Legal/ Regulatory Situation

China has put in place new regulations on its business environment. The whole business regulations revolve around equalizing business morns for both natives and foreigners, to allow fair competition for all market players. The new rules also entail simplifying the process of acquiring operation licenses and simplifying tax regimes for start-up businesses, usually those whose useful years do not surpass ten years. These regulations will make it easy for anyone to start and grow their business without government interference. Indeed, these measures will ensure the freeness of doing business.

Furthermore, the Chinese government has decided to embark on the protection of market players from unjust trading activities. This rule comprises the protection of the market players’ personal and property rights and equal access to production factors to all market players. The market players will also receive government protection in areas of trademarks, patents, and federal incentives. Finally, the government has also incorporated all market players’ opinions in decision making; this will augment transparency in government service and enrich economic freedom.

Chinese regulations have been executed in favour of all market players. These regulations have allowed Petro-Canada’s products to continue selling and generating revenues since one of Petro-Canada’s product business tragedy is graduating from guaranteed competition to stiff competition. Petro-Canada is now facing stiff competition from Petro-China, but because of the business environment’s equality, Petro-Canada is doing well in a foreign venture.

The social and cultural situation

Due to the rapid economic development and robust population growth rate experienced in China, there has been an increasing demand for petrol and petroleum products. The use of gas for cooking in many residences and the presence of a vehicle in almost every Chinese household has led to skyrocketing the demand for these products. Therefore the Chinese government had to introduce reforms in economic and regulatory sectors to attract foreign direct investment to meet the surplus needs of its citizens. The Chinese people living in major urban areas embrace travelling from one place to another, which prompts them to use more petrol and gas. Therefore the Chines culture has further propelled the petroleum industry towards attracting foreign investors, of which Petro-Canada is a beneficiary.

Other environmental factors

Other environmental factors favouring Petro-Canada’s operations in China are a ready market for its product and China’s strategic location in terms of oil and gas. Oil and gas originate from the decomposition of organic matter found in large water bodies. Therefore, it is unlikely that oil and gas supplies will diminish, and this fact must have attracted Petro-Canada to investing in China.

China’s market structure and competitive analysis

As one of the countries with the largest oil and shale gas reserves, a preliminary investigation by the Chinese mining and exploitation center has found that China owns up to 45 trillion centimetres cubic of oil and gas reserves. The research also revealed that natural shale gas production could go up to 25% of the total gas production by 2030. Currently, China is the largest importer and consumer of oil and petroleum products in the world. Though this observation places China at a unique position in the global gas and oil market, it is disappointing to note that China is gradually sliding backward into oil insufficiency. This observation is because, in 2013, China was among the list of the Oil Producing and Exporting Countries taking position four –after Saudi Arabia, the United States of America, and Russia in that order.

China’s petroleum and oil industry has been controlled by

three large government-owned oil firms

who has been tasked with reforming

the country’s inland

reserves, constructing and servicing

pipelines, running China’s progressively refined lower petroleum joints, and inspecting its strategic petroleum reserves (SPR) capacity. These firms have employed millions of personnel. They relish a special government status, implying that they supersede a good number of fellow bureaucracies–and close relations to the highest hierarchy of leadership.

Over time, as China’s oil demand has gradually outdone production, these state-owned firms have also grown to be critical investors in the international upstream and formed a notable manifestation in global oil trading and refining. These firms currently rank amongst the top ten leading oil companies in the world. Hitherto all the recent achievements in the oil industry and the mounting transnational reach, China’s oil sector is still heavily subjugated by the Chinese government. From a

widely-held stake in the petroleum and oil firms, through price control and

consular support for foreign investments,

the Chinese government

upholds weighty influence over management and commercial decisions regarding the firms’ operations. Similarly, the National Oil Companies (NOCs) offer their support to these firms by providing necessary market expertise and technical know-how as a critical aspect in policy-making. This relationship is often mistaken as a toxic monopoly; nonetheless, it is still advancing further.

Surprisingly, as a result of the Chinese government’s ambitious environmental upgrading and economic restructuring efforts, there is more private participation in the oil industry. There are also evident changes that have led to the power balance between the industry and the state as compared to before. To have a better understanding of China’s oil industry market structure, it is imperative to

venture into its historical outline, significant milestones

and its gradual evolution to what it is today while aiming at the relationship between the oil companies and the Chinese government, before evaluating how President Xi Jinping’ssectoral reforms and

the oil industry’s liberalization is influencing state–industry dealings, and China’s global energy footmark towards attracting foreign direct investment.

In the 1950s, The people’s republic of China under the then president Mao Zedong, together with the Socialist Party, introduced a

centralized-dictator like the economy, which was more of a blueprint from The Soviet Union. This trade and industry system advocated for the elimination of small scale cultivation, the collectives agricultural system’s preference, and the shift towards central sharing of industrial outputs and inputs, in agreement with a strategy written by China’s State Planning Agency. This system fought against market forces that

were disregarded in industry

and commerce as they were said to cause enormous inefficiencies. The government, therefore, set standard wages and assigned jobs to jobless skilled workers. Meanwhile, the country’s insufficient industrial base was inadequately prepared for the mining of its heavy minerals. China’s huge countryside population utilized biomass and coal as the primary energy sources in their daily lives, during the 1950s. Coal accounted for 96 % of China’s total energy production and 94 % of household consumption. During President Mao Zedong epoch, (1949–76), as he led the country into intensive industrialization, its non-household energy sector experienced rapid industrial growth. Primary energy consumption increased from 24 million tons of coal in 1949, to 50million tons of coal in 1952, and over 500million tons of coal by the year 1980

The Chinese oil and gas industry underwent three primary stages to increase its supplies. First, the country discovered more oil and gas deposits in the late 1950s and 60s and then embarked on capital intensive exploitation projects. The second phase was marred with several challenges that saw oil exploitation stagnate, but the process revamped back in the 1980s.