Europe sees high fences around China energy

By Chen Aizhu and Jim Bai

BEIJING (Reuters) - A strong bias toward local producers and rigid price controls hinder European investors from making significant inroads into China's vast energy sector, the head of the EU Chamber of Commerce in China said on Wednesday.

A Chinese energy policy driven not by the market but by increasingly nationalistic considerations would in the end hurt consumers, however, by not upgrading technology fast enough, Joerg Wuttke told the Reuters China Century Summit.

A distorted electricity price mechanism -- as Beijing keeps a tight lid on power tariffs but lifts the price of its dominant fuel, coal -- has spurred the flight of firms such as Germany's Siemens (SIEGn.DE: Quote, Profile, Research, Stock Buzz) and made the sector unattractive for new investors, he added.

European firms producing transformers in China were barred from bidding against local manufacturers to supply the massive Three Gorges dam, the world's largest hydropower plant.

Top energy officials pressed firms hard to hand over key technologies such as for gas turbines and nuclear reactors, a possible factor behind slow progress in a multi-billion dollar deal for French Areva CEPF1.PA to build a nuclear plant in south China, he said.

"The market access in China's energy sector is very restricted," Wuttke said at the summit, held at the Reuters office in Beijing.

"Energy is sometimes also a national battlefield in Europe. But China is even more so."

This nationalism, Wuttke said, was reinforced by an antitrust law passed last week that set rules to protect big state power firms from foreign acquisitions and to require potential international investors to meet strict national security criteria.

Beijing also requires investors to use 70 percent Chinese equipment in foreign-invested wind farms, and a similar local content requirement was recently slapped on the booming petrochemical sector, which Wuttke said went against China's commitments in 2001 when it joined the World Trade Organisation.

CATCH 22

Six years after China's WTO accession, European oil firms -- including BP (BP.L: Quote, Profile, Research, Stock Buzz), Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) and Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) -- have made few inroads into the refining and distribution business in the world's second-largest fuel market, as Beijing shifted back to self-reliance in refinery building.

"It's like a catch 22. You have to have a stake in a refinery first to supply the Chinese market."

Instead, cash-rich state oil giants are now courting resource-rich nations such as Saudi Arabia and Kuwait to secure a stable oil supply.

Beijing's cap on local gasoline prices, while helping to curb inflation, contributes to China's worsening environmental problems by discouraging firms from investing in advanced technologies to produce cleaner fuels, Wuttke said.

He added, however, that European firms could play a role in helping China to cut energy consumption.  Continued...