Decentralisation and Corporatisation of the Oil Sector (1978–2002)

Abstract

Despite achieving initial success in oil exploration and production in the early 1960s, China’s oil industry soon began to languish under the centrally planned economic system and radicalised political environment, both of which failed in the long run to provide the right incentives for new oil field discovery and production, and technological improvement. In 1978 Deng Xiaoping’s ‘second revolution’, officially known as ‘reform and opening’ (gaige kaifang), marked the beginning of China’s transition from a planned to market-oriented economy. This nationwide economic reform drive significantly restructured the oil sector. Specifically, oil production, the administrative apparatus and oil pricing were all decentralised to varying degrees. In addition, the ideological barrier to permitting foreign involvement in oil sector development was officially abandoned, hence China began to actively encourage FDI into the country and also sought to establish joint ventures with western oil companies. The decentralisation of oil production had the most profound impact on the oil sector as it saw the government delegate operational decision-making downwards to the newly created NOCs and largely withdraw from micromanaging oil production. The petroleum administration was decentralised with the abolition of the MPI in 1988 (its upstream assets were restructured into CNPC).