China is reportedly planning to establish a giant government-led fund along the lines of the National Social Security Fund, in a bid to stabilize oil supply, demand and prices.

A motorcyclist enters a China Petroleum & Chemical Corp (Sinopec) gas station in Shanghai. [Bloomberg News]

The fund is expected to come into being within a year, reported Newexpress Daily, a Guangdong-based newspaper.

It will also increase the negotiating power of China in oil trade with other countries.

"The timing is good for setting up the oil stabilization fund," said Han Xiaoping, an energy analyst with Beijing Falcon Pioneer Technology Co. "At present the international oil price is relatively low and China has adequate forexreserves."

China should use the fund to build more crude oil reserves and digest some of its foreign exchange reserves, he said.

According to Newexpress Daily, some government departments are studying the establishment of such a fund, pending approval from the State Council, the country's cabinet.

However, some analysts said the establishment of such a fund will require a long time, and will involve discussion among many ministries and commissions.

"The size of the fund would be very large," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. "Otherwise it would not be very effective in stabilizing oil prices."

As the world's second largest energy consumer, China's oil consumption has seen rapid growth in recent years. Stabilizing the domestic oil market requires a large amount of money, said Lin.

In 2007, China imported nearly 200 million tons of oil, over 10 percent more than in 2006. Imported oil accounted for 46 percent of the country's total consumption.

According to a recent report by the State Information Center, 55 percent of the country's oil consumption will be provided by imports in 2010, and the figure will rise to 66 percent by 2020.

Countries like Iran and Russia already have their oil stabilization funds, which help protect them from the fluctuation of international oil prices and stabilize their national economies.

(China Daily January 9, 2009)