The projected stockpile, amounting to 6 million tons, is indispensable for China, a net oil importer since 1993, to cushion its exposure to the volatile oil market, said Chen Shihai, an official from the Industry Planning Division of the State Economic and Trade Commission.

"Such a reserve is the first step towards establishing a strong state oil stockpile to prepare for a rainy day,'' Chen said in an interview with China Daily.

His remarks followed a proposal made by Li Shensheng, an analyst from the Economic Research and Consulting Center under the commission, that China should round up a state strategic oil stockpile of 15 million tons by 2010.

In comparison, the United States, the world largest oil consumer, has established a Special Petroleum Reserve of around 100 million tons since the 1970s.

The center predicted China's demand for crude oil would reach 296 million tons by 2010, but its production would only be 170 million tons.

Chen said a state strategic oil stockpile must be directly controlled by the central government.

However, a certain proportion of the stockpile, to be determined by the government, could be commercialized to raise more money for its operation, he said.

"The country could procure more oil when prices are relatively low and sell some when they are high,'' he said.

Currently, world oil prices stand at around US$27 a barrel compared with a peak of US$37 a barrel in May last year. In March 1999, oil was less than US$10 a barrel.

High prices are widely seen as a big obstacle preventing China from quickly building up a state oil stockpile.

Chen said the state would be the major investor in the construction of the stockpile facility.

"At the same time, more channels should be explored to raise funds through policy-orientated loans and bond issues,'' he said.

The official also called for domestic enterprises, including the country's three largest oil companies -- China National Petroleum Corp, China Petroleum and Chemical Corp (Sinopec) and China National Offshore Oil Corp -- to build up their own reserves to buoy the state's oil strategy and stabilize the domestic market.

Zhang Jiaren, vice-president of Sinopec, said earlier this year that over the next three years the company plans to double its current oil stockpile of 5 to 6 million tons.

"The government will consider providing the companies with preferential financial and taxation policies to speed up their establishment of oil reserves,'' Chen said.

But a specific program is still trapped in the bureaucratic machinery.

Analysts say the government's preferential policies are necessary because the establishment of government-controlled oil reserves is expected to affect market operations of the three companies, which all have overseas-listed affiliates.

(Chinadaily.com.cn 07/03/2001)