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China Vulnerable to Soaring Oil Price

Posted on: Sunday, 7 August 2005, 09:00 CDT

China vulnerable to soaring oil price

By An Bei

BEIJING, Aug. 7 (Xinhua) -- China's economy turns out to be vulnerable in dealing with challenges posed by soaring international oil price fluctuating around 60 US dollars per barrel.

According to Zhang Guobao, vice minister of the National Development and Reform Commission, the best ways to cope are by improving energy efficiency and developing alternative energy resources.

China consumed much more energy resources than Japan in producing one unit of GDP.

Experts estimate that if it could use energy as efficiently as Japan, China would not have to increase its energy demand in the next 60 years.

Chen Mian, professor of the prestigious University of Petroleum, said that depending on the market force, energy efficiency can only be improved by 20 percent.

So the government should take the crucial leading role in improving energy efficiency by taking a series of policies in production, consumption and technologies to ensure energy will be used efficiently by both producers and consumers, he said.

Ethanol gasoline, coal-liquefied oil and methanol gasoline are all alternative choices under experimentation in China. However, owing to the lack of financial, taxation or subsidy supporting polices, those new energy resources could not get accepted widely in the country.

Experts said a monopoly system in the petroleum market constitutes the fundamental reason preventing China from improving its capability in meeting challenges from soaring oil price.

According to the China Chamber of Commerce for Petroleum Industry, being held by several large state-owned petroleum corporations, the market does not leave space for competitors.

With the maturation of China's capital market, an increasing number of entities have the ability to invest in oil exploitation and development. In northern Shaanxi Province, private petroleum companies have raised the annual oil output from less than 800,000 tons to nearly 7 million tons in ten years.

Nevertheless, incapable of obtaining the mining competency, those small and medium-sized private enterprises have to enter the sector as joint ventures and find it is hard for them to develop.

Moreover,lacking the effective supervision and management, those enterprises also have such weaknesses as indiscriminate mining.

According to China's commitments to the World Trade Organization (WTO), China will open its oil products market to foreign capital at the end of 2006.

Without forming a real market, China, however, will always find itself in a passive role in regional cooperation.

Under the current system, the three major petroleum corporations, namely,the China National Petroleum Corporation, the China National Petrochemical Corporation and the China National Offshore Oil Corporation, do not share their geological materials, which has caused a large amount of waste and repetition.

China has begun to learn from the experiences of other countries in their petroleum industrial system and is trying hard to reform.

Source: Xinhua News Agency - CEIS

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