Chinese workers trapped in Iraq highlight need for new energy policy

A Chinese national enterprise has failed to evacuate more than 1,000 employees from northern Iraq amid ongoing violence in the region, Chinese state media reported Thursday.

Analysts say the Chinese Machinery Engineering Corporation’s (CMEC) struggle to repatriate roughly 1,300 employees highlights China’s growing need to shift investment and energy deals away from politically volatile countries. In the past, national enterprises in the developing world have served as a major source of income for the People’s Republic. But after the tumult of the Arab Spring, the costs have sometimes outweighed the benefits.

In a phone interview, a staff member at the emergency services section of the Chinese embassy in Baghdad admitted knowledge of the stranded employees, but declined to comment on Beijing’s next steps.

A CMEC representative was not immediately available for comment, but the company had previously denied, in a public statement, that its employees were trapped in Iraq.

CMEC had reportedly attempted to evacuate its employees by helicopter from its campus in the northern city of Samarra, where it had obtained a $1.19 billion contract to help build Iraq’s national power grid. When the helicopters did not arrive, the company arranged for several busses to accompany the employees to the airport – but Iraqi security forces halted the busses and turned them back, according to a report by state news agency Xinhua.

Analysts said CMEC’s failed attempt to usher its employees to safety underlines China’s need to redirect business out of the region to more secure climates.

In recent months, President Xi Jinping has penned a slew of energy deals with Central Asian energy giants including Kazakhstan. And China has – sometimes aggressively – pursued oil and gas import deals in faraway Canada, analysts say, in an effort to ease China’s dependence on business deals signed with flailing administrations and countries where poor physical and political infrastructure have posed problems.

“China has already started to reorient itself away from far-flung risky countries and is looking in the neighborhood,” said Sebastian Spio Garbrah of Damina Advisors New York, who advises entrepreneurs on financial risks in frontier market-based projects.

Beijing’s growing relationship with Moscow and ongoing battle to secure vast oil and gas deposits in the disputed South China Sea are part of the push to lessen dependence on countries such as Iraq, which boasts the third-largest oil deposits in the world.

“They are trying to slow the pace of industrialization in China itself. They are looking at the neighborhood near China. China is looking to Russia and the South China Sea for energy. They have deals with Mongolia, Kazakhstan and Central Asian countries,” Spio Garbrah said.

After the U.S. invasion of Iraq ended, China made its foray into the Iraqi energy market, accepting profit margins and a slew of conditions in oil production projects that Western counterparts such as Shell and Exxon deemed impossible.

“Whenever you have a rising power, they are willing to do things that others aren’t in order to get a place at the table,” said Gordon C. Chang, a China analyst and author of "The Coming Collapse of China.”

“There’s some hubris and stupidity that goes with this. The Chinese are not immune to it. They are starting to see the consequences of doing what others don’t.”

For China, the decision to do business where others won’t is also ideological. Chang observed that under former leader Mao Zedong the administration conceived of itself as a global underdog, and has used a sense of solidarity with low-income, low-infrastructure, politically marginalized nations to enter markets previously monopolized by the United States and other Western powers.

And for state-owned enterprises such as CMEC, the choice is not as simple as what is profitable and safe.

“Chinese state owned companies don’t make their choices based on what’s best for them. They make choices based on Beijing,” Chang said. “You end up with decisions that are really questionable. That’s what you have here. And China’s going to pay for it with bad loans and employees being trapped.”

In 2011, China had to send planes to evacuate tens of thousands of its nationals working in Libya and Egypt, amid the violent toppling of the nations’ leaders, Muammar Gaddafi and Hosni Mubarak, respectively. China had signed with both administration a series of multimillion-dollar infrastructure and energy deals that were essentially dissolved when popular movements and ensuing violence unseated the leaders.

Oil from the Middle East and North Africa currently accounts for roughly 60 percent of China's global imports, as the country perpetually endeavors to literally and figuratively fuel its economy. But if recently doubled efforts to drive its business elsewhere do not succeed, China will need to rethink its military strategy in the global sphere, said Arthur Dong, an expert in Chinese international relations and professor at Columbia University's School of International and Public Affairs.

China suffers from a “lack of military presence or clout in this part of the world,” Dong said. “These things are going to happen.”

“Chinese foreign policy tends to be very defensive. They won't fight [Islamist armed groups] in Iraq or Boko Haram in Nigeria,” said risk analyst Spio Garbrah, “When you have your assets in those countries, you've put yourself in a difficult position, unlike France or Europe or the U.S., who will send their troops to those places. Chinese have come to terms with the fact that they have to de-risk their energy strategy.”