coal market, leading to a golden decade (2002–
12) for coal. Initiatives such as restructuring the
three national oil and gas companies in 1998, and
loosening market access and price control have
improved the oil and gas sectors and made China
one of the 10 largest oil producers. The initiatives
to set up two grid companies, five power generation groups and the China Power Regulatory
Commission in 2002 have essentially broken the
hold of the monopolies. As a result, issues that
were common in the planning era (such as
administration-enterprise bundling and gridgeneration conglomerates) have been resolved,
allowing competition between multiple participants in the power generation market. All these
initiatives have effectively released the potential
for productivity improvements and given impetus
to the development of China’s energy industry.
Despite all this, it should be noted that, in the
context of the global energy industry and in the
drive to deepen reforms, the current energy
regime does not satisfy the demands on energy
production. Neither does it support the consumption revolution nor drive the development
of the socialist market economy. Some deep
conflicts and issues still need to be addressed
urgently, as summarised below.
4.2.1 A Modern Energy Market System
Has yet to Take Shape
Since opening up, China has shifted from a
planned market economy to a socialist market
economy and has carried out a series of institutional reforms in investment, taxation and pricing. Despite the reform initiatives in the energy
industry, there are still several challenges to be
addressed, including slow progress in some sectors, the unclear boundary between administration and business, government intervention in
economic activities, unfair competition between
market participants of different legal status, and
the absence of consistent market access criteria.
Other concerns include the government’s control
of coal and oil exploration and mining rights,
imperfect administration, and poorly regulated
market flow. An open, transparent and
well-regulated energy market access system has
yet to take shape. The coal, oil and power
markets are highly fragmented: the system for
assessing and approving new entrants is more
like an administrative procedure, with approval
more likely to be given to large state-owned
enterprises, which poses higher barriers for privately owned and foreign companies. Energy
production is still under government control, by
means of power output and oil and gas production scheduling. Even now, more than three
decades after opening up, it is thought-provoking
to realise that sometimes a market participant can
decide neither price nor production volumes.
There are other administrative and regulatory
challenges that need to be addressed: the imperfect energy market mechanism and taxation
system; the financial and taxation policies that
are poorly suited to encouraging the development
of new and renewable energy; and the restricted
range of incentives to support development of the
energy industry, including subsidies, financial
discounts and tax incentives. Also, in the context
of global economic integration, China still needs
to integrate itself properly with the global energy
market and use its international influence to
shape regional energy markets.
The organisational structure of the energy
industry is still less than optimal, constraining
effective competition in some critical areas. In
general, there are major differences in industrial
organisation between different types of energy
(especially in energy supply), including market
barriers to private capital, a lack of competition
in some sectors and excessive competition in
others, and even surplus capacity. In the oil and
gas sector, the three leading national oil companies maintain obvious first-mover advantages in
onshore oil and gas production and pipeline
operation and management (CNPC), petrochemicals and oil products (Sinopec), and offshore oil
and gas exploration and production (CNOOC),
while each of them still demonstrates shortcomings in value chain integration. Effective competition is still required in some major areas to
improve the overall efficiency of the industry.
Another major concern is the increasingly obvious overcapacity in the refining segment.
In short, the energy system challenges that
need to be addressed are: imperfect market
448
S. Yaodong and A. Gillespie
12) for coal. Initiatives such as restructuring the
three national oil and gas companies in 1998, and
loosening market access and price control have
improved the oil and gas sectors and made China
one of the 10 largest oil producers. The initiatives
to set up two grid companies, five power generation groups and the China Power Regulatory
Commission in 2002 have essentially broken the
hold of the monopolies. As a result, issues that
were common in the planning era (such as
administration-enterprise bundling and gridgeneration conglomerates) have been resolved,
allowing competition between multiple participants in the power generation market. All these
initiatives have effectively released the potential
for productivity improvements and given impetus
to the development of China’s energy industry.
Despite all this, it should be noted that, in the
context of the global energy industry and in the
drive to deepen reforms, the current energy
regime does not satisfy the demands on energy
production. Neither does it support the consumption revolution nor drive the development
of the socialist market economy. Some deep
conflicts and issues still need to be addressed
urgently, as summarised below.
4.2.1 A Modern Energy Market System
Has yet to Take Shape
Since opening up, China has shifted from a
planned market economy to a socialist market
economy and has carried out a series of institutional reforms in investment, taxation and pricing. Despite the reform initiatives in the energy
industry, there are still several challenges to be
addressed, including slow progress in some sectors, the unclear boundary between administration and business, government intervention in
economic activities, unfair competition between
market participants of different legal status, and
the absence of consistent market access criteria.
Other concerns include the government’s control
of coal and oil exploration and mining rights,
imperfect administration, and poorly regulated
market flow. An open, transparent and
well-regulated energy market access system has
yet to take shape. The coal, oil and power
markets are highly fragmented: the system for
assessing and approving new entrants is more
like an administrative procedure, with approval
more likely to be given to large state-owned
enterprises, which poses higher barriers for privately owned and foreign companies. Energy
production is still under government control, by
means of power output and oil and gas production scheduling. Even now, more than three
decades after opening up, it is thought-provoking
to realise that sometimes a market participant can
decide neither price nor production volumes.
There are other administrative and regulatory
challenges that need to be addressed: the imperfect energy market mechanism and taxation
system; the financial and taxation policies that
are poorly suited to encouraging the development
of new and renewable energy; and the restricted
range of incentives to support development of the
energy industry, including subsidies, financial
discounts and tax incentives. Also, in the context
of global economic integration, China still needs
to integrate itself properly with the global energy
market and use its international influence to
shape regional energy markets.
The organisational structure of the energy
industry is still less than optimal, constraining
effective competition in some critical areas. In
general, there are major differences in industrial
organisation between different types of energy
(especially in energy supply), including market
barriers to private capital, a lack of competition
in some sectors and excessive competition in
others, and even surplus capacity. In the oil and
gas sector, the three leading national oil companies maintain obvious first-mover advantages in
onshore oil and gas production and pipeline
operation and management (CNPC), petrochemicals and oil products (Sinopec), and offshore oil
and gas exploration and production (CNOOC),
while each of them still demonstrates shortcomings in value chain integration. Effective competition is still required in some major areas to
improve the overall efficiency of the industry.
Another major concern is the increasingly obvious overcapacity in the refining segment.
In short, the energy system challenges that
need to be addressed are: imperfect market
448
S. Yaodong and A. Gillespie