00:00China has pulled off something of a magic trick when it comes to oil independence.
00:05Hundreds of millions of people have moved from the countryside to the city and they are making
00:10things. More than just t-shirts, toys and tables. They're making semiconductors and solar panels,
00:15new port facilities, highways, railways, pipelines, fiber optic networks. But follow the oil.
00:22Like any explosively growing economy, here's how much crude oil China imported over roughly that
00:28same period of time. This is as expected because when you're building factories, infrastructure,
00:34entire cities, you need what oil gives you, which is fuel, plastic, chemicals, even the roads that
00:42gas-burning cars are driving on. But here's the magic trick. The last five or so years,
00:48crude oil imports leveling off, even dropping in some years. How'd they do that? How did they
00:56reduce their dependence on the lifeblood of modern industry? The thing America produces
01:01more of than any other country? So for the last 12, 15 years, certainly,
01:07China has been on a quiet and increasingly visible push to become the renewable energy superpower of the
01:14world. China is the world's number one importer of crude oil. About 11 million barrels of oil,
01:25a day, which is most of the roughly 14, 15 million barrels of oil it uses a day. But over time,
01:33China began to acknowledge the possibility, the threat that if the US decided one day it wanted to
01:40harm China, it could choke off its supply. Because while you can move oil by rail and you can move it
01:46by pipeline, most oil is delivered by ship in giant tankers. China actually gets 90% of its crude oil this
01:54way. And that is a strategic vulnerability. Where the United States becomes important is that because
02:01with the size of its navy, the size of its military bases around the world, the United States is
02:08theoretically in a position to strangle China from access to its oil imports. We can find a really good
02:15example of that in the South China Sea. The US routinely deploys aircraft carriers, destroyers,
02:22and other warships to the area. It operates nearly a dozen military bases there. And consider this
02:28narrow waterway, the Malacca Strait, running between Malaysia, Singapore and Indonesia. It is the main
02:34shipping channel between the Indian and Pacific Oceans. It connects oil exporters in the Middle East
02:40to oil importers like China. And it's one of the busiest shipping lanes in the world, because taking it
02:48can shave a thousand kilometers off your trip, given the alternative, which is to go through
02:53Indonesia's Sunda Strait instead. But let's say tensions over Taiwan boil over, and the US were to
03:00decide to block Chinese traffic through that strait, which would block almost all Chinese oil?
03:06Chinese have been talking about this Malacca dilemma since the year of 2001, 2002, right? Because the
03:12transportation or the shipment of the crude oil can be easily disrupted by the United States, which has
03:18a exceedingly large naval presence in the region. A big worry for the Chinese government is, can it
03:24reliably get those imports into the country without any risk of intervention or interception?
03:30Now, the experts we spoke to mostly agreed that a US naval blockade in this region would be seen as so
03:37damaging to China's interests, that it would amount to an act of war, which means in most cases maybe the
03:44US would prefer not to go that far. But that just underscores the scale of the potential vulnerability,
03:51one that Xi Jinping himself pointed out just a few years ago. As a major manufacturing power,
03:56China has to secure its energy supply in its own hands. For him, this is a matter of national security,
04:04and one solution to this problem, rethinking the use of oil in the first place.
04:15With crude oil, you can make all kinds of things, plastic, rubber, fertilizer,
04:20lubricants, solvents, asphalt is a big one too. But when we're talking about China,
04:25the primary use of crude oil is to make fuel.
04:2812,000 cars lined up in a mad rush at Haikau in the Hainan province.
04:34These visuals have created headlines the world over for being one of the worst traffic jams ever.
04:39And no country in the world has more cars right now than China. But that's only because China has
04:46so many people. And turns out, when you really dig into the numbers, you very quickly realize
04:50450 million cars for 1.4 billion people means that most people do not own a car. Not yet, anyway. So,
05:01there was the opportunity to upend the auto industry before it even really took hold.
05:06For most countries, EV is seen as the future of driving. But for China, the future has arrived.
05:14Whether you're buying the car or building the car, providing the electricity or assembling the battery,
05:20everyone in China is entitled to government money and assistance.
05:25China has invested massively in electric vehicles, but they did it in a really shrewd way.
05:31The priority for China is renewable energy production. There's no point in having EVs if the
05:38EVs have to be charged off non-renewable sources for which you're having to rely on imports. So,
05:46the EV strategy has followed, not preempted, the renewable energy investment strategy.
05:53Yes, and I can show you 60 years of Chinese energy consumption in one simple graph to make this point.
06:00If you go back to 1965, you can see how China relied almost entirely on coal to generate electricity.
06:08Over time, oil came to form a more and more important part of the picture. But look what's
06:13happening here with hydro and nuclear and wind and solar. They've cut dramatically into the need for
06:21oil and coal. Today, China generates more wind and solar power than anybody. And just to give you a
06:28glimpse into what went into achieving that. With wind, for example, the magnets that help convert spin
06:35into electricity, those are made using rare earth elements for which China controls roughly 60 to
06:4270 percent of worldwide production. If you want to talk about refining those raw materials, it's even
06:48higher. It's closer to 90 percent of global capacity. China has gone to great lengths to insulate its
06:54supply chain from outside interference. China thought strongly right at the beginning, let's build the supply
07:02chain for the energy, then let's get the renewable energy construction going, and then let's move over
07:08to the EV capability. It's been intelligently sequenced. And the Chinese government has played a very direct
07:16role in building that EV capability from the ground up. The Center for Strategic and International Studies in
07:22Washington figures over the last 15 or so years, China has spent north of 200 billion dollars supporting the electric
07:31vehicle industry. And just to give you an example, for the last 10 years, China has exempted qualifying EVs from a 10%
07:40sales tax, which can be thousands of dollars per car. But there were also consumer subsidies, manufacturer
07:48incentives, priority for R&D funding, preferential lotteries for handing out license plates, all of
07:55which help the industry survive and thrive at lower and lower price points. Look at this car right here.
08:01It's called the Seagull by BYD. It's the cheapest EV in their lineup starting at under $10,000 US. And BYD
08:10recently overtook Tesla to become the number one selling electric automaker in the world. Today,
08:18seven out of every 10 EVs globally are made in China. Look how their industry has transformed in just the last 10 years.
08:25In 2015, 331,000 EVs sold in China. By last year, that number ballooned to 12.9 million, representing a larger and larger
08:35share of all cars sold. There are an estimated 14 million charging points across China for crying out loud.
08:43You know how many there are in the United States? About 1 60th that number.
08:48So, you know, China's gone on a really interesting journey from infrastructure, critical minerals,
08:55domestic renewable energy production, EVs, exports, you know, and the whole thing is a self-reinforcing chain.
09:02As China builds out its EV industry, it has also worked to undermine America's authority in the
09:15global oil trade, circumventing it where they can. Despite a raft of sanctions, Russia has continued
09:22shipping and selling its crude oil to the world. It's estimated more than a fifth of China's oil imports
09:28last year was sanctioned oil, as in oil from countries that the U.S. tries to block. From
09:36Venezuela, an estimated 268,000 barrels per day. From Russia, 821,000 per day. And from Iran, 1.4 million
09:47barrels per day. Oftentimes, the buyers, independent refineries known as Chinese teapots. They're smaller,
09:55harder to track, and they operate with less scrutiny. What a lot of them have been doing is
10:00importing cheap oil, refining it, and then selling it elsewhere in Asia. And they have made a lot of
10:06money doing that. It's apparently a very lucrative business for them. And this isn't the only way
10:11China's reshaping the global flow of energy bit by bit. Another example. Right now, the U.S. holds the
10:18world's largest strategic oil reserve. Hundreds of millions of barrels, enough in theory to replace
10:24months of oil imports. China is trying to build something similar. China is one of these countries
10:30that when oil prices are low, when crude oil prices are low, they will increase their imports,
10:36and they'll dump some of that oil just into these giant storage tanks that they're constantly building.
10:41So they have massive inventories of crude oil. A stockpile that would insulate China if the U.S.
10:48were to find a way to choke its supply. And China's other long-term play? What Donald Trump might call
10:56drill baby drill. In 2019, we saw China's national oil companies roll out their first-ever
11:04seven-year action plan for increasing exploration and production of oil and natural gas in China. And
11:12they started to pump tens of billions of dollars into this endeavor. And this is an important detail
11:18because Chinese oil is notoriously hard to get at. It's deeper, more complex to extract. But consider,
11:26the ExxonMobil of China, it's called PetroChina, the country's largest oil and gas company
11:32state-owned. Last year, they spent $38 billion on new infrastructure and new exploration. That's more than
11:40ExxonMobil and Chevron combined. They've been digging wells that, in some cases, run deeper than
11:46Mount Everest is high. Over the last several years, since around 2018, you can see what this growth in
11:54domestic production looks like. This climb represents millions of additional barrels of oil per day.
12:01Not enough to cover what China needs on a daily basis, mind you, but certainly enough to reduce what
12:07it needs to bring in. And that's really the subtlety of China's position in 2025. To be clear, it needs
12:16oil and it will continue to need oil for a long time. But what was only a few years ago, explosive
12:23growth in its thirst for world oil has slowed dramatically. Some estimates even figure China's
12:30growth and demand will peak in just a couple of years and then actually start dropping thereafter.
12:36That would be a big turning point for a country that sees itself as eventually replacing the United
12:44States as the world's largest economy.
12:55...
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