OREANDA-NEWS. July 20, 2011. It's only a few days since South Sudan became the world's newest state, and as President Omar al-Bashir announces a new course of austerity measures for the northern state to deal with the loss of revenue, the issue of Sudanese oil still remains unsolved.

After 2 million dead in civil war over the last two decades, oil remains a critical sparkpoint that might ignite further bloodshed.

China has invested billions into the economy, and has approximately 24,000 nationals living in the country, according to the Foreign Policy magazine, making it look set to become the arbiter of peace.

Ultimately, China holds the key which could decide whether secession lasts, or whether the two Sudanese states are plunged back into violence. Failure would also risk a serious shift in China's diplomatic policy.

Financial interests are at the core of China's involvement in Sudan. However, there are many more factors that will dictate China's demeanor at the negotiating table and affect China's future foreign policy course should chaos descend upon the Sudanese states. The level at which Chinese business and the Chinese government has become involved in Sudan, thanks to controlling stakes in Sudan's largest energy consortiums, is set to pose a host of problems for China's leaders.

Sudan is a diplomatic nightmare, where high politics and diplomatic brokering are a long way from the ethnic cleavages on the ground. Should there be a breakdown in relations between north and south, China's oil supply, which has a 60 percent share of the 490,000 barrels produced daily in Sudan could be disrupted, further adding to China's already soaring inflation problems. But perhaps most worryingly of all a breakdown between north and south could jeopardize China's policy of non-interference in the interests of other sovereign nations.

In recognizing the leadership of the south prior to secession, the Chinese government has been keen to reaffirm the notion of "non–interference," pointing out that China never attaches "political strings" to the terms of its cooperation, and never interferes in the internal affairs of other sovereign entities.

Many hope that the interdependence between the Sudanese states, regarding the arrangement over oil, will help to guarantee peace. The south is the location of 80 percent of Sudan's estimated 6.8 billion barrels, but the north is in control of the refineries, the only pipeline and the only seaport.

But with oil only accounting for just over 40 percent of government revenue in the north, compared to 98 percent in the south, shutting down the pipeline could serve as a very effective and damaging tool for Bashir should he fail in his attempt to secure the 50 percent of oil revenue promised under the terms of the 2005 Comprehensive Peace Agreement.

It is this which has led to the recent diplomatic courtship of both sides by the Chinese government. Beijing must woo North Sudan, in order to prevent it from shutting down the oil supply.

Hence the recent state visit of President Bashir, much criticized by Western governments, during which Chinese President Hu Jintao put forward a four-point proposal to ensure continued relations with the north. China has already invested upwards of USD 15 billion in the country.

Meanwhile, Zhang Jun, China's economic counselor in South Sudan, revealed that China is willing to negotiate loans to the south. At the same time it would build a pipeline to the Kenyan coast, a move that would reduce the south's dependence on the northern pipeline and dissuade them from aligning with Western investors. This loan offer comes in the knowledge that US sanctions imposed on the northern Khartoum regime do not apply to the newly christened south.

China will do everything it can, within the limits of its own policy of non-interference, to ensure the situation remains stable. Washington describes China's role as helpful, though "vital" would be a more apt term from the Chinese perspective.

Failure not only risks damage to the economy, but may also force China to backpedal on the policy course of non-interference, which is so strongly linked to its own core interests.

The situation provides a real test to China's foreign policy approach, given the fragility of the situation and the speed with which a crisis may develop