CHINA'S EMERGING ENERGY POLICY

China is emerging-slowly-from several years of an energy policy vacuum. Policymakers are now searching for new answers to long-deferred questions: the extent of state ownership, the scope of market pricing, and whether existing regulatory institutions should be adapted or recreated altogether. Meanwhile, the rapid expansion of energy consumption and imports makes a policy breakthrough ever more urgent.

* Expect a rash of new policy pronouncements over the next six to nine months. The advent of a new Five Year Plan cycle provides opportunities for the leadership to signal renewed attention to energy questions. Focus will turn to a forthcoming Energy White Paper and draft Energy Law scheduled for 2007-08.
* Despite the rhetoric, dramatic breakthroughs are unlikely. Major changes to energy policy face three critical roadblocks: the nature of Beijing policy making, constraints to policy implementation, and sensitivities in balancing industrial and social priorities in China.
* Several years of incrementalism and preparation await. Foreign investors should monitor changes under way in regulations specific to oil, gas, and power markets. More than any grand policy blueprints to be unveiled in Beijing, seemingly narrow reforms will change the rules of the game in the next decade.
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Note: Philip Andrews-Speed was an author on this report.

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