Oil companies at the dawn of competition
By Niu Li (China Daily)Updated: 2007-01-17 08:58
In the late 1990s, when the Asian financial crisis negatively impacted the Chinese economy, the State released a package of policies to straighten up the mess in the domestic market. Small privately owned refineries, for example, were targeted, and control of the circulation of refined oil was tightened. The right to distribute oil was concentrated in the hands of CNPC and Sinopec.
Private oil businesses no longer had access to wholesale refined oil or petroleum sources.
Now the door is being opened to private businesses as a result of China's WTO membership.
Private businesses, including those operating in the petroleum field, are gaining wider living space. For example, by the end of November 2006, non-State-owned companies in wholesale oil made up 33.4 percent of the total and non-State-owned petrol stations accounted for 56.3 percent of the total.
Private businesses have entered into all links along the chain of refined oil retail sales in China.
As for market access, in the general context of China's abundant supply of capital, currently private businesses have no funding problems.
Moreover, restrictions, such as the minimum number of petrol stations a private business must have, are not imposed by the two Commerce Ministry circulars. This helps remove a major barrier for private businesses.
It should be noted, however, that the requirement of oil storage facilities of at least 10,000 cubic meters is still too high for some private oil players. This indicates that private oil companies have been given opportunities but not golden ones.
The opening of the oil market also facilitates the development of State-owned petrol companies.
Over many years, the State-owned oil companies grew up largely dependent on government support and protection.
Now the basic goal is to channel various kinds of capital into the Chinese oil market and cultivate a competitive market marked by transparency, competition and order.
The opening of the oil market is bound to bring competitive pressure on CNPC, Sinopec and other State-owned giants which are now flanked by two competing groups, transnationals and domestic companies.
On one hand, transnational oil super players have abundant capital, advanced technology and rich managerial expertise and offer good service. On the other hand, domestic private oil businesses, whose ownership is clearly defined, boast flexible operational mechanisms and high efficiency.
In the short run, however, neither transnationals nor domestic private oil
businesses will be able to have much impact on the State-owned giants, because
both have to readjust their operational strategies.
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