Need to reform China’s oil sector

Granting private business the rights to import oil is only the first step in the overdue reform of China’s oil sector, says an article in the 21st Century Business Herald. Excerpts:

State Council is researching the feasibility of lifting the control over oil import. Five private enterprises from Shandong and Hebei may become the first batch of pilot firms.

Allowing private firms to import oil is an important step.

How the control is lifted is important, too. Whether there are quota restrictions for the private importers, and whether the refineries, railway and customs can integrate with the pilot oil importers seamlessly without imposing new restrictions on the market-oriented reform.

The reform will not be complete if the systems for railway, customs and refineries are not changed.  

So, lifting control on oil import is only a beginning. The whole industrial chain, from exploration to transportation and sales, should be opened to private firms that should be cultivated into competitors with the State-owned enterprises (SOEs).

The purpose of the reform is to end SOEs monopoly over the oil industry and better serve the consumers.

The media has reported several times that the authority has considered relaxing control over oil import rights for several times in recent years. But the landscape of the market has not changed.

China increasingly relies on imported oil and gas. The worsening situation in the Middle East and the fluctuation of oil prices make it necessary for Chinese government to improve the efficiency by reforming its oil sector, an industry that directly concerns national security.