China's Energy Security

China has sought to address its energy security by setting up an energy leading group in 2004 headed by Premier Wen Jiabao (温家宝) to make policy decisions on energy security. Implementation is said to be handled by the Energy Bureau, a sub-ministerial body under the State Development and Reform Commission.

However, Western energy experts doubt that these bodies have sufficient bureaucratic stature to craft and implement a coherent policy for energy security. They also noted that the policy making offices are under-staffed and have routinely approached Chinese national oil companies for policy suggestions (when the offices are supposed to be developing national policy to regulate the activities of Chinese oil companies).

Concerns about the impact of rising energy prices on domestic output and employment prompted the Chinese government to allow the gap between subsidized domestic oil and gasoline prices and world prices to increase significantly in 2004-2005. As a result, Chinese producers and consumers were paying artificially low prices for energy, and therefore consuming too much, while Chinese refiners and energy producers had economic incentives to export gasoline rather than selling to domestic consumers at a loss.

These conditions produced scattered oil and gasoline shortages that forced a number of Guangdong (广东) factories to shut down production in summer 2005. The Chinese government eventually responded by raising domestic prices.

Interestingly, Chinese national oil companies are said to be pursuing independent strategies in securing access to oil and natural gas fields, which sometimes result in two Chinese companies bidding against each other for the same development opportunity. (Phillip C. Saunders, China's Global Activism: Strategy, Drivers and Tools, Institute for National Strategic Studies, National Defense University Press, Washington DC, October 2006).