The People's Republic of China (China) is the world's most populated country and the second largest energy consumer (after the United States). Production and consumption of coal, its dominant fuel, is the highest in the world. In addition, with international assistance, China is boosting its domestic oil production and adding electric generating capacity to meet energy demand increases associated with rapid economic growth

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BACKGROUND

By virtue of its large population, rapidly growing economy, and status as the largest remaining communist country, China is an important player on the world's stage. Recent economic growth has exceeded population growth, improving the standard of living for the population as a whole; however, development is progressing disproportionately faster in coastal and urban areas (including several duty-free "special economic zones" in which foreign businesses receive tax, investment, and other incentives) than elsewhere in the country. Large state-owned companies dominate the economy. Many of these operate at a loss, and their reform is now a high priority for China's leadership.

The death of China's retired senior leader Deng Xiaoping in February 1997 has had little impact on China's policies or its economic reform program. Major leadership changes are not anticipated before the next Communist party congress (fall 1997).

China's economic progress is proceeding with significant foreign assistance. Since the late 1970s, China has received a total of $177 billion in foreign direct investment, and expects to receive $230-270 billion between 1996 and 2000. China is particularly interested in agriculture, infrastructure, and high-tech projects. China is the largest recipient of World Bank loans -- $26 billion for 170 projects since 1980 and an additional $2.5-3.0 billion annually over the next 3 years. Current World Bank funding priorities are inland transportation, power projects, pollution control, and poverty alleviation.

The United States and China are major trading partners, but this relationship is strained by a range of issues (including human rights, nuclear proliferation and arms sales, trade barriers, and intellectual property rights). In May 1997, U.S. President Bill Clinton announced that he would extend China's "most favored nation" trade status for another year. Other concerns include the size of the U.S. trade deficit with China (second highest, after Japan) and allegations over Chinese campaign contributions in the 1996 elections. Recent steps to assist U.S. companies in expanding their export markets in China include the opening of a Department of Commerce commercial center in Shanghai and the posting of an Export-Import Bank loan officer in Beijing.

A positive step in China's international relations was the signing of the Nuclear Test Ban Treaty in 1996. Regional tensions, however, continue to raise concerns. These include ongoing disputes with Taiwan (which China considers a renegade province) and territorial disputes over potentially hydrocarbon-rich areas of the South China Sea (also claimed by Vietnam, the Philippines, Brunei, Malaysia, and Taiwan) and the East China Sea (also claimed by Japan). World attention is also focused on how well Hong Kong becomes integrated into China beginning on July 1, 1997. In addition, China seeks membership in the World Trade Organization.

The primary role of China's energy industry, as described in the Ninth 5-Year Plan (1996-2000), is to support the country's economic growth. This is to be accomplished by gradually alleviating industry bottlenecks, building power plants (primarily coal-fired), strengthening oil and gas exploration and development, improving energy efficiency, and developing rural energy (including small hydropower, solar, geothermal, and biogas). The United States and China are involved in many cooperative efforts in the energy field, which include an agreement to pursue energy information exchange initiatives.

OIL

China produces oil primarily for its domestic market, but also exports crude oil and smaller volumes of petroleum products (mainly crude oil to Japan). The country has been an overall net importer of petroleum (crude plus products) since 1993, and became a net importer of crude oil in 1996. In 1996, China imported 745,000 b/d (454,000 b/d of crude oil and 291,000 b/d of petroleum products) and exported 465,000 b/d (408,000 b/d of crude oil and 57,000 b/d of petroleum products). Imported crude oil comes mostly from Indonesia and the Middle East (mainly Oman, Yemen, and Iran). In 1996, China also imported a small volume of Alaskan oil (just over 2,000 b/d).

About 90 percent of China's oil is produced onshore, primarily by the China National Petroleum Corporation (CNPC). CNPC's largest field -- Daqing, in the Songliao basin of northeastern China -- produces more than 1 million b/d. Since 1993, China has held three onshore licensing rounds to attract foreign investment in western China (particularly the remote Tarim Basin) and in enhanced oil recovery at mature fields. As of late 1996, nearly 1 million square miles of onshore areas were open to foreign companies, 35 of which had signed 30 contracts worth $770 million. Exxon is the largest foreign acreage holder in the Tarim Basin. In 1996, CNPC signed a contract with Shell for exploration of an area of its third largest producing oil field (Liaohe, in the Bohai Basin) and another with Fracmaster (a Canadian firm) for recompletions of 720 wells at its second largest field (Shengli).

In addition to onshore production, China operates 19 offshore oilfields (including state-owned and joint ventures) under the purview of the China National Offshore Oil Corporation (CNOOC). The offshore petroleum industry has been developed with significant foreign investment (109 contracts with foreign capital commitment of nearly $3 billion -- nearly 60 percent of total investment in offshore oil exploration and development). Offshore production has been increasing steadily, averaging 0.3 million b/d in 1996. Contributing to this increase was the April 1996 start-up of production at Liahua 11-1, China's largest offshore field discovered to date (estimated reserves of more than 1 billion barrels, production capacity of 65,000 barrels/day). Further increases are anticipated in 1997 with the planned start-up of additional offshore fields, including Xijiang 24-1 and Lufeng 22-1 in the South China Sea and Suizhong 36-1J in Bohai Bay.

Future investment in the development of China's petroleum resources may receive a boost with the recent establishment of the China National Star Petroleum Corporation (Star). Charged with commercializing the activities of oil bureaus and research institutes under China's ministry of geology and mineral resources, Star has begun negotiating with foreign companies on the sale of data from the Tarim Basin and other prospective areas (both onshore and offshore).

The initial experiences of foreign oil companies in the Tarim Basin have not been encouraging, despite China's claims that the area could contain 80 billion barrels or more of oil and 350 trillion cubic feet or more of natural gas. Some observers speculate that reserves may be less than anticipated, while others complain that China has offered only its less promising blocks to foreign investors. For whatever reason, discoveries to date have not been large enough to confirm Tarim as a major oil basin by world standards (as of July 1996, less than 4 billion barrels of oil reserves had been verified; production is slated to reach 88,000 b/d in 1997, compared with 63,000 b/d in 1996). As reserves are developed, significant infrastructure investment will be needed to transport oil long distances over difficult terrain from the Tarim basin to consuming regions.

Territorial disputes in the South China Sea (particularly over the Spratly Islands area) and the East China Sea have complicated offshore oil exploration activities. For example, China protested in April 1996 when Vietnam signed an oil exploration agreement with Conoco for an area of the South China Sea also claimed by China; in March 1997, Vietnam protested when a Chinese prospecting rig entered an area between Vietnam's north central coast and Hainan Island. A positive development was the July 1996 landmark agreement with Taiwan for joint oil and natural gas exploration in another potential area of contention -- the Taiwan Straits. According to a May 1997 report in the Chinese press, China plans to speed up petroleum exploration in the Bohai Sea off its northern coast while other potentially oil-rich waters are under dispute.

In the downstream oil sector, China's current strategy is to debottleneck and upgrade existing refining capacity rather than build new refineries. Foreign company participation is limited. Arco owns a stake in the state-owned Zhenhai refinery (whose capacity is reported to have been boosted to 160,000 b/d) and French company Total has a 20 percent interest in a new joint venture refinery at Dalian (100,000 b/d). Proposals for additional joint ventures (including one with Royal Dutch/Shell and another with Saudi Aramco and Ssangyong) have languished, while limited access to domestic markets discourages others.

NATURAL GAS

China has only recently begun to tap its reserves of natural gas, and major infrastructure investment will be needed to transport the gas to market. Most natural gas is currently produced in Sichuan province, but China is targeting several large onshore and offshore fields for future development as a substitute for coal and oil. The current 5-Year Plan sets an annual production target of 25 billion cubic meters of natural gas (about 882 billion cubic feet) by 2000.

China's largest offshore gas field, Yacheng 13-1 (with proven reserves of 3 trillion cubic feet) began production in early 1996. The project -- a joint venture among China National Offshore Oil Corporation (51 percent), U.S. company Arco (34.7 percent), and Kuwait Foreign Petroleum Exploration Corp. (14.3 percent) -- supplies natural gas to Hainan Island and to a 2400 megawatt power plant in Hong Kong. It is the first of several planned to supply natural gas to power plants, primarily to areas such as Guangdong province which are a long distance from coal supplies. Dongfang 1-1, with confirmed reserves approaching those of Yacheng 13-1, is currently being developed to supply fertilizer plants on Hainan Island.

Onshore, China's efforts focus on rehabilitating and upgrading the Sichuan fields; developing the Shaan-Gan-Ning field in central-western China and the Tarim basin in the far west; and building pipelines to serve major cities. Longer-term supply options include imports of liquefied natural gas (LNG) or possibly pipeline gas from the former Soviet Union.

COAL

China is both the world's largest producer and consumer of coal, which supplies about 75 percent of the country's total energy needs. The largest coal-consuming sectors are industry and electric power generation. China is also a net exporter of coal to neighboring countries including Japan, Hong Kong, South Korea, and North Korea.

Most of China's coal reserves are located in relatively remote areas of northern China, especially Shanxi Province, and more than half of all recoverable reserves are bituminous. Industry concerns include inefficiency, transportation bottlenecks, and large regional imbalances between supply and demand. In 1996, 38 out of 93 major, state-owned coal mines reported losses. As of April 1997, two profitable mines (Yanzhou and Xinji) were approved for listing on overseas stock markets.

Meeting production targets under the current 5-Year Plan (1.6 billion short tons by 2000) will require development of additional coal deposits and expansion of the country's railway system. China is upgrading locally owned coal mines and establishing wholly state-owned conglomerates which will have access to international financing, foreign trade, and export markets. The Shen Hua Group, the first of these conglomerates, is developing the Shenmu deposit in Shaanxi province in a joint venture with Arco Coal.

Amendments to China's Mineral Resources Law of 1986 encourage additional foreign investment by providing a comprehensive legal framework for coal exploration and exploitation. China is also seeking foreign investment and technology for construction of pilot plants to convert coal to liquid fuel and has approved construction of the country's first coal slurry pipeline (to be built by China Pipeline Holdings Ltd, a joint venture between the China Strategic Investment Group and U.S. companies -- Custom Coals and Williams Technologies Services). In addition, the country plans to develop coalbed methane (with assistance from the United Nations, the U.S. Environmental Protection Agency, and private companies) and strengthen its clean coal technology program.

ELECTRICITY

China's electric power sector has a major role to play in supporting economic growth under the country's current 5-Year Plan. The Ministry of Electric Power estimates that about 15-20 percent of the country's demand for electricity is not being satisfied. To alleviate shortages, the goal is to increase electric generating capacity to a target level of 290 gigawatts by 2000. An estimated 15,000 megawatts of generating capacity will be added each year, at an annual cost of about $15 billion. About 20 percent of this additional capacity is expected to be funded by foreign investment. China also plans to expand its electric power transmission system, link the country's five regional grids and several provincial grids by 2009, and implement a single national power grid by 2020.

China's first law governing electric power generation went into effect on April 1, 1996. The law recognizes a role for foreign investment, including direct investment in power plants through joint ventures or foreign-owned companies, provided these investments conform to national industrial policy and are in line with projects contained in the Ninth 5-Year Plan and the 2010 Plan. Foreign loans (but no direct foreign investment) are allowed for setting up power grids.

In implementing the current 5-Year Plan, China plans to use high-efficiency generators with capacity of 300 megawatts or higher, and is giving priority to projects in the central and western parts of the country. These projects will continue to make use of China's large domestic coal supplies (about 70 percent of China's existing capacity is coal-fired) while expanding nuclear capacity and taking greater advantage of the country's enormous hydropower potential.

China's largest coal-fired station, consisting of three 660-megawatt units in Dongguan, began operating in August 1996. The project, a Chinese-Hong Kong joint venture, will supply 10.8 billion kilowatt hours annually to Guangdong province. The Yancheng power plant adjacent to coal mines in Shanxi Province is China's first major "coal by wire" project; the first of its six 350 megawatt generators is scheduled to begin operating in 1999. The Acoal by wire@ program sites power plants adjacent to coal mines rather than near the final consumers. China awarded its first build-operate-transfer contract in 1996 (to France's EDF for construction of the 700-megawatt coal-fired Laibin B project), and plans a second such project (a 600-megawatt plant in Hunan province).

In its most ambitious and controversial electric power project to date, China is proceeding with plans to build the world's largest dam -- Three Gorges -- on the Yangtze River. With costs exceeding $20 billion, the dam will support 26 hydropower generating units with capacity of 700 megawatts each, for a total of about 18 gigawatts. Target date for completion is 2009. The project has been criticized because it will displace more than 1 million people and threaten wildlife. In May 1996, the U.S. Export-Import Bank announced a decision to deny financing assistance to U.S. companies bidding on the project, due to concerns over the dam's environmental impact.

China operates two nuclear power plants - Qinshan and Daya Bay - whose combined capacity of 2.1 gigawatts currently supplies less than 1 percent of the country's total energy needs. During 1996, China announced plans to advance its nuclear program by 10 years -- the target of 20 gigawatts in new capacity is now 2010 instead of 2020. This includes 1.8 gigawatts using French technology at Lingao, 2 gigawatts using Russian technology at Liaoning and 1.4 gigawatts using Canadian technology at Qinshan.

Natural gas is not now used extensively in the electric power sector, but could become increasingly important as China seeks less-polluting sources of electricity for its growing economy. Several liquefied natural gas (LNG) projects are under consideration.

ENVIRONMENT

The coal and oil industries are among the major polluting industries being targeted in China's plan to curb pollution and limit environmental damage, at a cost of nearly $40 billion over the next 5 years. The country is the world's second largest emitter of carbon, due primarily to its economy's high dependence on coal. Although China's energy consumption per unit of output has been cut nearly in half since 1970, the country's major industries, including electric power generation, continue to use energy far more intensively than in most developed countries. China's sustainable development goals, outlined in its Agenda 21 program, include increased emphasis on energy efficiency and renewable power sources (hydroelectricity, solar, etc.).

COUNTRY OVERVIEW
President: Jiang Zemin (since March 1993; next election 1998)
Premier: Li Peng (since April 1988)
Population (1996E): 1.2 billion
Location/Size: Eastern Asia/9.6 million square kilometers (3.7 million square miles, slightly larger than the United States)
Major Cities: Beijing (capital), Shanghai, Hong Kong, Tianjin, Guangzhou, Shenyang, Wuhan, Chengdu
Languages: Mandarin (official), many local dialects
Ethnic Groups: Han Chinese (92%); Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu, Mongol, Buyi, Korean, others (8%)
Religion: Officially atheist; Daoism, Buddhism, Muslim (2- 3%); Christian (1%)
Defense (7/95): Army (2.2 million), Navy (260,000), Air Force (470,000)

ECONOMIC OVERVIEW
Currency: Yuan
Exchange Rate (5/97): US$1 = 8.3 Yuan
Gross Domestic Product (GDP, 1996E): $750 billion, in 1990 dollars; $828.3 billion nominal
Real GDP Growth Rate (1996E): 9.7%
Inflation Rate (1996E): 8.4%
Current Account Surplus (1996E): $9.8 billion
Major Trading Partners: Japan, United States, Germany, Russia, Italy
Trade Surplus (1996E): $14.4 billion ($39.5 billion with the United States)
Exports: $130.1 billion ($51.5 billion to U.S.)
Imports: $115.7 billion ($12.0 billion from U.S.)
Major Export Products: Textiles, garments, footwear, toys, crude oil
Major Import Products: Rolled steel, motor vehicles, textile machinery, oil products
Monetary Reserves (1996, non-gold): $105 billion
External Debt (1996): $116.5 billion

ENERGY OVERVIEW
Energy-Related Ministers: Wang Senhao (Coal Industry); Shi Dazhen (Power Industry); Song Ruixang (Geology and Mineral Resources); Niu Maosheng (Water Resources)
Proven Oil Reserves (1/1/97): 24 billion barrels
Crude Oil Production Capacity (1996E): 3.1 million barrels per day (MMBD)
Crude Oil Production (1996): 3.1 MMBD
Oil Consumption (1996E): 3.4 MMBD
Net Oil Imports (1996E): 0.3 MMBD
Crude Oil Refining Capacity (1/1/97): 2.9 MMBD
Natural Gas Reserves (1/1/97): 41 trillion cubic feet (Tcf)
Natural Gas Production/Consumption (1996E): 0.7 Tcf
Recoverable Coal Reserves (1996E): 126.2 billion short tons
Coal Production (1995): 1.48 billion short tons
Coal Consumption (1995): 1.46 billion short tons
Net Coal Exports (1995E): 20 million short tons
Electric Generation Capacity (1995): 190 million kilowatts
Electricity Generation (1995): 887 billion kilowatthours

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995) 35.7 Quadrillion Btu
Energy Consumption Per Capita (1995): 29.7 million Btu (vs. 331.8 million Btu in the United States)
Energy-Related Carbon Emissions (1995): 821 million metric tons (13% of world carbon emissions)
Carbon Emissions Per Capita (1995): 0.7 metric tons (vs. 5.42 metric tons in the United States)
Major Environmental Issues: Air pollution and acid rain from burning high-sulfur coal; limited access to potable water due to shortages (particularly in urban areas), pollution from industrial effluents, and absence of sewage treatment; deforestation; loss of agricultural land due to soil erosion and economic development; trade in endangered species.

ENERGY INDUSTRY
Organization: Coal - China National Local Coal Mines Development Corp., China Northeast & NEI-Mongolia United Coal Co., numerous local state-owned mines and rural collectives; Petroleum - China National Petroleum Corp. (CNPC), China National Offshore Oil Corp. (CNOOC), China National Oil & Gas Exploration & Development Corp. (CNODC), China National Star Petroleum (Star); Refining - China National Petrochemical Corp. (SINOPEC); Oil imports/exports - China National Chemicals Import and Export Corporation (SINOCHEM), China United Petroleum Corporation (China Oil), China United Petrochemical Corp. (UNIPEC); Electric power - Huaneng Group, Inc., China National Power Industry Corp. (CNPIC), regional electric power corporations, China National Nuclear Industry Corp., China International Water and Electric Corp. (CWE).; Energy Finance - China National Energy Investment Corp.
Major Producing Oil Fields (1995 Production): Daqing (1.1 MMBD), Shengli (0.6 MMBD), Liaohe (0.3 MMBD)
Major Refineries (1/1/97 Capacity): Fushun (174,000 b/d), Maoming (170,000 b/d), Qilu (160,000 b/d), Gaoqiao (146,000 b/d), Dalian (142,000 b/d), Yanshan (140,000 b/d)

Links to other sites:
1997 CIA World Factbook - China
U.S. International Trade Administration, Country Commercial Guide - China
U.S. Department of Energy's Office of Fossil Energy's International section - China
Department of Commerce, Big Emerging Markets - Chinese Economic Area

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Information about China from China's Consulate General in New York, NY
China Today
Information about China from Chinascape
Tradeport Trade Directory, China

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File last modified: May 30, 1997

Contact:

Douglas MacIntyre
dmacinty@eia.doe.gov
Phone: (202)586-1831
Fax: (202)586-9753