China plans $10bn oil reserve

China plans $10bn oil reserve

Francis Markus BBC Shanghai correspondent

One third of China's oil is imported

China is considering setting up a $10bn (£6.3bn) fund to purchase oil for a strategic reserve, reports in the state media said.

A strategic reserve could be financed out of the country's rapidly-growing foreign exchange reserves, the official China Daily newspaper reported.

The idea of setting up a strategic reserve has gained urgency with the looming threat of war in Iraq.

The impact of surging oil prices in the run-up to a possible war in Iraq is already being felt on China's economy.

Economic pain

Petrol prices and domestic air fares have gone up.

The country's trade figures dipped into deficit in January 2003 for the first time since 1996, partly because of the impact of oil purchases.

The deficit occurred despite the fact that China imports only a third of its oil, much less than some of its Asian neighbours.

To reduce the country's vulnerability further, the government is believed to be setting up the strategic oil stockpile.

The economic uncertainty thrown up by the possibility of a conflict is no doubt contributing to the widespread opposition to a war among ordinary Chinese.

However, the protests seen elsewhere in the world have been absent in China's tightly-controlled society.

Several hundred Chinese academics recently signed a petition against a possible war, handed in at the US Embassy in Beijing.

Although within the academic community there's been sharp debate over the issue, with some scholars also supporting the US position.