China Energy Sector Survey Part III: Foreign Inbound Investment

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

A thread that has run through the first two instalments in this series has been China's challenge in confronting its burgeoning demand for energy.  Since this series was conceived, China has moved from being the third to the second largest consumer of energy in the world, and has edged ahead of Japan.

The International Energy Agency predicts that US$2.3 trillion will need to be invested in energy supply infrastructure in China over the next 25 years to keep up with its energy requirements.¹  Of this amount, domestic investment in the search for oil is estimated at US$119 billion, while investment in gas infrastructure is estimated at just under US$100 billion,² with much of this earmarked for distribution networks.³  Investment needs in the electric power area over the next 25 years are expected to hover around US$2 trillion.  Half of this investment will be in transmission and distribution infrastructure⁴ (where foreign investment is currently prohibited), while investment in new power plants is estimated to amount to US$795 million.⁵  Finally, it will be necessary to inject US$123 billion into China's coal industry over the next 25 years to round out China's supply picture.⁶