To leave or not to leave? This is an actual question for the Chinese private enterprises. Most of them have been eliminated by the market and the status quo of the survivals is also not that good.

The Chinese private oil enterprises are living a hard life. The phenomenon that the wholesale price is higher than the retail price is hard to change and the restructuring of the foreign capital is always delayed. According to the data, in the past two years, two thirds of the Chinese private oil enterprises have been closed. The rest lingers on in a steadily worsening condition.

Every Step Is Hard

Experts thought that it was not the most difficult time for the private oil enterprises. According to a delegation of the enterprises, the oil supply from China National Petroleum Corporation (CNPC) and China Petroleum & Chemical Corporation (Sinopec) is still sufficient after the Beijing Olympic Games. There is no difficulty in getting oil.

But nobody can forecast when the next oil shortage will start and how many private enterprises will survive this shortage. The Chinese private enterprises are worried about that. Some of them even think that the next oil shortage will start this December.

Zhao Youshan is the Chairman of the Oil Flow Commission of the China General Chamber of Commerce. In his opinion, the conditions of the Chinese private oil enterprises are becoming worse and worse. Before 1998, the private oil enterprises took more than 85% of the whole Chinese oil market and paid a tax of more than 100 billion Yuan (USD 14.3 billion) to the government. However, ten years later, the tax paid by the private oil enterprises has decreased to less than 20 billion Yuan (USD 2.86 billion) because of the deficiency of the oil supply.

The Oil Flow Commission of the China General Chamber of Commerce did an examination in the beginning of 2008. The result showed that two thirds of the Chinese private oil wholesale enterprises and one third of the gas stations were closed. More than 10000 private oil enterprises are suffering from the deficit.

Sun Xiuyun, General Manager of Renyi Gas Station in Qiqihar City, Heilongjiang Province, said: “The private gas stations like us are in a serious dilemma: it is hard for us to maintain our business but we can not reconcile ourselves to seeing our several years’ hard work become a mockery.”

“The private oil enterprises are confronted with great difficulties. They are suffering from a serious lack of money,” said Zhao Youshan. “They have been striving to maintain their businesses for several years, but now they have reached their deadly limits and nearly collapse.”

The Premature End of the Consortium

The Chinese private oil enterprises used to try to save themselves by restructuring the foreign capital and self-save through uniting. But Zhao Youshan said: “Those things are all hopeless.”

Since 2006, it is said that the Chinese private oil enterprises plan to sell their capital because of the lack of a stable oil supply. The international oil companies, such as BP and Shell usually sent their representatives to the inside conferences of some Chinese private oil enterprises.

In the Conference of Oil Merchants from the Asian and Pacific Areas held in June 2006, 29 Chinese private oil enterprises from Liaoning, Guangdong and Zhejiang negotiated with Shell, BP, SK and some other famous international oil enterprises. After the negotiations, they confirmed the possibility of selling the private oil enterprises based on provinces to the foreigners.

In the Forum of Oil Flow in 2006, Zhang Shunjie, Chairman of Xilong Petroleum & Chemical Co. Ltd in Panjin City, Liaoning Province, said that they had sold 20 of their gas stations to Total, including some wholesale enterprises. Zhang’s company was the first private oil enterprise selling their capital to the foreigners in Liaoning Province.

Zhao Youshan said: “The foreign oil enterprises are willing to enter the Chinese market. However, they are restricted by the Chinese government’s policies. In addition, many Chinese private oil enterprises are in great debt. Some of them even have a debt of hundreds of millions Yuan. The foreign enterprises, after doing some research, think that the restructurings of the Chinese private enterprises are acceptable. But they are not willing to take over the large debt of the Chinese private enterprises. Obviously the Chinese private oil enterprises can not accept this. So their cooperation can not go on.”

On the other hand, Zhao Youshan and his Oil Flow Commission were planning to establish a “Private Oil United Group Corporation” at the beginning of September. They formerly planned to have this “consortium” attending the market competition. However, the problem of capital became the first difficulty for the establishment of the new corporation. Zhao Youshan said: “If the foreign capital cannot get in, we can not establish the private oil united group. So we have to allow the foreign capital to hold more shares.”

However, Zhao Youshan gave up on this thought on October 13.

Puzzle of Anti-monopoly

Zhao Youshan once again advised the Chinese government and other relevant authorities to open the fields of market control, upstream supply, export, price and reserve.

Zhao still hopes for the issuance of a supporting policy by the government. According to him, the National Development and Reform Commission of the PRC (NDRC) is now studying a supporting policy for the Chinese private oil enterprises after investigating the status quo of the private oil enterprises in Heilongjiang, Hebei, Xinjiang, Guangzhou and Chongqing. This supporting policy may be issued at the end of 2008.

Besides hoping for a national policy, Zhao Youshan also wants to use the weapon of law. In many private entrepreneurs’ eyes, the weapon of law is the newly-issued Anti-monopoly Law.

In Sun Xiuyun’s opinion, the government has issued the Administrative License Law and the Anti-monopoly Law. The Chinese private oil enterprises get their business qualification according to the national laws and policies. They will use this legal weapon to obtain the space for their own legal existence and development.

Actually, after the issuance of the Anti-monopoly Law, Zhao Youshan and many other Chinese private oil entrepreneurs have no definite idea of how to use it to protect their own benefits.

Zhang Hui, a lawyer from Beijing Mingji Law Office, pointed out that presently the Chinese private oil enterprises of wholesale and retail can purchase their oil only from the two groups (CNPC and Sinopec) which are appointed by the administrative authorities, which constitutes the “restricted operation behavior” stipulated in Clause 32 of the Anti-monopoly Law. Actually, the Chinese private oil enterprises can’t purchase their oil from the two groups. The consumers have to buy oil from the retail stores belonging to the two groups. This means in a disguised form that the consumers have to buy oil from the operators appointed by the administrative authorities, which violates the Anti-monopoly Law.

However, Zhao Guohua, another lawyer from Beijing Mingji Law Office, said that there was enough proof of the two Chinese oil giants’ monopolization in the Chinese oil market. But the litigation against them is still hard to operate. “Actually the litigation process is very complicated. Presently there are some anti-monopoly litigations in China. But the progresses are not satisfactory.”

Zhao Youshan also said: “For the litigation against the CNPC and Sinopec, we still have no concrete plans. They (the lawyers) give out the idea and we study it.”