China's Energy Sector: Development, Structure and Future

By Michael E. Arruda Partner, and Ka-Yin Li, Legal Consultant, Fulbright & Jaworski LLP, Hong Kong

The energy challenge in China is formidable. The country's demand for energy grew by nearly 20% in 2002, and China now comprises more than 10% of total world energy consumption. China is the second largest consumer of energy in the world after the United States, having recently eclipsed Japan. At the same time, China is the world's second largest source of carbon dioxide emissions, which is largely due to its reliance on coal for nearly 70% of its total primary energy supply. As China's energy demand grows, its indigenous supplies of energy are falling behind. The country has been a net importer of oil since 1993. Various sources suggest that, by 2020, China will need to import up to 70% of its crude oil requirements and 50% of its natural gas. The challenge is clear: China must find additional, clean sources of energy, whether from indigenous sources or overseas, to satisfy its rapidly increasing demand. In addition to the resources challenge, legal and regulatory challenges must be met.

Here we will examine the development of China's energy programme, including China's current energy policy and strategy, by reviewing the energy provisions of China's successive five-year plans and other significant policy developments. Future articles will examine the practical implementation of these plans, including the role of China's institutional players (regulators and national oil companies alike) in fulfilling the country's energy policy and strategy; the legal framework for foreign investment in the energy sector, including the various legal structures for participation; and the impact of the WTO on China's energy sector.