Extract

THE EVOLUTION OF STRUCTURES AND RESPONSIBILITIES In our overview of the pre-reform industry we emphasized the highly politicized nature of administration and management in China’s oil and gas sector. At the local level, the ‘Daqing’ method was widely relied upon. At the national level, allocations of investment and other resources reflected the political and bureaucratic strengths of the powerful factions supporting these industries. On the basis of these forces, not only did the oil sector do well in terms of initial allocations of resources but, of equal significance, the industry’s priority status meant that the severe coordination problems typical of the planned economy – and especially of the Chinese system during the Cultural Revolution – were usually resolved in its favour. This political basis was an important element in the sector’s strong growth record before reform began in 1978. Economic reform, however, was accompanied by a significant political transition from Mao to Deng Xiaoping, and in this shift the factions supporting oil and heavy industry turned out to be losers. This political change had important implications for China’s economic development strategies generally, but especially for the performance of the oil and gas sector. The impact of political change worked through both the mechanisms of investment allocation and resolution of coordination conflicts. It is important here to bear in mind that the industry, in all its forms, is by Chinese standards typically intensive in its use of modern physical capital. There is, for example, no oil equivalent of the...