On May, 2, the telephone rang in the office of Christopher Phillips, Washington head of the National Council for U.S. China Trade. It was Peking's liaison office, the main diplomatic channel with th United States, asking Phillips to come over to pick up a message for four major American oil companies.
That was the first evidence of a Chinese decision of major importance to the development of its offshore oil resources. It is likely to lead to an investment of $25 to $50 billion by American companies in the shared development of Chinese oil, and to open up China to broader economic relations of many kinds with the Western world.
Phillips' National Council, representing about 400 American companies was formed in 1973, two years after the long break in U.S.-Chinese relations had been ended. The council is a private organization, but it has maintained a unique and close relationship with both governments.
What Phillips found at the liasion office exceeded his fondest hopes. The Chinese displayed an invitation to four big American companies - Pennzoil, Exxon, Union Oil, and Phillips Petroleum to come to China at two-week intervals to discuss the exploration and development of oil reserveds under the East China Sea, the South China Sea, and other offshore areas.
The Chinese were specific. They not only wanted the top man of each oil company, along with key technical experts, but they specified J. Hugh Liedtke of Pennzoil, who had made frequent trips to Peking, including a visit last year with George Bush, former head of the U.S. liasion office there. Pennzoil's mission has already been to China and back. Exxon's is there now, and Union and Phillips will complete their studies by the end of August.
High State Department officials, enthusiastic about the new development, suggest that "it's only the tip of the iceberg." It is clear to them that the new leaders who have taken control in the post-Mao era are "going all-out to make the best of what is available from the West. The old ideology has been put aside."
China's new search for outside help in the industrialization process extends well beyond oil. State Department sources indicate that the Chinese are seeking American, French, and Japanese help in such diverse fields as coal exploration, banking, computers and a fertilizer - even in seismic exploration.
Total U.S.-China trade, which was a mere $375 million last year, is expected to double to the $700 million range this year, but obviously could go much higher especially if the Chinese oil initiative results in firm contracts.
Moreover, to overcome what is described as a 10-year education gap, created when the old regime relied on ideological conviction instead of aptitudes for admission to universities, China is beginning to try to extract a quick fix of education from the West. Thousands of Chinese students are being sent out to learn whatever the West can teach them.
But the search for oil is the most dramatic of the new events. In a telephone interview, Liedtke sid that he has no doubt that "the decision has been made in Peking and at the highest political level" to supplement Chinese's own exploration efforts by "more than one" outside company because of the amount of the oil involved, and to get the most diverse technological assistances.
"My guess is that this has an extremely high priority, and the pressure is on to get something done," Liedtke said.
Within 30 days, Liedtke, said, Pennzoil will send a specific proposal for exploration of a major offshore basin - probably in the South China Sea - "That will be conceptionally acceptable to them and at the same time give me what we need."
He suggested that because of the great complexities involved, it may take a good deal of time to get an agreement.
Pennzoil and the other companies will have to finesse the well-know Chinese resistance to foreign ownership of their resources. Liedtke visualizes a contract focusing on technical assistance. But that would not preclude, he hinted, some sort of profit-sharing arrangement and the right to buy some oil with those profits. That would be similar to arrangements of foreign oil producers with Brazil, and be equivalent to the sharing of production.
"We don't have any hard information," said a State Department official, "but production sharing (with China) would be very significant. From our standpoint, it's a revolutionary and very exciting development."
Much of the new stimulus for speeding up the industrialization of China is said to originate with the vice president, Teng Hisiao-ping.
"What is happening now would simply not have been possible in the ideological climate in Peking three years ago," said a State Department expert.
The most crucial decision, Phillips and others said, was the conclusion by the top political team that the only way to pay for the technological equipment needed to bring China into the 20th century is by developing its oil resources.
"They decided that cash from oil would be the only way to pay for what they need," said one official.
China also needs more oil for its own industrialization, but it needs the cash even more. It would appear that oil reserves are so large that there can be enough for increased domestic consumption, and a surplus to sell to other industrial countries, including the United States, Japan, and some Western European countries.
Geologists have known for a long time that there is a substantial amount of oil off the vast Chinese coastline, but no one knows how much.
According to Phillips, the estimates run to recoverable reserves of 50 to 75 U.S. oil companies will probably be asked to submit proposals for exploration of potential fields off the coast.
[TEXT OMITTED FROM SOURCE] billion barrels, onshore and offshore, mostly the latter. That would be among the largest known untapped pools of oil. Saudi reserves are estimated at 149 billion barrels.
Liedtke is reluctant to estimate the size of China's potential reserves, except to say that they must be "enormous", counting onshore as well as the offshore potential.
"There may be as much oil in China as in the Middle East," he said, "but the production problems under existing technology may make it more difficult to recover." Pennzoil experts assume that it will take two to threee years to complete exploration, and five to eight years to get into substantial production.
It is Phillips' impression - and this checks with the State Department appraisal - that the new leaders in China had carefully studied the situation in advance of its bid to the four companies, and intends to allow each of them to explore an oil field at least as large as China's largest existing oil-producing areas.
"One company alone could spend $5 to $10 billion to completely develop one such offshore field," Phillips said, "and there are at least four to five such fields off the China coast." Others suggest that there may be as many as 10 such fields, and that the developers will include Japanese and other firms.
There is no intimation that the Chinese are asking the American companies to engage in competitive bidding against each other, or against Japanese or European firms.
"There is plenty for everybody, and they all will have input," said a U.S. expert.