06-07-02 China should play a more active role in the international oil market to become a price-setter or even rule-maker, and such a goal should be realized through the futures market and the transfer of property rights.
The urgency of such a move comes from the changing background connected with the production and circulation of oil both in China and abroad.

World oil prices have fluctuated dramatically. From January 1999 to November 2001, the price of crude oil galloped from a record low of below $ 10 per barrel to $ 36 per barrel before later plunging to $ 18 per barrel. Steep rises or falls in oil prices affect the stable growth of the Chinese economy.
Moreover, many of the overseas oil-exploration projects in which China has taken part are located in Sudan and countries nearby, which became sensitive areas after the September 11 terrorist attacks on the United States. The international climate demands an adjustment in China's oil strategy.

After China joined the World Trade Organization,it got more flexible access to various resources on the international market. Currently, actual transactions of oil come to only one-seventh of transactions on the oil futures market every year. The actual supply and demand of crude oil remains balanced despite dramatic changes in price.
As a matter of fact, behind the price changes is the monopoly and manipulation of oil prices by some Western countries and international groups. The price change are an indication of their fight for the control of resources.

Chinese companies should become actively involved in the setting of oil prices. According to an approximate estimate, oil price rises cost China $ 7 bn in 2000. China is becoming a major oil importer. It is estimated that China will import more than 50 % of the oil it needs by 2010, which would be around 160 mm to 180 mm tons of imported oil. The figure is expected to rise to 300 mm tons by 2020.
To increase China's weight in the price-setting process on the world oil market, it is necessary tomake use of the oil futures market. There are two ways to influence oil prices through the futures market.
The first way is to buy the forward contracts at a low price and sell at a higher price on the futures market. Transactions should be in huge amounts, so that the market price of spot oil will fluctuate accordingly.
The second way is to keep a huge reserve of oil forward contracts. The relative quantity of oil reserves among different players in the futures market is one of the most important factors deciding market prices and market rules.

What's more, the oil reserve can help offset the negative influence of the spot international market's price pendulum on the domestic market. Besides the futures market, another important sector is the property-rights market.
To ensure China's energy security, it is not enough to have a say in setting oil prices. Efforts should be made to get access to oil resources by securing the property rights of oil fields.
Currently, the world's top 20 oil companies control 81 % of the known high-quality oil deposits. The overseas oil fields to which China has access are a long way from producing adequate amounts of oil for the country.
However, in these overseas oil fields, the Chinese teams are usually in charge of the management or technology in co-operation with local groups. But their agenda does not yet include competing for the fields' property rights.

In the current international situation, Chinese companies should not shirk from competition with international monopoly groups in the property-rights market. There are several advantages of owning oil fields wholly or partially.
First, before buying, the investor can make sure that the fields have the ideal conditions and then buy the right to explore and produce oil there.
Second, as the owner of the field, the investor can hire technological staff to take care of exploration work.
Third, the ownership of fields can be transferred on the market, so the investment portfolio can be modified flexibly to avoid risks and get more revenue.

The property-rights market is an important part of the international oil market. China should try to develop its influence on this market, too. Competition in this period of economic globalisation is decided by the interaction of the physical market and the virtual market. Sentiment on the oil market has been greatly influenced by the oil futures market, which is controlled by the multinational financial capitals.
To survive such competition, it is necessary to combine financial security and energy security. By October 2001, China's foreign-exchange reserve had reached $ 200 bn, which was vulnerable to risks on the foreign-exchange market.

China could convert part of its foreign-exchange reserve into oil reserves or oil forward contracts. It could thus improve the overall quality of its assets and diminish exchange-rate risks. By making use of international financial resources, China will be able to enhance its competitiveness on the futures market.
The supervision system of foreign debt should be adapted to apply different policies to the management of long-term reserves and short-term speculation. Special monetary policies should be drafted to finance actions on the oil futures market when necessary.