Multinational oil companies should keep a careful eye on recent leadership changes in China, according to government and private analysts.
After a year of intense backroom politics, Hu Jintao recently emerged as a key player in the new fourth generation of Chinese top leadership. Jintao is likely to become the next president of China in March 2003, barring a sudden power shift.
Short term steadiness
Signaling his heir-apparent status, last month Jintao became the Chinese Communist Party's (CCP) general secretary, the head of the ruling party, replacing Chinese President Jiang Zemin, who held the secretary post for 13 years. Other Jintao supporters rose to key government positions, although many of Jiang's proteges and associates remain in the inner power circle. Top managers from the three state oil companies have all been promoted within the CCP as well.
Analysts Kang Wu and Fereidun Fesharaki, with FACTS Inc., Honolulu, suggest there may be no immediate energy investor implications from the political shift because Jintao is reputed to be cautious.
"He has been cultivating for over a decade to become the top leader of the CCP and knows too well that his new regime is shadowed by many heavyweight old guards led by Jiang," the analysts said in a report to clients. "Preserving stability is the consensus among top Chinese leaders, and to keep the continuity of the existing policies appears to be the best way to ensure stability for now."
To that end, Chinese officials are expected to continue on with many large energy projects, including a Guangdong LNG terminal and various refinery and petrochemical plant upgrades outlined in the country's 10th 5-year plan for oil and gas.
The Chinese government holds majority stakes in its domestic industry, from wellhead to the service station pump, although several of the supermajors are hoping to expand investments, especially in the retail market within the next 5 years.
China is the world's third largest oil consumer, after the US and Japan, according to the US Energy Information Administration. The Chinese consumed 4.78 million b/d in 2000, up from 4.36 million b/d in 1999. And those numbers are expected to increase dramatically even if the world's most populous country shows only modest economic growth.
A net importer since 1993, China is expected to surpass Japan as the second largest world oil consumer within the next decade, reaching a consumption level of 10.5 million b/d by 2020, EIA says.
Despite China's efforts to convince investors they want to retool state-owned oil concerns into more corporate-like structures, analysts say China is still ruled by people rather than by law.
"There is no doubt that the new leaders will leave their fingerprints on new issues. As such, while many of the existing policies and approved projects will not be affected by the leadership change, future projects and policies will be," said Wu and Fesharaki.