This report featured as part of the Annual report for Fortune Oil. as indicated by the header. The sentiments apply equally to other companies investing in China. Bear in mind that it may have been partly written with the spyplane incident as a background, and that the Taiwan question remains a quandary. In the latter case China's new WTO status is a considerable moderating factor!

Posted as Part of Annual report 27th. April 2001
RNS Number:7588C Fortune Oil PLC 27 April 2001	FORTUNE OIL PLC PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 2000 CHINA REVIEW   The turbulence of world financial markets and the deterioration of the United States and Japanese economies are creating concern among investors globally. Whilst China is not immune to these forces of instability it continues to represent a haven of steady growth, political stability and commitment to integration within the world economy. The 8 per cent rise in China's GDP in 2000 was a strong performance for the tenth year in a row and a solid increase over the 7.1 per cent growth recorded in 1999. It was also the first time the country's GDP has topped the US$1 trillion mark, making China the world's seventh largest economy. In purchasing power terms, China is probably second only to the United States in the size of its economy. China's huge export machine was undoubtedly an important contributor to this performance, exceeding US$250 billion in 2000 and even a 10 per cent fall in exports would only bring them back to 1999 levels. In any case, the domestic economy, spurred by market reforms and supported by government spending on much-needed infrastructure, continues to perform well. After a period of prolonged deflation, the consumer price index rose 0.4 per cent in 2000 and is expected to rise more strongly during 2001. To help offset an inevitable weakening of the export sector, the government is to increase spending on infrastructure in 2001. These positive factors should underpin economic activity and allow China to achieve its GDP growth target of not less than 7 per cent for the year. Solid prospects for the Chinese market will be supported by continuing reforms. Whether or not China accedes to the World Trade Organisation (WTO) this year, the government continues steadily to promote liberalisation and the deepening of the country's legal foundations. From the new draft law on property rights to the opening of the securities markets, China is moving to put its economy on a new platform. These favourable factors have made China a leading destination for foreign investment. From being a small recipient of foreign direct investment (FDI) in the early 1990's, China has risen to dominate flows of capital to developing markets. In 2000 it received over US$40 billion of FDI, dwarfing the rest of Asia. The pace of inflows is increasing. Actual FDI rose by 24 per cent in the first two months of 2001 to US$4.6 billion. A survey of executives in January by the Asian Wall Street Journal showed that China had increased its lead over other destinations in Asia as a place for future investment. Forecasters expect the total stock of FDI to increase to nearly US$390 billion by the endof this year. The energy sector continues to attract attention, as foreign multinationals and portfolio investors eye the undoubted potential offered by the combination of economic growth and broad-based increases in per capital income. Oil and gas claim a central position in the latest five-year economic plan, which aims to see a steady increase in domestic oil production, an accelerated development of the natural gas sector and the further rationalisation and upgrading of refining and petrochemicals facilities. To achieve these goals, China is actively encouraging foreign participation, in particular in relation to ambitious plans to unlock gas reserves in western regions of the country. China has just 2.3 per cent of world proven oil reserves, but ranks second only to the US and Japan for crude demand, its daily consumption of 4.3 billion barrels per day equivalent to 6 per cent of the world total. YetChina's average per capita consumption of crude is about one sixth of world levels, and as the economy expands and modernises, oil and gas consumption continues to rise steadily and to take share from coal in the total energy mix. According to the State Statistical Bureau (SSB), total energy demand in China will rise at around 3.5 per cent annually over the next two decades, several multiples of the rate forecast for developed markets. With productionrelatively flat, imports of crude will continue to rise, so that from being a net exporter as recently as 1992, by 2005 China is forecast to be importing two million barrels per day of crude, roughly double the present deficit. The long-term investment proposition for companies able to improve the efficiency of any part of the oil and gas value chain is therefore compelling, from the point of view of themselves, their Chinese partners, their investors and the Chinese government. The continuing reforms in the energy sector will continue to create opportunities. Indicative of the strong international investor interest in the Chinese oil sector, between April 2000 and February 2001, the three Chinese oil majors, PetroChina, Sinopec and the China National Offshore Oil Corporation (CNOOC) raised a total of US$7.6 billion on world equity markets, despite less than favourable conditions. One important driver of energy demand is the aviation sector, underpinned by the rapid expansion of smaller and medium-sized cities. Official forecasts see aviation passenger traffic increasing at an annual rate of 8.6 per cent until 2020, and the aircraft fleet roughly tripling to 1,618 by 2018. This growth bodes well for continued increases in demand for refined oil product. Exposure to the energy sector should therefore continue to represent a solid entry into one of the most consistent economic growth stories of recent history.
FTO 2001	This Report as part of Fortune Oil Results 27th. April 2001