The Effect of PTAs on Energy Trade from Chinese & Exporters’ Perspectives

About the Project

Our goal is to understand the context of China’s energy economy and underlying decisionmaking processes. This understanding will enable the collection of relevant and accurate data both to feed analysis and drive the interpretation of model outputs. The project aims to analyze and assess information to obtain policy relevant insights. Its focus is on investigating the global consequences of changes to energy markets within China and China’s energy policies. In line with KAPSARC’s overall objectives, the aim is to produce policy relevant insights that may assist actors outside China to understand the consequences of decisions taken by actors in China.

Key Points

During periods of supply abundance that lead to lower prices, commodity exporters strive to secure their market share with major importing economies. This paper seeks to cast light on what drives an exporter’s share of Chinese imports of oil, gas and coal – and we find that the strategy behind achieving this goal need not rely on pricing policies alone. China has been promoting a trade agenda that seeks to strengthen economic ties in the Asia-Pacific region and has been extending negotiations aimed at developing relationships worldwide. The country is a major energy import powerhouse; its trade deals have significant impact on the international energy trade and global energy markets. We explore the role of energy in China’s preferential trade agreements (PTAs) and extend the trade gravity model to disaggregated trade flows, estimating the impact these agreements have on Chinese energy imports. We find that: Securing energy/resource imports is not the major driver of China’s PTA strategy. Other considerations include: access to significant or strategically important markets, complementary economic and trade structures and extending political influence. The impact of PTAs on trade patterns varies across product groups. Agreement elements may include tariff reduction, scope and other specific policy arrangements. From China’s perspective, reduced import tariff rates likely:

• Increase the import flows of coal, crude oil and oil products – but not gas – from a partner economy to China.
• Help an energy exporter increase its share in Chinese crude oil and oil product imports.
• Divert a partner’s exports of crude oil and oil products to China from competing importers.

From an exporter’s perspective, the presence of an operational PTA with China likely:

• Increases the import flows of gas from a partner economy to China.
• Helps an energy exporter increase its share of Chinese imports of coal.
• Diverts a partner’s exports of coal and gas to China from other importers.
• Does not affect oil exports to China.

The depth and scope of a PTA does not affect the patterns of Chinese energy imports.