’s dream.  And just literally tens of billions of dollars of value evaporated.  They would buy every asset in Latin America, every asset in Africa and there was no cohesion, and they were buying it at the top of the market.  2013 comes along and two things happen.  Xi actually cleans out all the leaders of the energy companies, and he puts in place this Silk Road strategy.  And actually, we would expect now that the Chinese energy companies to be ordered, as much as anything, to focus on that as the main area for their M&A, for their investment, for their project finance – that, and Russia.  And I think you’ll see a lot less Chinese activity in Africa and Latin America and the North Sea and Canadian tar sands and all these things in which they really did lose – I mean, it was the greatest evaporation of value ever seen in M&A history.

            So, in that case, it’s a sensible strategy.

            MS. BOUZA:  Gal?

            MR. LUFT:  By the way, it’s interesting, since we are in Abu Dhabi.  So, just as you said, who is the company that is bidding for Abu Dhabi’s 10 percent of Abu Dhabi’s national oil company reserves?  Not CNPC, not Sinopec, not CNOOC.  CFC, OK, private company.  So, there is a lot of interesting things happening within the Chinese energy sector, you’re absolutely right.

            I’m worried about Iran, and I think that the Chinese are going to see – they’re going to have a major speed bump here soon because their strategy has always been to be friends with everyone – we’re going to be friends with the Shiites or with the Sunnis – we can handle everybody, everybody will be our friend.  The problem is when you look at the current design of the belt and road, it favors Iran heavily.  From a geopolitical standpoint, it strengthened Iran in a number of ways, and it also has the potential of creating a big problem for the United States if – and I – it hasn’t been published yet, but I see that there are some adaptations to the strategy that also may – may give Iran a particular role in being – access to the sea, to Afghanistan and all the other Stans as a result, which makes Iran much more powerful – will make Iran much more powerful.  And I don’t think this will be acceptable to the rest of the neighbors here.  And it will be very interesting to see how the Chinese can continue to be friends with everyone and not take sides on anything and wash themselves of – you know, be on everybody’s good side and think that they could solve everything by throwing money at the problem.  Some problems cannot be solved by throwing money at, and sometimes you have to take a stand.  And if you don’t do that, I don’t see how you can connect Asia and Europe and do all of this if you don’t address the big chunk of land in the middle, which happens to be where most of the energy is – so I think there are going to have to be a major adaptation to the plan, and that’s why the role of the United States is so important here.

            MS. BOUZA:  Yeah.  Let me ask Dr. Xiang, how do you answer that?  Are you really throwing money at the problem?  Are you trying to make friends with everyone?  Is it working for you so far?

            MR. XIANG:  With Iran, I must add that there is a very strong historic tie – we know them as Persians – even before the sanctions.  I think Iranians occupied very, very important geopolitical point.  Historically – (audio break) – so that that sentiment is very, very strong there.  But also, I think there is a geopolitical side of this.  Precisely because somehow Iran is in the opposite position of the United States it’s very useful to have a very good relationship with Iran – not so much balancing the Saudis or the others or Israelis, but they have the United States in mind – that I’m sure.  So, if you think there’s a geopolitical play, fine; but also, economically there are a lot of opportunities there.  Because, as I say, the Chinese were allowed to get in much earlier than everybody else, so China already believes they are in a very good position.  So, the Chinese are essentially are adopting a transactional outlook vis a vis Iran in the economic sense, so they think no matter what we’re going to win.  So, I don’t see – this idea to alienate other Arab states or – there is – I don’t think there is any such –

            MR. LUFT:  Well, but it does.  I mean, the map is the map.  You cannot –

            MR. XIANG:  Well, you see –

            MR. LUFT:  – cannot create an imaginary map of the world.  The initiative as it is today – excuse me, the initiative as it is today favors Iran heavily.  It bolsters Iran.  And I don’t care how much money you make in the process, but anything that favors Iran and gives Iran much more sway and opens corridors for Iran to be more engaged with its neighboring countries and so forth is something that will be very difficult for the other neighbors in this region to swallow.  And that’s where I’m trying to get to, because at some point it does become a zero-sum game, at some point, particularly when the tensions run so high; particularly when there’s so much fear here about regional hegemony of Iran.  And to come in the middle of all of this and to do things that deliberately strengthen the hand of Iran would have consequences.  It would.

            MR. XIANG:  It’s not a unilateral, you know, way of doing this.  Iran’s economy – the structure of Iran’s economy is vastly different from the oil producers’ countries.  So, there are far more opportunities for Chinese manufacturing and many others.  So, I don’t think a simple – and besides I can’t bring myself to believe the whole Arab world cannot deal with Iran – at least that’s not what I believe.  Maybe you’re right, but I’m not sure.  You see the Chinese calculate carefully, saying, come on, it’s not going to happen – Iran’s dominance of this region.  I don’t see it, I’m sorry.

            MS. BOUZA:  Yeah, let’s change gears here and talk about funding.

            MR. XIANG:  (Laughs.)

            MS. BOUZA:  Funding is a major issue, especially that we need a lot of money to do this, and if we put in mind what has been put in the fund so far to start some projects, it’s still short of what is needed.  Where do you think we can get the money from, and what’s your plan? 

            And let me talk to you, Governor Huntsman, and give Dr. Xiang a break.

            MR. HUNTSMAN:  Well, I – listen, the world is awash in capital, and – whether it’s public or private, and this is another role that the United States, I think uniquely, could play.  You know, we’ve got probably – I don’t know – two trillion bucks tied up in the hands of private equity – private hands, and it’s all looking for opportunity.  So, when you say, what can the United States unlock that would be of value?  We have firms, we have export capacity, we have civil society knowledge, we have capital.  And so, you look at the capital that’s already been pledged, and there’s been, you know, 40 billion here, 10 billion there, AIIB, which is uniquely fashioned, I think, to support One Belt, One Road, but there just aren’t a lot of projects to point to.  , there’s more capital now then you’ve got projects, and I think that’s one thing I think we have to be realistic about – is the ideas are there, they’re largely aspirational, the map has been drawn.  Capital is around.  It can be aggregated.  But there just aren’t a lot of targets for the capital right now.

            So, it will be really interesting to see – particularly after the 19th Party Congress, which will play out in November this year.  So, everyone’s preoccupied with politics in China, just like we’ve been preoccupied in the United States with this thing called the presidential election, so Xi will be preoccupied consolidating his base and making sure the next leadership team is all prepared to rollout in the Great Hall of the People by November.  And then he’ll probably reflect on his big legacy items and see how aggressively he wants to push them:  the Chinese Dream, which kind of – this all plays into, manufacturing 2025, the 13th five-year plan and One Belt, One Road, and they all kind of overlap to some extent.

            But I wouldn’t be concerned about capital right now because I think the capital will be there.  Capital will follow opportunity if the opportunities are fair, if they’re transparent – and that’s again where the United States, for good or bad, can ensure that there are certain rules of the road, a level of transparency and fair play that I think would be very, very important in terms of how this plays out.  And that will attract more capital because capital is fungible and capital is a coward.  It will always flee.  Wherever it perceives there to be risk in the marketplace, it will find an opening, it will find a safe haven; and if One Belt, One Road is a safe haven for capital, as it could be over the next 20 years, it could be a major boon for all kinds of capital aggregation.

            MS. BOUZA:  Absolutely.  Dr. Ken, do you see the opportunity Governor Huntsman is mentioning?  Do you think there are funds that the Japanese government could deploy and use?

            MR. KOYAMA:  Of course, for energy investment, in my view that government and public financing can play a very important role, particularly during a period of difficulties or uncertainties or unpredictability’s.  But if we look at the huge amount of necessary energy investment, I think it’s really challenging not only Japan but also the United States, China – the government can play a role, but there is some limitation.  We estimate that China alone will require 10.6 trillion U.S. dollars in cumulative time up to 2040; India for 4.8 trillion dollars; Japan 1.7; other Asian countries, 4.7; the Middle East itself require 2.6.  In total, more than 24 trillion U.S. dollars in – (inaudible).  It’s really huge and enormous amount of money which requires to be invested for the energy transition for all of this region.

            But again, I would argue potentially this is challenging but also this is a kind of big, big business opportunity for the industry.

            MS. BOUZA:  Well, we’ll just leave it right there and open the floor for some questions from the audience.  Please?  We will, if we can, pass the mic?  Thank you.

            Q:  John Roberts with the Atlantic Council.

            I’m currently doing a report, regretfully not for the Atlantic Council, on Russia, Central Asia and Chinese gas relations.  The thing that struck me about Dr. Xiang’s presentation was his wonderful use of the word “neocolonial,” and I’m struck by the law of unintended consequences.  What happens when you find yourself – and I would argue, essentially, through no fault of your own – in a neocolonial position in Turkmenistan, where you have a country that is now almost totally dependent on exporting one commodity to one country and has no other source of finance and therefore you wind up being responsible, to a large extent, for the economic health of that country?  What does China do under those circumstances?

            So, to Phillip and Dr. Xiang, I wonder whether you care to make any comments?  (Laughter.)

            MR. LAMBERT:  Well, I’ll start.  I think – you know, Turkmenistan, if you ask them today, you know, they used to have a slightly vassal-tight relationship with Russia on gas.  It was very unsatisfactory.  They were selling their gas to Russia at very low prices, and Russia then reexporting to Ukraine and to Europe at much higher prices.  I think if you ask the Turkmens whether they prefer today’s situation, where huge amounts of gas is being exported eastwards to China and the secure contracts, I think, well, maybe they would think of it as quasi colonial.  I think they’d see it as very commercial and very, very essential to their country.  I agree that for the Turkmens to have only one route – and this is, sort of, more to do with what happens to the gas industry in the future if the world gets out there and starts talking about gas as the solution to most of the atmospheric pollution issues in the world – not just carbon, but sulfur and all the stuff that’s affecting urban smog – then in a way Turkmen may have other markets for its gas.  I mean, there have been talks in the past about Turkmen to India.  You know, if the Indians start dashing for gas, maybe they’ll have other routes.  Maybe if the Chinese start moving into the Iranian gas scene, which is the second largest gas reserve in the world, maybe they’ll be less reliant on Turkmenistan.

            So, I think in a way there could be some very – sort of unforeseen and very beneficial consequences from a move to more gas and away from coal in the Asian region, to your question.  But I think the Turkmens would probably take today’s situation with all its issues.

            MR. XIANG:  Well, the internal conditions are always unpredictable as we know – not just Turkmenistan – so far so good.  But look at Venezuela, which Chinese probably will have a major loss if the government fails or whatever.  But that’s the risk the Chinese are already psychologically prepared at least – sometimes you lose, sometimes you win.  In Africa, they’re doing much better.

            But the point – I totally agree with you, Chinese aggressively diversify suppliers.  Certainly, they are talking to Iranians on gas as well.  So, it’s not going to be totally rely upon one or two sources, that’s what they think.

            MS. BOUZA:  Mr. Phillip needs to leave.

            MR. LAMBERT:  Thank you very much.

            MS. BOUZA:  You have a very important meeting.  Thank you for joining us.

            I have time for one more question.  Please, if you can pass the mic?  We will take it before we wrap up.  For the lady.

            Q:  Thank you.  I have a question and comment.  I was in Pakistan the end of November.  There was talk about One Belt, One Road.  It seems that the Pakistanis – they cannot do their part because of unskilled manual labor.  So how is China going to cover this?

            The other thing that – what about India?  You just excluded India from that role and India is a power and the geopolitics is there.  Now regarding Iran, how you exchange your interests with the whole Arab world – and this is a big, big market with Iran – and assuming Iran is not a hegemon power, while the reality shows it is a hegemon power – Syria and Iraq – it shows really seeking and how you can balance your interests between the two sides?

            MR. XIANG:  Well, whether or not Iran’s a hegemony power, at least from Chinese point of view, is really, really your business.  You have to get your acts – I’m talking about the Arab world – get your acts together.  So this is something beyond Chinese in any case.

            Now, Pakistan – or India, well, you see, Chinese never really exclude India.  Chinese always say, you know, they hope India will be part of this.  India under Modi, which is very big surprise – we used to think that kind of leader come to power will bring more trouble between the Chinese-India relationship, but then you have Modi, who is far more pragmatic.  But Modi is playing other games as well, you know, with Japan, for example.  You know, maybe some infrastructure project they prefer to talk to Japan.  Historically there’s a lot of special relationships, you know, with the Japanese.  So Modi is not entirely interested in having Chinese massive investment in their infrastructure – maybe some projects, but not all.  But Chinese – I don’t think the whole concept of building Sino-Pakistan economic corridor is aimed strategically at India.  That’s a misunderstanding.

            MR. HUNTSMAN:  But you know what it does?

            MR. XIANG:  Yeah.

            MR. HUNTSMAN:  It opens up an opportunity for the United States –

            MR. XIANG:  Right.

            MR. HUNTSMAN:  – to do with India what should have been done.

            MR. XIANG:  Right.  Right.

            MR. HUNTSMAN:  If you look at the whole corridor from Gujarat south, this is ripe for engagement economically in all kinds of ways.  So for every omission there could be a new opportunity identified that, again, brings in the United States in ways that maybe we’re not thinking about at this point.

            Q:  And Pakistan – (off mic).

            MR. XIANG:  You’re talking about – the labor issue, you mean?

            Q:  Yeah.

            MR. XIANG:  Pakistan provides a lot of labor forces on some projects but not all.  I don’t have the statistics, but my understanding is Pakistani government – well, as far as I know, they try to provide as many skilled labor as possible to be qualified, according to Chinese standards.  The Chinese – if you realize the last 30 – 10-15 years, somehow we are moving very fast with infrastructure projects.  The efficiency is quite good.  So sometimes they cannot deal with unskilled labor who only work maybe 30 percent of the efficiency.  But Pakistanis provide a lot of laborers, but I don’t know the – the other side of the story is the Pakistan government, since Bhutto – I mean, the Father Bhutto – has been talking about we need Pakistan economic miracle that never happened.  This is the only time, this time, they actually began to think seriously – becoming more convincing maybe there is a chance of a small economic miracle because of that project.  So, it’s a very, very high stake from a Pakistan government point of view.  They provide armies.  I mean, that’s another thing – that’s a very important part of the labor, if you will, for protection.

            MS. BOUZA:  I think we – thank you.  At this moment, we have to leave it right there.  It’s a very interesting discussion with so much to think about.  Thank you very much.

            Please join me in thanking our panelists for sharing their experience, thoughts.  (Applause.)  Thank you very much.

            A couple of housekeeping notes before we go.  Buses depart to the Yas Marina Circuit at 6:30 p.m.  Please bring a valid driving license if you are interested in test driving a car, and tomorrow’s first session begins at 7:45 a.m. sharp.

            Thank you very much, and enjoy your dinner.

            (END)

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