China's plans to accelerate development of its offshore petroleum reserves have created a groundswell of enthusiasm in Japan, which sees its ancient neighbor potentially as both a key source of energy supplies and as a customer with oil revenues to spend on growing imports of industrial goods.
According to Japanese industry experts, it may take another decade before any of the oil fields off the Chinese coast yield a significant volume of crude. But Peking's apparent willingness now to accept foreign partners in joint oil exploration and development has whetted the appetites of Japanese traders who are aggressively vying for an expanded stake in the multibillion-dollar effort.
Prime Minister Zenko Suzuki, who arrived in China on Sunday for a week-long visit to mark the 10th anniversary of the renewal of postwar Sino-Japanese relations, was expected to stress the importance of expanding two-way trade in talks with Chinese officials. In the Japanese view, Sino-Japanese economic ties could play a key role in shaping future diplomatic relations in Asia.
Japanese government officials and oil industry analysts say that an expansion of trade has been delayed in large part because Peking lacks sufficient foreign exchange to buy more of Japan's costly capital goods and thus advance its ambitious schemes for economic modernization. China's growing domestic demand for crude oil also has forced the country to dip into its production, resulting in cutbacks in oil supplies to Japan.
Japan envisions a tradeoff in which it would export substantially larger amounts of industrial goods to China in return for progressively larger amounts of Chinese oil and, to a lesser extent, coal. This trade equation is seen here as particularly important in light of increasing resistance to Japanese goods in the United States and other Western countries.
"Oil is the most vital resource which China can provide Japan," said Tatsu Kambara, director of research and planning at the state-run Japan National Oil Corp., "and Japanese technology is what the Chinese want." He said that China's offshore oil reserves ultimately could equal those now under production in the North Sea.
"The big question," Kambara said, "is how much oil China, with 1 billion people, will have to use to meet domestic demand" in the years ahead. If all goes smoothly, however, he suggested that China should have available enough for export, which would fit into Japan's plans to diversify its international oil supply sources and reduce its overwhelming dependence on countries in the Middle East. Japan, which is almost totally dependent on foreign oil, now buys less than 5 percent of its crude supplies from China.
One major unresolved question is how the Chinese intend to finance the huge costs of oil development, because Peking is insisting on large ownership stakes in virtually all projects.
"We are now advising them how and where to get the money," said one Japanese industry analyst. "American bankers, and even some Japanese, now appear eager to help the Chinese gather the funds, and they will be able to borrow substantial amounts" as various oil projects gather speed.
On a mission to China earlier this month, Minister of International Trade and Industry Shintaro Abe promised his Chinese counterparts $400 million in concessionary loans sponsored by the Japanese government for a joint oil development project underway in the Pohai Gulf adjacent to the city of Tientsin.
Last week, Chinese Vice Premier Yao Yilin asked an influential group of visiting Japanese industrialists for technical and financial assistance in plans to double China's current production -- 2 million barrels daily -- by the year 2000. The key is the large area in the South China Sea off Canton, which Peking is now readying to open to joint exploration with foreign partners.
The Export-Import Bank of Japan has so far extended roughly $1 billion in soft-term loans to China for the expansion of oil and coal development.
A long-term Sino-Japanese trade agreement signed in 1978 called for the two countries to expand trade to $20 billion by 1985 and to between $40 billion and $60 billion by 1990. Since 1972, trade between the two countries has been brisk, expanding nearly tenfold to $10.4 billion last year.
To augment its foreign currency reserves, China intends to use partnerships with foreign oil industry service companies to enable the country to provide -- and profit from -- an increasingly larger share in drilling, testing and other support services needed by international oil companies as offshore development proceeds. In one typical deal, the Chinese reached a 10-year technology transfer agreement with Hughes Tool of the United States that will, by 1985, allow them to produce sophisticated drilling bits at a factory in China, industry sources here said.
The national oil company and 47 private Japanese companies already have invested a total of $210 million in drilling five test wells in the Pohai Gulf, all of which, officials said, have turned up commercially exploitable reserves. The Chinese have agreed to put up a 51 percent share of further development costs, which are estimated at $3 billion to $4 billion. For its stake, the Japanese side will obtain 42.5 percent of crude oil production, now expected to begin in 1987.
It is likely to be well into the 1990s, however, before any significant reserves in the vast South China Sea area start coming on tap. At the moment, 33 foreign companies are awaiting approval from the newly established China National Offshore Oil Co. on recently-tendered bids that would allow them to explore for and produce oil and natural gas in the Pearl River estuary, the Yellow Sea, and the Tonkin Gulf.
The national oil company expects to get the go-ahead early next year and plans to organize two large consortiums of Japanese companies for separate projects, one led by Arabian Oil Co. and the other by Japan Petroleum Exploration Co. Idemitsu Kosan, another large oil company, plans to start development in a third offshore tract.
According to a government energy expert, who did not want to be identified, the huge costs for developing this area could run between $8 million and $10 million and will require greater cooperation among international oil companies, banks, and equipment suppliers to help spread the risks.
"The competition for the Japanese," he said, "is very, very tough." One disadvantage is that Japan lacks a bona-fide international oil major of its own to help amass the necessary capital, know-how and act as a lead manager in gathering Western partners in joint projects. Another is that the Japanese, while strongly competitive in designing, producing and setting up offshore oil drilling platforms and other basic hardware, lag behind American manufacturers in specialized oil prospecting and drilling know-how in such areas as high-pressure drilling bits and well-logging techniques. Industry analysts here say that U.S.-based oil majors so far have shown little interest in Japanese offers of project participation.
The Japanese are confident, however, that their proximity to China and historic cultural ties give businessmen here a collective edge in vying with Western competitors. "The reason the Chinese have asked us to participate in the Pohai project is that they thought it would be easier to catch up with oil development technology from Japan rather than deal directly with Western countries," Kambara said.