China's Energy Conditions and Policies

VII. Deepening Energy System Reform

Improving the environment for development is an intrinsic requirement of China's energy development. In accordance with the requirements of perfecting the socialist market economy, China is steadily advancing its energy system reform to promote the development of the energy industry. In 1998, strategic reorganization was accomplished among petroleum enterprises, featuring the establishment of new vertically integrated management system of oil industry. In 2002, China's power industry realized the separation of government functions from those of enterprises, as well as the separation of power plants from grid operation in line with the power system reform plan. In 2005, after the market-oriented reform of the coal industry, China's coal industry saw deepened reform and further development pursuant to the Opinions on Promoting the Healthy Development of the Coal Industry issued by the State Council. China is further deepening reform of the energy system, elevating the energy marketization level, improving the energy macro-control system, and improving the environment for energy development in accordance with the requirements of innovation in concept, management, system and mechanism.

-- Strengthening energy legislation. It is an imperative requirement for energy development in China to improve the energy-related legal system to provide a legal guarantee for increasing the energy supply, standardizing the energy market, optimizing the energy structure and maintaining energy security. China sets great store by and actively advances the construction of the energy legal system. China has enacted and put in force the Clean Production Promotion Law and Renewable Energy Law, and has issued a series of supporting policies and measures. The amended Energy Conservation Law has been promulgated. The Energy Law, Circular Economy Law, Law on the Protection of Oil and Natural Gas Pipelines and Regulations on Energy Conservation of Buildings are being formulated. The Mineral Resources Law, Coal Industry Law, and Electric Power Law are being revised. Meanwhile, active efforts have been made in research into energy legislation concerning oil and natural gas, the crude oil market and atomic energy.

-- Reinforcing production safety. In the course of energy development, China pays high attention to safeguarding the lives and health of the people, and takes effective measures to halt the trend of frequent occurrences of serious accidents. It adheres to the principle of giving top priority to safety, placing the main emphasis on prevention, and exercising comprehensive control. It has intensified efforts in the control and comprehensive utilization of coal gas, and rectified and shut down small coalmines lacking conditions for safe production. It has enforced safety supervision of coalmines, and guided local governments and enterprises to intensify efforts in technological upgrading for coalmine safety and the construction of safety facilities. It comprehensively carries out education on safe production to enhance the sense of responsibility for safety, continues to consolidate electric power safety and petroleum and gas production safety, intensifies supervision and management measures, and practices a working system in which production safety is supervised by the state and administered by local governments while enterprises take the responsibility. It further implements the safe production responsibility system, and enforces rigorous safe production laws and regulations and a related accountability system.

-- Improving the emergency response system. As an important aspect of economic security, energy security has a direct bearing on national security and social stability. China practices unified power dispatch, hierarchical power management and operation of power grids by regions. A safety responsibility system with division of work among government departments, supervision organs and power enterprises has been established, in which the power grids and power generation enterprises work out emergency response plans to cope with large-scale emergencies. Following the principle of unified planning and step-by-step implementation, China has built national oil reserve bases and expanded its oil reserve capacity. It has gradually established a guarantee system for oil and natural gas supply emergencies to ensure secure supplies of energy.

-- Accelerating market system construction. China sticks to the policy of reform and opening-up, gives full play to the basic role of the market in allocating resources, encourages the entrance of entities of various ownerships into the energy field, and actively facilitates market-oriented reform related to energy. It has improved the coal market system in an all-round manner, established an open, orderly and healthy power market system characterized by separating government functions from those of enterprises and fair competition, paced up reform of the oil and natural gas circulation system, and promoted the healthy and orderly development of the energy market.

-- Deepening reform of management system. China has stepped up efforts in the reform of its energy management system, improved the national energy management system and decision-making mechanism, strengthened unified planning and coordination among state departments and local governments, and consolidated the state's overall planning and macro-control in the field of energy development, with the focus on changing functions, straightening out relations, optimizing the setup and raising efficiency, so as to form a management system that centralizes control to an appropriate degree, divides work in a rational way, fosters scientific decision-making, and ensures smooth enforcement and effective oversight. The Chinese government has furthered the transformation of government functions, giving priority to guidance by policy measures and attaching importance to information services. It has deepened the reform of the energy investment system, and established and improved the investment regulation and control system. It has further strengthened standardized management of energy resources, improved the management system of mineral resources development and exploitation, put in place and improved the system for paid use of mineral resources and the system of trade in mining rights, and rectified and regulated the order of mineral resources exploitation market.

-- Advancing price mechanism reform. The price mechanism is the core of the market mechanism. On the premise of properly handling the relations among various interest groups and taking full account of the acceptability of all social sectors, the Chinese government has advanced energy price reform in a vigorous yet steady way, gradually established a pricing mechanism that is able to reflect resource scarcities, changes in market supply and demand, and environmental costs. It has deepened coal price reform to realize all-round marketization. It has propelled electricity tariff reform to ensure that electricity generation and selling prices are eventually formed by market competition, with the electricity transmission and distribution prices being supervised and controlled by the state. It has improved step by step the oil and natural gas pricing mechanism to timely reflect changes in international market prices and domestic market supply and demand.