The Japan-China Joint Communiqué

China and Japan issued a joint communiqué in Beijing on October 8 during the Japanese Prime Minister Shinzo Abe’s first foreign visit, vowing to promote strategic relations between the two countries in the coming years. Both Chinese President Hu Jintao and Japanese Prime Minister Abe hailed the visit as a positive turning point in Sino-Japanese relations. Abe’s visit to China is politically important since it is the first meeting between the leaders of the two countries in the past five years. Beijing had earlier refused to hold any summit with the former Japanese Prime Minister Junichiro Koizumi because of his visits to the Yasukuni War Shrine. In the joint communiqué both countries agreed that improving bilateral relations especially on the economic front including energy, environmental protection and telecommunication sectors are among their most important diplomatic priorities. Though North Korea’s nuclear explosion overshadowed the visit, the new phase of Sino-Japanese relations will not only have long-term significance for the region but would also promote energy co-operation in Northeast Asia.

There are two major issues on which Japan and China have squared off against each other in the past and both relate to energy. The first is the issue of China’s alleged ongoing gas exploration in Chunxiao gas field in the bordering exclusive economic zones of both countries in the East China Sea. The second is the ongoing competition between the two countries for acquiring Siberian energy resources in Russia’s Fareast.

The issue of Chunxiao gas field (Shirakaba gas field in Japanese) exploration in the East China Sea escalated into a dispute between Beijing and Tokyo ever since China unilaterally started natural gas exploration there. Japan fears that China’s operations in this gas field could stretch into the Japanese Exclusive Economic Zone (EEZ). In early 2005, in response to China’s gas exploration, Tokyo decided to grant exploration rights to a Japanese company Teikoku Oil to assert its right over the field. Subsequently, the two countries agreed to settle the issue through bilateral talks. The issue popped up once again when China’s state-owned offshore oil company CNOOC started exploration in the field on January 28, 2006, shortly before a bilateral discussion was to be held on the issue. Despite the two governments agreeing to set up a working group of legal experts to work on the demarcation of their respective EEZs, no substantial solution has been worked out yet. Though the Japanese have earlier rejected joint gas explorations, the current joint communiqué might play a role in helping the two sides resume talks to reach some mutually agreeable terms for extraction of hydrocarbon reserves in the field. To many observers, the only pragmatic way to solve the issue is joint exploration given that China is extracting about 81.7 million barrels a day of oil-equivalent, natural gas and oil together.

The second issue concerns competition between the two countries for energy resources in Russia’s Siberian region. Apart from their geographical proximity to Eastern Siberia, the huge untapped energy fields there with an estimated reserve of 18.8 billion barrels of oil and about 386 trillion cubic feet of gas, have been a major attraction for Tokyo and Beijing. There were persistent attempts by both Japan and China to woo Moscow to sign energy export contracts. While Beijing was interested in constructing a pipeline carrying about 400,000 barrels of oil (per day) from Angarsk in eastern Siberia to Daqing, the oldest oil field in China, Japan wanted Moscow to opt for a bigger pipeline carrying approximately 1 million barrels of oil (per day) to the Nakhodka Port in the Vladivostok province, from where oil shipments can be transported to Japan overnight.

On May 29, 2003 China National Petroleum Corporation (CNPC) and Russia’s Yukos Oil Company signed a deal paving the way for a US $2.5 billion oil pipeline across the border. Under the agreement, CNPC agreed to purchase up to 5.13 billion barrels of Russian oil between 2005 and 2030. Shortly after that, at a July 2003 meeting in Moscow between Japanese and Russian energy officials, the former made a counter offer of $7 billion as initial investment, with a promise to subsequently raise this figure to $15 billion to develop energy fields in Eastern Siberia and to construct a pipeline to Nakhodka port. Since the new offer appeared more lucrative for Moscow, Transneft, a state owned oil company in Russia, backed the Japanese proposal.

Within a few weeks, Russia expropriated Yukos and arrested its chief Mikhail Khodorkovsky on tax evasion charges. Since the expropriation of the company resulted in suspension of many contacts for new projects, Yukos’ plans to construct the oil pipeline to China also witnessed a serious setback. Almost a year later, in September 2004, Transneft submitted a feasibility study report to Kremlin for the Nakhodka pipeline construction. With these developments in Russia, it appeared to many observers that the much-discussed trans-Siberian pipeline would be constructed to Nakhodka port and not to China’s Daqing. However, a sudden twist in Moscow’s energy export plan appeared when the Russian President Vladimir Putin visited Beijing in early 2006 and signed three pacts on energy co-operation with China. Under these, Moscow will not only increase its oil exports but would also supply about 80 billion cubic metres of natural gas per year to China. Although Moscow and Beijing are yet to finalise the details of the pipeline and, most importantly, the price, this new deal seems to indicate Russia’s preference for China over Japan. The deal is also expected to give Beijing an important role in energy development in Russia’s Fareast.

To Moscow, China offers not only a huge market for its energy output but also an easy supply route. But choosing China as partner in the Siberian energy trade does not mean that Russia would ignore Japan in the long run in its energy trade to Asian markets. There are plans to extend the oil and gas pipelines to Nakhodka port either through Chinese territory or through Russian territory linking the Sakhalin supplies. But developing such networks would require many more years and close co-operation between prospective customers like China and Japan. What Tokyo has lost currently because of the Sino-Russian deal is not only immediate supplies of energy resources from Siberia, but also an upper hand in the production and exploration activities in the region, which would have provided considerable leverage to Japan’s energy security activities in the region. Ever since China and Japan found themselves competing for Siberian energy sources, both have time and again tried to woo Moscow with huge financial offers. This had created a certain level of mutual suspicion about each other’s lobbying with Moscow. Many observers feared that the China-Japan energy competition might reflect in other issues of bilateral concern such as the Senkaku-Diaoyutai island dispute. However, over the past few years, there has been wide criticism from both sides on the derailing of each other’s energy ambitions in Siberia, which has resulted in both countries perceiving each other as rivals in the search for overseas energy.

Often, the Japan-China row over Siberian resources appeared to be more complex for policy makers in Japan as the whole issue largely depended on Moscow’s decision about which country its energy exports should reach. While the Siberian energy resources are significant for China in terms of its geographical proximity, for Japan these resources would have made sense in economic terms in combination with its already existing exploration activities in Sakhalin Islands. Moreover, having exploration and developmental rights in the region would have helped Tokyo to gain considerable leverage over other prospective consumers of oil and gas in the region.

Despite the existing competition, there are various factors that necessitate cooperation between Japan and China in the region. First, although Beijing was successful in signing a deal with Russia, it is noticeable that Moscow was more successful in encashing on the China-Japan competition for obtaining higher price for energy exports. Second, Russia’s Siberian region is relatively undeveloped compared to other energy fields. Hence, it would require large-scale investments and technological expertise to overcome geographical conditions. Third, given the similarity in China and Japan’s energy interests, time is ripe for them to revisit the policy of distancing from each other in important aspects such as energy.

Regional energy cooperation was a hot topic in Japan and China before 2001, with many experts laying plans for a regional energy pipelines network from Russia’s Fareast connecting China, Japan and the Koreas. But in the wake of Koizumi’s Yasukuni visits, energy co-operation plans showed little progress. This period also saw energy issues escalating into disputes in the East China Sea and the rise of fierce competition over energy resources in the Russian Far East. Hence Abe’s recent visit assumes greater importance in resuming top level bilateral relations and also to a certain extent in putting an end to mutual suspicion on issues of economic and territorial importance. According to the People’s Daily (October 9, 2006), the visit indicated that the removal of political barriers to Sino-Japanese political relations and the resumption of high-level contact at an early date conform to the fundamental interests of the two countries and the aspirations of their people. An editorial in Japan Times (October 12, 2006) highlighted the point that the recent progress in bilateral relations will serve as a foundation for solving issues such as the disputes over exclusive economic zones with both China and South Korea, including joint development of natural gas resources with China in the East China Sea. It is also important to note that in the ‘five-point proposal on developing future bilateral relations’ made by Chinese Premier Wen Jiabao during his talks with Abe, he suggested that the two countries should strengthen consultation on regional issues, promote regional co-operation in East Asia and contribute to the peace and development of Asia as a whole (Xinhua, October 8, 2006).

Hence, the joint communiqué issued by Japan and China is likely play a pivotal role in not only promoting bilateral relations but also help kick-start a well-developed bilateral co-operation framework to solve existing bilateral energy issues and conduct joint exploration in Eastern Siberia.