Emergence of Two Big Companies in Oil Industrial Regrouping
It is defined in the Scheme of the Organizational Reform of  the  State
Council  passed  at  the  First   Session   of   the   Ninth   National
People's Congress that the government  functions  of  the  Ministry  of
Chemical Industry, China Oil  &  Natural  Gas  Corporation  and  China
Petrochemical Corporation will be  combined  to  establish  the  State
Administration of Petroleum and Chemical Industries subordinate to the
  State  Economic  and  Trade  Commission.   Petroleum   and   chemical
enterprises such as oil and gas  fields,   refineries,   petrochemical
  enterprises,   chemical  fertilizer  enterprises,    chemical   fiber
enterprises, oil companies and filling  stations  subordinate  to  the
Ministry of  Chemical  Industry  and  the  two  corporations  will  be
combined into two super large petroleum and  petrochemical  enterprise
group corporations and several large chemical fertilizer and  chemical
companies according  to  the  principle  of  upstream  and  downstream
integration.
1. A thorough reform must be conducted to China's oil industry.
The oil industry in China has experienced a lot of changes. The biggest
change took place in 1983 when the  founding  of  China  Petrochemical
  Corporation  started  the  separation  of  upstream  production  from
downstream production. In later years, China Offshore Oil  Corporation
and China Xinxing Oil Corporation were established.  The  Ministry  of
Petroleum  Industry  was  regrouped  into  China  Oil  &  Natural  Gas
Corporation. These corporations plus China Chemicals Import  &  Export
Corporation which monopolized oil import and export after the founding
of new China became the five giants in China oil industry. In  such  a
system, prospecting, production, refining, marketing (run by local oil
companies),  import  and  export  were  in  the  charge  of  different
departments. Upstream production and downstream production,   domestic
trade and foreign trade and onshore operations and offshore operations
were totally separated. The separation  of  upstream  production  from
  downstream  production  caused  inadequate  upstream  investment  and
repeated downstream construction, and  the  reserve- production  ratio
once dropped to below the international warning  line.   The  lack  of
administrative functions of the state left unheeded the work which had
to be done by the government and  caused  confusion  in  quite  a  few
sectors. Besides, to coordinate the interests of different sides  and  
tabilize the market the state established all kinds of systems  setting
  rigid  rules  in  price,   circulation  and  transportation  for  oil
enterprises. These systems were all right in the past when  China  was
not faced with the international market, but they have to  be  changed
today.
2. There are different views about how many oil companies  China  needs
and how these oil companies should be formed.
Advocates of the scheme of a single state oil company have  cited  many
convincing pieces of evidence to prove that it  is  only  natural  for
such a big country like China to implement a system of a single  state
oil company. They say that among 55 major oil producing countries,  48
have state oil companies and 40 of them only have a single  state  oil
company (wholly owned by the state or with  major  state  ownership) ,
accounting for 72.7% of  the  total.   Most  of  them  are  developing
countries and some of them are developed countries. Besides, major oil
producing countries all exercise centralized control  over  their  oil
industry.
However, those who hold the view of multiple  oil  companies  say  that
although China is a developing country, the scheme of a  single  state
oil company does not tally with its national conditions and  does  not
conform to the development trend of the world   oil  industry  either.
Major oil producing countries are loosening their control over the oil
industry. Oil has become more and more like an ordinary commodity.  If
China still sticks to the scheme of a single state  oil  company,   it
would have to conduct further reform to the oil industry in future and
the scheme would not help the oil industry to make financing  in  both
domestic and international capital markets and  expand  its  strength.
China has a large territory with extremely different  oil  conditions.
The scheme of a single state oil company would affect  the  advantages
of oil companies and the rational competition of China oil industry.
The ideal scheme in China's  oil  industry  is  to  eliminate  all  the
existing companies, rearrange the order of oilfields,  refineries  and
other large enterprises related  with  oil  production  and  establish
several state-owned oil companies. These companies will be enterprises
with upstream and  downstream  integration.   Run  by  the  state  oil
departments, these companies will launch rational competition  in  the
domestic market and take concerted action in the international market.
3. The scheme of organizational reform is finalized and the  two  large
oil and chemical companies are ready to come out.
Factors giving rise to the decision on setting up  two  large  oil  and
chemical companies are as follows:
The lessons in the reform of the oil industry in  some  countries&n