Red Gold: The Legal Framework Governing Foreign Investments in China's Oil Industry

By Zhong, Jackie | Houston Journal of International Law, Spring 2016 | Go to article overview

Red Gold: The Legal Framework Governing Foreign Investments in China's Oil Industry


Zhong, Jackie, Houston Journal of International Law


  I. INTRODUCTION  II. BACKGROUND      A. A Brief Look at China's Oil Industry      B. A Brief Look at Foreign Investments in China III. A CLOSER LOOK AT FOREIGN INVESTMENTS IN CHINESE         OIL      A. Oil Ownership and Upstream Production      B. Petroleum-Related Laws and Regulations      C. Laws and Regulations Governing Foreign         Investment      D. Implementing the Mineral Resources Law      E. When Investing in the Chinese Oil Market      F. Dispute Resolution      G. A Brief Discussion of Taxes and Fees      H. Guarding Against Corruption  IV. CONCLUSION 

"So valuable is black gold to our very way of life that wars have been waged for it ..."

--BLACK GOLD: THE STORY OF OIL IN OUR LIVES--

I. INTRODUCTION

China's economic ascension began with Deng Xiaoping's rise to power in 1979. (1) At first, China remained self-sufficient in oil. (2) However, as the country's own oil supply became outstripped by its economic boom, China eventually became a net oil importer. (3) By late 2013, China had become the world's biggest importer of oil, edging out the United States. (4) Even though the United States uses approximately 7.7 million more barrels of oil per day than China, the United States is increasingly able to support its own oil demand due to domestic hydraulic fracturing, or "fracking." (5) Such an approach is more difficult in China due to complicated geology and high production costs. (6) Because of this, the Chinese government has begun to realize that it cannot develop an efficient oil sector without bringing in foreign investment and new technology. (7)

Deputy Director of the National Energy Administration (NEA), Liu Qi, said at the First Energy International Investment Cooperation Forum held in Beijing in 2012 that China encourages foreign investors to carry out petroleum exploration and development in the country. (8) For a prospective foreign investor, successfully investing in China's oil market would require due diligence and consummate knowledge of its laws and regulations regarding petroleum and foreign investment.

II. BACKGROUND

A. A Brief Look at China's Oil Industry

When China began reforming its economy in the late 1970s, the country focused on advanced technology as the pathway to economic success. (9) Deng Xiaoping said, "It is becoming increasingly clear that science and technology are of tremendous significance as productive forces." (10) With this in mind, China sent scientists and engineers to other countries to study advanced technologies. (11) China also began to stress organizational innovation in reforming large firms in strategic sectors such as oil. (12)

During the course of two decades, government ministries slowly evolved into large state-owned enterprises. (13) In the late 1990s, China began restructuring and reforming these enterprises. (14) This included major state-owned oil companies such as PetroChina, Sinopec, and the China National offshore oil Corporation (CNOOC). (15) The structure of these modern corporations was established with the help of international consultants and investment bankers. (16)

The oil industry is a pillar of the Chinese economy, (17) and the country's state-owned oil companies play a large role. (18) China National Petroleum Corporation (CNPC) is China's largest oil and gas producer and supplier. (19) CNPC is also the sponsor and controlling shareholder of PetroChina, the fourth largest company in the world in terms of market capitalization as of 2015. (20) Its competitor, Sinopec, also an oil and gas producer, sits at number two on the list. (21) Rounding out the list of the "big three" Chinese oil companies is CNOOC, which is the largest producer of offshore crude oil and natural gas in China. (22)

China's consistent growth in GDP and rapid urbanization has led to increasing demands for oil. (23) With a stagnant domestic oil industry, China has looked abroad to fulfill its oil needs. …

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