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Beijing, China — China has set up a national oil reserve center, with the approval of the State Council, the National Development and Reform Commission announced in December. The center will control the country's strategic and domestic oil reserves, and is expected to have a major impact on the allocation of oil for economic development.

China relied on imports for 50 percent of its oil needs last year, which is regarded as an "early-warning phase" of energy dependency. In 2004 the state allocated 6 billion yuan (US$825 million) to build four strategic reserve centers in the coastal areas of Zhenhai, Zhoushan, Huangdao and Dalian. Together they hold reserves equivalent to 10 days of the nation's oil consumption. Adding to this the reserves held by business entities, China's overall oil reserves equal one month of imports, or half a month's consumption.

However, China's petroleum reserves are still not enough. The United States has held oil reserves since 1976, and Japan since 1980. They each have a half-year supply of oil in reserve.

China has set up the reserve center at this time to better ensure its energy security. It is working on a system under which the government can control the combined reserves of the military, state-owned enterprises and local businesses. Strategic reserves will take priority, with allocations for state enterprises and local businesses in a subsidiary role.

China's current petroleum security is precarious for the following reasons: the nation still struggles to find enough supply to meet its huge demand; import resources and channels are limited; oil supplies and international prices are under foreign control.

Enhancing the management of its oil reserves will consolidate China's energy security to some extent. Setting up the national oil reserve center under government control will help stabilize the supply-demand situation, hold the prices of commodities down, and help solve the nationwide problem of a shortage of petroleum and soaring oil prices. The center will be able to manage China's petroleum reserves in an organized manner according to the country's developmental priorities, thus moving toward more professional and normal development.

However, China should not be in too big a hurry to accumulate its oil reserves, as prices on the international market are still quite high. The rapid and excessive accumulation of oil reserves would be too costly, and could even add to the inflation of oil prices on the world market.

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(Hu Xingdou is professor of economics and China issues at the Beijing Institute of Technology, and an expert on social problems. This article is translated and edited from the Chinese by UPI Asia Online. ©Copyright Hu Xingdou.)