MCNAIR PAPER 67

Institute for National Strategic Studies

National Defense University

“Oil for the Lamps

of China”—Beijing’s

21st-Century Search

for Energy

B E R N A R D D. C O L E 
About the Author

Bernard D. Cole is professor of military history in the National War College at

the National Defense University, where he has served on the faculty since 1993. 

His areas of expertise are Sino-American relations and maritime strategy. Dr. Cole

is the author of numerous publications, including The Great Wall at Sea: China’s

Navy Enters the 21st Century (Naval Institute Press, 2001) and “The PLA Navy and

Active Defense,” in The People’s Liberation Army and China in Transition (National

Defense University Press, 2003). A retired naval officer with 30 years of experience

in surface warfare, he earned a doctorate in history at Auburn University.

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INSTITUTE FOR NATIONAL STRATEGIC STUDIES

NATIONAL DEFENSE UNIVERSITY

WASHINGTON, D.C.

2003

Bernard D. Cole

McNair Paper 67

“Oil for the Lamps 

of China”–Beijing’s 

21st-Century Search 

for Energy
The opinions, conclusions, and recommendations expressed or implied within

are those of the contributors and do not necessarily reflect the views of the 

Department of Defense or any other agency of the Federal Government. This

publication is cleared for public release; distribution unlimited.

Portions of this work may be quoted or reprinted without further permission, with credit to the Institute for National Strategic Studies. A courtesy copy of

any reviews and tearsheets would be appreciated.

First printing, October 2003

For sale by the U.S. Government Printing Office. To order, contact

Superintendent of Documents, Mail Stop: SSOP, Washington, D.C. 20402–9328

(ISSN 1071-7552)
Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Chapter One

Energy Sector Organization ................ 1

Chapter Two

The Coal Industry ......................... 7

Chapter Three

The Oil Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Chapter Four

The Natural Gas Industry. . . . . . . . . . . . . . . . . . . 27

Chapter Five

Other Energy Sources . . . . . . . . . . . . . . . . . . . . . . 33

Chapter Six

The Power Distribution System . . . . . . . . . . . . . 37

Chapter Seven

The Environment and the Energy Sector . . . . . 41

iii
Chapter Eight

Energy in the Ninth and Tenth 5-Year Plans. . . 47

Chapter Nine

Defense of the Energy Sector. . . . . . . . . . . . . . . . 57

Chapter Ten

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

iv “OIL FOR THE LAMPS OF CHINA”
Figures

1. Energy Consumption per Person: China and the 

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

2. China’s Energy Production and Consumption,

1980–2015 ................................. x

3. Organization of China’s Energy Sector ............... 4

4. Energy Production by Source, 1980–2015 ............. 8

5. China’s Oil Production and Consumption, 1980–2000 . . . . 16

v
Introduction

I

n 1933, Alice Tisdale Hobart, wife of the Standard Oil Company of

New Jersey manager in Nanking, published Oil for the Lamps of

China.

1 Hobart had traveled widely in China and proved to be a very

observant imperialist. Her fictional account of her experiences, not surprisingly, focused on the role played by Western businessmen, especially

those engaged in importing and selling petroleum products. One thread

that runs through her work is Chinese dependence on foreign sources of

energy supplies, which remains the case today. This dependence on foreign-controlled sources means that Beijing’s efforts to ensure the availability of energy resources adequate to fuel the nation’s economic growth

have important national security implications.

China is the second largest energy-consuming country in the

world after the United States.2 Beijing is determined to maintain continued economic growth after a quarter-century of remarkably high economic performance in the face of a population of 1.3 billion and a

changing political system. The Organization for Economic Cooperation

and Development (OECD) estimates that the average annual economic

growth rate for China, including Hong Kong, will be 5.6 percent for the

period 1995 to 2020, compared to 8.5 percent for the period 1971 to

1995.3 China could be the largest economy in the world by 2050, in

terms of purchasing power parity, with a gross domestic product

slightly less than half of that of the 30 OECD member-nations combined. In a best-case prognosis, China has the strong potential to rank

as at least the second largest world economy by the new century’s midpoint. Economic expansion of that magnitude means China’s domestic

energy demand over the next 20 years would grow at a rate that is more

than that of any other nation.4

vii
China’s economic growth has been accompanied by energy consumption growth averaging 5 percent per year—with electricity growth of

8 percent annually.5 China was responsible for 9.6 percent of global energy

consumption in 1997, a figure projected to grow to 16.1 percent by 2020.

Coal accounted for approximately 74 percent of the country’s energy production in 2000. In the same year, petroleum accounted for 18 percent,

hydropower 5 percent, natural gas 2 percent, and nuclear power less than 

1 percent. Total energy consumption in 2000 included 71.3 percent 

produced from coal, 21 percent from oil, 5 percent from hydropower, and 

2 percent from natural gas.6

China became dependent on international sources of petroleum

in 1993 and on all forms of international energy supplies in 1996, a dependence that continues to increase. Reliance on non-domestic energy

sources is exacerbated by the fact that 10 percent of domestic production

comes from offshore wells that are almost all the product of joint ventures with foreign companies.

In May 2000, Beijing announced a long-range comprehensive

plan for its energy sector that includes development of thermal, nuclear,

and hydroelectric power, in addition to oil, coal, natural gas, “and other

new and renewable energy sources,” including geothermal, solar, biomass,

wind, and tidal energy. This plan also lines up with the current drive to

develop China’s western regions economically, with coal, hydropower, and

the oil and gas industries all focusing in the west.7

The reliance on foreign energy sources also complicates this

plan’s chance for success; the deputy director of the State Economic and

Trade Commission (SETC) has estimated that “China will have to rely on

international markets for 50 percent of its oil supply in 2020.”8 In December 2000, senior industry spokesmen stated that “Beijing had no plans to

depart from a schedule freeing up the country’s oil products market to

foreign investors.”9

Beijing recognizes the strategic implications of national reliance

on foreign energy sources and is attempting to lessen this reliance. China

is the world’s fifth largest petroleum producer but imported more than 18

percent of its petroleum consumption in 1999.10 It imported twice as

much oil in 2000 as it did in 1999, and 15 percent more in 2002 than in

2001.11 The demand for imported petroleum will continue increasing, assuming continued economic growth, with imported oil contributing as

much as 40 percent of all petroleum requirements by 2010 and with as

much as 8 million barrels a day imported by China in 2020.12 Maintaining

viii “OIL FOR THE LAMPS OF CHINA”
INTRODUCTION ix

Figure 1. Energy Consumption per Person: China and 

the United States

Source: U.S. Department of Energy, Energy Information Administration, Main Products of the Office of Energy

Markets and End Use, Country Analysis Briefs, “China: An Energy Sector Overview,” accessed at <http://www.eia.

doe.gov/emeu/cabs/china/enerpcap.gif>

the rate of economic growth to which the Chinese people have become

accustomed is key to sustaining the legitimacy of the current political system in China as its ideological basis erodes.

A further complicating factor is Beijing’s campaign to privatize

many important sectors of the economy hitherto dominated by the state.

The power industry is one such sector; the government has announced its

determination to end monopoly, enhance competition, and introduce

competitive pricing in this industry.13 National authorities undoubtedly

are determined to conduct this campaign and recognize the inevitable social and political fallout of privatization. They are equally determined to

change China’s economic character while retaining the Chinese Communist Party (CCP) in power, but numerous statements by Beijing officials

and Chinese academics indicate government flexibility in the face of economic priorities.

This essay addresses Chinese energy dependence and future policy options. An introductory review of Beijing’s current energy situation
is followed by a discussion of the government organizations that still

dominate the energy sector, despite China’s privatization campaign. Next

are reviews of China’s dominant coal industry, current oil production and

imports, and natural gas sector. Other power sources are discussed, followed by a review of the electrical power distribution system envisioned

by Beijing.

Environmental concerns associated with energy production are

addressed, as is the effectiveness of Beijing’s Ninth and Tenth 5-Year Plans

and future energy policies. Defense of energy resources is reviewed, with a

focus on both military and civilian police resources and apparent plans.

The conclusion focuses on China’s potential to solve its energy questions

in the new century.14

x “OIL FOR THE LAMPS OF CHINA”

Figure 2. China’s Energy Production and Consumption, 1980–2015

Source: U.S. Department of Energy, Energy Information Administration, Main Products of the Office of Energy

Markets and End Use, Country Analysis Briefs, “China: An Energy Sector Overview,” accessed at <http://www.eia.

doe.gov/emeu/cabs/china/energy.gif>

0

10

20

30

40

1980 1985 1990 1995 2000

Quadrillion British Thermal Units

Consumption

Production

50

60

70

80

90

100

2005 2010 2015

History Projections
Chapter One

Energy Sector Organization

The energy industry in China to a significant degree exemplifies

the post-1978 development of “socialism with Chinese characteristics,” including extensive privatization and ascendancy of the

profit motive.15

The socialist market economic system is defined as “socialist public

ownership as the mainstay [of the economic system with] diversified systems of economic ownership developing” simultaneously. The process is

still ongoing, with remaining problems in the growing population, poor

workforce quality, deteriorating ecology, and shortage of natural resources.16 The implications of applying essentially free market ownership

to the energy sector will almost certainly make development of that sector

more dynamic and less susceptible to central planning.

An extensive restructuring of the energy industry in 1993–1994,

when the domestic oil market was allowed to adopt a more regulatory

than tightly, centrally controlled posture, was an early but unsuccessful

attempt to resolve these problems. Beijing is still moving down a quartercentury path of privatization and deregulation of the energy sector, albeit

at a measured pace.17

A more extensive reorganization was implemented in 1998,

when the government restructured state-owned assets into two vertically

integrated firms; this plan recognizes market mechanisms while retaining at the “commanding heights” of the energy sector at least nominally

state-owned enterprises. The reorganization provided for a transfer of

assets between the two firms, transforming them into regional entities.

The China National Petroleum Corporation (CNPC) was assigned responsibilities mostly in China’s north and west and the China Petroleum

and Chemical Corporation (Sinopec) in the south. Sinopec transferred

four northern refineries to CNPC, which transferred eight southern oilfields to Sinopec. CNPC still has more than two-thirds of China’s crude

1
oil production capacity, while Sinopec controls more than half of China’s

refining capacity.

Furthermore, Sinopec is the primary importing company for

crude oil, importing approximately 80 percent of the national total in

2001.18 The firms have spun off or eliminated several ancillary activities

that were unprofitable; many of these, such as housing units and hospitals, have obvious social implications, since their loss to workers and 

former workers no doubt exacerbated the labor unrest that has been a

feature of Beijing’s campaign to privatize and restructure state-owned 

enterprises (SOEs).

Other major state-sector firms in China include the China National Offshore Oil Corporation (CNOOC), which handles offshore exploration and production and accounts for roughly 10 percent of China’s

domestic crude production, and China National Star Petroleum (CNSP),

created in 1997. CNOOC had planned an initial public offering (IPO) on

the New York Stock Exchange in late 1999, but it was cancelled after the

company failed to agree with its underwriters on an opening share price.

The three largest concerns, Sinopec, CNPC, and CNOOC, have all

made IPOs of stock, attracting billions of dollars of foreign capital. Two

unusual features marked these stock offerings. First, they all 

involved significant, albeit minority, holdings in the companies by foreign

concerns. Second, although foreign holdings in important Chinese companies are not uncommon, such holdings in the vital energy sector may

allow foreign investors a significant voice in company decisionmaking.19

The 1998 reorganization aimed to increase efficiency and profit,

but also to strengthen state control over the domestic oil sector. In late

1999, CNPC set up a holding company, PetroChina, for the purpose of

raising money on international capital markets. PetroChina includes

most CNPC productive assets but excludes its network of employeesupport functions and some controversial projects such as its holdings in

Sudan.20 An IPO of a minority stake in PetroChina on the New York and

Hong Kong stock exchanges took place April 7, 2000, though the size of

the offering had to be scaled back due to a lack of interest on the part of

institutional investors.

Three types of organizations currently govern China’s energy sector (figure 3). Ministry-level corporations run the highly centralized petroleum and nuclear industries (reporting to the State Council, headed by

the nation’s premier, with a vice premier for energy issues), while energy

2 “OIL FOR THE LAMPS OF CHINA”
subministries and affiliated national corporations run the less centralized

electric power and coal industries.

■ The State Planning Commission has ultimate authority for energy

project approval, budget allocations, and financing arrangements.

■ The State Science and Technology Commission and the State 

Economic and Trade Commission are also involved with energy 

industry development.

■ The China National Energy Investment Corporation oversees major

investment loans for the energy sector.

■ The China National Petroleum Corporation is responsible for all onshore upstream oil and gas operations, including shallow-water areas.

In the past few years, CNPC has begun transformation into a multinational integrated oil company, establishing subsidiaries and acquiring overseas acreage and refineries in pursuit of export markets.

■ The China National Offshore Oil Corporation was established in

1982 to explore China’s offshore petroleum resources. The corporation has four regional subsidiaries (Bohai, East China Sea, Nanhai

East, and Nanhai West) and several specialized subsidiaries.

■ China established a third state oil company, the China National Star

Petroleum, in January 1997. The company has been authorized by

the central government to launch several exploration ventures with

foreign companies.

■ The China Petroleum and Chemical Corporation (Sinopec) is 

responsible for petroleum processing and product distribution; it

controls production facilities for 90 percent of China’s refined oil

products and over 75 percent of its petrochemicals.

■ The China National Chemicals Import and Export Corporation

(Sinochem) is primarily involved in imports and exports of crude

oil, petroleum products, and natural gas.

■ The Ministry of Coal Industry allocates national coal production and

coordinates production activities by central-government-controlled

mines (about 45 percent of nationwide production) and local mines

(collective or privately owned mines as well as state-owned mines 

operated at the provincial, prefectural, or county level).

■ The Ministry of Electric Power regulates power production.

■ The State Power Corporation was established in 1997 to handle

business aspects of the industry, with generation and transmission

the responsibility of regional subsidiaries.

ENERGY SECTOR ORGANIZATION 3
4 “OIL FOR THE LAMPS OF CHINA”

Figure 3. Organization of China’s Energy Sector

State Planning Commission Corporations under State Council

Ministry of Agriculture Ministry of Geology and Mineral Resources

Ministry of Coal Industry

Ministry of Electric Power

State Science and 

Technology Commission

China National 

 Petroleum Corporation 

China National 

 Petrochemical Corporation 

China National Offshore 

 Oil Corporation 

China National Star 

 Petroleum Corporation

China National Nuclear 

 Industry Corporation 

China National Energy 

 Investment Corporation

Huaneng Group State Power 

Corporation

Regional electric power subsidiaries

China National Local Coal Mines 

 Development Corporation

China Northeast and NEI–Mongolia 

 United Coal Company

State Council

State Economic and Trade Commission

China International Water 

 and Electric Corporation

Ministry of Water Resources

Ministry of Foreign Trade and Economic 

Cooperation

China National Chemicals Import 

 and Export Corporation

Unipec 

China Oil

Source: U.S. Department of Energy, Energy Information Administration, Main Products of the Office of Energy

Markets and End Use, Country Analysis Briefs, “China: An Energy Sector Overview,” accessed at <http://www.eia/

doe.gov/emeu/cabs/china/org.gif>
■ The Ministry of Water Resources is concerned with China’s hydropower production.

■ The China National Nuclear Corporation is a conglomerate of more

than 200 enterprises and institutions concerned with China’s nuclear power production and waste disposal facilities.

This infrastructure recently has been augmented by a national

plan to design a strategy of sustainable energy development, which will 

include establishing forums for experts, training government officials, and

conducting surveys and investigations aimed toward further energy supply

discoveries.21 The effort is being supervised by the State Development

Planning Commission and the China International Center for Economic

and Technological Exchange. It also has gained the endorsement of the

United Nations Development Program (UNDP), which has allocated

$300,000 for the project. Tibet is included in this plan, with developmental

emphasis in that province placed on hydropower and solar power resources.

This strategy is a subset of a Beijing plan for nationwide development of the industrial sector and embodies the privatization believed

necessary for China’s economic ambitions. An important goal of the plan

is to “improve the investment environment for the power industry and

upgrade power facilities” to satisfy demand estimated to grow at an 

annual rate of at least 4 percent through 2005. The plan aims to include

natural gas, hydropower, and nuclear power projects, in addition to increasing the efficiency of the national power-generating grid, with particular attention to linking power availability in the western and eastern

parts of the country. Four targets of development are described: installed

capacity goals, power grids linked and “more rational,” increased environmental protection, and power supply available to all Chinese villages.22

Much of this effort is aimed at alternative—that is, non-hydrocarbon—energy source development. Current Chinese planning also emphasizes foreign investment, especially in the riskier plans, such as those 

involving solar, wind-electric, marine energy, terrestrial heat, and biological

energy production. The Asian Development Bank has extended loans for

developing biological and solar energy as part of “59 international cooperation projects involving new and renewable energy development.” The

World Bank has approved its largest-ever renewable energy loan and its

first renewable energy loan for China, $100 million plus a $35 million grant

from the Global Environment Facility. Funds are to be used to develop

wind power in Inner Mongolia, Hebei, Fujian, and Shanghai and to develop

solar power in isolated rural areas in the northwest of the country.23

ENERGY SECTOR ORGANIZATION 5

Chapter Two

The Coal Industry

Despite efforts to diversify energy sources, China is expected to 

reduce its reliance on coal by only 10 percent by 2020: coal is

readily available, under Beijing’s direct control, and influences a

large portion of the country’s labor force. A 10 percent reduction will result in a major change in that force but will likely be balanced economically by advantages gained by shifting to cleaner, more efficient energy

sources.24 Although other energy sources are expected to grow, China’s

main energy source for the foreseeable future will remain its very extensive coal reserves (see figure 4). Coal’s 75 percent share of China’s primary

energy supplies produced over 62 percent of commercial energy consumption. According to the Coal Industry Ministry, coal remains “the indispensable energy source for China’s economic development.”25

China’s estimated total coal resources are second only to those of

the former Soviet Union, although it ranks third in the world in proven

reserves (behind the United States and the former Soviet Union), due

mainly to a lack of exploration. China has concentrated its resource development efforts on the higher-grade bituminous and anthracite coal

that makes up more than half of its estimated 126 billion tons26 of reserves; bituminous coal accounts for about 75 percent of annual production, and anthracite most of the rest.

Three-quarters of the electricity generated in China is coal-fired,

and its coal industry is the world’s largest, producing nearly 1.4 billion tons

in 1996. The growth of coal production was originally forecast to reach

about 1.5 billion tons by the year 2000 and 2.1 billion tons by 2010, but recent government moves to match production levels to slowing consumer

demand resulted in approximately 1.1 billion tons produced in 2000.

As of late 1999, about 39 percent of Chinese coal consumption

was consumed in power stations, 14 percent for coking, 10 percent for

7
domestic and residential use, 1 percent for rail, and the rest by other industries such as chemical, cement, ceramics, and glass-making plants. By

contrast, the United States burns 87 percent of its coal in power utilities.27

Plans for power station development provide for coal as the primary fuel.

In 2000, China consumed an estimated 1.68 billion short tons of

coal, by far the largest national consumption in the world, with the

United States in second place at 1.09 billion short tons. This figure is expected to grow to 3.54 tons by 2020, dramatically increasing China’s position as the world’s largest consumer of coal.28 Coal exports also continue

to increase, to almost 21 million tons during the first half of 2000, a 45-

percent increase over the same period in 1999. Beijing still faces an oversupply of coal, a problem it is trying to solve by closing thousands of

small-scale coal mining operations.29

As a result of the extensive reorganization that began in the late

1990s, less than half of China’s coal production is now centrally administered, with the majority produced by either local state-owned mines or

rural collectives. In the early 1980s, the central government began to encourage the development of small coal mines in rural areas; many of these

8 “OIL FOR THE LAMPS OF CHINA”

Figure 4. Energy Production by Source, 1980–2015

0

10

20

30

40

50

60

1980 1985 1990 1995 2000 2005 2010 2015

Quadrillion British Thermal Units

Coal

Oil

Nuclear

Natural Gas

Hydroelectric

Source: U.S. Department of Energy, Energy Information Administration, Main Products of the Office of Energy

Markets and End Use, Country Analysis Briefs, “China: An Energy Sector Overview,” accessed at <http://www.eia.doe.

gov/emeu/cabs/china/prodfuel.gif>
mines are individually owned. Amendments to China’s Mineral Resources

Law, effective January 1997, provide a comprehensive legal framework for

exploration and exploitation and could encourage foreign investment.

Northern China, especially Shanxi Province, contains most of

China’s easily accessible coal and virtually all of the large state-owned

mines. Coal from southern mines tends to be higher in sulfur and ash,

therefore unsuitable for many applications. Regional imbalances between

coal supply and demand require the transporting of large quantities of

coal, generally from northern areas to the south and east.

In fact, coal accounts for a larger percentage of freight than any

other commodity in China. More than 50 percent of the coal is shipped by

rail, and 60 percent of rail transport is tied up in transporting coal. The

major north-south rail lines are Zhengzhou-Wuhan and Xuzhou-Nanjing,

and the primary east-west line is Datong-Qinhuangdoa. Transportation

bottlenecks are a major problem in the coal industry, with the high content of dirt and rocks included in shipments (only 20 to 25 percent of coal

is now washed) further taxing the system. Recommended solutions include rail expansion projects and alternatives such as coal pipelines, liquefaction, and coal-by-wire (locating power plants at mine mouths).

The China National Coal Import and Export Corporation is the

primary Chinese partner for foreign investors in the coal sector; this corporation is overseeing a process more open to foreign investment, particularly in modernizing existing large-scale mines and the developing new

ones. Areas of interest in foreign investment concentrate on new technologies only recently introduced in China or with environmental benefit, including the coal liquefaction, coal bed methane production, and

slurry pipeline transportation projects. These projects also promise to 

increase the efficiency of the transportation system.30 In addition to 

collocating coal-fired power plants with large mines, other technological

improvements are being undertaken, including the first small-scale projects for coal gasification, and a coal slurry pipeline to transport coal to

the port of Qingdao.

China is an increasingly important participant in the international

coal exporting market. Beijing tripled its coal exports between 1980 and

1990, as newly built coal washing, rail, and port facilities made more of its

high-quality coal available for export. Beijing announced net coal exports

for 1998 of 35 million tons, with sales primarily to South and North Korea

and to Japan. Japan not only is China’s biggest customer but also has become a partner in the industry, providing loans for the improvement of

THE COAL INDUSTRY 9
railroads and ports for the overseas transport of coal from Shanxi

Province. A 5-year agreement for Chinese energy exports to Japan was negotiated in December 2000.31

As China commits itself to further economic reform and increased involvement in the global economy, its coal industry faces major

challenges of rationalization and structural reform. The government is

implementing major reforms to reduce the effects of the current oversupply problem, at least in the short term. Large state-owned coal mines have

experienced buildups of unused inventories, and many are operating at a

financial loss. A large number of small, unlicensed mines also contribute

to this situation.

Coal usage is also very susceptible to swings in the Chinese economy. This has influenced the recent overhaul of the state coal administration, radical cuts in production, the restructuring of key state-owned coal

mines, and the planned closure of over 25,000 small mines. In 1998, the

government launched “a campaign to shut thousands of coal mines, especially small and dangerous ones, to avoid overproduction, falling prices,

and to improve the industry’s safety record.”32

Poor Safety Record

One report, in early April 2002, stated that 59,000 of an estimated

82,000 illegal small coal mines have been closed, but another claimed that

430,000 had ceased operation. Neither figure is likely definitive, given the

central government’s apparent lack of an effective regulatory infrastructure in this area.33 This campaign appears to have achieved mixed results;

as a result of the closures, depressed local coal prices have started to recover, but supply still outpaces demand.

The government reported that 5,395 miners died in miningrelated accidents in 2001, but other estimates range to up to 10,000 miners

dying annually with perhaps thousands more dying each year from lung

diseases.34 Most of these occurred in the many small, unregulated mines.

Ninety-two miners died in a Jiangsu Province gas explosion in July

2001, while in September, at least nine miners died in an explosion at an illegal coal mine; in November, 37 died in two coal mine blasts in a mine in

Podi, Shanxi Province, that had been ordered closed and was 

“operating without government permission.” That same month, another

explosion claimed at least 14 miners.35 The operators of the Podi mine were

quickly tried and sentenced to prison terms, but the accidents continue; in

10 “OIL FOR THE LAMPS OF CHINA”
December 2001 alone, 11 died in Hunan, 15 in Henan, 8 in Liaoning, and

over 20 in Jiangxi Provinces.36

The national government had turned its full attention to 

attempting to regulate the industry even before this latest series of disasters. In addition to directing the closure of many small mines, Beijing 

issued a completely revised set of coal mine safety regulations, which took

effect December 1, 2000.37 These include “supervision of safety in coal

mines” by the Coal Mining Safety Supervisory Organization as an arm of

the State Council. Mirror safety organizations also exist at provincial, autonomous regional, and autonomous municipal levels (Article 8). Governmental frustration with coal entrepreneurs and mine owners is indicated

in Article 6, which states that “coal mine safety supervision shall rely on

miners and union organizations.” The regulations include detailed requirements for the construction, equipping, and operation of coal

mines—and provide penalties, including mine closure, for noncompliance.38 The leadership also began paying personal attention to the problem, as then Vice Premier Wu Bangguo visited coal miners in Shanxi

Province, and Vice Premier Wen Jaibao did the same in Liaoning.39

China’s mining safety record remains horrendous, however, with

a continuing series of disasters that the government seems unable to halt.

Notwithstanding the new regulations and “billions of yuan put into improving mine safety,” the government reported a recorded 556 coal mine

accidents in just the first quarter of 2002, causing 994 deaths.40 Reported

accidents in early 2003 indicated that a solution to the mining accident

problem remained lacking. Eight miners died in Jilin Province, 38 in 

Heilongjiang, 8 in Henan, and at least 38 in Guizhou.41

Prospects for Coal

Despite these problems of inefficiency and safety, China’s coal

output continues to rise, and exports are profitable.42 Coal will almost

certainly remain the dominant energy source in China for the foreseeable future, despite the strenuous efforts of the authorities to diversify

the energy mix.

While the infrastructure for coal transport, including rail and

ports, has improved significantly over the past 8 years, it remains inadequate to meet current demand.43 In fact, imports of coal have risen in

coastal regions, due to the inefficiencies of domestic rail transport. However, the completion of the Shuo-huang railway (the second dedicated

coal line) and the Huanghua coal terminal in 2003 will provide up to 60

THE COAL INDUSTRY 11
million tons per year of new coal transport capacity in northern China.

The first section of this railway began operation in December 2000; it is

planned as part of a system to link the coalfields of the Ningxia Hui and

Inner Mongolia Autonomous Regions to coastal China.44

China is not making the large investment necessary to build the

infrastructure required to take efficient advantage of its huge reserves of

coal, which will continue as its primary energy source. This situation is

exacerbated by the scarcity of investment capital and water shortages that

restrict efforts to improve the quality of the coal through the greater use

of coal washing plants. China’s relatively unsophisticated heavy industrial

plant further means general satisfaction with low-grade coal, cheaper but

both less efficient and more polluting. Hence, the resulting lack of

demand for better quality coal and the absence of a fair pricing regime to

reflect the value of coal quality constrain the modernization of the nation’s coal industry as a whole.

While the high level of coal usage—both in real terms and as a

percentage of energy production—will continue and even grow, how coal

is utilized will change. Residential and domestic coal consumers typically

contribute disproportionately to the high pollution levels. As more in this

sector are provided with electricity and gas, they will burn less coal, lowering pollution. No such decrease in pollution seems apparent in the future of the industrial sector, however, where many boilers and plants have

low thermal efficiency and lack modern pollution control equipment.

National and provincial authorities will have to both mandate more stringent pollution limits and offer financial incentives to meet those limits.

Coal bed methane may provide one alternative, with reserves 

estimated at 30 to 35 trillion cubic meters (tcm) and production expected

to reach 0.4 tcm by 2010.45 China recently launched a project on the 

“Research and Application of Underground Vaporization of Coal” to attempt to increase recovery of this combustible gas for commercial use.46

Coal bed methane production is being developed under the aegis

of the China United Coal Bed Methane Company signing agreements

with 19 foreign companies, including American investors Atlantic 

Richfield and Texaco, the latter signing 3 production contracts. This joint

effort will explore coalfield blocks in Inner Mongolia, and Shaanxi,

Shanxi, and Anhui Provinces.47 Another joint venture project is planned

for Yunnan Province.48

New technology may affect China’s entire energy use profile in a

dramatic fashion. Should the current U.S. program to develop direct 

12 “OIL FOR THE LAMPS OF CHINA”
carbon conversion bear fruit, the process would help to conserve precious

fossil resources by allowing more power to be harnessed from the same

amount of fuel. It would also improve the environment by significantly

decreasing the amount of pollutants produced per kilowatt-hour of electrical energy generated, including decreasing carbon dioxide emissions.49

THE COAL INDUSTRY 13

Chapter Three

The Oil Industry

Petroleum is the second largest energy source in China, with a 

domestic output of over 2,353 million barrels (bbl) of refined 

petroleum products in 2001.50 About 1993, China’s domestic oil 

production began to fall behind its growing oil consumption, and the

country became a net importer of oil (see figure 5). Demand for petroleum

is forecast to increase by 50 percent by 2020. Furthermore, dependence on

foreign petroleum sources, more than 368 million bbl in 2000, will also increase, probably doubling to more than 735 million bbl by 2020, which will

form approximately 50 percent of China’s total petroleum consumption.51

Beijing is pursuing several avenues to reduce reliance on foreign

petroleum supplies. These include maximizing sources on Chinese territory, both on- and offshore; securing foreign sources through acquisition

both of production sources and facilities, as well as the product; creating

a national strategic stockpile; and enhancing the physical security of

stocks and sources on hand, all to be supervised by “a unified management body.”52

China’s oil and natural gas industries are almost exclusively government-owned, with the exception of a limited number of joint ventures.

The main focus is on oil development, although the current 5-Year Plan

seeks to take greater advantage of natural gas resources. Most oil is produced onshore by CNPC. The central government maintains active control over China’s most productive fields, including the largest, at Daqing in

the Songliao Basin and the Shengli and Liaohe fields in the Bohai Basin, all

in northeastern China.

The China National Oil Development Corporation, a CNPC subsidiary, is the contracting agent for cooperation with foreign companies

in the onshore oil industry. China’s program to acquire interests in petroleum exploration and production abroad is led by CNPC, which holds oil

15
concessions in Kazakhstan, Kyrgyzstan, Venezuela, Sudan, Iraq, and Peru.

The Greater Nile Petroleum Operating Company, the Sudanese oil project

in which CNPC owns a stake, began exports in August 1999. The CNPC

concession in Iraq cannot be developed until the United Nations (UN)

economic sanctions are lifted, at least to the extent of allowing foreign investment in Iraqi oil infrastructure.

China is also establishing energy relationships “all across the

Middle East, Southeast Asia, Russia, Central Asia, Africa,” and Latin

America.53 Beijing clearly is pointing the national search for energy to a

massive global campaign, especially for petroleum. The ongoing reorganization of the energy sector is fostering a degree of privatization that undoubtedly makes expanded exploration attractive to the very large companies now dependent on profits for continued commercial viability.

Interestingly, Taiwan is trying to partner with Chinese companies searching for new oil sources. CNOOC signed an agreement with

Taiwan’s China Petroleum Corporation in January 2002 to search for oil

in the Taiwan Strait.54 The joint venture has been held up, however, by

16 “OIL FOR THE LAMPS OF CHINA”

0

0.5

1.0

1.5

2.0

1980 1982 1984 1986 1988

Million barrels per day

Net 

Imports

2.5

3.0

3.5

4.0

4.5

5.0

1990 1992 1994

Production

Consumption

1996 1998 2000

Figure 5. China’s Oil Production and Consumption, 1980–2000

Source: U.S. Department of Energy, Energy Information Administration, Main Products of the Office of Energy

Markets and End Use, Country Analysis Briefs, “China: An Energy Sector Overview,” accessed at <http://www.eia.doe.

gov/emeu/cabs/china/energy.gif>
Taiwan’s Mainland Affairs Council; should that body approve the proposal, moreover, Beijing may well decide not to approve a Chinese company (and one that is primarily a government entity, at that) helping 

Taiwan overcome its lack of domestic petroleum by drilling in the waters

between the island and the mainland. The economically logical business

agreement may still fall victim to politics, although a May 2002 report

stated that CNOOC and Taiwan’s state-run China Petroleum Corporation had “signed a landmark agreement for joint exploration.”55

CNOOC has traditionally sought foreign investment for offshore

oil, which represents a relatively small share of China’s oil industry. The

company reportedly has interests in 45 maritime oil and gas properties in

the Bohai, South China, and East China Seas. More recently, CNOOC has

drawn interest from several foreign companies to its proffered deepwater

blocks; an American company, Husky Oil, is the first to sign an agreement

to explore one of these 12 blocks, in an area 100 kilometers (km) southeast of Hainan Island.56

As of late 1996, foreign commitments by Chinese energy companies totaled nearly $3 billion (almost 60 percent of total offshore exploration and development), including CNPC exploitation of oilfields in

Russia, Pakistan, Kazakhstan, Indonesia, Myanmar, Egypt, Ecuador,

Venezuela, Argentina, Iran, Iraq, Somalia, and Sudan, as well as power

generation and refining projects in Bangladesh, Kuwait, Sudan, and

Kenya.57 In fact, CNPC president Ma Fucai has stated that the company

hopes to emulate ExxonMobil, with “overseas production account[ing

for] 60 to 70 percent” of profits.58

These projects, with a contract value of $750 million, are augmented by proposed pipelines with or in Russia, Turkmenistan, and

Thailand, and possibly Pakistan, Afghanistan, and Burma.59 Other Chinese projects (some with foreign partnership) have been established in

Canada, Colombia, Malaysia, Mexico, Mongolia, Papua New Guinea,

and the United States. China’s first joint venture refinery, West Pacific

Petrochemical Company (20 percent owned by Total SA of France),

opened in late 1996.60 Through 2000, China’s investment plans emphasized upgrading and expanding existing refineries, in some cases to handle imported crude oil from the Middle East, rather than constructing

new facilities. This policy probably reflects both Beijing’s desire to increase the efficiency of its refinery infrastructure and the global surplus

in refining capacity.

THE OIL INDUSTRY 17
Sinopec produces most of China’s refined petroleum products,

while Sinochem dominates oil and gas trade, with import and export

quantities determined by state planners. However, Sinochem also has

partnerships with CNPC and the China International United Petroleum

and Chemical Corporation. Some CNOOC production-sharing agreements also allow direct exports from offshore fields. Future import routes

under discussion focus on land-based facilities, including oil and natural

gas pipelines from Russia and Central Asia.

Official encouragement of cooperation with foreign companies is

reflected in recent regulations increasing the number of Chinese companies authorized to negotiate, contract, and implement “joint onshore oil

exploration projects.”61 This objective was further underlined in December 2001, when the nation’s trade minister urged expanded use of foreign

capital throughout the country’s economy.62

The need for foreign capitalization and expertise reflects the

weakness of China’s indigenous capabilities in the energy sector. The

sector’s shortcomings are also indicated by Shanghai’s search for foreign

partners to build a “natural gas grid” in the city.63 The city of Hangzhou,

in Zhejiang Province, has also announced a plan to “turn itself into a

clean ‘natural gas city.’”64 One of Shanghai’s major projects is the conversion of city buses to gas fuel.65

China draws the majority of its overseas oil from the Middle East

and Southwest Asia; its efforts to secure new foreign sources of petroleum

are global in scope but have focused on Central Asia and Russia. Oilfield

investment and pipeline construction are two important areas for Chinese companies and include projects in Azerbaijan, Pakistan, Uzbekistan,

Kazakhstan, Kyrgyzstan, and Russia.66

The campaign to obtain energy resources from the former Soviet

republics of Central Asia has occurred in the context of Beijing’s diplomatic efforts to secure and expand Chinese influence in this area, historically of vital national interest to China. The primary vehicle of this effort

has been the Shanghai Cooperative Organization organized in 1996 as the

Shanghai Five by Beijing and Moscow; the other original member states

were Kazakhstan, Kyrgyzstan, and Tajikistan. The organization’s stated

goals were to:

strengthen mutual trust and good-neighborly relationship[s], increase effective cooperation of the member states in political, trade

and economic, scientific and technological, cultural and educational

fields, ensure peace, security and stability in the region, and push

18 “OIL FOR THE LAMPS OF CHINA”
forward the process of establishing a democratic, just, and rational

international political and economic order.67

Five primary transnational pipelines to China have been discussed, although their actual construction will presumably depend on

sufficient supplies and consumer demand:

■ 1,865-km gas pipeline from Western Siberia to Shanshan, in 

Xinjiang Province; this $3.62 billion line would be able to transport

30 billion cubic meters (bcm) of natural gas to China annually.

■ 3,370-km pipeline from Kazakhstan’s Karachaganak gas and oilfield

to Shanshan; this line would have a capacity of 25 bcm per year.

■ 2,150-km pipeline from Turkmenistan to Shanshan, also with an

annual capacity of 25 bcm, at a cost of approximately $4.7 billion.

■ 2,416-km pipeline from Sakhalin to Shenyang, with an annual

capacity of 5 bcm.

■ a line from Irkutsk, in Siberia, to northern China (this plan is the

most tentative of the five).68

In Kyrgyzstan, Beijing has approved a $300 million investment in

a joint venture with the Kyrgyzneftegaz Company, to extract gas and oil

from the country’s south.69 The main Chinese effort in Central Asia, however, has been in Kazakhstan, bordering on China’s westernmost

province, Xinjiang.70 Kazakhstan, which may rank among the world’s top

six petroleum and natural gas producers by 2010, and China have signed

a series of agreements to produce and export petroleum.

The most significant deal thus far has been the CNPC acquisition of a 60-percent stake in the Kazakh oil firm Aktobemunaigaz, based

on a pledge to invest $4.6 billion in the company’s development over the

next 20 years.71 Beijing has an ambitious long-range plan to build a

pipeline from Kazakh natural gasfields to a central terminus in Xinjiang

Province, whence a pipeline network will deliver the gas to central and

eastern China, reaching to Shanghai. One Kazakh source has set a goal of

exporting 50 million tons of oil a year to China.72 To date, however, these

contracts have led to very little pipeline construction; while Sino-Kazakh

border disputes apparently have been resolved, weak economic indicators, political uncertainties, and severe corruption remain.

Beijing plans to meet this terminal with pipelines from Gansu,

Szechuan, and Hebei provinces, thus distributing Central Asian energy

supplies across much of China. Construction of the international portion

of this pipeline was scheduled to begin in mid-2001, with the entire,

THE OIL INDUSTRY 19
3,000-km-long network completed by 2008 at an estimated cost of $3.5

billion, but planning has halted, probably because of disagreements

between Beijing and Almaty.73 China’s interest in Kazakh oil projects

continues, however, with a focus on finding and exploiting new oil and

gas deposits.74

CNPC friction with Kazakh authorities exists about the level of

investment in the firm’s projects, as well as other management issues. The

senior CNPC representative for the Kazakh scheme, Zhang Chenwu, recently expressed reservations about the possibility of successfully

completing the current pipeline project.75 Political corruption on both

sides of the Sino-Kazakh border is also a factor, as are governmental disputes within Kazakhstan, natural difficulties, and the slow development of

Central Asian petroleum fields. These problems cast doubt on how soon

China will be able to take advantage of this energy source in a major way.76

“Stabilize the East, Develop the West” is the current slogan in

China’s petroleum industry, which is applying enhanced oil recovery

techniques to older fields and investing in promising areas of the West—

in particular the remote Tarim Basin in the harsh environment of the

Taklamakan Desert. A less remote but smaller target for development is

the Turpan-Hami, or Tuha, Basin. A new 300-mile pipeline serving both

of these areas was completed in 1997.

The South China Sea is surrounded by seven other nations, most

of whom claim part or all of the sea’s resources. The northern and western areas of the South China Sea are the scene of the most active offshore

petroleum development; territorial disputes involving the Spratly Islands

complicate offshore activities in the sea’s central and southern areas. Since

it is China’s only contested area of known energy reserves, garnering

those resources may rest directly on the ability of the People’s Liberation

Army Navy (PLAN) to enforce national claims.

Oil prospecting in the South China Sea dates back at least to

Japanese efforts in the 1930s. Total 1998 production was over 1.3 million

bbl per day, from proven reserves of approximately 7.5 billion bbl. Almost

all of this came from the uncontested northern or southern areas of the

sea.77 There are no proven reserves for the Spratly or Paracel Islands in the

sea’s central area, and no commercially recoverable oil or gas has been

discovered there, although efforts continue.78 Geologists and analysts disagree on the presence (and recoverability) of petroleum reserves near

these islands, with widely varying estimates.

20 “OIL FOR THE LAMPS OF CHINA”
The western sea area also promises to become a significant natural gas source, with 4 fields and 15 gas-bearing structures believed to

exist.79 These fields are expected to provide three bcm of gas by 2005, and

six billion by 2010.80

Estimates of the petroleum reserves in the South China Sea range

from Beijing’s wildly optimistic 213 billion bbl (105 billion in the area of

the Spratlys) to a U.S. estimate of 28 billion bbl (2.1 billion in the

Spratlys).81 A similar range of estimates exists for natural gas reserves,

about which the Chinese are also optimistic, offering an estimate of more

than 2,000 trillion cubic feet (tcf), while the U.S. estimate is a more modest 266 tcf. China’s belief in these estimates is more important than their

dubious accuracy, and Beijing’s high expectations strengthen its determination to protect its sovereignty claims in the Spratly Islands.82

More than 368 million bbl of crude oil have been produced since

the first well began pumping in 1990 and production expands annually as

additional wells are installed, usually with participation by foreign companies. 83 The history of the Lufeng 22–1 oilfield, located in the northern

South China Sea, illustrates the difficulties of recovering petroleum reserves from the area: the petroleum in these fields is typically located in

high porosity sandstone and is waxy in texture, which requires extraordinary drilling and recovery methods. Additionally, the wells are located in

a prime area of tropical cyclones that historically have had an average duration of 26 hours, generating a wave height of up to 8 meters. Force 6

winds and extremely rough seas are also common to the area. Specialized

tankers have been designed and built to transport this field’s product to

the mainland—tankers that presumably would require protection from

the PLAN in times of international crisis.84

Beijing’s 1992 Law on the Territorial Sea and the Contiguous

Zone brings it into direct contention with the other claimants to South

China Sea resources: Vietnam, Malaysia, Indonesia, Brunei, and the

Philippines; Taiwan makes the same claim as China. The 1992 law repeats Republic of China claims first made in the mid-1930s, including a

U-shaped, dashed line encompassing almost all of the South China Sea,

including ocean areas. This line implies that Beijing claims the entire sea

as sovereign territory.

If upheld, this claim would have a major effect under the 1982

United National Convention on the Law of the Sea (UNCLOS), which

most nations of the world—including China but not the United States—

have signed. Not only would all the land formations that lie in the South

THE OIL INDUSTRY 21
China Sea—primarily the Paracel and Spratly Islands (Xisha and Nansha

in Chinese) and the Macclesfield Bank—be Chinese territory, but most of

the very important natural gas and petroleum fields lying in the southernmost part of the sea would belong to China instead of to Brunei and

Indonesia, which currently mine them.

The South China Sea also bears the main, crucial sea lines of

communication (SLOCs) between East Asia and the oil-rich countries of

Southwest Asia and the Middle East. Beijing’s sovereignty over these

SLOCs would be unacceptable to the United States, which insists on freedom of navigation through international waters. Many other nations

would share American dissatisfaction with Chinese sovereignty over this

sea, and a crisis situation would develop immediately, despite Beijing’s

protestations that its claimed ownership of these waters would not in any

way affect the SLOCs.85

As a net crude oil importer, China’s petroleum industry is focused on meeting domestic demand, but it still exports significant

amounts of crude. The largest export customer by far is Japan, which imports 120,000 to 160,000 bbl per day of Daqing crude oil for generating

electricity. This supply was called into question in early 1999, when

CNPC informed the Japanese that it would no longer be available for export after deciding to refine it for sale on the domestic market rather than

sell it at low world market prices. After Japanese protests to the State Bureau of Petroleum and Chemical Industries, CNPC agreed to continue

supplies. The incident underlined the tension inherent in having stateowned firms operating with substantial independence—they still have to

take the government’s foreign policy concerns into account when making

sales decisions.

An important development is China’s decision to set extremely

low quotas for crude imports—almost an import ban—starting in the

second half of 1998, due to a supply glut and excess domestic refining

capacity. Cheap imported oil was flooding the more prosperous coastal

areas of China, causing stockpile increases and production cuts by 

domestic producers. The government responded by acting to protect

domestic production. Crude oil import restrictions have largely been

lifted, but restrictions on petroleum product imports are expected to

continue in the near future.

Related to the import quota reduction is a continuing crackdown

on petroleum smuggling, which has resulted in numerous criminal convictions. China’s government also has begun a campaign to close down

22 “OIL FOR THE LAMPS OF CHINA”
small-scale independent refineries, some of which had acted as conduits

for smuggled oil. A Chinese government spokesman stated in February

2000 that all small refineries failing to meet the government’s product

quality standards would be shut down by the end of March 2000.

Approximately 90 percent of China’s oil production capacity is

located onshore. One complex alone, the Daqing fields in Heilongjiang

Province, accounts for 1 million bbl per day of China’s production, out of

a total crude production of 3.2 million bbl per day. Daqing is a mature

field, however, and is expected to show a declining output in future years.

Government priorities focus on stabilizing production in the eastern regions of the country at current levels, increasing production in new fields

in the west, and developing the infrastructure required to deliver western

oil and gas to consumers in the east.

China’s most recent oil finds have been offshore. Surveying and

exploration have centered on the Bohai area, east of Tianjin, which government officials have announced may hold more than 9.7 billion tons of

oil and gas.86 Phillips Petroleum announced in March 2000 that it had

completed its appraisal drilling of the Peng Lai Find in Block 11/05 and

would proceed with development. Full-scale production at the field is expected to reach more than 100,000 bbl per day by 2004. The Chinese

company, Ocean Petroleum, meanwhile announced a plan to drill up to

80 wells in 2002 in the Bohai. Foreign partners in this plan include Shell,

ChevronTexaco, Petronas Carigali, and Ultra Petroleum. 87

Another major offshore field has been developed recently in the

Pearl River Mouth area by a consortium including Chevron, Texaco, Agip,

and CNOOC. The field began production in February 1999 and is expected to reach production of 27,000 bbl per day when fully operational.

Meanwhile, improvement in Sino-Vietnamese relations is expected to

open the way for oil and gas exploration in the Beibu Gulf (the northwestern arm of the South China Sea), especially since the countries have

reached a preliminary agreement on a line of demarcation.88

China encourages foreign investment in exploration and infrastructure development.89 CNSP is also pursuing several exploration ventures with foreign companies. By late 1996, almost 1 million square miles

were open to foreign companies, including the southern provinces, the

southeast sector of the Tarim Basin, and areas in northern and eastern

China. Thirty petroleum contracts worth $770 million had been signed

with 35 companies.

THE OIL INDUSTRY 23
In July 2002, Premier Zhu Rongji announced that Beijing was

opening the 2,500-mile-long West-East Pipeline project to international

companies, specifically mentioning Royal Dutch–Shell, Gazprom, and

ExxonMobil.90 This pipeline would be a very significant national project,

running from the Tarim Basin in Xinjiang Province through Gansu,

Ningxia, Shaanxi, Shanxi, Henan, Anhui, Jiangsu, and Zhejiang Provinces

to reach Shanghai. Its social and environmental impact is being studied

by a joint UNDP–Shell project.91

There are two possible difficulties with this project, apart from

funding and actually building it, which appear to reflect a lack of coherent planning at the national level. The first is whether there is sufficient

natural gas in the Tarim fields to make the pipeline profitable; three

major oilfields in the province reportedly produced 20.3 million tons

(144.1 million barrels) in 2002, a threefold increase since 1990, but the

evidence of proven natural gas is more problematic. The second reason

for concern is the possible lack of planning at the national level to deconflict natural gas piped from the far west with that being imported from

Indonesia, Papua New Guinea, and Australia.92

Russia’s Far East is often cited as a potential major source of Chinese crude oil and natural gas imports, although so far there has been

more talk than action. The Russian and Chinese governments have been

holding regular discussions on the feasibility of pipelines to make such

exports possible, with their first agreement signed in September 2001 to

explore and develop jointly east Siberia petroleum reserves, estimates of

which run as high as 11.5 billion tons.93 In December 2002, Russian President Vladimir Putin and Chinese President Jiang Zemin issued a postsummit meeting statement that emphasized “the great significance of

energy cooperation” between their countries, since “it is critical to make

sure that Sino-Russian cooperation projects concerning crude oil and

natural gas pipelines” are “carried out according to schedule” and that

“the implementation of promising energy projects” be coordinated.94

Another project operated by East Siberian Oil at Yurubchenskoye

is currently exporting crude oil to China by a combination of road and

rail transport. Quantities are small, but East Siberian claims the field

could have a production potential of 400,000 bbl per day if fully developed. Downstream infrastructure development in China centers primarily on upgrading existing refineries rather than building new ones, due to

current overcapacity.

24 “OIL FOR THE LAMPS OF CHINA”
The petroleum refinery sector in China is overbuilt, although it suffers from a serious lack of adequate capacity suitable for heavier crude,

which will have to be remedied as Chinese import demand rises, especially

for Middle Eastern crude. It is hampered especially by a plethora of small,

unprofitable refineries, although not nearly to the same extent that the coal

industry counts too many small mining operations. Beijing has determined

to shut down many of these small refining plants, although it also is concerned about resulting unemployment.95 The problem of efficiency applies

to larger production facilities as well, however: most Chinese refineries operate at financial losses that are hidden by state ownership. Chinese firms

probably average $1.50 to produce a barrel of oil; Western companies typically spend $1.20. Natural gas exploration costs are similarly high for Chinese companies, $3.90 per barrel, compared to $3.00 for Western firms.96

THE OIL INDUSTRY 25

Chapter Four

The Natural Gas Industry

Historically, natural gas has not been a major fuel in China, but it

offers a very attractive alternative to coal and could relieve reliance on imported oil. Gas currently accounts for less than 3 percent of total energy usage in China, compared to a world average of 24

percent and an Asia-wide average of 8.8 percent. Beijing is trying to boost

its production and consumption, but government officials complain that

the sector is hampered by the lack of an effective regulatory framework.97

Beijing’s goal for gas is 8 to 10 percent of the nation’s total energy consumption by 2020.98 This will involve an increase in domestic

production and imports, either by pipeline or in the form of liquefied

natural gas (LNG). LNG is natural gas that has been cooled to approximately 260 degrees Fahrenheit. LNG has a 610:1 volumetric advantage

over its natural state and is much easier to ship and store. The import

issue is complicated by the fact that in its natural form, gas can be piped

only a limited distance without being liquefied. Furthermore, for liquefaction to be economical, the gas deposit must be 3 to 5 tcm in size.99

Natural gas is being sought both from its own reserves and in the

form of liquefied natural gas from offshore and overseas sources. It is

cheaper than either coal or oil and will ease the nation’s reliance on those

fuels while protecting the environment—natural gas is a relatively cleanburning fuel. If the suspected large reserves of natural gas are discovered

in western and northwestern China, its use will ease reliance on foreign

sources of energy.100 Current estimates, however, project that by 2005, natural gas demands will exceed domestic supplies, and China will have to

import the fuel.101

Given Beijing’s domestic reserves and the environmental benefits

of using gas, China has embarked on a major expansion of its gas infrastructure. The largest onshore source of natural gas comes from the

27
Changqing Oilfield in the Ordos Basin, which extends through almost

400,000 square kilometers (km2

) of Shaanxi, Gansu, and Shanxi provinces,

as well as the Inner Mongolia and Ningxia Hui Autonomous Regions. Two

pipelines from this vast field—estimated to offer reserves of more than

one tcm—currently transport gas to 15 cities, including Beijing.102

Total gas reserves onshore are estimated at 38 tcm, with proved

reserves both on- and offshore of 2.56 tcm in 2000, a 58 percent increase

over 1990 estimated reserves.103 These are located in 69 different areas, the

largest reserves in western and northwestern China, with major maritime

sources in the East and northern South China Seas and in the Bohai.104

China would like to pursue what one observer has called the PanAsian Continental Oil Bridge, a network of oil and natural gas pipelines

stretching from the Middle East, Southwest and Central Asia, Russia, and

Southeast Asia to China.105 However, the high degree of international political cooperation necessary for such a hyper-project is not likely to prevail in the foreseeable future; some proposals envision a grid extending

from Southwest Asia to Japan, and from Indonesia to Russia.106

Even the western location of the major Chinese fields will require

vast investments in pipeline infrastructure to convey the natural gas to

eastern cities, which will remain the major market, despite Beijing’s continuing efforts to direct future economic development to western

provinces.107 China is planning to build a pipeline 4,200 km long from gas

deposits in western Xinjiang Province to Shanghai.

CNPC is seeking foreign investment in the project, with an estimated cost of $4.8 to $7 billion. ExxonMobil, BP, Shell, and the Russian

company Gazprom reportedly bid for a stake in the pipeline, which is

supposed to be in operation, with a transmission capacity of 12 bcm of

gas, by 2003 or 2004. BP withdrew from the bidding process, perhaps because of a “lack of confidence in adequate financial return.”108 Several

Japanese firms withdrew from the project for similar reasons.109

The contract has been awarded to a consortium composed of

PetroChina, Shell, and Gazprom, with the two foreign companies holding 45 percent of the project, estimated at $18 billion, which probably

includes development of the gasfields, construction of the pipeline, and

development of associated infrastructure, including marketing.110 Construction of the first section of the pipeline, 900 km in Shaanxi

Province, supposedly began in August 2002.111 Pipeline segments are

also reported under construction in Zhejiang Province.112 The Shell bid

reportedly also includes the opportunity to operate one of the major

28 “OIL FOR THE LAMPS OF CHINA”
fields, which would be a significant expansion of foreign involvement in

China’s energy infrastructure.113

The hope in Beijing is that these western fields will be able largely

to support all the needs of China’s eastern economy.114 The pipeline is

being touted under the three-part motto of “substitute oil with gas,” “generate electricity with gas,” and “city gasification.”115 At a more prosaic

level, the Shanghai city government is planning to allocate this natural gas

among electricity generation (50 percent), civil usage (40 percent), and

for chemical industrial products (10 percent).116

This ambitious pipeline project raises socio-political questions

similar to those associated with the mammoth Three Gorges Dam. Beijing

apparently believes that developing energy fields in the barren, economically disadvantaged northwestern provinces will enable their populations

to benefit from China’s growing economy. That theory may be undercut

by the historic fact that areas used as suppliers of raw materials rarely benefit significantly from having their wealth removed; more likely is that the

economic benefits from new energy fields in the northwest will accrue to

China’s economically modernized eastern provinces. This will do little 

either to better balance the nation’s wealth, or to relax significantly the 

uneasy socio-political-economic situation in Xinjiang and possibly other

economically disadvantaged provinces.

Another proposed project would link the Russian gas grid in

Siberia to China and possibly South Korea via a pipeline from Irkutsk. The

cost of the project has been estimated at $10 billion, and a feasibility study

is ongoing. Russian participation in pipeline construction in China will reportedly make Gazprom “Russia’s largest trade and economic establishment in the Chinese capital,” where it has opened a “permanent office.”117

Expansion of China’s gas infrastructure has the potential to create

huge opportunities for foreign investment, as partners are being sought

for both upstream and downstream gas projects. Enron and CNPC were

planning to link Chongqing to Wuhan in central China with a 470-mile

pipeline that would have an annual capacity of 3 bcm.118 This pipeline was

scheduled for completion in late 2002 but, despite Sichuan Province’s

large, proven gas reserves, is in jeopardy as the result of the collapse of the

Enron Corporation, which held a 45 percent share of the pipeline.119

Shell is undertaking a study on developing the infrastructure to

market production from the Changbei gasfield in the northwestern

province of Shanxi, following a contract with CNPC to develop the field

jointly, with estimated reserves of 2.5 tcf. BP Amoco’s decision to purchase

THE NATURAL GAS INDUSTRY 29
20 percent of the stock offered in the PetroChina IPO has been seen as

part of a larger strategic alliance with CNPC, which will likely lead in more

substantial BP Amoco investments in China. BP Amoco controls the

Kovykta gasfield in Siberia, the output of which could be exported to

China, through its interest in the Russian firm Sidanco.

Other major natural gas projects in the offing include a northwest

China to Shandong Province pipeline project,120 and a huge LNG project in

Guangdong. Imported LNG will be used primarily in coastal areas, and the

Guangdong project is scheduled for completion in 2005, with an eventual

capacity of 5 tcm per year; associated with this undertaking is construction of six 320-megawatt gas-fired power plants, and conversion of existing oil-fired plants with a capacity of 1.8 gigawatts to LNG. A feasibility

study of a similar project in Fujian is under way.121

The Guangdong project originally drew interest from companies

in Australia, Indonesia, Iran, Malaysia, Qatar, Russia, and Yemen, while investments in the gasfields in question have already been made by Dutch

Shell, French TotalFina, ExxonMobil, and Australia LNG. In April 2002,

Beijing narrowed the competition to companies from Australia, Indonesia,

and Qatar.122 China’s goal is to obtain 3 million tons of LNG annually by

2005, and 5 million tons by 2008, for the Guangdong operation.123

Australia was awarded this contract to supply 3 million tons of

LNG annually for 25 years to Guangdong Province.124 This $13.5 billion

arrangement will also allow CNOOC to “develop natural gas in Australia”

as partner in a joint venture with Australia Natural Gas.125

Coastal China also will benefit from offshore production increases, such as the Yacheng field, which began production in 1996 and

supplies 0.1 tcf per year for use in south China and Hong Kong. In January 2000, China granted preliminary approval to a project for an LNG regasification terminal at Shenzhen in Guangdong Province. Foreign firms

will hold only a minority stake in the project.

Forecasts of significantly increased availability of offshore LNG

assets are based on CNOOC determination to focus on natural gas as its

“core business,” as well as on three additional projects.126 The first of these

is a plan to convey 2.4 bcm of natural gas annually from two fields in the

northern South China Sea, Dongfang and Ledong, to Hainan Island.127

Second is the annual transfer of 400 million cubic meters from the

Bonan field in the Bohai to Shandong Province, while third is an ambitious plan to ship 3 to 4 bcm of natural gas from the Chunxiao and Xihu

fields in the East China Sea to Shanghai and Ningbo. This last project is

30 “OIL FOR THE LAMPS OF CHINA”
currently on hold, as the China companies in the proposed joint venture,

CNOOC and Sinopec, try to reach a satisfactory agreement with their foreign partners, Shell and Unocal.128 Shanghai, meanwhile, is pressing ahead

with plans for the extensive infrastructure that will be required to focus its

energy source on natural gas, infrastructure that will include the powergeneration industry.129

An interesting aspect of Beijing’s drive to increase natural gas

supplies is an apparent effort, akin to that being pursued with respect to

oil, to encourage its major energy companies to secure resources located

in foreign countries. CNOOC has signed agreements with Chevron and

Australia LNG to establish a joint venture to exploit fields in Western

Australia. The CNOOC goal is to arrange for the conveyance of liquid

natural gas to China from Australia’s Northwest Shelf Gas Project, which

involves BP, Shell, Chevron, and three other foreign companies.

CNOOC reportedly is also investigating investments in LNG resources in Iran, Malaysia, Qatar, Yemen, and Russia. A major investment

has also been made in Indonesia’s energy infrastructure.130 Most recently,

Beijing and Tehran signed a series of agreements that grant Sinopec the

right to explore for oil in a 4,700-km2 area south of Tehran, to upgrade

Chinese-built refineries in Iran, and to build an oil terminal port on the

Caspian Sea.131

Despite its drive to secure overseas supplies of oil, and significant

experimentation with alternative sources of energy, Beijing has chosen

natural gas as the future path to reducing dependence on coal, with its

environmental and economic disadvantages, and on oil, with its strategic

drawback of increasing reliance on foreign sources. Furthermore, locating

natural gas and developing the infrastructure necessary to take advantage

of it as an energy mainstay is emerging as a leading vehicle for foreign investment and opening of a core feature of China’s expanding economy.

THE NATURAL GAS INDUSTRY 31

Chapter Five

Other Energy Sources

China has the world’s fastest growing electric power industry,

although the Ministry of Electric Power estimates that about 15

to 20 percent of the country’s electrical demand is not being satisfied, with up to 100 million people still without access to electricity.

China’s 1995 electric generating capacity was estimated at about 190 gigawatts, about 75 percent of it produced from coal. Beijing has established a plan to increase the availability of electrical power, focusing on

establishing major channels in the southern, middle, and northern parts

of the country.132

Hydroelectric Power

China has the world’s most abundant hydroelectric generating

capacity, and it is a particularly important source of electric power in the

central and western regions. But the location of this potential relative to

markets and the environmental concerns associated with large projects

could limit hydropower’s contribution to China’s electric generation

needs. Nonetheless, the government seems intent on exploiting hydropower reserves “to obtain cheap, renewable, and clean energy.”133

The Three Gorges Dam project on the Yangtze River, launched in

1993, involves construction of the world’s largest hydropower project,

with its 26,750-megawatt (MW) generating units slated to provide a total

of 18.2 million kilowatt (kW) generating capacity by 2009, with an annual generation of 84.7 billion kW.134 In October 2002, the Three Gorges

Hydropower Station, announced as “the world’s largest,” was “formally

founded” in Hubei Province, with an announced operating date of October 2003.135 This project may cost as much as $25 billion, but even that

figure may lack meaning, given the corruption, social cost of displacing

over one million people and over 1,000 archeological sites, and unknown

33
environmental aftereffects.136 Additionally, this mammoth project’s construction better represents China’s inefficiency at distributing already

available energy than it does an absolute need for new sources.

Nuclear Power

Beijing began construction of its first nuclear power generating

plant in 1983, but 20 years later, nuclear power still represents a relatively

minor share of China’s electric generating capacity, with 6 plants currently in operation. Two are equipped with Canadian-built reactors (288

and 650 MW), at Qinshan at Hangzhou Bay in Zhejiang Province.137

A huge (1,812-MW) plant was also built at Daya Bay in Guangdong Province. Under construction are a second 650-MW unit at the

Qinshan plant and two 1,000-MW units at a new plant, Lingao, near Hong

Kong. The first two Qinshan reactors came on line in 1996 and 2002; the

third is expected to begin operating in 2003.138 Another large complex

under construction is the four-generator, billion-kW nuclear power station at Shenzhen. The first of these began operation in late 2001.139

The Tenth 5-Year Plan (2001–2005) includes the construction of

“some number” of nuclear power plants, with Shandong, Zhejiang, and

Guangdong provincial officials taking the lead in planning new plants.140

The government has not approved construction of a new nuclear power

plant for 5 years, however, indicating the marginal regard in Beijing for

this energy source.141

A senior nuclear power official has announced plans for 9 total

units, which will produce 8.7 gigawatts (GW) by 2005. By 2015, output

from nuclear plants is projected to increase ninefold over 1996 levels, accounting for about 4.5 percent of China’s electric power generation.142

Not addressed by this official, but reported in the press, is the nuclear

power industry’s difficulty in earning enough revenue to repay construction loans; about 90 percent of the money for the Qinshan project was

borrowed from Canada, the United States, and Japan.143

A new plant near Beijing reportedly incorporates state-of-the-art

“high-temperature air-cooled” technology. Its status as “one of the 15 key

projects of the ‘863’ state high technology research development program” indicates that it may be linked to the military sector.144

Chinese plans for increasing nuclear power generating capacity

usually mention Russian assistance, but the actual degree of collaboration is

uncertain. Although Moscow is providing various equipment for the construction of the Tianwan nuclear power plant, including manufacture and

34 “OIL FOR THE LAMPS OF CHINA”
installation of the first complete reactor, actual plant construction has not

matched the rhetoric.145 Overall, this is a modest plan, and Beijing is planning a limited role for nuclear power in satisfying China’s energy needs,

probably no more than 4 to 5 percent by 2020.146 One reason for this is the

lack of indigenous capability in nuclear power plant construction.147

Renewable Energy Sources

China’s renewable energy resources include biomass (garbage),

ethanol, geothermal, solar, and wind. Further development of these resources could reduce China’s growing dependence on imported oil and its

need for additional coal-fired power plants and provide sources of energy

for populations in remote areas not currently served by existing energy

distribution systems. None of these sources, however, should be expected

to make more than a slight dent in China’s energy needs.

Investment in development of wind energy resources is expanding, and the government has announced tax breaks for wind power generation producers. As of 1995, the country had 44 MW of wind power

generating capacity, of which 14 MW were installed in 1995 alone. Xinjiang Province, in northwestern China, has announced plans to add 66

wind power generators to an existing plant to create what would be the

largest wind power base in Asia. Fujian Province has announced plans to

build wind generation power plants with a capacity of 200,000 kW by

2005.148 Guangdong Province is also pursuing development of wind

power plants.149 The nation’s total wind generating capacity was approximately 375 MW in 2000, and could exceed 1 GW by 2010.150

Beijing is also investing in development of its geothermal energy

resources, with nearly 29 MW of generating capacity developed as of 1995

(up about 50 percent from 1990). As with wind energy, the market potential and resource base are significantly greater: an estimated 1,800 MW of

geothermal resources, with market potential of 600 MW.

China’s solar energy resources are assessed at 4 MW per square

meter, with market potential for solar energy estimated at 135 peak MW.

Biomass resources are assessed at 260 million tons of oil equivalent.151 International assistance for developing China’s renewable energy resources

includes support from the World Bank; since 1998, the bank’s Global Environmental Fund has been funding appraisal projects for photovoltaics

(conversion of light energy into electricity), wind, and biomass (conversion of refuse into electricity), as well as hydroelectricity. Finally, a program promoting ethanol-based fuel has been launched, both to benefit

OTHER ENERGY SOURCES 35
the environment and to improve the grain market for farmers.152 A threetest site program for processing landfill gas is also being funded by the

national government.153

36 “OIL FOR THE LAMPS OF CHINA”
Chapter Six

The Power Distribution

System

Building a national power grid is certainly the most ambitious—and

probably the most important—feature of the Tenth 5-Year Energy

Plan. Under the Ninth (1996–2000) Plan, China intended to add

approximately 16 GW of generating capacity annually (including about

3.5 GW per year of hydropower). The goal was to achieve 290 to 300 GW

of installed capacity by 2000. China also planned to expand its electric

power transmission system, link existing grids, and implement a unified

national power grid by 2020. Reportedly, over $18 billion was invested in

1999–2001 upgrading rural power grids.154

Beijing now has stated that it will commit over $43 billion to grid

construction over the span of the Tenth 5-Year Energy Plan (2001–2005),

while the National Electric Power Corporation (NEPC) is planning to

spend $72.5 billion on power distribution projects during that same period.155 Improving the supply of electricity to rural areas is particularly

important to the national government as part of the plan to improve economic conditions in economically disadvantaged regions.156

The national energy investment figures for the first half of 2002

indicate that the government is serious about modernizing the power

grid system, since that sector received the largest share of new investment

funds.157 This emphasis recognizes the current reality in China’s energy

sector: the nation suffers not from a shortage of electric power generating

capacity, but from an inadequate distribution grid for that power.

The issue facing the state is how to distribute the available supply

of electricity more efficiently, either by improving distribution or by increasing the overall supply of power. The first solution may be the most

efficient in economic terms, but the second course of action may more

quickly achieve the desired result. Beijing is compromising, pursuing both

grid improvement and supply increase.

37
This is truly a national scheme, with power plant construction

planned for the cities of Beijing, Tianjin, Tangshan, and Shanghai; for

Jiangsu, Zhejiang, Hebei, Hunan, Guizhou, Guangdong, Guangxi, Yunnan,

and Gansu Provinces; and for the Tibet, Qinghai, and Inner Mongolia

Autonomous Regions. Plans for Guangxi include an 8.6 billion yuan 

investment in four power plants, Gansu has received central government approval for four power projects, while the four hydropower plants

planned for Yunnan may eventually exceed the generating capacity of the

Three Gorges system. This would be yet another massive project in China’s

southwest, with the coming on line of the second of eight hydropower

plants planned for the Lancang (Mekong) River.158

One expert has concluded that China will need to spend about

$100 billion to turn its “very fragmented” power distribution system into a

linked, well-regulated system capable of providing even regional distribution of power throughout the country.159 As is the case with expansion of

petroleum sources, China is intent on attracting foreign investment to 

finance this cost. The government aims to “improve the investment environment for the power industry” as part of the effort to attract large-scale

foreign investment, with a goal of attracting 20 percent of the funding for

the electric power sector from foreign investment. This goal was formalized

in China’s first law governing electric power generation, which was enacted

in 1996. In its first project open to international bidding, China awarded a

build-operate-transfer project (the 720-MW coal-fired plant in Laibin,

Guangxi Province) to a consortium headed by France’s EDF. Bidding on a

second project (a 600-MW plant in Hunan province) is under way.

The Tenth 5-Year Plan continues to pursue this objective, with

the State Development Planning Commission submitting a plan in 

October 2002 for approval by the State Council. This proposal includes

creation of a National Power Regulatory Committee, two power grid

corporations, and five independent power generation groups, each with

responsibility for a specific region. These regional bodies will implement state power policy and oversee the trans-power market.

The State Power Corporation, which owns half of China’s installed electricity capacity and its entire transmission network, has been

broken up into five generating companies: the China Huaneng Group,

China Datang Group, China Huadian Group, China Guodian Group, and

China Power Investment Group. Two grid operators, the State Power Grid

and the China South Power Grid, will oversee the groups in north and

south China, respectively. The State Power Regulatory Commission will

38 “OIL FOR THE LAMPS OF CHINA”
oversee the new organizations.160 Beijing has also announced it will devote

$45 billion, 40 percent of the Tenth 5-Year Plan’s investment in power

projects, to expanding the nation’s power grid.161 Zhang Guobao, vice

minister in charge of the State Development Planning Commission, officially announced this new break-up strategy in Beijing’s Great Hall of the

People in December 2002.162

Production and distribution of energy will remain one of

China’s greatest challenges in coming years. Too many energy reserves

are far from consumption centers, and bottlenecks exist in transportation and electricity distribution. Additionally, industrial concerns produce significant amounts of electricity for which only limited statistics

are available. In energy-intensive process industries such as chemical and

steel production, refineries, and mining/minerals, plants typically generate their entire internal electric requirements and export excess electricity to the local community.

To meet its enormous appetite for electricity, China will need to

access some 20 GW of additional generating capacity each year for the

foreseeable future. China’s insufficient power availability is exacerbated

by underinvestment in transmission facilities. Inefficiencies and power

losses have also resulted from a mismatch of generating capacity and

transmission capacity, with the latter insufficient to service China’s burgeoning industrial and residential demands.

POWER DISTRIBUTION 39

Chapter Seven

The Environment and the

Energy Sector

China’s significant environmental problems are due largely to the

lack of modern technologies and remedial policies needed to update the infrastructure. Air quality is a major health concern. The

cities of northeastern China especially suffer from polluted air, but the

problem has accompanied industrial development throughout the country: 9 of the world’s 10 cities with the most polluted air are in China.163

Beijing announced the latest State Industry Technology Policy in

June 2002, which, in conjunction with the Tenth 5-Year Plan, establishes

as “major targets” the use of “clean energy technologies, as well as oil substitution.”164 Specific goals include reducing the power industry’s sulfur

dioxide emissions by up to 20 percent from 2000 levels, probably an unrealistically ambitious goal.165 The country’s environmental emission levels

can be significantly lowered, however, simply by taking advantage of existing technology.

The question remains whether the national and provincial governments are able to find the resources to fund and to convince the power

industry to make the changes necessary to meet this ambitious goal. The

scope of the problem may be indicated by a report that “Beijing residents

are expected to inhale 8,500 tons less of sulfur dioxide and 4,300 tons

less of soot this [2002–2003] winter” due to such improvements as coalburning boilers being “rebuilt.”166

Existing environmental problems already pose very serious challenges. The ever-increasing energy demands generated by rising living

standards and economic growth increase the urgency and scale of addressing the problem. The problem is being addressed, with the Special

Olympics planned for Shanghai in 2007 and the Olympics scheduled for

Beijing in 2008 serving as a spur.167

41
The SETC has announced a Green Project in support of the

Olympic Games, emphasizing increased use of solar energy, improved

water conservation, and greater reclamation of recyclable materials.168

The city is also planning to use geothermal energy in Olympic facilities.169 The scope of the city’s concern is also indicated by efforts to invigorate the Green Light Program, begun in 1996 to attempt to reduce

mercury contamination.170

The environmental consequences of continued heavy use of coal

raise important issues not just for China but also for global efforts tackling the problem of climate change. Beijing has announced a goal of reducing its annual consumption of coal from 27 million tons in 2000 to

less than 15 million tons in 2008. It has also set a goal of having “8,000

buses and 40,000 cabs . . . fueled by green energy” by 2007, which would

account for 90 percent of the former and 70 percent of the latter. The primary means of accomplishing this ambitious standard will be through

providing natural gas stations.

Other cities are following suit. A Shanghai official has claimed

that the city “has made it a long-term target to build itself into an ecological metropolis.”171 If the massive West-East Pipeline is constructed, Shanghai’s sulfur dioxide pollution might be reduced by 90 percent and the

current acid rain problem largely resolved.172 China is now the second

largest emitter of greenhouse gases in the world (after the United States),

while acid rain falls over 30 percent of China’s landmass. The World Bank

estimates these conditions to cause 178,000 premature deaths a year in

China and in 1995 to have been responsible for as much as $13.75 billion

in economic losses.173

As the world’s largest producer and consumer of coal, China

should be able to focus on managing and balancing the environmental

consequences of its dependence on coal as the major fuel of its economy.

Beneficial results are possible from instituting new technology and processing policies. These range from improved mining methods, which

would reduce methane emissions, to better management of water and

land resources.

For the present, however, the overwhelming dependence on coal

for fuel continues to affect the environment severely. Many of China’s

environmental problems resulting from dependence on coal can be attacked by implementing existing technology in both mining and using

coal. There is, however, strong competition in China for limited capital

to fund the widespread modernization of the economy. Hence, Beijing

42 “OIL FOR THE LAMPS OF CHINA”
faces difficult prioritization issues when allocating financial resources to

the implementation of new technology for producing energy: does it devote available capital to spreading the application of current technology,

or does it devote that capital to emerging technology, in an attempt to

“leap ahead” of current shortfalls?

The linkage between non-hydrocarbon energy sources and the

environment is illustrated in a report of “small, eco-friendly hydropower

stations” being constructed. A tiny hydropower station built in Tibet reportedly allowed a farm family to substitute electric heat for the 20 kilograms of wood burned daily. This in turn should slow the deforestation

process and thus preserve the habitat in which pandas flourish.174

Much progress has been made in China during the past quartercentury to lessen the severe environmental degradation that has accompanied the nation’s dramatic economic development. During the past 5

years, moreover, the national and, to a lesser extent, provincial governments have begun instituting policies to counter environmental problems.

Government action has been particularly and increasingly pressing in the case of fresh water, with $3.6 billion earmarked for improving

the water supply.175 Especially in northern China, historic shortages have

been exacerbated by drought, population increases, and economic development. The demand for water for personal and business uses has outstripped the supply. One analyst has claimed that China has just 8 percent

of the world’s fresh water supply to support 22 percent of the world’s

population.176 Water also has very serious implications for Asia’s international relationships, as China’s efforts to assure its own future inevitably

will clash with those of other regional nations.

Thirty million urban citizens were recently estimated to lack adequate fresh water, including those living in 400 of China’s 668 cities.177

Beijing’s response to this increasingly critical shortfall has been multifaceted, urging conservation on the part of consumers, proposing a nuclearpowered desalination plan, and, more meaningfully, launching a massive

project to divert water from southwestern China to the northern part of

the country. This project will link the Yangtze and Huaihe Rivers and the

Yellow River and Haihe valleys, forming a network of four horizontal and

three vertical waterways that allows a more productive allocation of the

country’s water resources nationwide.

This ambitious plan is designed to divert 3.8 trillion cubic meters

of river water a year, which equals the annual flow of the Yellow River. This

project was initiated in 2001, with worldwide public bidding invited for

THE ENVIRONMENT 43
specific phases. While details are lacking—indeed, planning is still under

way—the first and second of this plan’s three routes are scheduled to be

under construction by 2010. Total cost will probably exceed $50 billion.178

This water diversion scheme rivals the Three Gorges Dam project

as an engineering feat and will probably surpass it in political importance. First, there are bound to be domestic implications, as water resources are taken from one province and given to another. Second, the

nations of South and Southeast Asia have already begun registering their

concern about Beijing following diversion of the Yangtze River with attempts further to “harness” the other three great rivers with headwaters in

the same area.

The Mekong, Irrawady, and Indus Rivers are of the utmost importance to the economic and social existence of the nations lying downstream;

some of these have begun complaining that China’s riverine efforts have

already reduced the flow of water down river.179 In the meantime, Beijing

has promised to cooperate with the Mekong River Commission to ensure

equitable distribution of water, environmental preservation, and electrical

power sharing.180 It is providing hydrological data on the river’s upper

reaches and in June 2002 hosted the latest meeting of The Great Mekong

Subregion Cooperation group, which was organized in 1992. In addition

to China, Burma, Cambodia, Laos, Thailand, and Vietnam sent representatives, as did the Asian Development Bank.181

The quality and sufficiency of water for China’s continued economic growth is far more than an environmental question; it has a direct

influence on continued social coherence among that nation’s vast population, whose growing sense of nationalism and loyalty to the Beijing

regime depends in large part on continued economic growth at a personal as well as a societal level.

Implementation of new technology may be slowed by China’s desire to emphasize indigenous development. The continued rapid pace of

economic development and its deleterious environmental effects mitigate

against such an autarchic policy—the current state of air and water pollution and shortages means that Beijing must pursue solutions whatever

their origin, domestic or foreign. Beijing recognizes the need for economic

and technical cooperation between foreign and domestic organizations

but insists on doing so according to its own terms and schedule. Nonetheless, it is doubtful that any significant energy infrastructure project has

been launched during the past decade without very significant foreign involvement. One proposed project, the “main body of the Zhiganglaka

44 “OIL FOR THE LAMPS OF CHINA”
Hydropower Station on the upper Huang He,” will be “the first state-listed

power project exclusively funded by overseas investment,” by the American

AES Corporation and a Hong Kong company.182

The growing degree of foreign involvement in China’s energy sector increases Beijing’s concern with the global energy situation, expressed

at the November 2000 meeting of the Asia-Pacific Economic Cooperation

(APEC) group by Foreign Minister Tang Jiaxuan. Alternate sources of energy are being investigated, both for generating electricity and powering

vehicles; they include generating power from rubbish, straw, and marsh

gas processing; wind power; hydropower; hydrogen; and solar energy.183 A

primary concern is the degree to which alternate sources are less injurious

to the environment.

China seems determined to improve its record of conserving and

improving the environment. It must do so not only for the near-term objective of the 2008 Olympic Games but also for long-term economic and

social reasons. At a September 2000 APEC workshop on offshore energy

facilities and the environment conducted in Beijing, the Chinese representatives emphasized the importance of environmental protection along

the country’s very long (18,000 km) coastline and noted the revised body

of law on protecting the marine environment China has instituted.184

Beijing is advocating corrective policies and pushing the requisite 

programs, but the struggle to gain the effective support and cooperation

of Chinese society, especially its industrial sector, is far from won.

THE ENVIRONMENT 45

Chapter Eight

Energy in the Ninth and

Tenth 5-Year Plans 

Beijing, as part of the Ninth 5-Year Plan, aimed to increase total 

energy output approximately 9 percent by 2000. This plan’s success

involved the accomplishment of supporting programs. The first

was to improve energy efficiency by 5 percent annually, a goal requiring

significant technology improvements in 15 industries, including coal and

electric power industries, and improving the efficiency of the iron and

steel, nonferrous metal, chemical, building material, and transportation

industries. The second major objective of the Ninth 5-Year Plan was to

increase the conservation of resources, described as a “top priority” but

qualified by the equal priority given to “development.”

The plan’s focus in power development was on coal, oil, and gas

exploration but also emphasized developing new energy sources. Beijing

discussed at length the availability of electric power as a final result of

the plan. The goal in this vital sector was to increase capacity and generation by 7 percent annually, to reach 290 GW in generating capacity and

generate 1.4 trillion kW-hours annually by 2000. This in turn included

the simultaneous promotion of hydro and thermal sources; “appropriate” development of nuclear power; the development of power stations

near coal mines with a high-parametric, high-efficiency capacity of at

least 300 MW; and an emphasis on flue gas desulfurization and extrahigh voltage transmission technologies.185 Other new generation sources,

including wind, marine, and geothermal power, were to be developed.

In the critical area of coal production and utilization, the Ninth

5-Year Plan aimed to increase total output to 1.4 billion tons by 2000,

with the emphasis on stabilizing output in the east and developing mines

in Shanxi, Shaanxi, and Inner Mongolia. Other steps included the accelerated development of technology for cleaning coal and using high-quality

anthracite from Shanxi’s Jicheng as a base for chemical fertilizers.

47
For oil and natural gas, Beijing aimed by 2000 to boost proven reserves by 33 billion bbl of crude oil and 17.7 tcf of natural gas; to increase

crude oil output to 3.1 million bbl per day and refinery output to 4.5 million bbl day; and to increase natural gas production to 833 bcf. These increases were to lead to the conversion of 70 percent of urban households

to gas fuel.

The Ninth 5-Year Plan recognized that some output would have

to continue to come from overseas resources. The plan emphasized the

importance of geographic balance, the first element of which was called

the onshore principle, which meant stabilizing production in the east while

increasing production in the west. Oil and gas were to be exploited simultaneously and their scope of development expanded.

The second element of geographic balance was called the offshore

principle, which meant continuing to open and expand the scope of operations to exploit offshore gas and oil. The hope was for steadily increased

production, while also stepping up efforts to discover additional resources

and increase proven reserves.

Beijing hoped to maximize the use of natural gas from Hainan Island and from Xinjiang Province, increase the use of oilfield products for

large-scale nitrogenous fertilizer plants, and upgrade and expand refineries in Zhenhai, Maoming, and Fujian. Environmental concerns were addressed in the goals of ending production of leaded gasoline and adding

and improving pipelines and storage facilities.

How successful was this plan? According to the U.S. Department

of Energy, China’s energy situation in late 2000, based on annual consumption of 36 quadrillion btu (quads), included 887 billion kW of electricity generated (approximately 70 percent coal-fired); 0.7 tcf of natural

gas produced (representing about 2 percent of energy utilized); 3.6 million bbl of oil consumed daily (an increase of more than 80 percent since

1986); and coal consumption of 1.5 billion tons (fulfilling 75 percent of

the nation’s energy needs).

The oil sector has apparently led the field in identifying additional

resources during the Ninth 5-Year Plan. In 2001, Chinese companies

drilled more than 920 wells, with 48 percent located in the already-wellestablished Daqing and Shengli fields. Offshore production accounted for

about 10 percent of China’s total output, with about 60 new wells drilled

(60 percent by foreign oil firms).186

The Ninth 5-Year Energy Plan, then, while failing to achieve all of

its goals, marked a significant expansion of China’s energy sector, in

48 “OIL FOR THE LAMPS OF CHINA”
terms of both domestic and foreign sectors. Beijing was able to support

the continued economic growth it deems necessary to satisfy China’s people and maintain its hold on power.

The Tenth 5-Year Plan

China will be focusing on several areas in the Tenth 5-Year Energy Plan (2001–2005). Ensuring access to reliable energy resources that

are plentiful enough to support continued economic growth is vital. This

concern is being addressed by:

■ expanding acquisition of energy resources around the world, as well

as further developing sources in Chinese territory ashore and at sea.

The policy is susceptible to changing international developments,

including the downfall of tenuous governments. Even more problematic may be China’s dependence for over half of its imported oil

on Southwest Asia and the Middle East, areas of doubtful long-term

stability.

■ taking advantage of foreign capital and technology to discover and

exploit energy resources by adopting foreign policies amenable to

securing the resources, such as those in Central Asia. This strategy is

required for future expansion of the energy sector but also will constrain Beijing’s foreign policies in proportion to its reliance on foreign-controlled energy sources.187

■ conserving and reducing environmental pollution, which is inherently wasteful of energy resources. This program will have to be

more carefully and constructively managed than it has been in the

past if China is to reduce the pollution attendant upon economic

growth.

■ pushing Chinese industries to adopt energy-conserving technologies and urging development of high-tech industries that require

relatively little energy. Here, Beijing will have to continue relying on

technology of foreign origin to buttress indigenous efforts at privatization and modernization of the industrial sector. This dependence will influence China’s foreign policy choices.

■ establishing a national strategic oil reserve equal to at least one

month’s supply.188

These broad goals are based on the assumption that China’s dependence on foreign energy sources will continue to increase. The last step is a

product of concerns about a volatile world petroleum market, especially in

NINTH AND TENTH 5-YEAR PLANS 49
view of current uncertainties in the Middle East and Southwest Asia.189 The

plan also includes an ambitious concept for upgrading China’s petroleum

industry, namely to:

■ complete a network operational system in 3 to 5 years

■ raise the success rate of exploration by 3 percent

■ shorten the cycle of oil well drilling by one-third

■ raise the oil recovery rate by 2 to 3 percent

■ raise the proportion of oil and gas in the primary energy to 

over 3 percent

■ raise the contribution by science and technology to oil and gas exploration to 55 percent.190

These objectives must be considered within the national political

goal of better integrating China’s eastern and western regions. One facet of

this rubric for the energy sector is the West Electricity for East Program,

which was officially initiated in June 2002 when a 380-km, 500-kilovolt

power cable from Chongqing to Shanghai began transmitting power.191

Beijing thus will have to resolve, both for reasons of continued

economic well-being and domestic political tranquility, a national priority of working toward a stable international environment. This is especially true in East Asia, where the predominantly maritime character of

trade will increasingly determine the reliability of the energy supply central to China’s continued economic health and societal satisfaction.

Another international issue is Japan’s reliance on China as a

source of coal and petroleum. For 2001, this dependence will exceed 3 to

4 million tons of crude oil from China’s Daqing oilfield alone and more

than 7.5 million tons of coal for each of the next 3 years.192

U.S. Department of Energy projections based on a 4 to 5 percent

annual growth in energy demand for China (compared to about 1 percent growth in the world’s industrialized countries) indicate that this dependence will continue increasing for at least the next 15 years.193 This

report describes three key facts about China’s ability to provide its citizenry with energy products: fully one-fifth of China’s population is still

without electricity; energy production still suffers from very significant

shortfalls in domestic transportation—crucial in view of the great distances of significant energy sources from population centers; and Beijing

is still struggling to solve the problem of inadequate distribution of the

energy already produced.

50 “OIL FOR THE LAMPS OF CHINA”
China’s biggest challenge during the Tenth 5-Year Plan (and beyond) will be to diversify energy production from the current overwhelming dependence on coal. By 2015, the share of the non-coal sectors

will certainly increase but not by enough to offset the overwhelming dependence on the essentially dirty energy produced from coal. This dependence is actually expected to grow slightly to 77 percent of China’s overall

energy production by 2015.194

China is expanding the infrastructure needed to support the

steady, significant increase in energy resources required to sustain continued economic growth. Infrastructure shortcomings reflect energy resource problems not only with availability but also with distribution of

available supplies. Hence, China is expanding rail, riverine, and ocean facilities for moving petroleum products.195

Perhaps most telling for future efficient use of energy to support

economic growth and popular satisfaction is Beijing’s announced plan to

reorganize and expand China’s power distribution system, both to increase the efficiency of power utilization and to “create and safeguard a

sound market environment for fair competition.”196 Finally, Beijing is attempting to instill a sense of conservation in the exploitation and consumption of energy resources. This emphasis fits with policies to combat

the environmental degradation that so seriously affects all sectors of

Chinese industrial development. One government pronouncement declared “a lack of energy resources and the increasing environmental pollution have become important factors that reign in our economic and

social development.” 197

Future Oil Imports

China’s oil imports are increasing yearly, almost doubling during

2000 alone, with the majority coming from Middle Eastern countries and

Southwest Asia.198 During the first 9 months of 2001, for instance, Iran exported 63 million bbl of oil to China, more than any other nation. Saudi

Arabia and Oman were the second-leading exporters to China, each providing 44.1 million bbl.199 This trend will almost certainly continue, as

China’s population continues its nascent migration from rural to urban

areas, a classic factor in a great nation’s economic modernization.

China produced 50 percent more automobiles in 2002 than in

2001, but currently there are just 10 motor vehicles for every 1,000 Chinese citizens, while the comparable numbers are 30 for Egypt, 552 for

Japan, and 770 for the United States. This disparity indicates how far

NINTH AND TENTH 5-YEAR PLANS 51
China’s energy demands are likely to grow, as disposable income increases

and World Trade Organization (WTO) membership results in lower automobile prices for the huge population.200 Indeed, one observer has noted

that “per capita oil use in China is nearly 30 times less than that of the

United States”201 and “from 1978 to 1995, the number of passenger vehicles

per thousand people increased nearly 1,000 percent.” Hence, he offers the

“possibility of up to 250 million cars in China” by 2050, a particularly

striking figure as an indicator of possible future energy demand in the 

nation in light of the fact that there were only 700 million cars worldwide in 1999.202 The potential for China to become the “number one car

market in the world” contributed to the government establishing the 

National Clean Automobile Taskforce in 1999, which recently announced

a $120 million project to develop “environmentally friendlier motor vehicles by 2004.”203

Chinese officials are concerned about this growing reliance on

foreign sources of the energy crucial to China’s continued economic

health, especially in view of the recent but prolonged increase in the price

of crude oil.204 Nonetheless, China continues to rely on foreign capital,

technology, and know-how to recover domestic energy resources, cooperating with more than 50 foreign companies to exploit just the offshore oil

sector since 1979.205

The government apparently has decided on a multilevel approach

to ensuring adequate fuel supplies. First is expanded domestic production, including both exploring for new energy fields ashore and at sea,

and usually with foreign participation. CNOOC, for instance, has announced its consortium with U.S.-based Phillips Petroleum to invest in

large-scale offshore oil exploration during the next 5 years.206

Second is a program for increasing the effectiveness of the process

for turning the raw product to usable energy, including tight control of refineries.207 Third, Beijing is signing contracts with a wide range of countries that will export oil to China. Fourth is the drive to gain exploration

rights and production control over energy fields in foreign nations.

Fifth, Beijing is creating an energy reserve to provide a ready

source of emergency resources and also “to avoid massive economic losses

resulting from fluctuations on the international market.” This last program includes steps to control the rate of increase in fuel consumption,

specifically by “ensuring the stable growth of domestic crude oil production, accelerating the development and use of natural gas, and promoting

the restructuring and technical upgrading of the petrochemical

52 “OIL FOR THE LAMPS OF CHINA”
industry.”208 Instability in the Middle East209 in part drives the creation of a

national energy stockpile, which may be as large as 4 million cubic meters

valued at $10 billion.210

The idea of a strategic petroleum reserve has gained urgency

since the September 11 terrorist attacks in the United States: a senior State

Council economist has noted that American military campaigns in

Afghanistan and possible campaigns in Southwest Asia “will greatly affect

China’s oil strategy in the Middle East and Central Asian countries.”211

This program aims to reduce possible energy shocks by establishing an oil

stockpile equivalent to at least 3 months’ national supply.212

In an August 2001 statement, the State Economic and Trade

Commission announced that China would establish a “state strategic oil

stockpile . . . by 2005” as a buffer against “the volatile oil market.” The

plan reportedly calls for a 30-day supply of fuel oil and would cost more

than $2.5 billion.213 This program has also been endorsed by the State 

Development Planning Commission, PetroChina, and, interestingly, by

the U.S. Department of Energy.214

China is also considering reestablishing a market in oil futures

open to public investors, although this will likely not occur until 2005. 215

Two factors are probably causing the government to hesitate: WTO membership, which may enhance the desirability of a futures market, and the

possibility that a futures exchange will require the government to change

the way it currently manages and controls the oil market.216

The government has ruled that foreign companies are not limited

in the number of shares they can buy in businesses connected directly to

the proposed West-East Pipeline. Beijing allows foreign companies to invest even to the point of purchasing controlling shares in pipelines. This

policy represents China’s decision, at least in the energy sector, of allowing foreign control over major parts of the energy infrastructure on

which the nation depends.217

The government also intends to continue controlling the import

of refined petroleum products, trying to strike a balance between reliance

on foreign sources and the health of the domestic economy.218 This balance will be difficult to achieve, given Beijing’s apparent decision to end

the national oil monopoly by floating major companies, such as Sinopec.

A further complication is that foreign oil companies can compete in the

retail market, especially in refined oil products and the operation of automobile service stations.219

NINTH AND TENTH 5-YEAR PLANS 53
In fact, this sector of the energy economy has broader social and

economic implications, since Beijing reportedly is trying to “rectify the

gas station market” by closing illegal stations and forcing others into

semi-monopolies controlled by PetroChina and Sinopec, which currently

operate about half of the national total.220 The government is urging these

companies to form cooperative operations with Shell, Exxon, Mobil, and

other multinational oil companies. British Petroleum and PetroChina

have already announced such an agreement.221 The prospect of rural 

drivers buying fuel from foreign stations apparently is palatable to 

Beijing, although it would no doubt be anathema to earlier generations 

of CCP leaders.

Entry into the WTO also raises many concerns for Beijing. At a

November 2001 International Symposium on the Fuel Oil Market in

Guangzhou, government officials emphasized that WTO entry “would

inevitably bring heavy blows to” China’s oil industry.222 While Chinese

energy industry analysts do not universally support this judgment, it has

introduced an element of uncertainty into public and private sector 

attempts to develop the nation’s energy infrastructure. Further, Beijing

will have to tread a fine line between meeting WTO requirements and

fostering the expansion of the energy sector required for continued 

national economic growth.

One step being taken is a significant reduction of the tariff on

imported refined oil from the current 69 percent to 6 percent.223 Import

quotas for petroleum products have also been increased by 15 percent, in

accordance with WTO conditions.224 According to one writer, foreign oil

giants “are scrambling to get their foot in the door [with] visions of a gas

station on every corner in a country with 1.2 billion potential consumers.”225 It also hopes that WTO membership will provide avenues for

influencing the price of petroleum.226

Beijing seems determined to participate fully in the WTO regime

to maximize benefits to the economy, including the energy sector. In

other words, as China drives to optimize the availability and efficiency of

the resources it needs to fuel its energy industry and hence its economy, it

is casting its net of programs widely and imaginatively.

Beijing aims to exploit foreign petroleum sources while avoiding

reliance on foreign production. Instead of merely importing crude or refined petroleum from other countries, Beijing is pursuing agreements to

obtain exploration and production rights for likely petroleum fields located in foreign states.227

54 “OIL FOR THE LAMPS OF CHINA”
China’s desire to diversify its energy resources is indisputable.

Beijing would like to expand significantly the role natural gas plays as an

energy source and is investigating non-hydrocarbon energy sources, but it

is having difficulty achieving a near-term, significant reduction coal consumption. Importantly, no clear sense of prioritization emerges from the

plethora of initiatives, plans, and declarations emanating from Beijing.

This apparent lack of prioritization applies across the board, with massive

pipeline projects probably competing with other huge infrastructure projects, such as the Three Gorges Dam system or the plan to divert water

from southwestern to northeastern China.

NINTH AND TENTH 5-YEAR PLANS 55

Chapter Nine

Defense of the Energy Sector

China’s future political stability and national coherence depend in

no small part on continued economic growth fueled by readily

available, affordable energy supplies from both domestic and foreign sources. The People’s Liberation Army (PLA) is deeply involved in

the energy sector at two levels. First, the military frequently is tasked with

participating in the modernization and expansion of China’s energy infrastructure. The 2002 Defense White Paper issued by Beijing notes PLA

participation in “the construction of nine energy facilities such as

pipelines, natural gas fields and oil-and-gas fields; the construction of

seven hydropower stations and nineteen trunk diversion channels [and

for] the protection and construction of the ecological environment.”228

The second level of PLA involvement relates to the question of

possible threats to domestic sources. The White Paper notes that the military is responsible for “maintaining and promoting social stability and

harmony,” to include “cracking down on all criminal activities that

threaten public order.”229 Beijing typically classifies as “threats to public

order” incidents of labor unrest and other similar activities, which means

that the People’s Armed Police (PAP) and the PLA are primary instruments of government control as the energy infrastructure undergoes the

sometimes traumatic effects of privatization and modernization. The

military is especially concerned, of course, about possibly violent threats

to power sources and pipelines.

The advent of the Three Gorges Dam project has drawn the attention of China’s national security analysts. PLA planners supposedly have

discounted for the immediate future the possibility of air raids on this massive installation because of its location in the middle of the country, China’s

nuclear deterrent, and the nation’s air defense system.230 Despite those

57
reports, the People’s Liberation Army Air Force must consider how to 

defend such an important piece of the national infrastructure.

Uighur separatists and other non-Han groups in China have long

been a low-level but nonetheless bothersome factor in maintaining domestic tranquility. Most serious has been unrest in Xinjiang, the potentially energy-rich western province subject to transnational Islamic movements.

Separatist threats have been highlighted since the events of September 11.

The war on terrorism proclaimed by Washington has, de facto, focused on

Islamist groups, a factor that probably provides the primary motivation for

Beijing to join the United States in this struggle.

Categorizing such groups as terrorist legitimizes oppression and

persecution that hitherto would have drawn condemnation from the

United States and other Western nations. When the Deputy Secretary of

State, Richard Armitage, visited China in August 2002, he supported

classification of the Uighur group Eastern Turkestan Islamic Movement

(ETIM) by the United Nations as a terrorist organization, much to 

Beijing’s satisfaction.231

Some steps have been taken to protect domestic energy facilities

against organized attack, although defensive measures appear limited to

those by local police and PAP units and those attendant to routine defense plans of Military Region staffs. For instance, in mid-2001, the State

Council promulgated revised Regulations for Protecting Oil and Natural

Gas Pipelines, a measure intended to defend against “seizing, sabotaging,

stealing, and looting pipelines and facilities.”232 In one recent case, “a

gang” stealing power cables to sell for profit was prosecuted.233

More serious events affecting the production of domestic energy

supplies have resulted from labor unrest, primarily in the Daqing petroleum complex, which began producing in 1960 and has long been China’s

most productive field. Reorganization of the Daqing operation, site of

China’s largest and most productive oilfield, reportedly has resulted in the

loss of approximately 80,000 jobs.

One source has estimated that the unemployment rate in the rust

belt provinces may be as high as 25 percent, which has contributed to

“workers rioting over job losses . . . challenging the police and demanding

social security benefits.”234 As a result, up to 50,000 laid-off workers and

their families demonstrated throughout March and April 2002.235 As

many as “several hundred thousand workers from the Daqing Oilfield”

may have participated in various demonstrations.236

58 “OIL FOR THE LAMPS OF CHINA”
The economic problems in China’s northeastern rust belt

provinces have been exacerbated by the government’s determination to

overhaul inefficient SOEs. It has involved the displacement of long-term

workers, often without the compensation promised during their employment. Local police, PAP, and regular PLA troops were all used to counter

resulting labor demonstrations during 2001 and 2002 that frequently involved violence by both sides.

Similar incidents have occurred elsewhere in China’s vast energy

infrastructure.237 Reports are sketchy, given Beijing’s understandable sensitivity to such unrest, but a particularly violent conflict was reported in

Shanxi Province, where 2,000 coal miners at Datong went on strike.238

Other major incidents have been reported, one involving 20,000 miners

in Laioning Province, and a second involving thousands in Guizhou

Province. Indeed, one knowledgeable Western correspondent believes that

incidents of large-scale civil unrest occur almost daily in China, with the

oil industry particularly susceptible as a result of information exchanges

established between workers from different and widely spread fields.239

The privatization of SOEs, among which the energy sector has

been prominent, exemplifies one of the most difficult aspects of modernizing China’s economy: the need to maintain societal peace by providing a

hitherto absent social safety net. Ironically, the transformation of the

economy from communism to capitalism has required China’s leadership

to address at the most basic level the societal inequality that has historically precipitated revolutionary developments in industrializing societies.

At the beginning of the 16th Party Congress in November 2002,

President Jiang Zemin included in his eight national priorities the need to

“deepen the reform of the income distribution system and improve the

social security system,” and to “do everything possible to create more jobs

and improve the people’s lives.” He also said that “developing socialist

democracy and establishing a socialist political civilization are an important goal for building a well-off society in an all-round way, and that...

China must go on steadily and surely with political restructuring, extend

socialist democracy and improve the socialist legal system.”240 In other

words, economic modernization was intimately linked to popular support, a link noticeably problematical in at least one major part of the energy infrastructure.

The PLA is also tied to the nation’s hunger for non-domestic

energy resources in other ways. The demand for reliable petroleum supplies remains as acute for world powers today as it did a century ago,

DEFENSE OF THE ENERGY SECTOR 59
but with some important differences. Although China has been a net

energy importer for a decade, the country retains more than adequate

supplies to meet all conceivable PLA missions to defend Chinese vital

national security interests.

An interesting comparison may be drawn between present-day

China and Great Britain just a century ago, a world power completely dependent on imports for petroleum. This dependence led Britain into imperialist ventures to secure such resources, notably in Mesopotamia (now

Iraq) and Central Asia (especially the Baku area, now Azerbaijan). Ironically, these two petroleum-rich regions remain at the apex of international intrigue and potential warfare a century later.

First, the international political situation at the beginning of the

20th century focused on conflict between nation-states in competition

for prospective provinces and colonies. Trade was ascendant and linked

directly to a nation’s military—primarily naval—might. The economic

balance is certainly a vital part of international relations in East Asia

today, but the globalization phenomena currently on the rise has greatly

reduced the emphasis on military, especially naval, power as a necessary

ingredient in that process. This is also due to the historically unique position of the United States as the world’s dominant military power, with

a navy that effectively performs traditional maritime missions, such as

SLOC protection, for all Asian nations.241

Second, a naval race was a primary feature of the deteriorating

relationships among European powers, the United States, and Japan, with

even China deploying a small but modern battleship navy. Currently,

naval force is important in Asia’s maritime environment but is a tool

rather than the focus of international competition; nothing like the early

20th-century Anglo-German naval race is taking place. Potential conflicts

in East Asia do not focus on territorial colonization, although there are

more than 30 territorial disputes in the region, ranging from minor maritime border disputes to the far more serious question of Taiwan’s relationship with China.

Beijing has signed border agreements or negotiating regimes with

all 14 nations that share its borders, but it still has sovereignty disputes

with Japan (over the Daiyutaos [Senkaku Islands to Tokyo]), India,

Vietnam, Malaysia, Brunei, the Philippines, and Indonesia over the various

land formations and ocean area of the South China Sea. China’s attitude

toward these sovereignty disputes has for the most part—certainly since

early 1996—been moderate; although not conceding any of its claims,

60 “OIL FOR THE LAMPS OF CHINA”
Beijing has sought to establish bilateral and multilateral agreements to

contain these disagreements.242

Third, national militaries at the dawn of the last century were

launching dramatic technological advances that would contribute to a

revolution in military affairs (RMA). This would include the development of turbine-driven warships, submarines, aircraft, and armored vehicles, all energy-intensive. An RMA may also be occurring at the dawn of

the current century. If so, it is one that will be based on information

rather than energy. China’s interest in securing energy supplies springs

from economic rather than military motivation.

The PLA thus can count on China’s indigenous petroleum supplies to fuel its platforms; another resource for the PLAN is nuclear

power, already used in six of its submarines.

Other PLA missions remain that affect China’s energy needs in

the category of national security rather than naval necessity. These missions include, before all others, the requirement to pacify and safeguard

civil peace in contentious, potentially resource-rich provinces in the west

and northwest. Xinjiang is the most troublesome, but Beijing will likely

categorize all non-Han groups (including Tibetans and Muslims residing

elsewhere in China) as terrorist, as it has with the ETIM, should members

of these groups be perceived as threatening public order. The concern for

domestic peace, although in theory primarily dealt with by civilian police

and PAP forces, depends in the final analysis on the PLA.

Controlling the ethnic minorities is eased by the fact that they

compose, in total, no more than 10 percent of China’s vast population, but

it is complicated by the fact that many of these groups reside in border

areas that historically have been troublesome, such as Xinjiang with the 

Islamic Central Asian republics, Tibet with India, and Mongolia with Russia.

Hence, ethnic irredentist or independence movements are almost certain to

involve groups in neighboring nations and trans-border power projection.

Beijing will no doubt attempt to enlist third-party, surrogate, or international organizations in any campaign to maintain its claimed territory.

Recent examples include, first, the aforementioned agreement

with the United States (and the UN) about the ETIM. The second example is Beijing’s efforts to establish a Central Asian security organization as

part of the Shanghai Cooperative Organization (SCO). This group was

nominally targeted on improving economic relations among its members

but more importantly, from Beijing’s view, on resolving border disputes,

strengthening borders, and establishing international controls over actual

DEFENSE OF THE ENERGY SECTOR 61
and potential cross-border political and religious movements. Since becoming the SCO in 2000 when Uzbekistan joined, and especially since

September 11, the group has increasingly focused on security issues,

specifically “cooperation against terrorism, separatism and extremism.”243

Cross-border cooperation between national militaries has steadily 

increased, to include recent military exercises among Chinese and Kyrgyz,

and Chinese and Russian, forces.244 After signing border resolution agreements with all SCO members, Beijing wants further to strengthen the organization, but has met with limited success. The organization announced in November 2002 that an antiterrorism center would be

established in Bishkek, Kyrgyzstan, with a secretariat in Beijing.245

Furthermore, it must have been very sobering to see the United

States, immediately after the events of September 2001, so quickly and apparently effortlessly establish a strong diplomatic and military presence in

the very Central Asian region the SCO was designed to control for China.

Despite Washington’s claims about its antiterrorism focus, there is an undercurrent of suspicion in Beijing that the American presence in Central

Asia will not soon end.246

Nonetheless, the SCO represents Beijing’s most significant effort

at multilateralism and delineates the theater most likely to demand PLA

missions in the realm of protecting energy resources. Should Uighur separatists expand their terrorist actions, Xinjiang’s energy resource infrastructure, including the Tarim Basin fields, might be a likely target.

A presumably more vulnerable target would be the pipeline system Beijing is currently constructing. More than a half-dozen major

pipeline projects are built, under construction, or in the planning stage.247

These fall into two broad categories. The first type is intended to facilitate

the distribution of oil and natural gas within China, primarily bringing

oil and natural gas from western and northern sources across the country

to Shanghai and the rest of economically expanding eastern China. The

national plan includes three vertical trunk lines, from Russia, from

China’s northwest, and the Zhongwu line.248 The most notable of these

trunk lines completed to date is the 775-mile-long line from Lanzhou to

Chungqing, built at a reported cost of $500 million.249 Pipeline security

concerns are being addressed by Beijing; the West-East Pipeline’s origin in

Xinjiang makes it vulnerable to Uighur separatist attention; one CCP official has stated that “The pipeline is going underground to escape both the

extreme climate and its potential as a target for terrorist attack.”250

62 “OIL FOR THE LAMPS OF CHINA”
The second category aims to access foreign energy resources,

most immediately those in Russia and Kazakhstan. Other Central and

even Southwest Asian sources, including Turkmenistan, may be targeted.

As demonstrated by T.E. Lawrence in the Middle East during World War I

and currently by the Ejército de Liberación Nacional in Colombia,

pipelines are difficult to protect.

Another concern is the possibility of petroleum imports being

halted by attacks at sea during the long transit from Southeast Asia,

Southwest Asia, the Middle East, or other foreign sources. The SLOCs are

most vulnerable not on the high seas, but at transit points through narrow straits, including Hormuz, the 9-Degree Channel, Malacca, Luzon,

and Taiwan. The U.S. Navy will protect these SLOCs for the foreseeable

future, but a Sino-American crisis (over Taiwan for instance) might drive

Beijing to decide that the PLAN had to be capable of defending these

SLOCs. The way for China to preclude this eventuality is to resolve Taiwan’s status peacefully and to develop continental pipelines as the primary avenue for accessing foreign oil sources. Failing that, Beijing would

have to make a major change in national budgeting priorities to build a

navy and air force capable of protecting the extended SLOCs that carry

much of China’s imported oil and natural gas. This is not likely to happen, for several reasons.

First, Beijing retains national priorities that fall under the rubric

of “rich country, strong army.” That is, developing China’s economy and

ensuring the welfare of its people will remain the top priority of the national government and the CCP. Second, while the Taiwan issue remains

the most sensitive one between Beijing and Washington, the present economic and political situation on the island, U.S. and Chinese interest in

keeping the issue within peaceful bounds, and the common interest in the

campaign against terrorism all mitigate against the reunification issue deteriorating to the point of hostilities. Hence, Sino-American relations

should remain essentially peaceful, if frequently contentious. Third, there

is little indication that the Chinese military’s strategic paradigm is going

to change significantly in the near future. The PLA remains dominated by

the army, with the navy only as strong as specific maritime-associated national interests justify.

The Chinese navy currently includes fewer than 20 warships capable of operating in even a limited early 21st-century naval environment.

And these ships—2 Sovremenny-class, 1 Luhai-class, and 2 Luhu-class

guided-missile destroyers (DDGs), and approximately 12 Jiangwei-class

DEFENSE OF THE ENERGY SECTOR 63
guided-missile frigates—are armed with very limited antiair warfare

weapons systems. Another 40 or so surface combatants are armed with

antisurface ship cruise missiles and, in a non-air threat environment,

could perform SLOC defense duties in Chinese littoral waters. The PLAN

ability to deploy is further limited by the presence of only three replenishment-at-sea ships in the fleet.

The navy’s real strength lies in its numerous, modernizing submarine force. The five nuclear-powered Han-class attack submarines are capable of extended deployments but are noisy and difficult to maintain.

China’s most modern submarines, four Kilo-class and three Song-class 

conventionally powered attack boats, are not well suited for long-range deployments (to the Indian Ocean, for example) but are formidable weapons

systems within about 1,000 miles of China’s coast. Beijing continues to

build Songs and buy Kilos from Russia; as these boats become operational,

the 30 or 40 older Ming- and Romeo-class boats will be decommissioned.251

Since 1983, the PLAN has periodically deployed two- or three-ship

task forces on diplomatic missions to Southeast, South, and Southwest Asia

and to the Western Hemisphere. In 2002, a Luhu-class DDG and an oiler

completed a circumnavigation of the globe, a significant accomplishment.252

Hence, PLAN is capable of defending littoral SLOCs (those

lying no more than 200 nautical miles [nm] from China’s coast). Even

that capability must be qualified, however, given the proven difficulty of

defending surface ships against submarine attack.253 Defense of China’s

economic offshore infrastructure is a prominent concern of naval

thinking. The South China Sea would become an area of primary PLAN

operations should significant energy resources be discovered in waters

claimed by Beijing in that sea. PLAN forces have regularly deployed to

the Paracel Islands since the early 1970s and to the Spratly Islands since

the early 1980s.254 A Chinese military presence has been established on

more than a half-dozen of the islands.

The current maritime strategy is one of offshore defense, meaning that the PLAN will strive to “maintain control over the maritime

traffic in the coastal waters of the mainland” and the resources in those

waters.255 Defining this area of capability is not easy, but perhaps the

most reliable approach is to look at specific missions and sea lines. This

approach yields formidable ocean areas for the PLAN to defend: all of

the South China Sea, the western half of the East China Sea, the waters

extending from the Chinese coast to at least 100 nm east of Taiwan along

a line from the Philippines to Japan, and all of the Yellow Sea.

64 “OIL FOR THE LAMPS OF CHINA”
The next step in this concern is more distant SLOCs, ranging

from the Malacca Strait between the South China Sea and the Indian

Ocean, and the Hormuz Strait from that ocean into the Persian Gulf. Assuming a continued constructive relationship with the nations of Southeast Asia, China should not have to be concerned with commanding the

seas of the narrow Malacca Strait, and the Strait of Hormuz is so far from

China that deploying PLAN units to defend it would be impractical (except possibly as part of a multinational force).

A multinational effort is under way to combat the colossal rise in

the number of pirate attacks in Southeast Asian waters, attacks that cause

an estimated annual loss of $25 billion. China is not playing an active

role in the antipiracy center established in Kuala Lumpur by the Association of Southeast Asian Nations (ASEAN), with participation by Japan

and India.256

As for the vast Indian Ocean distances between the two straits,

China faces a wary India with a formidable navy of its own. Beijing’s close

relationship with Pakistan is marked by significant military assistance to a

navy that also is able to count on French submarines and other foreign

assistance. Pakistan’s force of seven modern, conventionally powered submarines is augmented by eight frigates—none of them new but most

armed with guided missiles—and two replenishment-at-sea oilers.

China is also helping Pakistan build a deepwater port at Gwadar,

nominally for commercial traffic.257 But Islamabad has consistently come

out second-best in wars with New Delhi, and the advent of the two nations

as nuclear powers casts future contests in a different light, especially as

India’s only way of effectively threatening China is with its nuclear arsenal.

Beijing has begun to establish a military presence in the Indian

Ocean and hopes its close relationship with Islamabad will allow it to

count on the Pakistani navy in a regional maritime contest. China also

has established a strategic economic and military relationship with

Burma/Myanmar, the latter by providing advisors and material assistance.

The Chinese military and contractor personnel in that country—involved

in projects ranging from road-building in the far north to manning listening stations in the Andaman Sea—represent the first Chinese military

presence on foreign soil since the Vietnam War.258

Several factors motivate Beijing’s policy in Burma. First is concern for their common border, historically one rife with drug traffickers

and other smugglers, and at one time a refuge for former Nationalist

soldiers. Second is the desire to counter Indian influence in the 

DEFENSE OF THE ENERGY SECTOR 65
region—important because of its location between the subcontinent

and Southeast Asia, an area to which Beijing is devoting increasing political and economic resources.

Third is concern for the Indian Ocean SLOCs on which China

depends for so much of its energy imports. At the same time, India is

trying to establish a stronger political and naval presence east of

Malacca, evidenced in New Delhi’s increased attention to ASEAN and

the 2001 deployments by the Indian Navy to East Asia, from Singapore

to Japan.259 These events, combined with Indian naval strength in the 

Indian Ocean, pose a classic problem in maritime strategy for Beijing:

its most important source of petroleum imports, the Persian Gulf area,

lies at the end of very long SLOCs that are dominated by the navy of a

potential enemy.

The Indian Navy continues to modernize and expand. It currently includes an aircraft carrier and at least 17 conventionally powered

submarines, with several newer models under construction. The navy

surface force centers around 8 DDGs, perhaps 15 older destroyers and

frigates, and 3 replenishment-at-sea ships. More importantly, India has

funded an ambitious plan to modernize its navy, from new aircraft carriers to submarines.260

The naval picture of the Indian Ocean, apart from the usual American presence of one or two aircraft carrier battlegroups, is dominated by

an Indian force much stronger than its Pakistani opponent. The PLAN is

stronger than either, but it is severely limited by the distances involved.

How will China address the problem of Indian Ocean SLOCs?

Beijing apparently has decided not to build a navy capable of patrolling

these long SLOCs to the Middle East. Instead, Beijing seems to be concentrating on forming supportive relationships with the nations bordering

those routes, from the Philippines to Saudi Arabia. Beijing’s concern for

the security of its overseas energy supplies need not dominate its national

security policy process. Rather, the most important aspects of energy security are economic and political, not military.

Given China’s aforementioned significant draw on Middle EasternSouthwest Asian oil, a prolonged war in that region might well seriously

disrupt the outflow of petroleum products. To forestall or ameliorate that

eventuality, Beijing is engaging in diplomatic activity both to signal its interest in the welfare of the Arab states and to offer mediation services in the

Israeli-Palestinian conflict.261 This activity backs up and possibly extends

Beijing’s activities with petroleum companies in the region, including

66 “OIL FOR THE LAMPS OF CHINA”
investments or extraction activities in Iran, Iraq, Kuwait, Saudi Arabia,

Egypt, Sudan, and Somalia.

The maritime oil flow to China would be subject to unrest in

Southeast Asia but almost certainly would not be seriously affected. For

one thing, the political situation in that region is so fractured as to make

effective international action against freedom of navigation extremely 

unlikely. For another, even if the Malacca Strait–South China Sea route

was interrupted, oil could be shipped via alternate routes at an acceptable

increase in cost.262

DEFENSE OF THE ENERGY SECTOR 67

Chapter Ten

Conclusion

Almost all observers forecast that China’s economy will continue to

grow, a process that will require annual energy increases of 4 to 5

percent through 2020 (compared with growth of about 1 percent in

the industrialized countries).263 China currently both consumes and produces about 10 percent of the world’s energy.264

China will increasingly be a net energy importer, although the

nation will remain a net exporter of coal through the forecast period.

Coal will remain China’s primary fuel for generating electricity; hydroelectricity, natural gas, and nuclear energy will become more important,

while the oil sector will decline, losing at least half its share.

The natural gas share of total energy production is expected to

double by 2020 as China begins to take greater advantage of its large domestic reserves. Beijing has vowed to cut pollution by “increasing the proportion of gas and electricity in energy consumption [by] 75 percent in

2005, and 83 percent in 2010.”265 The nuclear share of power generation

may quadruple but will still form just 1.6 percent of production, while

the hydroelectric share is expected to increase by a third, as the petroleum

share falls.

China’s total energy production, 29.4 quads in 1990, had increased to 34.9 quads by 2000. By comparison, the United States produced approximately 70.9 quads of energy in 1990 and 99 quads in 2000.

By 2015, China’s overall energy production is expected to exceed 70

quads, of which approximately three-fourths will come from coal.

On the other side of the ledger, China consumed 27 quads of energy in 1990, representing about 9 percent of world energy consumption. Of this amount, coal accounted for approximately 73 percent and

petroleum another 20 percent. U.S. consumption in 1990 was more than

84 quads; by 2000, that number had risen to almost 99 quads.

69
The industrial sector typically consumes approximately 75 percent

of China’s energy annually. Continuing increases in industrial energy efficiency are expected from such measures as installation of more efficient

boilers, but industry is also likely to become more electricity-intensive as it

phases out direct fuel burning. The transportation sector, by contrast,

accounts for only about 7 percent of China’s energy consumption. This

amount will likely increase rapidly, however, as private automobile ownership increases.

China’s electricity demand more than doubled between 1986

and 1995 and is expected to triple between 1995 and 2020. Production of

electricity is forecast to match this figure.266 Since only 80 percent of Chinese citizens are connected to an electrical grid (quite low compared to

most industrialized nations), the residential/commercial sector should

experience the most rapid growth in electricity demand, driven largely

by enormous increases in appliance ownership and continued electrification of rural areas.

China will continue exploring for additional domestic oil and gas

resources ashore, with the northwestern provinces the most likely

source—despite relatively disappointing results to date.267 The goal to reduce the overwhelming reliance on coal for power generation has

spurred a campaign to increase dramatically the use of natural gas. This

goal also aims to lower reliance on imported oil, reduce the damaging

environmental effects of burning coal, and increase the efficiency of the

energy sector.

Tied to this aim is the fact that domestic oil production may not

increase significantly in the immediate future. The Daqing oilfield, long

China’s most productive, is suffering from decreasing supplies and inefficient reorganization; oil prices are low and no great new petroleum fields

have emerged in China; the transportation infrastructure for energy

products remains constrained; and the country is in the midst of economic reorganization that roils the energy sector picture. The Minister of

Land and Natural Resources stated in April 2002 that the country’s “oil

and gas reserves are in great shortage” and that “the oil fields in eastern

China are unable to increase yield any more.”268 Furthermore, the Ministry of Land and Resources reported that “for the past ten years, China’s

crude oil consumption has kept growing at an average rate of 5.77 percent, while the growth of domestic oil supplies was only 1.67 percent.”269

Energy is an increasingly significant factor in Beijing’s national

security calculus and hence in the conduct of foreign relations. Future

70 “OIL FOR THE LAMPS OF CHINA”
maritime exploration for energy resources is a significant aspect of this

fact. China has for many years carried out an extensive program of maritime exploration and surveying. In many cases these surveys serve both

national security and economic objectives; mapping the ocean bottom,

for instance, yields data useful for future submarine and antisubmarine

warfare applications, as well as for locating likely areas of petroleum reserves. To improve this program, Beijing has begun an effort to establish a

system of navigation and surveillance satellites.270

These operations have caused diplomatic protests and influenced

domestic political discourse in several Asian nations. Surveying missions

in waters claimed by Japan have prompted frequent complaints by Tokyo.

Similar operations in the South Pacific have evoked protests from 

Vanuatu.271 In other words, although a signatory of the 1982 UNCLOS

and quick to protest violations of that document’s parameters, Beijing

does so based on its almost unique interpretation of maritime law and

does not hesitate to exploit that interpretation for its own purposes.

The ocean-bed resources from which China currently draws petroleum products are located in territorial waters or those well within the

nation’s exclusive economic zone, for the most part within 100 nm of the

mainland. The only likely change to this situation would occur if significant oil or gas reserves are discovered in the middle or southern part of

the South China Sea or well out in the East China Sea, which would extend Beijing’s proven energy interests out as far as 750 nm from China.

The most promising additional maritime energy deposits are

likely to be either natural gas or methane hydrates. The latter is a gas

found in solid form beneath the ocean bottom. Economic recovery of significant quantities remains beyond current technology, although since the

early 1980s the United States, Russia, Japan, India and several other countries have experimented with its recovery.

As an example of its potential, possible methane hydrate resources

in U.S. waters are estimated (at 50 percent probability) at 9,000 tcm, which

is almost 300 times larger than the estimated total remaining conventional

natural gas resources in the United States.272 Should this resource be found

in Chinese waters, the implications for a net energy importer like Beijing

would be significant. Some Chinese engineers have estimated that huge

amounts of methane hydrate reserves lie on the Tibetan Plateau, as well as

in the Bo, East China, and South China Seas, but the theoretical rather 

than proven nature of these reserves is described by Dr. Jin Xianglong, a 

CONCLUSION 71
researcher with China’s State Laboratory of Ocean Floor Science under the

State Bureau of Oceanography.273

The efficient transfer of natural gas to market (on mainland

China) requires liquefaction, given the current limits for piping natural

gas. That in turn means that Beijing would require the cooperation of the

nations closest to the gas deposits to build liquefaction plants. Hence,

even the discovery of large, economically recoverable energy resources in

the mid- to southern South China Sea is not likely to evoke military action by Beijing.

There is no doubt about the government’s deliberate, well-funded

global effort to locate and secure energy supplies. This search is spurred

by the lack of success locating additional domestic petroleum resources

and the probability that offshore sources will never satisfy more than approximately 10 percent of China’s petroleum requirements. Hence,

Beijing will remain forced to seek international energy supplies.

During 2002, CNPC engaged in exploration and production in

Russia, Libya, Syria, Algeria, Iran, Iraq, Oman, Tunisia, Kazakhstan,

Venezuela, Burma, “and other Southeast Asian countries.”274 China is also

actively seeking oil imports from other nations in Latin America, subSaharan Africa, Central Asia, and the Middle East. As discussed above,

Beijing has petroleum products purchase agreements with several countries in these regions.275 Another aspect of this policy is China’s reported

attempt to purchase outright one of Russia’s state oil firms.276

China faces two serious difficulties in Latin America, one immediate and one more general. The first is the political uncertainty in

Venezuela, the Latin American nation with which Beijing has signed its

most significant energy acquisition agreement. The turmoil of President

Hugo Chavez Frias’ regime highlighted severe economic, political, and social problems common to all too many Latin American nations, to which

are offered few solutions other than to blame the United States. His agreements with Beijing resulted more from a desire to tweak Washington than

to form a lasting relationship with China.

This leads directly to the more general problem China faces in

acquiring Latin American energy resources: the United States remains

the dominant economic and political presence in the hemisphere, with

European interests in second place. It is difficult to imagine circumstances that would permit China to acquire significant energy resources

from Latin America.

72 “OIL FOR THE LAMPS OF CHINA”
Beijing faces a similar problem in sub-Saharan Africa. The oil-rich

nations of this region are already heavily tied to Western oil countries, including the United States, Great Britain, the Netherlands, and Brazil. This

does not mean Beijing could not make inroads on the continent, but it

does mean that such efforts may incur a significant cost in relations with

the nations with whom China would be competing. Mozambique is a case

in point: Chinese efforts to take part of this state’s oil production by supplanting the Brazilian companies already present would affect Chinese efforts to expand its economic presence in South America.

A great many articles have appeared in the open press during the

past decade about Russia’s Far East serving as the source of large energy

supplies for China. The Russian company Yukos has been supplying oil to

China by rail since 2001 and recently signed an agreement with CNPC to

increase these shipments through 2005.277

After at least 2 years of discussion, in July 2001 President Jiang

Zemin signed an agreement in Moscow for a feasibility study of a

400,000-bbl-per-day pipeline from Angarsk in eastern Siberia to Daqing,

in northeastern China.278 This project remained in the planning stage as

of June 2003, with fall 2003 the most optimistic start date.279 Available

details describe a 1,400-mile-long pipeline capable of providing 147 million bbl of crude oil a year to China when completed in 2005, and 221

million bbl by 2010.280 This proposed pipeline, which would cost approximately $2 billion, would have the capacity to convey 30 million tons of

petroleum—a very significant proportion of China’s total demand—

from Russia to China annually by 2010. The lead companies for the project would be CNPC and PetroChina for China, and Yukos and Transneft

for Russia.281 The two governments have also discussed the sale of Russian surplus electricity to China.282

Despite all the talk—and the almost certain presence—of large

natural gas and oil deposits in Siberia, very little production from this

area has shipped to China. One reason for this is that Russia’s energy exporting infrastructure is oriented toward Western Europe. Redirecting

that infrastructure to supply China would be a large undertaking based

on political as well as economic evaluations.

This situation evokes the decades of desultory reports of Japanese plans to provide the investment necessary to recover the mineral

wealth of Russia’s Far East. The wealth is there, but in China’s case, the

necessary technological and financial resources, not to mention the political will, so far have been lacking. Furthermore, Moscow’s desire for

CONCLUSION 73
the financial return from selling these resources to Beijing is shadowed

by historic Russian doubts about Chinese reliability.

As of March 2003, the discussions between Moscow and Beijing

remain essentially stalled, with Russia negotiating with Japan about an alternative: instead of building a pipeline from Angarsk in Siberia to Daqing

in northeastern China, Moscow would run the pipeline from Angarsk to

Nakhodka, a seaport that would facilitate the shipment of Russian oil both

to Japan and to other Pacific nations. Moscow may originally have aired

this idea to pressure Beijing into an agreement about exploiting Siberian

reserves, which are plentiful but expensive to recover, but Tokyo’s proposal

to share the $5 billion cost of the pipeline strongly appeals to Moscow. The

most likely result of the two pipeline proposals, which have engaged 

Beijing’s testy attention, is that a pipeline from eastern Siberia will be built

with branches both to China and to Nakhodka. Moscow has yet to 

announce its decision.283

Beijing apparently is making an extensive effort to include the energy sector in any strategic partnership with Moscow, and a similar effort

is being made with Russia’s former republics in Central Asia, with the

SCO as vehicle. Extensive programs have been launched in Kazakhstan

and Kyrgyzstan, with whom Beijing has signed agreements and contracts

and from whom it has purchased a small amount of oil. China’s energy

policy in Central Asia is shadowed by competition from Russian and

Western oil companies seeking to recover the area’s potentially rich petroleum deposits, and increasingly by the extensive post-September 11

American presence on China’s western border.

China’s rulers historically have viewed Central Asia as the source

of threats to national security. Beijing no doubt looks favorably at the

suppression of the transnational Islamic movements in Central Asia that

have affected its rule in Xinjiang, but it also must have a good deal of concern about both the renewed Russian interest in its former republics and

the U.S. indications of maintaining a strong presence in the region for the

foreseeable future.

The proposals for various trans-Asian pipelines would require international cooperation and, probably, sharing of energy resources on a

scale demanding Beijing’s agreement to a dramatically new degree of economic cooperation and opening. These proposals include an ASEAN Gas

Center; a pipeline that would serve Russia, China, Japan, and Korea; and a

visionary complex of pipelines that would stretch from Kazakhstan to

Shanghai and from Australia to Russia’s Far East.284

74 “OIL FOR THE LAMPS OF CHINA”
This project assumes a 58.8 percent growth in Southeast Asia’s

energy needs by 2010 and would require an investment of an estimated

$180 billion over the next 10 years.285 As a participant in ASEAN Plus

Three discussions, China may be part of cooperative ASEAN efforts and

has held talks on energy security in Asia with Japan and South Korea.286

The Asian energy equation is clouded by estimates that two of the region’s

largest producers, Indonesia and Malaysia, will exhaust exportable resources by about 2012 and 2016, respectively.287 Over 60 nations met in

September 2002 in Osaka to address uncertainties in Asia’s energy supply.

China agreed with Japan, South Korea, and the ASEAN nations to establish an information-sharing network as part of preparing a set of emergency response measures.288

China’s leadership recognizes the importance of energy resources

in their nation’s economic, social, and political future. In October 2001,

the SETC called for the “rectification and standardization of the [oil]

market.” Standardization was to be enforced at all levels of government,

from national to municipal, and at all levels of the economy, from wholesale importation and storage to individual gas stations.289

Beijing is focusing on the nation’s energy requirements, supplies,

infrastructure, environmental concerns, and international ties, but it is

still struggling with the question of how much state control to exert over

the nominally private energy sector. Numerous government statements,

organizational moves, and actions by state-sponsored “private” energy

conglomerates all dance around this issue: how freely will “socialism with

Chinese characteristics” allow the energy system to function?

This issue can be difficult to resolve, as evidenced in the widespread labor unrest that has accompanied recent privatization efforts. The

maximization of foreign investment of capital, technology, and developmental skills is also recognized as a requirement, as is expanded access

and even outright acquisition of a variety of energy resources, literally 

on a global basis. One enlightening report describes the Liaohe River 

Petroleum Exploration Bureau, a state-owned oil company in troubled

Liaoning Province. In the process of privatizing, the company significantly reduced employment, cutting well-drilling and production teams

“in accordance with market demand.” It is also “targeting the international market,” with projects in North Africa, South America, and Russia.

This report claims success in economic terms but does not explore the

resulting unemployment problems.290

CONCLUSION 75
Another aspect of China’s energy sector that probably troubles

Beijing is the reliance on foreign companies for exploration, exploitation,

and marketing. Foreign investment in China’s energy sector is concentrated in the hands of American and Western European companies, which

raises interesting possibilities for non-national influences on Beijing’s future national security decisions.

China’s ability to control its rapidly changing energy situation is

marked not only by dependence on foreign technology and investment,

but also by the mining industry’s terrible safety record, the societal unrest

resulting from corruption and from the privatization of SOEs, the lack of

an adequate transportation and pipeline infrastructure, the weakness of

the domestic governmental system to coordinate among national and

provincial governments, and the ideological manacles of “socialism with

Chinese characteristics.”

As evidenced in the past decade’s new willingness to engage in

multilateral forums, conduct land and maritime border negotiations, and

modernize the military, China’s long-term campaign to secure energy will

continue to affect the pursuit of national security and foreign relations. If

China’s energy requirements continue to grow as forecast and significant

new domestic sources are not found, then reliance on foreign energy resources will increasingly be a factor in Beijing’s policy options.

Dependence on foreign energy supplies may result in a studied

departure from the five “peaceful coexistence” principles so long adumbrated by Beijing, if foreign energy resources face political or economic

threats. As long as the CCP governs China and believes continued economic growth essential for regime survival, then Beijing will use all instruments of statecraft, military as well as economic and political, to ensure

adequate energy supplies are available.

This does not mean that severe domestic unrest or international

conflict is inevitable or even likely. Rather, it means that as China becomes more integrated into the international economy through the vehicle of the WTO, the energy sector will play a more significant role in both

its domestic and foreign policy priorities. Hence, other nations dealing

with China will find themselves focusing increasingly on this part of their

relationship, while the Chinese government will have to react to greater

pressure to liberalize its political rule over a liberalized economy.

76 “OIL FOR THE LAMPS OF CHINA”
Endnotes

1 Alice Tisdale Hobart, Oil for the Lamps of China (New York: Bobbs-Merrill, 1933). 2 “China,” Department of Energy-Energy Information Agency (DOE-EIA) Country Analysis

Brief, April 2000, accessed at <www.eia.doe.gov/emeu/cabs/china.htm>, 1. 3 Cited in Felix K. Chang, “Chinese Energy and Asian Security,” Orbis 45, no. 2 (Spring 2001),

213. 4 Statement to author by senior U.S. Department of Energy official, December 2001.

5 “China: Environmental Issues,” DOE-EIA, October 1999, 2. 6 These numbers are probably approximately correct, but it is easy to find different estimates

for the energy sector. For instance, 17.4 percent is given as the percentage of China’s total power output for 2001 provided for hydropower in “Profile of China’s Electric Power Industry,” Asia Pulse

(January 6, 2003), in Alexander’s Gas and Oil Connections (Alexander’s) 8, no. 2 (January 24, 2003). 7 “China Drafts Energy Development Strategy for 21st Century,” Xinhua (Beijing edition, unless

otherwise indicated), May 23, 2000, in Foreign Broadcast Information Service (FBIS)-

CPP20000523000134. As will be discussed below, the other energy sources range from biomass to

tidal power and wind power. 8 “China to Rely Increasingly on International Markets for Its Oil Supply,” Xinhua, in

Alexander’s 6, no. 15 (August 14, 2001), accessed at <www.gasandoil.com/goc>. 9 “Beijing Has No Plans to Depart From Foreign Investors Schedule,” Reuters, in Alexander’s 6,

no. 15 (August 14, 2001). 10 Table 2, “East Asia: The Energy Situation,” DOE-EIA, August 1999, 5. 11 36 million tons in 1999 and 70 million tons in 2000; reported in Zhu Yuan, “Sino-Russian Oil

Deal,” China Daily, September 11, 2001, in FBIS-CPP20010911000131; the 2002 figures are from the

Chinese Customs Service, reported in Takungpao News, February 11, 2003, in Virtual Information

Center, “Asia-Pacific Daily News Summary.” 12 “China Increasingly Reliant on Imported Fuel Supplies,” Associated Press, quoted in Alexander’s 5, no. 14 (August 7, 2000); “China,” DOE-EIA, 1

13 “PRC to End State Monopoly, Urges Competition in Utility,” Xinhua, November 21, 2000, in

FBIS-CPP20001121000079. 14 Other works that address this topic include Selig S. Harrison, China, Asia, and Oil: Conflict

Ahead? (New York: Columbia University Press, 1977); Yingzhong Lu, Fueling One Billion: An Insider’s

Story of Chinese Energy Policy Development (Washington, DC: Washington Institute Press, 1993);

Mark J. Valencia, Southeast Asian Seas: Oil Under Troubled Waters: Hydrocarbon Potential, Jurisdictional Issues, and International Relations (New York: Oxford University Press, 1992), and Conflict Over

Natural Resources in Southeast Asia and the Pacific (New York: Oxford University Press, 1996); Xiannuan Liu, China’s Energy Strategy: Economic Structure, Technological Choices, and Energy Consumption (Westport, CT: Praeger, 1996); Mark J. Valencia, Jon M. Van Dyke, and Lowell A. Ludwig, Sharing

the Resources of the South China Sea (Honolulu: University of Hawaii Press, 1999); Erica Strecker

Downs, China’s Quest for Energy Security (Santa Monica, CA: RAND, 2000); Robert A. Manning, The

Asian Energy Factor: Myths and Dilemmas of Energy, Security and the Pacific Future (New York: Palgrave, 2000); Felix K. Chang, “Chinese Energy and Asian Security,” Orbis 45, no. 2 (Spring 2001),

77
211–240; Amy Myers Jaffe and Steven W. Lewis, “Beijing’s Oil Diplomacy,” Survival 44, no. 1 (Spring

2002), 115–134. 15 “Organization,” in “China: An Energy Sector Overview,” DOE-EIA, December 1999. 16 Zheng Bijian, “Fundamental Trend of Socialism with Chinese Characteristics in the New

Century,” Renmin Ribao (Beijing edition unless otherwise indicated), November 21, 2002, in FBISCPP20021121000023. 17 Manning, 107–109. 18 Jing Ji, “Sinopec’s Move Stirs Controversy,” China Daily, November 5, 2002, in FBISCPP20021105000045. 19 “Country Analysis: China,” DOE-EIA (June 2002), in Alexander’s 7, no. 13 (June 27, 2002). 20 “Sudanese Energy Minister Meets Chairman of Chinese National Oil Company,” Suna News

Agency, August 15, 2002, in FBIS-AFP20020816000160, indicates that current cooperation is minimal. 21 “China Launches Energy Development Project,” Xinhua, August 25, 2001, in FBISCPP20010825000066. 22 “China Maps Out Plan for Overall Development of Industrial Sector,” in Alexander’s 6, no. 16

(August 28, 2001). Also see “New Energy Sources Highlighted in China’s Strategy for Next Five Years,”

Xinhua, August 10, 2001, in FBIS-CPP20010810000131, for the report that “more foreign capital will

be used and foreign cooperation will be expanded” in the effort to draw on “new [and renewable] energy resources.” The four goals are discussed in Asia Pulse (August 2001) and “China Releases Development Plan for Power Industry,” in Alexander’s 6, no. 15 (August 14, 2001). 23 “China Will Boldly Go Into International Energy Exploration,” China Electrical News, in

Alexander’s 6, no. 15 (August 14, 2001). Also see “Hydroelectricity and Other Renewable Sources,”

DOE-EIA Report 0484 (2000), accessed at <www.ei.doe.gov/oiaf/archive/ieo00/hydro.html>, for the

World Bank report. 24 Frank Umbach, “China’s Energy Policy,” Internationale Politik (Transatlantic Edition) (Summer 2001), 88. 25 Wang Xianzheng, quoted in Jin Tian, “Energy Structure Calls for Fine-Tuning,” China Daily

(Business Weekly Supplement), June 18, 2002, in FBIS-CPP2002061800063. Wang has since become

vice governor of Shanxi Province—China’s largest coal-producing province. 26 Coal is measured in “short tons,” unless otherwise noted. One short ton equals 2,000 pounds

(or 908 kg or 0.89 long tons or 0.91 metric tons). 27 “Coal in the Energy Supply of China: Executive Summary,” November 1999, accessed at

<www.iea.org/pubs/studies/files/coachi/coachi.htm>, 1–3. 28 Table A–6, “World Coal Consumption, 1990–2020,” in “International Energy Outlook 1999,”

DOE-EIA, accessed at <www.eia.doe.gov/oiaf/ieo99/tbla1-8.htm>, 9. No other nation exceeds 400

mst in 2000; U.S. coal consumption in 2020 is estimated at 1,275 mst. 29 Ibid., 3. Increased coal exports are discussed in “China’s Coal Export Up 45.6 Percent in

2000,” Xinhua, July 6, 2000, in FBIS-CPP20000706000010; also see Gong Zhengzheng, “Oil Prices to

Fire Up Domestic Coal Exports,” China Daily (Business Weekly Supplement), April 30, 2002, in FBISCPP200204030000073. 30 The foregoing discussion relies heavily on DOE-EIA, “Country Analysis Brief of China.”

“China, U.S. to Jointly Develop Coalbed Methane,” Xinhua, March 3, 2003, in FBISCPP20030303000173. 31 Reported in “China and Japan Reach Oil and Coal Framework Agreement,” Reuters, December 14, 2000, in Alexander’s 6, no. 1 (January 11, 2001). 32 “Accidents in Hunan, Guangxi Claim Lives of 41 Miners,” China Daily (Hong Kong), January

9, 2001, in FBIS-CPP20010109000029. 33 The smaller number is in Jiang Zhuqing, “Thousands of PRC Illegal Mines Shut Down; Billions Invested to Improve Safety,” China Daily, April 10, 2002, in FBIS-CPP20020410000019. In

“China to Shut Down More Small Coal Mines, Decrease Accidents by 10 Percent,” Xinhua, April 10,

2002, in FBIS-CPP20020410000001, a “government official” announced a goal for 2002 of reducing

the total number of illegal mines to 15,000. The larger number is cited in Jin Tian, 2. 34 The government figure is cited in Jasper Becker, “PRC Issues New Health, Safety Regulations

for Mining Industry,” South China Morning Post (Hong Kong), December 19, 2000, in FBISCPP20001219000063. “Thirty-One Trapped After Coalmine Gas Explosion in Northeast China,”

Agence France-Presse (henceforth AFP), November 6, 2000, in FBIS-CPP20001106000111, cited the

10,000 figure. “Accidents in Hunan, Guangxi Claim Lives of 41 Miners” reports, “Coal mine accidents

78 “OIL FOR THE LAMPS OF CHINA”
have claimed more than 5,300 lives in China in the past year.” Also see “Poor Safety Kills 162 Coal

Miners in Southwest China,” which reports 162 miners dying in a September 27, 2000, mine explosion in southwestern Guizhou Province; and “China Mine Manager Arrested After Explosion Toll

Rises to 41,” AFP, December 10, 2000, in FBIS-CPP20001210000018, which reports that “also detained

were five mine workers accused of beating up journalists and miners . . . in an attempt to cover up the

explosion.” Also see “East Asia: The Energy Situation,” DOE-EIA (August 1999), accessed at

<www.eia.doe.gov/emeu/cabs/eastasia.htm>, 3. 35 “Local Authorities Sue Six for Fatal Mine Explosion,” Xinhua, December 27, 2001, in FBISCPP20011227000060, reported that an additional seven persons were being prosecuted by the government, including the “deputy secretary of the [local] Committee of the CCP”; “Nine Missing, Presumed Dead in Coal Mine Explosion in Central PRC,” AFP, September 19 2001, in

FBIS-CPP20010929000297; “Gas Blasts Kill 37 in Two Coal Mines,” South China Morning Post, November 17, 2001; accessed at <http://china.scmp.com/ZZZ7JGD81UC.html>; “Police Arrest Four for

Mine Disaster,” China Daily, November 19, 2001, in FBIS-CPP20011119000015; “Small Coal Mines in

Shanxi Ordered to Stop Production for Safety,” Xinhua, November 19, 2001, in FBISCPP20011119000096. 36 “Individuals Responsible for 15 November Coal Mine Explosion Receive Prison Sentences,”

Xinhua, December 7, 2001, in FBIS-CPP20011207000068; “Coal Mine Explosion Kills 11 in Central

China,” Xinhua, December 14, 2001, in FBIS-CPP20011214000119; “Fifteen Miners Missing in China

Mine Flood,” AFP, December 25, 2001, in FBIS-CPP20011225000064; “Coal Mine Blast Kills Eight in

Northeast China,” Xinhua, December 29, 2001, in FBIS-CPP200112290000119; “Gas Explosion in

Jiangxi Coal Mine Kills 20, Injures 24,” Xinhua, December 31, 2001, in FBIS-CPP20011231000039. 37 “Zhu Rongji Signs Order No. 296 of the PRC State Council,” Xinhua, November 14, 2000, in

FBIS-CPP20001114000019. 38 Chapter 4 of the new regulations, in “Apparent Full Text of Regulations on Supervision of

Coal Mine Safety,” Xinhua, November 14, 2000, in FBIS-CPP20001114000032; “PRC: Zhu Rongji

Signs Order on Coal Mine Safety Rules,” Xinhua, November 4, 2000, in FBIS-CPP20001114000019,

reported that the premier personally signed the new regulations. 39 “Wu Bangguo Visits ‘Disadvantaged’ Coal Miners in Shanxi,” Xinhua, January 14, 2003; “Vice

Premier Wen Jaibao Spends Holiday with Coal Miners, Urges Improved Safety,” Xinhua, February 1,

2003. Wu has since assumed the position of head of the National People’s Congress, while Wen has

become prime minister, both among the top five leaders in China. 40 Jiang Zhuqing reported 2 billion yuan “spent on 103 safety improvement projects,” but all in

state-owned mines. In the first 3 months of 2002, 27 miners died in Hebei coalmine explosion, 23

were lost in Sichuan, 22 were killed in Henan, at least 24 died in Heilongjiang, and an unknown number died in coal mining accidents in Hubei and Liaoning provinces; see Chu Xuejun, “Major Gas Explosion,” Xinhua (Hong Kong), April 25, 2002, in FBIS-CPP20020425000083; Yang Haibin and Lin

Su, “Heilongjiang Coal Mine Explosion Kills 24,” Xinhua (Hong Kong), April 10, 2002, in FBISCPP20020410000109; also, Bill Savadove, “22 Die in China Coal Mine Blast,” South China Morning

Post, April 2, 2002, in FBIS-CPP20020402000049; “Coal Mine Explosions in Northern China Kill 27,”

Xinhua, January 27, 2002, in FBIS-CPP20020127000069; “Seven Chinese Miners Die of Gas Carbon

Monoxide Poisoning,” AFP, February 24, 2001, in FBIS-CPP20020224000021; “Three Dead, 19 Missing in Coal Mine Fire in Liaoning,” AFP, March 4, 2002, in FBIS-CPP20020304000157; Da Yong,

“Coal Mine Disaster Kills 1, Traps at Least 5 Victims in Liaoning,” China Daily, March 19, 2002, in

FBIS-CPP20020319000035. 41 These accidents are reported in “Death Toll Rises to Eight in Jilin Coal Mine Accident,” Xinhua, January 11, 2003; “Rescuers Race to Reach 32 Miners,” AFP, January 12, 2003; “Gas Leak Kills 18

Henan Province Miners,” Xinhua, January 24, 2003; “Heilongjiang Coal Mine Blast Traps Six,” Xinhua, February 25, 2003; “Coal Mine Explosions in Guizhou, Heilongjiang Kill 35,” China Daily, February 26, 2003; Shih Hsueh-ya, “[Vice Premier] Wu Bangguo Makes Written Comments on Gas Explosion at Guizhou Coal Mine,” Wen Wei Po (Hong Kong), February 28, 2003. 42 “China Reports Rises in Coal Production, Marketing,” Xinhua, December 29, 2001, in FBISCPP20011229000086; “China’s Coal Exports Said Profitable for ‘First Time in Years’,” Xinhua, December 24, 2001, in FBIS-CPP20011224000006. 43 “China to Import More Coal,” Xinhua, February 13, 2003. An American engineer involved in

building and operating large, coal-powered generating plants in Fujian Province told the author in

ENDNOTES 79
February 2000 that coal could be more cheaply and reliably imported from Australia than from

Manchuria. 44 “First Section of ‘Major Coal Transport Railway’ Opens in Inner Mongolia,” Xinhua, December 16, 2000, in FBIS-CPP20001216000078. 45 “China, U.S. Jointly Develop Coalbed Methane,” Xinhua, March 3, 2003. 46 “Underground Vaporization of Coal Passes PRC Ministerial Test,” Xinhua, November 15,

2000, in FBIS-CPP20001115000016. 47 See “U.S. Firm Joins Methane Project,” China Daily, March 4, 2003, “PRC, U.S. Companies to

Jointly Explore Coalbed Methane,” Xinhua, January 8, 2003, and “China Signs Coal-bed Methane

Contracts With U.S. Texaco Petroleum Company,” Xinhua, November 8, 2000, in FBISCPP20001108000114, 1. Also see Xu Dashan, “PRC, Canada Sign Memorandum to Develop China’s

Coalbed Methane Technology Project,” China Daily, March 29, 2002, in FBIS-CPP20020329000032. 48 “China, U.S. to Jointly Tap Coal Bed Methane Resources in Yunnan,” Xinhua, December 3,

2002, in FBIS-CPP20021203000181. 49 This intriguing program is being led by Lawrence Livermore Laboratory; see John Cooper,

“Turning Carbon Directly into Energy,” Science and Technology Review, June 2001, accessed at

<www.llnl.gov/str/June01/Cooper.html>. 50 Petroleum figures will be given in barrels, unless otherwise noted. One barrel of petroleum/petroleum products equals approximately 42 U.S. gallons or 0.136 metric tons or 0.15 short tons. 51 These estimates are from “China Expects to Import 50 Million Tons of Oil in 2000,” Xinhua,

November 21, 2000, in FBIS-CPP20001121000078, and “China,” EIA, November 1999, accessed at

<www.iea.org/about/nmcchina.htm>, 1. They are repeated in the more timely estimate by the International Energy Agency, cited in “China’s Oil Demand Expected to Rise,” Dow Jones, September 11,

2002, in Alexander’s 7, no. 19 (October 1, 2002). 52 Various energy sources, in this case petroleum and coal, are difficult to compare in gross

terms; more significant is a percentage comparison, which in China reveals a continuing dominance

of coal as the most important energy fuel. See, for instance, Gong Zhengzheng, “PRC Analyst Views

State Law Proposed to Strengthen Oil Security,” China Daily, October 30, 2001, in FBISCPP20011031000022, for the statement by State Economic and Trade Commission official that “we

must quickly form regulations” to secure Sino-foreign cooperation in oil exploration, pipeline protection, overseas oil prospecting, “the State oil stockpile.” 53 “China Busy to Win Security of Supply for a Growing Economy,” Reuters, April 27, 2000, in

Alexander’s 5, no. 7 (April 27, 2000). 54 This joint venture is nominally headquartered in the British Virgin Islands to avoid Taipei’s

restrictions on cross-strait business dealings. CPC announcement in Luis Huang, “CPC, CNOOC to

Sign Agreement on Oil Exploration Soon,” Central News Agency (Taipei), in FBISCPP20020123000197; also see “CNOOC Finalizes Plans to Explore for Oil and Gas in Taiwan Strait,”

Reuters, August 28, 2000, in Alexander’s 6, no. 18 (September 25, 2001), which noted that cross-strait

companies jointly conducted geophysical surveys from 1996 to 2000. David Hsu, “Taiwan, Mainland

Chinese Oil Companies May Jointly Explore in Strait,” Central News Agency (Taipei), in FBISCPP20011010000182, dates this agreement to 1998. 55 “Cross-Strait Oil Deal Delayed,” Taipei Times, February 7, 2002, in FBISCPP20020207000144. A more optimistic report notes that “a final joint-venture agreement” will be

signed in May (Xie Ye and Gong Zhengzheng, “JV to Tap Resources Across Straits,” China Daily, April

19, 2002, in FBIS-CPP20020419000013), while “Taiwan and China Sign Landmark Oil Exploration

Pact,” Reuters, May 16, 2002, in Alexander’s 7, no. 12 (June 13, 2002), reports signing of an agreement.

“China and Taiwan Undertake Joint Oil Search,” Neftegaz.RU, January 29, 2003, in Alexander’s 8, no. 4

(February 20, 2003), reports that the “the two countries, Beijing and Taipei,” have approved the dual

venture, but the verbiage of the announcement casts doubt on its accuracy. 56 “CNOOC Signs First Deepwater Exploration Agreement with Husky Oil,” CNOOC Ltd., December 6, 2002, in Alexander’s 8, no. 1 (January 10, 2003). This agreement reportedly requires Husky

to pay 100 percent of the exploration costs, while CNOOC would garner 51 percent of any discoveries. 57 “China Petroleum Completes Historic Kuwaiti Oil Project,” in ChinaOnline, accessed at

<www.chinaonline.com/industry/energy/NewsArchive/Secure/2001/April/C01042305.asp>. “Shenzhen Huxian to Invest $600 Million in Gas Sector,” accessed at <www.bangladeshweb.com/news/mar/18/e18032003.htm#A1>, reports the deal with Bangladesh.

80 “OIL FOR THE LAMPS OF CHINA”
58 “China’s Largest Oil Company to Further Boost Overseas Presence,” Xinhua, January 15,

2003, in FBIS-CPP20030115000011. 59 Umbach, 88. Also see “Turkmen Oil Company Cooperates with China,” Turkmen Press, November 21, 2002, in FBIS-CEP20021122000186; “China to Invest in Venezuelan Industries,” Reuters,

in Alexander’s 6, no. 24 (December 27, 2001); “CNPC Acquires Stake in Myanmar Oil and Gas

Blocks,” Platts, in Alexander’s 6, no. 24 (December 19, 2001); Xie Ye, “CNOOC Finalizes Acquisition

of Indonesian Oil Assets from Spanish Firm,” China Daily, January 19, 2002, in FBISCPP20020119000006; Mai Tian, “Canadian Oil Firm Confirms Discussions, ‘Potential Transactions’

With PetroChina,” China Daily, February 21, 2002, in FBIS-CPP20020221000042; “Chinese Oil Experts Begin Oil Exploration Work,” Radio HornAfrik, February 14, 2002, in FBISAFP20020214000044. 60 “China to be Largest Buyer of LNG from Tangguh, Papua,” Timika Pos, February 8, 2002, in

FBIS-SEP20020211000124; partial (12.5 percent) ownership of the field is reported in “CNOOC to

Take Stake in Tangguh Gas Fields From BP,” Platts, September 26, 2002, in Alexander’s 7, no. 20 (October 15, 2002); also see “CNOOC Acquires LNG Reserve Stocks from BP,” SinoCast, February 14,

2003, in Alexander’s 8, no. 5 (March 6, 2003). BP management of the Fujian terminal operation is reported in “BP and Partners to Supply LNG to China’s Fujian LNG Terminal,” Power Engineering International, September 26, 2002, in Alexander’s 7, no. 20 (October 15, 2002). Canada’s most recent involvement is reported in “CNOOC Signs Production Sharing Contracts with Husky,” Xinhua,

September 24, 2002, in Alexander’s 7, no. 20 (October 15, 2002). 61 Xie Ye, “New Oil Regulations Allow Sinopec to Cooperate with Foreign Companies,” China

Daily, October 16, 2001, in FBIS-CPP20011016000040. These revised regulations were codified into

an amended Statute on the Exploitation of Land Oil Resources by Foreign Enterprises on September

23, 2001 (“Zhu Ronghi Signs Amendment to PRC Statute,” Xinhua, October 10, 2001, in FBISCPP20011010000184). 62 “Minister on Use of Foreign Capital in 2002,” Xinhua, December 27, 2001, in FBISCPP20011227000151. 63 “China Seeks Foreign Investors for Shanghai Gas Grid,” Reuters, in Alexander’s 7, no. 4 (February 21, 2002). Also see “Huaneng Power to Set Up Two Gas-Fuelled Power Plants,” Interfax Information Services, August 28, 2002, in Alexander’s 7, no. 18 (September 19, 2002): one of these plants is

planned for Shanghai, the other for Nanjing. 64 Wang Ling, “Zhejiang Province’s Hangzhou City Readies Itself for Switch to Natural Gas,”

China Daily, March 28, 2002, in FBIS-CPP20020328000048; “Zhejiang to Build Natural Gas-Fuelled

Power Plant,” Interfax Information Services, September 28, 2002, in Alexander’s 7, no. 19 (October 1,

2002), links this project—projected to begin construction in 2003—to the West-East natural gas

pipeline. 65 “Gas Supplier in Shanghai Competes with Rivals in West China,” Xinhua, August 17, 2002, in

FBIS-CPP20020817000082. 66 CNPC has been active in Azerbaijan; see “Chinese Oil Major Eyes Share in Azerbaijani Onshore Field,” Baku MPA, January 28, 2003, in FBIS-CEP200301228000065. 67 Jiang Zemin, quoted in “Summit Meeting Launches Shanghai Cooperation Organization,”

People’s Daily, June 15, 2001, accessed at <www.english.peopledaily.com.cn/200106/15/

eng20010615_727040.html>. 68 Anthony Miccarelli, “China’s Energy Future: The 10th Five-Year Plan (2001–2005),” USCINCPAC Virtual Information Center (VIC) Honolulu, accessed at <www.cschuster@vic-info.org> (August 25, 2001), 13. 69 “China Set to Invest $300 Million in Kyrgyzstan’s Oil Sector,” Kabar News Agency, June 26,

2002, in FBIS-CEP20020626000164. 70 For instance, see Xie Ye, “State-Owned CNPC Buys Two Overseas Oilfields,” China Daily, January 25, 2002, in FBIS-CPP20020125000026; “Chinese Firms Interested in Pakistan Oil and Gas Exploration,” Asia Pulse, in Alexander’s 7, no. 2 (January 23, 2002); “China to Help Uzbekistani Oil, Gas

Firm,” Novosti Nedeli, November 16, 2001, in FBIS-CEP20011118000052; “U.S., China and Iran Compete for Afghan Oil and Gas Pipelines,” Asia Times, in Alexander’s 7, no. 4 (February 21, 2002). 71 Cited in David Lague, “China: The Quest for Energy to Grow,” Far Eastern Economic Review

(June 20, 2002), accessed at <www.feer.com>. This number is probably exaggerated but represents

China’s clear interest in making serious inroads into Central Asian petroleum resources.

ENDNOTES 81
72 “China Ready to Import Up to 50 Million Tonnes of Kazakh Oil a Year,” Almaty InterfaxKazakhstan, January 29, 2003, in FBIS-CEP20030129000590, is not a disinterested source, but large

oil sales to China certainly may be in the offing. 73 “Kazakhstan-Western China Oil Pipeline Said Medium-Term Prospect,” Kazakhstan Today

(Almaty), September 11, 2001, in FBIS-CEP20010912000202. 74 See, for instance, “Chinese Interested in Kazakhstani Oil Projects,” Caspian News Agency, and

“Kazakhstani and Chinese Institutes to Cooperate in Oil and Gas Sector,” both in Alexander’s 6, no. 20

(October 24, 2001). 75 Cited in “China to Build Oil Pipeline from Kazakhstan if Caspian Reserves Proved,” Almaty

Interfax-Kazakhstan, April 16 2002, in FBIS-CEP20020416000327. One interesting factor in the issue

of recovering Caspian Sea oil is the apparent agreement between Iranian and U.S. representatives to

favor a pipeline to Iran instead of the Chinese project (“Kazakhstani Paper Views Possible Export

Routes for Caspian Oil,” Kazakhstanskaya Pravda, April 10, 2002, in FBIS-CEP20020410000253). 76 This discussion draws on Rick Parker, “China’s Energy Strategy: Central Asian-Caspian Sea

Oil Initiatives,” VIC (January 22, 2001). 77 Greg Austin, China’s Ocean Frontier: International Law, Military Force, and National Development (Canberra: Allen and Unwin, 1998), 262, notes that this area contains “two of the biggest PRC

offshore gas fields in the South China Sea,” Yacheng 13–1 and Dongfang 1–1. The best general account of China’s activities in the South China Sea is Mark J. Valencia, China and the South China Sea

Disputes, Adelphi Paper 228 (London: Institute for International Strategic Studies, 1995). 78 China and Vietnam continue to contest various prospecting blocks in the South China Sea,

although ongoing talks have reduced the number of incidents between the two nations. See Valencia

for an account of these conflicting claims; one indicator of continued Chinese interest is “CNOOC

Invites Foreign Firms in South China Sea Projects,” People’s Daily, September 25, 2002, in Alexander’s

7, no. 20 (October 15, 2002). 79 “South China Sea Region,” DOE-EIA, August 1998, 2. 80 “South China Sea Oil Fields Produced Over 50 mm Tons in Eight Years,” Alexander’s 3, no. 20

(October 27, 1998). 81 Ibid., 3. The author interviewed two analysts in November 1999 who, using similar geological

data, came to opposite conclusions about the presence or absence of significant petroleum reserves in

the Spratlys. 82 U.S. Geodetic Survey (USGS), in USCINCPAC memo, September 15, 1999. One optimistic

estimate of South China Sea petroleum reserves, 55 billion tons, is in Xinhua, September 5, 1994, in

FBIS-CHI-94-172. Also see Michael Leifer, “Chinese Economic Reform and Security Policy: The

South China Sea Connection,” Survival 37, no. 2 (Summer 1995), 44; Bruce Blanche and Jean

Blanche, “Oil and Regional Stability in the South China Sea,” Jane’s Intelligence Review 7, no. 11 (November 1995), 513. The USGS estimate for South China Sea natural gas is 266 trillion cubic feet. 83 “Shell Invests $3 Billion for Gas Development in PRC,” Xinhua, September 29, 1999, in FBISCPP19990920999635, reported that “the South China Sea Petrochemical Project, co-funded by Shell

Group and several large Chinese enterprises... has a total investment of 4.5 billion U.S. dollars.” 84 Brief descriptions of some of this technology is in “Lufeng 22–1,” BP Amoco announcement

October 18, 1999, 1–3, accessed at <www.offshoretechnology.com/projects/lufeng/index>. This field

is a joint venture between CNOOC and Staatoil of Norway. 85 Author’s conversations with PRC Embassy (Washington) international lawyer and with senior People’s Liberation Army Navy officers at the PLA National Defense University and China’s

Naval Research Institute (2000–2002). 86 While such estimates probably reflect political wishes as well as geophysical facts, this number

is in “China Kicks Off Huge Offshore Oil, Gas Project,” Xinhua, June 19, 2002, in FBISCPP20020619000059. 87 “Ocean Petroleum Lays Exploration Emphasis on Bohai Bay,” AsiaPort, April 8, 2002, in

Alexander’s 7, no. 9 (May 3, 2002), notes that half of these wells would be drilled by “partners.” “In

Brief,” China Daily, May 22, 2002, in FBIS-CPP20020522000054, noted that CNOOC and several

foreign companies were some of these “partners”; also see “Ultra Petroleum Signs Bohai Bay Agreement with CNOOC,” Ultra Petroleum announcement in Alexander’s 7, no. 19 (October 1, 2002),

and “Shell to Invest $400 Million in China’s Bohai,” Neftegaz, July 24, 2002, in Alexander’s 7, no. 16

(August 23, 2002).

82 “OIL FOR THE LAMPS OF CHINA”
88 “China, Vietnam Initial Agreements on Beibu Gulf Demarcation,” People’s Daily, December

25, 2000, accessed at <www.english.peopledaily.com.cn/200012/25/eng20001225_58714.html>. 89 See “Eight Major Highways, 3,000 km of Railways to Speed Development,” China Daily

(Hong Kong), May 23, 2001, in FBIS-CPP20010523000067, for a report of the “nearly 20 foreign energy companies” bidding to participate in pipeline projects linking China’s far west with its coastal region; “Kerr-McGee and Partners Strike More Oil in Bohai Bay,” Reuters, in Alexander’s 7, no. 1 (January 9, 2002). “Ultra Petroleum Announces Oil Field Discovery in Bohai Bay,” Ultra Petroleum

announcement, in Alexander’s 7, no. 1 (January 9, 2002), describes a company “focused on developing its long life natural gas reserves in the Green River Basin of Wyoming, and oil reserves in Bohai

Bay.” The British company BP Amoco has been especially active; see “World Oil Giant BP to Invest

More in Chongqing,” Xinhua, October 31, 2001, in FBIS-CPP20011031000043; Xie Ye, “China’s

Largest Petrochemical Firm Enters Joint-Venture with UK’s BP Oil,” China Daily, December 11, 2001,

in FBIS-CPP20011211000022; Xie Ye, “Sinopec, UK’s BP to Launch Joint Venture,” China Daily, December 12, 2001, in FBIS-CPP20011212000041; and especially “World Oil Giant BP to Invest $5 Billion in China,” Xinhua, November 11, 2001, in FBIS-CPP20011111000060. The author suspects the

profit motive outweighs Chinese companies’ concern with “owning” at least 51 percent of a given

joint venture. Jing Ji, in “Sinopec, ExxonMobil Sign Framework Agreement to Strengthen Strategic

Alliance,” China Daily, October 23, 2002, 2, in FBIS-CPP20021023000044, for instance, reports that

ExxonMobil and Aramco would each own 25 percent of “multi-billion-dollar petrochemical and oil

product joint ventures” in Fujian and Guangdong provinces, while the remaining 50 percent would

be split between Sinopec and “the Fujian provincial government.” 90 Quoted in “Zhu Rongji on China Opening West-East Gas Project to Foreign Cooperation,”

Xinhua, July 4, 2002, in FBIS-CPP20020704000114. 91 The project is described in “Gas Pipeline Runs Over 4,000 KM Across China,” Renmin Ribao,

July 5, 2002, in FBIS-CPP20020705000036; the UNDP study in “UNDP and Shell to Assess Social Impact of China Pipeline Project,” UN News, April 17, 2002, in Alexander’s 7, no. 9 (May 3, 2002), is relying on “government organizations, academics, and independent international social experts.” 92 Oil production is reported in “Another of China’s Xinjiang Fields Passes Million-ton Oil Output,” OGI, in Alexander’s 8, no. 5 (March 6, 2003). See, for instance, “PetroChina Believes Domestic

Natural Gas Reserves are Sufficient,” China Daily, July 17, 2002, in Alexander’s 7, no. 16 (August 23,

2002) and “China Negotiating With British Petroleum for Fujian Gas Deal,” China Daily (Business

Weekly Supplement), August 20, 2002, in FBIS-CPP20020821000018. 93 “China, Russia to Jointly Develop Oil Fields in Siberia,” Xinhua, September 27, 2001, in FBISCPP20010927000088. The success of these talks was reported in Xie Ye, “Talks on Oil Project Underway,” China Daily, September 24, 2001, in FBIS-CPP20010924000017, and “Russia and China Begin

Work on Oil Pipeline Feasibility Study,” Vremya Novostei, in Alexander’s 6, no. 20 (October 24, 2001),

which reported the pipeline’s initial (2005) capacity as 20 million tons, increasing to 30 million tons

by 2010. 94 “Joint Declaration of the PRC and the Russian Federation,” Xinhua, December 2, 2002, in

FBIS-CPP20021202000186. 95 “China to Close More Small Oil Refineries,” AFP, February 28, 2000, quoted in Alexander’s 5,

no. 7 (April 27, 2000). 96 Figures cited, but their sources not listed, in Chang, 226.

97 Peng Sen, Vice Minister of the Economic Restructuring Office of the State Council, quoted in

“China Needs to Establish Downstream Gas Sector Regulatory Framework,” Xinhua, April 10, 2002,

in Alexander’s 7, no. 9 (May 3, 2002), and Chen Li, a “senior official” in the same office, in “Chinese

Experts Call for Establishment of Gas Market Watchdog,” China Daily, April 9, 2002, in Alexander’s 7,

no. 9 (May 3, 2002). Also see “The Bulls Are Back,” Petroleum Economist 67, no. 11 (November 2000),

38–39.98 The 8 percent figure is cited in “China’s Modernization May Be Slowed Down by Oil Shortage,” People’s Daily, in Alexander’s 6, no. 15 (August 14, 2001); Mai Tian, “Sinopec, PetroChina Reach

Agreement on Pipeline Project,” China Daily, October 6, 2001, in FBIS-CPP20011006000032, reports

the goal as 10 percent. 99 Author’s interview of geologist, at the East-West Center, Honolulu (November 1999). 100 See, for instance, “Sinopec Looks to Boost its Ability in the Natural Gas Arena,” People’s Daily,

in Alexander’s 6, no. 18 (September 25, 2001); “Chinese Cities to Benefit From West-East Natural Gas

Transmission Project,” Star, in Alexander’s 6, no. 20 (October 24, 2001). Liquefication of natural gas is

ENDNOTES 83
required for ease of shipping and because current technology limits the distance over which unliquefied gas can be piped. 101 “China to Require Natural Gas Imports From 2005,” Interfax Information Services, B.V., January 29, 2003, in Alexander’s 8, no. 4 (February 20, 2003). 102 “Gas Reserves of Changqing Oilfield Equal 1 Trillion Cubic Meters,” Xinhua, November 25,

2001, in FBIS-CPP20011125000030. 103 Announced by Qiu Zhongjian, director-general of the China Petroleum Society, in “China

Expects to Discover More Reserves of Natural Gas in Next 10 Years,” Xinhua, September 6, 2001, in

FBIS-CPP20010906000097, who listed three primary areas of expansion, all in western China: the

Tarim Basin, Ordos Zone, and Qaidam Zone; the Sichuan Province also is promising. 104 Government report cited in “China Boosts Natural Gas Industry,” Asia Pulse, in Alexander’s 7,

no. 2 (January 28, 2002). 105 Gaye Christoffersen, “Prospects and Problems for Northeast Asian Energy Cooperation,”

IREX/Huang Hsing Foundation Hsueh Chun-tu Lecture Series, accessed at <asia-1@info.irex.org>. 106 See Mark J. Valencia, “Energy and Insecurity in Asia,” Survival 39, no. 3 (Autumn 1997),

85–106, for a discussion of some of these schemes, especially the map on page 88. “ASEAN Plans PanAsian Pipeline,” Dow Jones, in Alexander’s 6, no. 10 (June 1, 2001), discusses a proposal to build a

pipeline system that would also include India. 107 See Zhu Rongji, “Government Work Report at the Opening of the Fifth Session of the Ninth

National People’s Congress,” March 5, 2002, in FBIS-CPP20020305000078. 108 “PRC’s Gas Pipeline Project to Begin ‘In a Short Time’,” Xinhua, September 6, 2001, in FBISCPP 20010906000154, cites a $4.8 billion estimate, while “China to Build E-Pipeline for Natural Gas

Transmission Project,” Xinhua, September 21, 2001, in FBIS-CPP20010921000086, cites $5.3 billion;

“Another Gas Field Found in China’s Far Northwest,” AsiaPort, in Alexander’s 6, no. 20 (October 24,

2001), gives a $7 billion dollar estimate. Different reports give 2003 or 2004 as the completion date,

although Liang Yu simply reports that construction has “been put off” (“East-West Gas Pipeline Project Delayed,” China Daily (Business Weekly Supplement), October 9, 2001, in FBISCPP20011010000007). 109 “Nissho Iwai Withdraws from China Gas Project,” Kyodo News, in Alexander’s 6, no. 20 (October 24, 2001), reported “similar moves by five other Japanese trading houses and means no Japanese

businesses will be involved in the pipeline project.” 110 “PetroChina and Shell Group Sign Gas Pipeline Interim Pact,” Platts, in Alexander’s 7, no. 4

(February 21, 2002). Also see “PetroChina and Shell/Gazprom Sign Gas Trunkline Deal,” Reuters, in

Alexander’s 7, no. 2 (January 23, 2002), for the report that BP was awarded a subsidiary contract “to

build China’s first LNG terminal in Guangdong.” This would expand Shell’s already impressive investment of more than $5 billion in China’s energy sector (“Shell’s Investment in China,” Xinhua, March

26, 2002, in FBIS-CPP20020326000166). 111 “900-KM Section of West-East Gas Pipeline Completed at the End of August,” Xinhua, September 23, 2002, in VIC, “Asia-Pacific Daily News Summary” (September 25, 2002). Completion of

this section is not supported by other reporting, but “Gansu to Start Laying Gas Pipeline,” Xinhua,

February 25, 2003, in FBIS-CPP20030225000145, reported a March 1 start date for a section of the

pipeline in Gansu Province. 112 “Zhejiang Province Builds Facilities to Increase Use of Natural Gas,” Xinhua, January 1, 2003,

in Alexander’s 8, no. 2 (January 24, 2003). 113 “Shell to Operate China’s Leading Gas Field,” Reuters, May 31, 2002, in Alexander’s 7, no. 13

(June 27, 2002). 114 “Xinjiang Says to Supply Gas to Shanghai for 30 Years,” Xinhua, September 24, 2001, in FBISCPP20010924000013, includes the estimate by an unidentified analyst that the Tarim Basin will “be

able to provide gas to energy-deficient Shanghai for more than 30 years.” This estimate is suspiciously

optimistic, however, since it is attributed to the “general manager of the Talimu Oil Field Company

(Liao Yongyuan)” quoted in “Talimu Oil Field Could Supply Natural Gas to Shanghai for 30 Years,”

AsiaPort, in Alexander’s 6, no. 20 (October 24, 2001). 115 “Section of West-East Natural Gas Transmission Project Launched,” AsiaPort, in Alexander’s

7, no. 5 (March 6, 2002), reports the beginning of a section of this project. Other associated construction efforts are reported in “China Starts Building Gas Pipeline from Xinjiang to Shanghai,” Reuters,

in Alexander’s 7, no. 5 (March 6, 2002).

84 “OIL FOR THE LAMPS OF CHINA”
116 “Shanghai Would Promote Employment of Natural Gas,” AsiaPort, in Alexander’s 7, no. 6

(March 21, 2002). 117 “Russian GazProm Gas Company Opens Office in Beijing,” ITAR–TASS, December 26, 2001,

in FBIS-CEP20011226000350. “Russia and China to Set Up Joint Gas Project Enterprises,” ITARTASS, in Alexander’s 6, no. 18 (September 25, 2001), reported that this agreement included more farranging Russian participation in China’s developing natural gas infrastructure, a “full-scale strategic

partnership.” 118 “PetroChina Signs Gas Deal with Chinese Cities,” Reuters, in Alexander’s 7, no. 4 (February

21, 2002), reports “no date has yet been set for the start of construction.” 119 “Important Gas Reserves Discovered in Sichuan Province,” Xinhua (January 8, 2003), in

FBIS-CPP20030108000138, reports that fields containing 150 billion cubic meters have now been discovered in Sichuan. Also see “Collapse of Enron Complicates China Pipeline Project,” Reuters, in

Alexander’s 7, no. 3 (February 6, 2002). 120 Xie Ye, “Gas Projects to Power Country’s Market Growth,” China Daily, March 20, 2002, in

FBIS-CPP20020320000039. 121 “China Boosts Natural Gas Industry”; “CNOOC to Build China’s Second-Longest Gas

Pipeline,” Neftegaz.RU, December 23, 2002, in Alexander’s 8, no. 2 (January 24, 2003), reports plans to

build “China’s second-longest natural gas pipeline” from Jiangsu and Zhejiang with Guandong, although with a start date of 2005 at the earliest. 122 Zhao Renfeng, “Indonesia Confident of Success in Guangdong Natural Gas Bid,” China Daily

(Business Weekly Supplement), April 2, 2002, in FBIS-CPP20020402000057. 123 Xie Ye, “Bidding Under Way for First Chinese LNG Project,” China Daily, November 10, 2001,

in FBIS-CPP20011110000056. The BBC reported in December 2001 that the project’s feasibility study

was scheduled for completion in June 2002, with construction to begin by the end of the year; “China

Opens Bidding for Guangdong LNG Supply Contract,” in Alexander’s 6, no. 24 (December 19, 2001).

Natural gas is normally measured in cubic feet or cubic meters; LNG is usually measured in tons. 124 Xie Ye, “Hong Kong to Buy One Third of Imported LNG,” China Daily, August 13, 2002, in

FBIS-CPP20020813000013. 125 “Australia Wins Bidding to Supply LNG to China,” Xinhua, August 8, 2002, in FBISCPP20020808000021. 126 “China’s Offshore Oil Giant CNOOC Unveils 2002 Development Strategy,” Xinhua, January

18, 2002, in FBIS-CPP20020118000098. 127 “CNOOC Begins Gas Terminal Construction in Hainan,” Reuters, in Alexander’s 7, no. 3

(February 6, 2002). 128 In “CNOOC and Sinopec to Develop Gas Field in East China Sea,” Gulf News Online, in

Alexander’s 7, no. 2 (January 23, 2002), the Chinese companies threaten to develop the offshore fields

“with or without foreign help,” and while a March 20, 2002, article reports that “by 2004, natural gas

from the Chunxiao Gas Field Group will be piped ashore,” it is doubtful that Shanghai will receive

significant amounts of natural gas from this project without foreign participation, given Chinese

companies’ dependence on foreign investment and participation in the offshore energy sector. (See

“China Taps Natural Gas Reserves in East China Sea,” Xinhua, March 20, 2002, in FBISCPP20020320000165.) 129 See “Siemens Aims to Set Up Joint Venture with Shanghai Electric,” Reuters, in Alexander’s 7,

no. 3 (February 6, 2002). 130 Xie Ye, “CNOOC Seeks to Buy Overseas Gas Fields,” China Daily (Business Weekly Supplement) in FBIS-CPP20011127000104. Probably more authoritative is “Indonesian and Chinese Firms

Sign Major Energy Deals,” Associated Press, September 26, 2002, in Alexander’s 7, no. 20 (October 15,

2002), which quotes Indonesian and Chinese officials reporting that their national companies signed

six memoranda of understanding “worth hundreds of millions of dollars to cooperate in [Indonesia’s] oil, mining and power sectors.” Details are in Johannes Simbolon, “RI, China Firms Sign Major

Deals on Energy,” The Jakarta Post, September 26, 2002, in FBIS-SEP20020926000002. 131 “Iran to Allow Chinese Oil Giant to Explore Near Tehran,” Iranian News Agency, January 13,

2001, in FBIS-IAP20010113000002. “Iran is Working to Attract Investment from India and China,”

AFP, in Alexander’s 7, no. 23 (November 27, 2002), also notes that “Iran holds an estimated 18 percent

of the world’s natural gas reserves.” 132 Han Rongliang, “China to Build Three Channels for West-East Electricity Transmission,” Renmin Ribao Radio, March 20, 2002, in FBIS-CPP20020320000090.

ENDNOTES 85
133 “More Schemes Unveiled to Tap Yangtze Hydropower Resources,” China Daily, February 12,

2003, in FBIS-CPP20030213000014. 134 “China to Make Investment for Three Gorges Power Transmission,” Xinhua, October 31,

2002, in Alexander’s 7, no. 23 (November 27, 2002). 135 “World’s Largest Hydropower Station Launched in China,” Renmin Ribao, October 25, 2002,

in FBIS-CPP20021025000062. 136 Manning, 97–98. 137 “China-Built Nuclear Generator Unit Operational,” Xinhua, August 16, 2002, in FBISCPP20020816000085; “China’s 1st Heavy Water Generator Starts Working,” China Daily, November

20, 2002. 138 “Winshan Nuclear Power Plant Begins 2d Phase Operations,” Xinhua, February 6, 2002, in

FBIS-CPP20010106000095 and “China-Made Nuclear Plant Runs for Commercial Use,” Xinhua,

April 19, 2002, in FBIS-CPP20020419000041; “Three Nuke Power Plants Ready for Use this Year,”

People’s Daily, January 31, 2002, accessed at <www.english.peopledaily.com.cn/200201/>. 139 Li Nanling, “Lingao Nuclear Power Station Loads Fuel, Begins Trial Run,” Xinhua (Hong

Kong), December 9, 2002, in FBIS-CPP20011209000050. 140 Xie Ye, “China to Build New Nuclear Power Plants in Coastal Provinces,” China Daily, March

13, 2001, in FBIS-CPP20010313000061, and “More Nuke Power on the Way,” China Daily, December

17, 2001, in FBIS-CPP20011217000025. 141 Xie Ye, “New Nuke Power Plant Planned,” China Daily, January 11, 2003, in FBISCPP20030111000023, reporting that Zhejiang Province had applied to Beijing to build a “U.S. $2 billion nuclear power plant” in 2004. 142 “China’s Nuclear Power Capacity to Keep Rising,” Xinhua, October 23, 2002, in FBISCPP20021023000137. “Construction of Nuclear Power Plant Completed in Shenzhen,” Xinhua, January 8, 2003, in FBIS-CPP20030108000065, reports completion of Guangdong Province’s second 2-

million-kW nuclear power plant. 143 “China’s 1st Heavy Water Generator Starts Working,” China Daily, November 20, 2002, also

notes that the power company is negotiating with the government for tax breaks based on the fact

“given nuclear power is cleaner energy compared with thermal power.” “State of the Art Reactor Faces

an Uncertain Future,” AFP, in the South China Morning Post, November 21, 2002, reported (probably

erroneously) that the third plant at Qinshan began producing power in November and expanded on

the company’s appeal to the government and difficulty in repaying its construction loans. 144 Liu Jiang and Han Song, “China’s New-Generation Nuclear Reactor Successfully Connects to

Power Grid in Full Capacity for Generating Electricity in Beijing,” Xinhua, March 1, 2003, in FBISCPP20030301000081, is mistitled, since the plant is intended initially for experimentation and personnel training. 145 “Russia to Continue Building Nuclear Power Plants Abroad,” ITAR–TASS, March 27, 2002, in

FBIS-CEP20020327000315. Also see, for instance, “Russians to Start Supplying Equipment for Chinese Nuclear Power Plant,” Russian Information Agency (Moscow), in FBIS-CEP20010918000085;

Andrei Kirilov, “Specialists Install Nuclear Reactor in China,” ITAR–TASS, April 20, 2002, in FBISCEP20020420000045; finally, Russia announced it would bid on additional nuclear power plant construction in China in “Russia’s Atomic Energy Minister Visits China,” ITAR–TASS, July 8, 2002, in

FBIS-CEP20020708000036. 146 Manning, 98–100. 147 “Analysts Say China Making ‘Immense’ Progress Producing Nuclear Power Equipment,” Xinhua, March 30, 2002, in FBIS-CPP20020330000089, reports successful manufacture of “reactor components” for the second phase of the Qinshan power plant, but the very celebratory tenor of this report bespeaks the nascent nature of this industrial capability in China—especially in view of the

more authoritative reports that this equipment was obtained from Canada. 148 “Fujian Province to Build Wind-Generated Power Plants,” Xinhua, in Alexander’s 8, no. 4

(February 20, 2003). 149 “CLP to Build China’s Largest Wind Power Plant in Guangdong,” SinoCast, January 15, 2003,

in Alexander’s 8, no. 2 (February 6, 2003). 150 “China to Halve Value-Added Levy on Wind Power Generation,” Asia Pulse, in Alexander’s 7,

no. 11 (May 29, 2002). 151 “China Has Bright Prospects for Biogas Power Plants,” Asia Pulse, in Alexander’s 6, no. 24

(December 19, 2001), reported that city garbage was being burned as an energy source in Hangzhou

86 “OIL FOR THE LAMPS OF CHINA”
and Guangzhou, as did “Northeast China’s Harbin Builds Waste-Burning Power Plant,” Xinhua, April

7, 2002, in FBIS-CPP20020407000064, with Nanjing, Shanghai, Beijing, Shenzhen, and Beihai planning to follow suit. 152 “China Promoting Ethanol-Based Fuel on Pilot Basis in Five Cities,” Xinhua, June 17, 2002, in

FBIS-CPP20020617000134. 153 Qin Chuan, “Landfill Gas Plan Powers Future Free of Pollution,” China Daily, October 24,

2002, in FBIS-CPP200210240000042, describes a seemingly far-fetched fuel processing scheme but

represents Beijing’s determination to find alternative energy sources. 154 “State Power Corporation of China Invested $18 Billion in Upgrade of Power Grids,” China

Daily, April 8, 2002, in Alexander’s 7, no. 9 (May 3, 2002). 155 “Guangxi Region to Invest in New Power Stations,” Xinhua, August 27, 2002, in Alexander’s 7,

no. 18 (September 19, 2002). The Yunnan plan is in Miccarelli, “China’s Energy Future,” 16. Also see

“Shanghai to Upgrade Power Grid,” Xinhua, February 25, 2003, in FBIS-CPP20030225000229, for

that municipality’s plan to invest $445 million to upgrade its power grid in 2003; and “South China

Province to Regulate Large-Scale Electricity Users,” Xinhua, in Alexander’s 8, no. 5 (March 6, 2003),

for Guandong Province’s plan to improve power grid management. “Shenzen to Invest $325.3 Million

in Electricity Grids,” Xinhua, January 23, 2003, in FBIS-CPP20030122000232, provides details of

Shenzhen’s plan. 156 See Fu Jing, “State Funds Ready to Light Up Rural Towns,” China Daily, February 11, 2003, in

FBIS-CPP20030211000035. 157 “China Reports on Receipt of New Funds in Energy Sector,” The PMA Online Power Report,

August 6, 2002, in Alexander’s 7, no. 16 (August 23, 2002), reported that the power industry received

$11.9 billion and also noted that the coal sector received the smallest amount ($8.3 million) of new

investment funds. 158 “Tibet to Exploit Hydro, Solar Energy,” China Daily, May 23, 2001, in FBISCPP20010523000041, and “Tibet Sets Development Strategy for Power Sector,” Alexander’s 6, no. 24

(December 19, 2001); other projects are discussed in “Most Power Projects in Operation in China’s

Guangxi Region,” “Inner Mongolia and Beijing to Jointly Develop Power Plant Project,” and “China

Lists Planned Power Projects,” all in Asia Pulse (October 24, 2001). The claim about generating power

for this hydropower system is in “China to Build Four Major Hydropower Plants in Southwest,” Xinhua, December 7, 2001, in FBIS-CPP20011207000080; these plants are not scheduled for construction until 2005 and 2006. “Hydropower Plant Operational in Yunnan,” Xinhua, December 14, 2001, in

FBIS-CPP20011214000121. Also see “Eight Power Stations to be Built on Lancang River,” People’s

Daily, January 20, 2002, accessed at <www.english.peopledaily.com.cn>, and “PRC Touts Lancang

River as Energy Base,” Xinhua, January 31, 2002, in FBIS-CPP20020131000071, which also notes that

Thailand and Laos will buy some of this hydropower. 159 “China Set to Improve Investment Environment for Power Industry,” Xinhua, June 28, 2001;

Noah Smith, “Focus on China’s Energy Restructuring Plan,” Kyodo News, August 7, 2001, in FBISJPP20010807000143. The Gansu plan includes an upgrade to the Lanzhou gas-fuelled power plant

and three power grid improvements (“Gansu Power Receives Approval for Four Power Projects,” Interfax Information Services, July 15, 2002, in Alexander’s 7, no. 16 (August 23, 2002). 160 The most concise description of the new distribution infrastructure is in “Profile of China’s

Electric Power Industry,” Asia Pulse, January 6, 2003, in Alexander’s 8, no. 2 (January 24, 2003). Also

see Li Heng, “China Unveils Plan for Power Sector Regrouping,” People’s Daily, October 23, 2002, in

FBIS-CPP20021023000080; “China to Split State Power Corp,” Reuters, in Alexander’s 7, no. 5 (March

6, 2002); Pamela Pun, “Beijing to Set Up Regulatory Body to Draft Policies, Regulate Power Industry,”

Hong Kong iMail, April 19, 2002, in FBIS-CPP20020419000063. Wang Xiangwei, “Top Mainland Official Flees to Avoid Arrest,” South China Morning Post, October 16, 2002, reported that Gao Yan, “the

former president and chief executive” of China’s State Power Corporation, fled China to avoid prosecution for corruption. 161 “China to Invest 360 Billion Yuan in Construction of Power Grids,” Xinhua, in Alexander’s 7,

no. 6 (March 21, 2002). “China’s Shandong Province to Invest in Power Projects,” Asia Pulse, in

Alexander’s 7, no. 3 (February 6, 2002) notes that $1.72 billion will be invested in power projects in

this province in 2002. 162 “China Puts End to Monopoly on Power Industry,” Xinhua, December 30, 2002, in

Alexander’s 8, no. 2 (January 24, 2003).

ENDNOTES 87
163 World Health Organization (1999), accessed at <www.angelfire.com/mi2/pnginc/cctenworst.htm>. 164 “China Issues Latest Technology Policy to Promote Clean Energy,” Interfax Information Services, in Alexander’s 7, no. 16 (August 23, 2002). 165 “China Forecasts on Installed Power Capacity,” Interfax Information Services, May 27, 2002,

in Alexander’s 7, no. 12 (June 13, 2002). 166 “Beijing Paper Examines How New Coal-Burning Boilers to Create Cleaner Air,” Xinhua, October 29, 2002, in FBIS-CPP20021029000109. 167 Tian Xiuzhen, “City Gets Tougher on Emissions,” China Daily, February 26, 2003, in FBISCPP20030226000087, also notes the World Expo planned for Shanghai in 2010. 168 “China Implements ‘Green Project’ for Successful Olympics,” Xinhua, April 11, 2002, in FBISCPP20020411000144. 169 “Beijing to Boost Geothermal Energy Resources,” Interfax Information Services, in

Alexander’s 7, no. 23 (November 27, 2002). 170 See “Seminar Held on ‘Green Light Program’ to Protect Environment, Save Energy,” Xinhua,

September 18, 2001, in FBIS-CPP20010919000001; “Beijing to Develop Pollution-Free Energy, Cut

Coal Consumption,” Xinhua, February 24, 2002, in FBIS-CPP20020224000013. 171 Tian Xiuzhen, “Pollution, Energy Top Concerns for Shanghai,” China Daily, November 8,

2000, in FBIS-CPP20002208000032. 172 “China Begins Construction on 4,200-Kilometer Long Gas Pipeline Project,” Xinhua, July 4,

2002, in FBIS-CPP20020704000141, is too optimistic, but shows that environmental improvement is

becoming a more prominent concern in China’s energy infrastructure plans. 173 Cited in Barbara A. Finamore, “Taming the Dragon Heads: Controlling Air Emissions from

Power Plants in China” (Taipei: Natural Resources Defense Council, June 2000).

174 “More Small, Eco-Friendly Hydropower Stations Built in Rural China,” Xinhua, February 1,

2002, in FBIS-CPP20020201000069. 175 Liang Chao, “U.S. $3.6 Billion Pledged for Water Projects,” China Daily, February 26, 2003, in

FBIS-CPP20030226000092. 176 Luan Shengji and Hong Yang, “Water Security Problem in the 21st Century,” Keji Ribao [Science and Technology Daily], March 9, 1998, in FBIS-CHI-98-217. 177 “Northern PRC Cities Facing ‘Serious’ Water Shortage,” Xinhua, April 2, 2002, in FBISCPP20020402000170; Zhu Ronghji, quoted in “Chinese Premier Unveils ‘Green Plan’,” March 5, 2001,

accessed at <www.cnn.com./news>. 178 Xie Ye, “Firms Thirst After Canal Project,” China Daily (Business Weekly Supplement), November 19, 2000, in FBIS-CPP20001119000015. The desalination scheme is discussed in “China Develops Nuclear Powered Heating and Desalination,” Xinhua, June 20, 2002. “West Route of Water Diversion Project to Start in 2010,” Xinhua, August 18, 2002, in FBIS-CPP20020818000047, provides

some additional but still sketchy details, including an estimated cost of approximately $41 billion for

two of the three routes; Miccarelli, “China’s ‘Three Canals’: The Impact of China’s Water Diversion

Project,” VIC (May 9, 2001), gives $30 billion as the cost. Both of these figures are almost certain to be

exceeded in such an unprecedented project. 179 “Lancang-Mekong River Opens to Navigation in China, Laos, Burma, Thailand,” Xinhua,

June 26, 2001, in CPP20010626000018; “China to Help Myanmar, Laos Dredge Mekong River,” Xinhua, June 28, 2001, in FBIS-CPP20010628000151; and “Project to Improve Navigation Route

Through China, Burma, Laos, Thailand, Cambodia, Vietnam,” Xinhua, March 30, 2002, in FBISCPP20020330000095, all reflect both the sensitivity of plans to affect the course of these rivers, and

Beijing’s plan to defuse opposition. 180 “China to Provide Information on Mekong River to Downstream States,” Xinhua, April 1,

2002, in FBIS-CPP20020401000024; “Six Mekong Countries Sign Regional Power Trade Accord,” Xinhua, November 3, 2002, in FBIS-CPP20021103000055. 181 “China to Offer Hydrological Data to Mekong River Commission,” Xinhua, June 12, 2002, in

FBIS-CPP20020612000068; “GMS Cooperation Meeting Opens in Kunming,” Xinhua, June 8, 2002,

in FBIS-CPP20020608000071. 182 “Work Begins on First Overseas-Funded Hydropower Station on Huang He,” Xinhua, September 25, 2002, in FBIS-CPP20020925000218. “CNPC and Power Technology Forge Ahead on Targets,” PWTC/APMT, June 6, 2002, in Alexander’s 7, no. 13 (June 27, 2002), reports China’s attempts to

secure advanced welding technologies to improve pipeline safety and durability.

88 “OIL FOR THE LAMPS OF CHINA”
183 Li Dadong, director of the China Petrochemical Industry Scientific Research Institute, quoted

in “China to Vigorously Develop its Clean Fuel Technology,” AsiaPort, in Alexander’s 6, no. 24 (December 19, 2001), discusses alternate automotive fuels; “Many Chinese Cities Generate Power by Rubbish and Marsh Gas,” AsiaPort, in Alexander’s 6, no. 20 (October 24, 2001); “Western China Area May

Also Use Renewable and Green Energy,” Asia Pulse, in Alexander’s 6, no. 18 (September 25, 2001);

“Hebei Province Farmers Benefit From Straw Gasified Power,” Xinhua, March 12, 2001, in FBISCPP20010312000163; “China Develops Green Hydrogen Energy,” Xinhua, January 17, 2002, in FBISCPP20020117000164, discusses various projects—especially a joint venture with a Canadian company—to develop fuel cell technology, which “will not produce any pollutant.” Also see “Tibet

Leading China in Solar Energy Use,” Xinhua, December 15, 2001, in FBIS-CPP20011215000038,

which notes that this development “helps protect the fragile ecological system in the region.” 184 “APEC Workshop in Beijing,” Xinhua, in Alexander’s 5, no. 20 (November 1, 2000). 185 High-parametric refers to a technology for increasing the efficiency of converting fuel to heat;

desulfurization of coal allows it to be burned more efficiently and cleanly; extra-high voltage transmission technologies improve the efficiency of the power distribution system.“Energy at a Glance,” accessed at <www.eia.doe.gov/emeu/cabs/china/eglance.html>. 186 “China Set to Remain Asia’s Hotspot for Oil and Gas Exploration,” Reuters, in Alexander’s 6,

no. 20 (October 24, 2001). 187 The World Bank classifies China as a “developing country” for the purposes of energy estimates. Foreign investment has played a critical role in financing the expansion of China’s electric

power infrastructure and is expected to play an even more important role in the future. Cited in

<www.eia.doe.gov/oiaf/archive/ieo00/boxtext.html>. 188 Phar Kim Beng gives the 1-month figure in “Oil Needs Drive China West,” Asia Times, November 20, 2002, 2, accessed at <www.atimes.com/atimes/printN.html>. Liu Keyu of the Petroleum

Economics and Information Center of CNPC projects stockpile goals of 20 days supply in 2005, 50

days in 2010, and 90 days in 2020 (VIC, “Asia Pacific Daily Summary,” September 16, 2002). 189 Peng Kailei, “China to Increase Strategic Oil Reserve,” Wen Wei Po (Hong Kong), September

19, 2002, in FBIS-CPP200209190000043; “China Plans Oil Stockpile,” China Daily, accessed at

<www.china.org.cn/english/2002/Sep/43358.htm>, cites a “government official from the State Council regarding concern about tension in the Middle East.” 190 “China Sets Principal Tasks for Upgrading of Petroleum Industry,” Xinhua, September 27,

2002, in Alexander’s 7, no. 20 (October 15, 2002), also lists priority areas for applying new technologies and priorities for research and development. 191 “China’s ‘West Electricity for East’ Program Begins in Sichuan,” Xinhua, June 1, 2002, in FBISCPP20020601000004. 192 “Japan, China Strike 5-Year Oil, Coal Trade Deal.” 193 “China’s Energy Demand Now Exceeds Domestic Supply,” DOE–EIA, accessed at

<www.eia.doe.gov/emeu/cabs/china/part2.html#ENERGY>. 194 Ibid. 195 “China Sets Up Oil Company for Inland River Shipping,” Xinhua, November 12, 2001, in

FBIS-CPP20011112000176; “China to Construct Larger Oil Wharves to Meet Importation Demand,”

Xinhua, January 24, 2002, in FBIS-CPP20020124000045. Also see “Oil Wharf Upgrading Begins at

Zhanjiang Port in South China,” Xinhua, October 18, 2000, in FBIS-CPP20001018000203; “Two

Companies Present LNG Carrier Designs to Chinese Shipyards,” Maritimepress, in Alexander’s 6, no.

20 (October 24, 2001). 196 Liu Jipeng, “a power-reform expert” involved in drafting the national plan, quoted in Zhang

Dong, “Power-Industry Reform Looms,” China Daily (Hong Kong), September 10, 2002, in FBISCPP20020910000067. 197 “China’s Energy Conservation,” Xinhua, in Alexander’s 6, no. 24 (December 19, 2001), expresses Beijing’s concern; Fu Jing, “State Stresses Importance of Energy Education,” China Daily, December 17, 2001, in FBIS-CPP20011217000018, notes the government goal of “an annual 4 to 5 per

cent energy-saving rate” and announces “massive publicity campaigns, education and training in this

endeavor.” 198 “China Imports of Crude Have Almost Doubled,” Alexander’s 5, no. 21 (November 16, 2000);

“China Reports on Crude Oil Imports,” Xinhua, January 11, 2001, in Alexander’s 6, no. 1, reports that

China crude oil imports for the first 11 months of 2000 were 97 percent more than during the same

period in 1999.

ENDNOTES 89
199 “Marked Increase in Oil Exports to China,” Iranian News Agency (Tehran), December 11,

2001, in FBIS-IAP20011211000038, also reported that Iran’s exports in 2001 represented a 60 percent

increase over the same period in 1999. “China and Ukraine Trying to Set Their Foot Strongly in

Oman,” Times (Oman), April 24, 2002, in Alexander’s 7, no. 10 (May 16, 2002), reported that Sinopec

intended expanding its activities in the country. This data is in metric tons (2,204 pounds). 200 “Beijing Posts Sharp Increase in Auto Sales,” Xinhua, January 30, 2003, in FBISCPP20030130000071; “Fueling China’s Growth,” The New York Times, December 26, 2000. 201 Manning, 104. 202 Ibid., 105. 203 “NPC Deputy Expects 150 Million Chinese Families to Buy Cars in Next 15 Years,” Xinhua,

March 12, 2003, quotes Chen Hong, “vice-president of Shanghai Automotive Industry Corporation

Group.” For environmental concerns, see “Beijing Encourages Use of Green Fuel,” Xinhua, in Alexander’s 7, no. 6 (March 21, 2002), which also reported that “the number of automobiles in Beijing has

grown by more than 10 percent every year”; “China to Invest $120 mm in Developing Clean Motors,”

Xinhua, November 13, 2002. 204 For instance, see “State Council Calls for Protection against Capricious Oil Market,” January

2, 2001, accessed at <www.chinaonline.com/topstories/010102/1/B100122933.Asia>. Also see “PRC

Researcher Notes Effect of Rocketing Oil Prices,” China Internet Information Center, November 1,

2000, in FBIS-CPP20001102000026, which reports that the CNPC, Sinopec, and CNOOC all reported billions of dollars in losses for 1998 because of decreasing petroleum prices. 205 “China’s Largest Offshore Oilfield Found in Bohai Sea,” Xinhua, February 1, 2000, in FBISFTS20000201000037. 206 “China to Invest in Offshore Oil Exploration in Next Five Years,” Newspage, and “China’s

Largest Offshore Oilfield to Start Producing in 2002,” accessed at <www.Chinadaily.com.cn>, both in

Alexander’s 6, no. 1 (January 11, 2001): this report notes Phillips’ share as $14.5 billion, an obvious

exaggeration. 207 “China to Close More Small Oil Refineries,” AFP, cited in Alexander’s 5, no. 7 (April 27, 2000),

reports Beijing’s concern about the number of small refineries that have resulted in an approximately

30 percent surplus in refining capacity. 208 Chen Geng, director of the State Administration of Petroleum and Chemical Industries,

quoted in “China to Take Measures to Control Petroleum Consumption,” Xinhua, January 11, 2001,

in Alexander’s 6, no. 1 (January 11, 2001). 209 See, for instance, Mai Tian, “Oil Reserves Plan in Pipeline,” China Daily, January 20, 2003, in

FBIS-CPP20030121000021; and “Chinese Government Builds Up Oil Stockpile,” Weweipo News, February 25, 2003, in VIC, “Asia-Pacific Daily News Summary.” 210 “Chinese Government May Establish a 10-Billion Dollar Oil Fund,” China Daily, March 3,

2003; “China to Build Two 2-Million Cubic Meter Strategic Oil Reserves,” China Times, March 9, 2003. 211 Niu Li, quoted in Xu Dashan, “Oil Reserve System Urgently Needed,” China Daily, February

18, 2002, in FBIS-CPP20020218000024. See “China to Close More Small Oil Refineries” for a discussion of Beijing’s decision to establish a strategic oil reserve. Sinopec president Wu Ruilin, quoted in

Associated Press report, March 9, 2000, in Alexander’s 5, no. 7 (April 27, 2000). 212 Discussed in “Q & A on Oil Issues,” China Daily (Hong Kong), November 20, 2000, in FBISCPP20001120000031. “Market Survey on Natural Gas Import From Siberia,” Xinhua, November 25,

2002, in VIC, “Asia-Pacific Daily News Summary,” notes that a “market survey will start in the near

future” to assess the profitability of importing Russian natural gas. 213 Chen Shihai, quoted in “China Plans to Launch State Strategic Oil Stockpile,” People’s Daily

Online, in Alexander’s 6, no. 15 (August 14, 2001). The 30-day estimate and cost figures are in Miccarelli, “China’s Energy Future,” 9. 214 Song Wucheng, Ding Guosheng, and David Johnson, quoted in Gong Zhengzheng, “Analysts

Urge State Oil Stockpile,” China Daily, October 25, 2001, in FBIS-CPP20011025000042. Also see

“China to Set Up Mineral Resources Reserve, Supply System,” Xinhua, December 23, 2000, in FBISCPP20001223000056. 215 “China Puts Off Fuel-Oil Futures Exchange Till 2003,” China Daily, accessed at <www1.china

daily.com.cn/news/cb/2002-10-28/91373.html>, reported that the China Securities Regulatory Commission is evaluating a proposal for this activity before making a recommendation to the State Council. 216 Xie Ye, “Oil Future Market Mooted,” China Daily, February 22, 2002, in FBISCPP20020222000030.

90 “OIL FOR THE LAMPS OF CHINA”
217 “China Government Poised to Open Up Gas Market,” China Daily, December 10, 2002, noted

that this was accompanied by the qualification that local governments along the pipeline had to agree. 218 “China to Abolish System of Fuel Oil Import Quotas by 2004,” Reuters, cited in Alexander’s 6,

no. 1 (January 11, 2001), reports that less fuel oil was imported in 2000 than in 1999, although crude

oil imports increased—which probably reflects greater or more efficient refining capacity in China.

See Liu Ming, “Oil Industry Needs Reform for WTO Entry,” China Daily, December 5, 2000, in FBISCPP20001205000013, for a discussion of how Beijing is addressing the question of import quotas because of pending entry into the World Trade Organization. 219 “China Likely to Open Market for Refined Oil Products,” RiskCentre, June 5, 2002, in Alexander’s 7, no. 13 (June 27, 2002), discusses Sinopec joint ventures with Shell, ExxonMobil, and BP to operate gas stations in Jiangsu, Zhejiang, and Guangdong Provinces. Also see Xie Ye, “Sinopec Stock

Issue Expected to Accelerate Breakup of State Oil Monopoly,” China Daily (Business Weekly Supplement), November 5, 2000, in FBIS-CPP20001105000005; “China’s Two Flagship Oil Companies Cast

Oil Safety Line to Meet WTO Pledges,” Xinhua, March 29, 2002, in FBIS-CPP20020329000114. Also

see “Chinese Oil Majors to Reform Energy Sector Through Overseas Listings,” Reuters, quoted in

Alexander’s 5, no. 20 (November 1, 2000). 220 “China Shuts Down Illegal Gas Stations,” People’s Daily, in Alexander’s 8, no. 2 (January 24,

2003), reports that almost 5,000 gas stations were shut down in 2002. “PetroChina Calls for Law to

Regulate Gas-Station Franchising,” People’s Daily, July 31, 2002, in Alexander’s 7, no. 16 (August 23,

2002), states that this company owns “about 2,000 franchised stations,” while rival Sinopec owns

4,000.221 “Sinopec and PetroChina Still Dominate China’s Gas Station Market,” SinoCast, in

Alexander’s 8, no. 3 (February 6, 2003); “BP to Build 1,000 Petrol Stations in China,” Neftegaz.RU, in

Alexander’s 8, no. 4 (February 20, 2003). 222 “Experts Discuss Prospects of China’s Oil Industry,” Xinhua, November 1, 2001, in FBISCPP20011101000215. A different point of view is offered in Xie Ye, “China’s Oil Imports Not to

Shock Domestic Market After Ban Lifted,” China Daily, November 13, 2001, in FBISCPP20011114000017. 223 Xie Ye, “China to Open Oil Product Markets to Overseas Companies,” China Daily, December

15, 2001, in FBIS-CPP20001215000022; and “China’s Tightly-Controlled Refined Oil Market to Open

Wider,” China Daily, June 3, 2002, in FBIS-CPP20020603000021. 224 “Import Quotas for Oil to Rise 15%,” China Daily, August 2, 2002, accessed at <www.china

daily.com.cn>. 225 Peter Marber, “China’s Energy Sector: Cheap But Don’t Rush In,” quoted in Alexander’s 5, no.

21 (November 16, 2000), writing about the effects on China’s energy sector of joining the World

Trade Organization. Phillips, Exxon, Mobil, BP Amoco, and Shell were all early bidders. 226 Chen Huai, “Active Role Needed in Oil,” China Daily, July 7, 2002, in FBISCPP20020707000018. Chen, deputy director of the Market Economy Institute of the Development

and Research Center of the State Council, urges China to be active in the futures market for petroleum products and establish “a huge reserve of oil forward contracts” with foreign oilfields. 227 “China is Actively Exploring International Oil Markets,” Xinhua, in Alexander’s 4, no. 7 (July

19, 1999). Also see “Sudan: Chinese Electricity Firm Negotiating Projects with Energy Ministry,” Suna

News Agency, May 15, 2001, in FBIS-AFP20010516000021. 228 “China’s National Defense In 2002 ‘White Paper,’” December 9, 2002, 34, accessed at

<www.china-embassy.org/eng/38991.html>. 229 Ibid., 6. 230 Yang Ron, “Perspective on Hot Spots,” Zhongguo Kongjun, February 1, 1998, 4–6, in FBISFTS20000113001050, clearly envisions the United States as the would-be attacker. 231 Philip T. Reeker, U.S. Department of State press statement, September 11, 2002. Also see

Richard L. Armitage, “Statement at Conclusion of China Visit,” Beijing, August 26, 2002. 232 “Earnestly Strengthen Protection of Oil, Natural Gas Pipelines, Facilities,” Xinhua, August 9,

2001, in FBIS-CPP20010809000116, notes that the original regulation was promulgated in 1989; this

edition of Xinhua describes the revised regulation as “State Council Decree No. 313 of the PRC.” 233 “Four Sentenced to Death in Beijing for Destroying Power Lines,” AFP, April 19, 2002, in

FBIS-CPP20020419000058. 234 “China is No Threat to America—For Now,” Guardian Unlimited, in Alexander’s 7, no. 9 (May

3, 2002), based partially on World Bank estimates.

ENDNOTES 91
235 John Pomfret, “Chinese Oil Country Simmers as Workers Protest Cost-Cutting: Thousands

Laid Off, Benefits Reduced,” The Washington Post, March 17, 2002, A24, and Mark O’Neill, “Nearly

80,000 Daqing City Oil Workers Laid Off Since 2000,” South China Morning Post, April 10, 2002, in

FBIS-CPP20020410000048. Also, Robert J. Saiget, “PRC Factory, Oil Workers Protest in Northeast,”

AFP, March 18, 2002, in FBIS-CPP20020318000109, gives the figure of 80,000 laid off. According to

Beijing, Daqing produced 51.5 million tons of crude oil in 2001, the 26th consecutive year of producing 50 million or more tons (“China’s Oil Giant Reports High Output for 26 Straight Years,” Xinhua,

December 31, 2001, in FBIS-CPP20011231000120). For just two reports on the demonstrations, see

“Further on 50,000 Oil Workers Protest,” AFP, March 13, 2002, in FBIS-CPP20020313000158. 236 “Curfew Imposed Following Demonstration Staged by 50,000 Workers,” Sing Tao Jih Pao

(Hong Kong), in FBIS-CPP20020320000066. 237 See Larry Wortzel, “Beijing Struggles to ‘Ride the Tiger of Liberalisation’,” Jane’s Intelligence

Review, January 1, 2001, for the best compilation of recent incidents of civilian unrest. 238 This was reported in “Laid-Off Workers Demonstrate in Shanxi,” Information Center for

Human Rights & Democracy (Hong Kong), June 6, 2002, in FBIS-CPP20020607000038, 1. This report

also stated that “30,000 workers in 20 factories in Liaoyang City, Liaoyang Province, staged a joint

demonstration between 17 and 20 March.” 239 Statement by Far Eastern Economic Review correspondent, December 18, 2002. Reported in

James Kynge, “Riots in Chinese Mining Town,” The Financial Times, April 3, 2000, and “20,000 Go On

Rampage Over Mine Closure,” Associated Press, in the South China Morning Post, April 3, 2000;

“APRC Riot Police Break Up Protest in Guiyang,” AFP, March 29, 2000, in FBIS-CHI-2000-0329.

These reports were brought to my attention by Dennis Blasko. 240 “Jiang Zemin, A Report to CPC National Congress,” November 8, 2002, accessed at

<www.china.embassy-org/eng/index.html>. 241 One associated mission in which the United States is playing only a peripheral role is that of

combating piracy, an age-old problem in the region, most particularly in Southeast Asian waters; the

nations of that region, however, have established an antipiracy organization that has precluded the

necessity of the United States taking a leading role in the effort. This center and its activities are discussed in “Japan-China-S.E. Asia,” LLP Press, May 4, 2000, accessed at <www.maritimesecurity.com/

archive/aprilmay2000_anti_piracy _efforts.htm>. 242 Among these border agreements reported in China’s National Defense in 2002 “White Paper”

are the “Beibu Gulf [Gulf of Tonkin] Demarcation Agreement with Vietnam” (December 2000), the

“Supplementary Agreement on the [Tajik-PRC] Boundary” with Tajikistan (May 2002), frontier cooperation agreements with Russia (1995) and Mongolia, and a “Frontier Defense Cooperation Agreement” with Kazakhstan (January 2002). See “China and ASEAN Sign Spratlys Deal,” Associated Press

report, in Alexander’s 7, no. 23 (November 27, 2002), for account of China and the ASEAN nations

(Indonesia, Brunei, Singapore, Malaysia, Thailand, Vietnam, Laos, Cambodia, Burma, and the Philippines) signing a “Declaration on the Conduct of Parties in the South China Sea” designed to reduce

the chances of military conflict over disputed territorial claims. 243 “China, Kyrgyzstan Sign Anti-Terrorism Agreement,” Xinhua, December 11, 2002, in VIC,

“Asia-Pacific Daily News Summary.” 244 Wan Yanxian, Nian Hongtu, and Liang Yongli, “For Peace and Tranquility: A Talk with MG

Liu Dengyun,” Jiefangjun Bao, October 12, 2002, in FBIS-CPP20021012000012. 245 First announced in “Shanghai Cooperation Organization Approves Center for Anti-terror,”

China Daily, June 8, 2002, accessed at <www.china.org.cn/english/FR/34120.htm>, but apparently

not approved until the fall of 2002: see “Agree to Establish Antiterrorism Headquarters and Secretariat,” Xinhua, November 23, 2002, accessed at <http://news.xinhuanet.com/newscenter/2002-

11/23/content_638851.htm>. 246 For instance, see Wang Jinguo and Yang Shu, “U.S. Enters Central Asia and the Caspian Sea

for Oil and Gas,” Renmin Ribao, May 13, 2002, in FBIS-CPP20020514000040. 247 See Philip Andrews-Speed et al., The Strategic Implications of China’s Energy Needs, Adelphi

Paper 346 (London: International Institute of Strategic Studies, 2002), 35 ff., for a brief discussion of

pipeline construction. 248 “China Outlines Strategic Pattern of Natural Gas Development,” People’s Daily, in Alexander’s

7, no. 23 (November 27, 2002), 1, which also included a CNPC report that China has signed a “protocol” with Russia for purchasing 20 billion cubic meters of natural gas annually, beginning in 2008.

92 “OIL FOR THE LAMPS OF CHINA”
249 “China’s ‘Longest’ Oil Pipeline Begins Trial Run,” Xinhua, November 10, 2002, in FBISCPP20021110000058. By comparison, the Alaska pipeline is 800 miles long and cost $8 billion to

build in 1977; the proposed Angarsk-to-Daqing line is projected to cost $2 billion, with another $5

billion required to develop the associated Russian gas deposits (Varvara Aglamishyan, “China Gives

Go-Ahead for Deliveries of Russian Gas,” Nezavisimaya Gazeta, October 23, 2002, 3, in FBISCEP20021024000180). 250 Zhang Zhiheng, CCP Secretary in Xinjiang Autonomous Region, quoted in “China’s Gas Line

Is on the Way,” The Age Company, June 6, 2002, in Alexander’s 7, no. 13 (June 27, 2002). These security concerns are addressed at length in Peter S. Goodman, “A Pipeline to the Future, Clogged by

China’s Past?” The Washington Post, August 20, 2002, E1. 251 Eight additional Kilos are on order from Moscow, and at least two more Songs are under construction. The 16 Mings and dozens of the Romeos remain seaworthy, but the PLAN will not be able

to train enough crews to operate all of them effectively. 252 The PLAN execution of the traditional naval mission of presence is detailed in Kenneth W.

Allen and Eric A. McVadon, China’s Foreign Military Relations (Washington, DC: The Henry L. Stimson Center, 1999); circumnavigation is addressed in many reports contained in “PLAN World Cruise

2002: Special Report,” VIC, “Asia-Pacific Daily News Summary” (September 23, 2002). 253 There is a large literature on this subject; see Samuel Eliot Morison, The History of U.S. Naval

Operations in World War II, vol. I: The Battle of the Atlantic (Boston: Little Brown, 1947), for an account of the German navy’s dramatically successful submarine campaign against coastal traffic off

the eastern U.S. and Caribbean coasts in 1942 and 1943. 254 Shigeo Hiramatsu, “China’s Naval Advance: Objectives and Capabilities,” Japan Review of International Affairs 8, no. 2 (Spring 1944), 126. 255 Admiral Shi Yunsheng (commander of the PLAN), quoted in “Jiang Made the Final Decision

on Adopting Offshore Defense Strategy,” Tung Fang Jih Pao (Hong Kong), August 24, 2001, in FBISCPP20010824000062. 256 Cited in “International Maritime Bureau Reports 57 Percent Increase in Pirate Attacks,” The

Sun (Vancouver), February 3, 2001, in Alexander’s 6, no. 4 (February 22, 2001), 1; the $25 billion figure is in “Asia Piracy,” Reuters (Singapore), December 10, 2002, in VIC, “Asia-Pacific Daily News

Summary” (December 10, 2002). The most complete single source of information about the piracy

problem is “Primer: Piracy in Asia,” VIC (April 8, 2002). 257 Discussed in “Pakistan, China to Ink Accord for Gwadar Port Construction,” The News (Islamabad), August 8, 2002, in FBIS-SAP20010808000048. 258 J. Mohan Malik, “Sino-Indian Rivalry in Myanmar,” Contemporary Southeast Asia 16, no. 2

(September 1994), 137–155, presents an extreme view of a “de facto military alliance” between China

and Burma. A less alarmist view is presented by William Ashton, “Chinese Bases in Burma—Fact or

Fiction?” Jane’s Intelligence Review 7, no. 2 (February 1995), 84–87. The author views the relationship

as extensive but focused more on economic than military priorities, based on conversations with U.S.,

Chinese, Indian, and Taiwan analysts. 259 “Indian Navy Exercises Seen to Irk Beijing,” The Washington Times, May 8, 2000, 1. 260 Ship numbers are from A.D. Baker III, ed., Combat Fleets of the World 2002–2003 (Annapolis:

Naval Institute Press, 2002). Reports have occasionally surfaced about India deploying nuclear-powered submarines—a Charlie-class was on loan from Russia for several years—but it is much more

likely that both the Indian and Pakistani navies will restrict themselves to new submarines powered

by air independent propulsion systems. 261 For instance, see “Wang Shijie Says China Vows to Remain Active in Middle East Peace

Process,” AFP (Hong Kong), November 21, 2002, in FBIS-CPP20021121000024. 262 See John H. Noer with David Gregory, Chokepoints: Maritime Economic Concerns in Southeast

Asia (Washington, DC: National Defense University Press, in cooperation with the Center for Naval

Analyses, 1996), for cost estimates. 263 For a dissenting view, see Gordon G.G. Chang, The Coming Collapse of China (New York:

Random House, 2001). 264 The data used as the basis for this survey should be periodically updated if China’s economy

continues to expand, as expected. The following section draws on the excellent EIA report, “China’s

Energy Production and Consumption,” in “China: An Energy Sector Overview, 1997” (December

1997), accessed at <www.eia.doe.gov/emeu/cabs/china/part2.html#ENERGY>; and EIA, “International Energy Outlook 2002, accessed at <www.eia.doe.gov/oiaf/ieo/tbl_bl.html>.

ENDNOTES 93
265 “China’s Modernization May be Slowed Down by Oil Shortage,” People’s Daily, in Alexander’s

6, no. 15 (August 14, 2001). 266 This estimate is from “World Energy Outlook 2000,” International Energy Agency, accessed at

<www.cna.ca/english/Articles/Electricity%20in%20China.pdf>, 2. Actual numbers offered by various

Department of Energy, Chinese government, and commercial sources differ, but all agree on the magnitude of the expected increases in electrical production and consumption. 267 “China Petrochemical Speeds Up Exploration in Northwest China,” Reuters, in Alexander’s 7,

no. 3 (February 6, 2002). 268 Tian Fengshan, cited in “China Spells Out New Strategy for Oil Exploration,” Xinhua, April

18, 2002, in FBIS-CPP20020418000199, and “Land Minister on China’s Potential in Oil, Gas Exploration,” Xinhua, April 18, 2002, in FBIS-CPP20020418000157, also claimed that only 25 percent of

China’s onshore oil deposits and 20 percent of offshore deposits had been explored. A different opinion is given by Yao Guanming of the Chinese Academy of Engineering, who stated that the country

has plentiful domestic reserves, with enough crude oil to be Acontinuously exploited” to 2063, and

natural gas to the 22d century (“Will China’s Oil and Gas Resources Be Depleted,” Keji Ribao, July 11,

2002, in FBIS-CPP20020729000142). 269 People’s Daily, February 12, 2003, in Alexander’s 8, no. 5 (March 6, 2003), reported the ministry figures and repeated that 2002 oil imports were 15 percent above those for 2001. 270 Yu Fei, “State Oceanic Administration: China to Launch Marine Satellite in 2001,” Xinhua

(Hong Kong), October 26, 2000, in FBIS-CPP20001026000072. 271 See, for instance, Shigeo Hiramatsu, “Speculation Regarding the Appearance of Chinese Ships

in Japanese Waters—Petroleum Resources Surveys or Military Strategy?” Ekonomisuto (Tokyo),

March 19, 2002, in FBIS-JPP20020312000076. For a brief report of Beijing’s diplomatic and economic activities in the South Pacific, see “Special Report: An Analysis of Chinese Activity in Oceania,”

VIC (November 5, 2002); Chinese aid to the region (approximately $300 million) has quadrupled

since 1998. In the past few years, China has begun military contacts with Papua New Guinea, established a satellite tracking station in Kiribati, broken New Zealand’s trade monopoly with the Cook Islands, and conducted numerous high-level political visits and exchanges in the region. Beijing has

also secured observer (non-voting) status in the region’s major economic organization, the Pacific Islands Forum (PIF). Former Vanuatu leader Barak Sope was directly responsible for securing China’s

position in the PIF. 272 A good explanation of this promising resource is at <www.woodshole.er.usgs.gov/projectpages/hydrates/>. Also see “Broad Perspective of Gas Hydrates in Offshore Goa,” accessed at

<http://www.dod.nic.in/pro/chapter-16.doc>. 273 “Gas Hydrates to be New Energy in 21st Century,” People’s Daily, December 15, 1999. Jin is

also quoted in “Search for New Energy Resources has Become Imperative,” China Daily, April 29,

2003, in Alexander’s 7, no. 10 (May 16, 2003). 274 “Jiang Zemin, Qadhafi Ink Deal to Open Libyan Oil Sector to PRC Firms,” AFP, April 14,

2002, in FBIS-CPP20020414000057; Cao Xiaoxi, quoted in Xie Ye and Huo Yongzhe, “Oil Giants Map

Out Overseas Takeovers,” China Daily (Business Weekly Supplement), February 5, 2002, in FBISCPP20020205000060. Also see “CNPC Raises 2002 Production Forecast,” Reuters, in Alexander’s 7,

no. 3 (February 6, 2002); “Sinopec Group and Sinochem to Buy Middle East Oil Assets,” Reuters, in

Alexander’s 7, no. 8 (April 18, 2002), also reported that Sinopec has requested permission from

Kuwaiti authorities to join in a $7 billion “Northern Fields” project. Also see “Oman and China Sign

Oil Cooperation Agreements,” Asia Pulse, in Alexander’s 7, no. 8 (April 18, 2002). Sinopec’s plan to invest $525 million in Algeria is reported in “Chinese Company Wins Contract,” Radio Algiers, October

1, 2002, in FBIS-GMP20021001000257. 275 One recent agreement with Venezuela is reported in “Foreign Minister Reports on Four

Agreements Signed with PRC,” Globovision Television (Caracas), December 28, 2001, in FBISLAP20011228000013. 276 “CNPC Wants to Bid for Russia Slavneft,” Reuters, December 4, 2002. 277 “Yukos to Boost Oil Supply to China by Rail,” Commersant, July 26, 2002, in Alexander’s 7, no.

16 (August 23, 2002), reported these amounts as 11 million bbl in 2001, increasing incrementally to

22.1 million bbl in 2005. 278 Cited in Ann Myers Jaffe and Steven W. Lewis, “Beijing’s Oil Diplomacy,” Survival 4, no. 1

(Spring 2002), 125.

94 “OIL FOR THE LAMPS OF CHINA”
279 Huang Yan, president of PetroChina, quoted in “PetroChina May Invest in Russian Pipeline,”

Bloomberg.com, August 30, 2002, in Alexander’s 7, no. 18 (September 19, 2002). 280 “Russia and China May Ink Oil Pipe Deal Next Month,” Reuters, November 20, 2002; “Government to Approve a China-Russia Oil Pipeline Project Soon,” Wenweipo News, in VIC, “Asia-Pacific

Daily News Summary” (November 25, 2002). 281 Huo Yongzhe, “Pipe Dream to Come True for Oil/Gas Transfer,” China Daily (Business

Weekly Supplement), September 10, 2002, in FBIS-CPP20020910000086. 282 An optimistic account of these negotiations is in Alexandre Y. Mansourov, “Russian-Chinese

Strategic Rapprochement: Lessons of History and Outlook for the New Millennium,” Washington

Journal of Modern China 7, no. 2 (Fall-Winter 2001/2002), 29. The $2 billion figure is in Alexandre

Zyuzin, “Russia-China Oil Pipeline Construction to Boost Bilateral Trade,” ITAR–TASS, December 1,

2002, in FBIS-CEP20021201000008, which reports that pipeline construction will start in 2003 and

be completed in 2005, but also notes that the project’s “feasibility study” remains uncompleted. “Assessing China-Russia Oil Pipeline Project,” Takungpao News, December 5, 2002 in VIC, “Asia-Pacific

Daily News Summary,” reports that the pipeline feasibility study had just begun. 283 A good summary of this imbroglio is in “Russia’s Potential Far East Pipelines,” VIC, “Special

Report: Potential Russian Far East Oil Pipelines” (February 20, 2003), accessed at <www.oilandgasinternational.com/departments/development_production/jan03_russia>, but dozens of reports in

Russian, Chinese, and Japanese newspapers have appeared on these pipeline negotiations. See, for instance, “Russian Minister Views Political Aspect of Oil Pipeline Projects,” ITAR–TASS, February 28,

2003, in FBIS-CEP20030228000017; Wang Ling, “China May Approve Adding Japan to Sino-Russian

Oil Pipeline,” China Daily, March 3, 2003, in FBIS-CPP20030303000025; and “Russian President Favors Japan Pipeline Plan Over China’s,” Kyodo News, January 30, 2003, accessed at

<www.asia.news.hahoo.com/030130/kyodo/d7oseeqo2.html>. Also see “Russia-China Oil Pipeline

Project Stalled Because of Internal Politics,” Neftegaz.RU, December 24, 2002, in Alexander’s 8, no. 2

(January 24, 2003), for the probably accurate report that “the major obstacles for the crucial project . . . have become Russia’s high prices and China’s demands for a share in Siberian oilfields.” The

dual-line solution is described in “Russian Oil Pipeline Confirmed to Lead Directly to China,” People’s

Daily, March 18, 2003, despite this article’s misleading title. 284 See, for instance, “Creation of ASEAN Gas Centre Expected to Take Off in 2002,” Manila Bulletin, in Alexander’s 6, no. 24 (December 19, 2001); Manning, 113. 285 “Southeast Asia Needs $180 Billion Investments to Develop its Energy Sector,” The Daily Star,

in Alexander’s 6, no. 5 (March 8, 2001). 286 “Japan, China, and South Korea Hold High-Level Energy Talks,” Kyodo News, in Alexander’s 7,

no. 6 (March 21, 2002). 287 “Asia Will Need $200 billion in Next 10–15 Years to Build Gas Infrastructure,” Gulf News Online, May 22, 2002, in Alexander’s 7, no. 12 (June 13, 2002). 288 “Asian Countries Agree on Coordinated Response to Oil Supply Emergency,” Xinhua, September 22, 2002, in Alexander’s 7, no. 20 (October 15, 2002). The meeting was attended by 65 nations,

plus 10 international organizations; 13 states agreed to form the information-sharing network. This

meeting is also described in “Japan, 12 Other Asian Nations Agree on Oil Supply Info Framework,”

Jiji Press (Tokyo), September 22, 2002, in FBIS-JPP20020922000059. 289 General Office of the State Council, “The Suggestions on Further Rectifying and Standardizing the Market Order of Finished Oil,” Xinhua (Hong Kong), October 25, 2001, in FBISCPP20011025000151. Also see “Refined Oil Prices Drop Again Today,” Xinhua, December 31, 2001, in

FBIS-CPP20011231000160. 290 Xia Qiuju, “State-Owned Oil Company in Liaoning Makes Progress in Restructuring SOEs,”

China Daily, June 10, 2002, in FBIS-CPP20020610000014.

ENDNOTES 95

USGPO : 198-428