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The lack of strategic oil stockpiles could send the jitters through China's public if supplies are reduced at a time when the clock appears to be counting down on a United States-led attack on Iraq.
The latest example is the media onslaught against Sinopec, which imports 80 per cent of the nation's crude oil. The company has this year cut its oil product inventory by 17.6 per cent to 5.1 million tons, which it intends to maintain until the year's close. The company explained that the stock cut had been done to cash in on higher prices to be had in the domestic market.
Calling the move "controversial," some media argue that Sinopec's decision runs against the nation's interests as a whole.
The reports said that while other countries were increasing their stockpiles ahead of a potential eruption in the Middle East, Sinopec's cuts could threaten China's energy supply.
Others, however, have defended Sinopec, saying that it is the company, rather than the government, who should make operative decisions.
"To manage the inventory according to market conditions is totally justified," said Han Wenke, deputy-director of the Energy Research Institute with the State Development Planning Commission, adding: "The company has its own plan and market strategies, which should be respected."
An analyst with an industry consultancy agreed with Han, and said there is no obligation for the company to run additional reserves.
"The State reserve and the company's inventory are two different concepts," said the analyst. "So there is nothing wrong in Sinopec cutting its stock, even though other countries are building up reserves."
Whatever the rights or wrongs as aired by the debate, one thing is certain - China should build its State reserves to buffer its economy against any disruption to oil supplies as soon as possible. China currently imports one-third of its oil, and is expected to purchase half of its oil demand abroad by 2010.
But although the government has already announced its intention to build up the State reserves, details are still under discussion, insiders revealed.
A government official also said the government should stipulate regulations for State-owned oil companies to run additional inventories to supplement stores. But the government should provide incentives in the form of preferential policies such as tax breaks and subsidiaries to oil companies in return for their retention of healthy reserves.
(China Daily November 5, 2002)
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