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China Plans New Energy Resource Tax, Infrastructure Spending in Western Provinces

Chinese officials announced plans to develop the country’s western provinces as the center of its energy industry and reformed the resource tax on oil, coal and natural gas extraction so that more of the tax revenue remains in the provinces.

One of the provinces is the Xinjiang Uygur autonomous region in northwest China, which experienced ethnic riots last year that left 200 dead.

The plans entail investing $100 billion in 23 infrastructure projects, including railways, roads, airports, coal mines, nuclear power stations and power grids, according to news reports from a two-day conference on investments in the provinces. There are also plans for wind farms and solar power plants, the government said.

Other provinces involved include Inner Mongolia, Tibet, Sichuan and Yunnan. Chinese officials at the conference acknowledged that development in this region had lagged behind that of the richer eastern provinces.

The new resource tax will be price-based rather than quantity based, and will ensure that a larger proportion of the tax revenue will go to local governments. It was already levied in Xinjiang and now will be extended to other western provinces.
The western provinces contain China’s major strategic oil and gas reserves. The government says it has already spent more than $300 billion on 120 projects over the past decade.

Investments over the coming decade will further develop the regions, Chinese president Hu Jintao said at the conference. In 10 years, the western regions should become the country’s base for energy resources, resource processing, equipment manufacturing and other emerging industries of strategic importance, according to the official China Daily newspaper.

The new resource tax will cut into the profits of PetroChina and Sinopec and other energy producers, and their share prices declined 1 to 2 percent on the news.

China, while scouring the globe for energy investments, has also entered into agreements with international energy companies to help develop its own reserves of oil and “tight gas” – natural gas embedded in rock formations like shale gas.

Xianjing was tense but quiet on the anniversary of ethnic rioting a year ago, which pitted a Turkic-speaking Uygur minority against the Han Chinese majority.

By. Darrell Delamaide for OilPrice.com

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