The Ministry of Commerce noted that beginning January 1, 2007, companies engaging in the refined oil wholesaling business must have registered capital of at least 30 million yuan with oil terminals of 10,000 cubic meters. They should also possess distribution channels for refined oil, special railway lines, road transportation vehicles, or a port capable of 10,000 tons of refined oil. Additionally, those companies must have a long-term and stable refined oil supply channel.

Chong Quan said a buffer period of 18 months, starting from January 1 will be given to state-owned oil companies. The state-owned refined oil wholesaling companies and storage companies can be reshuffled in the next 18 months, and the retailing companies in six months. After the reshuffle, the Ministry of Commerce, together with other relevant departments, will straighten out and rectify the refined oil companies throughout the whole country.

At the present time, some foreign oil giants are speeding up their efforts in establishing logistic infrastructures, optimizing the refined oil distribution network so as to enter the Chinese refined oil wholesaling and retailing market as soon as possible.

For instance, Shell Oil Company, ExxonMobil and BP have been investigating Chinese coastal areas like Dalian City, Zhejiang and Guangdong, intending to establish their own oil terminals.

As a matter of fact, BP established BP Nansha oil terminal, the first joint venture oil terminal in China, with Guangzhou Development Industry (Holding) Co. Ltd. This oil terminal is situated in the center of the Pearl River Delta, capable of reserving about 360,000 cubic meters of refined oil and petrochemical products. It also is large enough to welcome an 80,000 ton ship.

Russian state oil company Rosneft is planning to set up gas stations in China with CNPC. The gas station will sell refined oil produced by Rosneft and CNPC. The company intends to penetrate the Chinese refined oil wholesaling market through the existing logistic network established by the CNPC.

The 10 million ton oil refinery project carried out by Sinopec has caught the attention of Saudi Aramco company, which intends to purchase 25 percent of stock in the project.

"The opening up of the wholesaling market will attract more investment into the Chinese oil market from foreign companies," said Zhu He, Assistant Chief Engineer of the Economics & Development Research Institute under Sinopec.

Zhu He noted that foreign oil companies will continue to perfect their sales network in relatively developed coastal areas in southeast China and are moving on to inland and western parts of the country to set up wholly foreign-owned oil sales companies. Currently, they are enlarging their shares in existing joint ventures to pursue more independent business development.

Compared with foreign oil giants, Chinese domestic private oil enterprises are not as optimistic as some expected. Although private oil companies applauded the loosened wholesaling right and have been preparing for extending market share, the opening of the market does not mean private companies can immediately purchase sufficient refined oil from the domestic market. In the short term, they will still have to rely on state-owned oil controllers for oil sources.

Han Xuegong, professor with the Sinopec Management Institute, pointed out that as for private oil enterprises, their biggest rivals are neither Sinopec nor CNPC, but international oil giants.

Big brother watching

Oil is defined as a strategic resource in China. In the past, the Chinese Government vigilantly supervised the oil industry and opening of the wholesaling market doesn't mean the supervision will be loosened.

In a Xinhua report, Zhou Dadi, Director General of the Energy Research Institute of the NDRC, illustrated China's supervisory plan over the oil industry.

Zhou believes that the nature of oil as a strategic resource ensures that China will never loosen control of it, especially when oil prices are on the rise as they are now.

"The opening of the crude oil and refined oil wholesaling market will inevitably bring about clashes and setbacks for some," Zhou said. "Therefore, the government's supervision--especially legal supervision--must be completed. The law should guarantee fairness in terms of market access and competition as well as resource allocation. Vicious competition should be avoided."

As for the foreseeable competition in the oil retailing and wholesaling market, Zhou stated that more market players can help optimize property structure and boost company productivity and competitiveness. However, Zhou worried the opening market could also lead to cutthroat competition and more risks to company business operations. The number of oil refineries likely will decline and the refinery industry will become highly concentrated, he said.