Originally published by Energy Tribune, 21 Jul 2010

By Lisa Zeng Sommer

 The Chinese central government has been using a heavy duty carrot and stick approach to the resource rich, predominantly Muslim Xinjiang Uygur autonomous region. After the July 2009 rioting which left almost 200 people dead and 1,700 injured, the Chinese government, on the one hand, has been keeping a tough and heavy hand on the so-called ethnic separatists. But recently a wide ranging policy has been shaping up to help the local people improve their livelihood.

 Two major policies have been recently deployed to achieve those goals:

 First, 19 provinces and municipalities, places in the rest of China that get particular benefits from the region’s oil and gas, have been designated as Xinjiang partners. They are required to contribute 0.3 to 0.6 percent of their fiscal revenues from 2011 to 2020 to support Xinjiang’s development. Starting in 2011 the region will receive more than $10 billion in financial aid from this program. Second, producers of crude oil and natural gas in Xinjiang will be levied a new 5 percent tax. This new tax system will be based on sales price instead of on volume as it was before. The new tax system, which went into effect on the first of June, is aimed at increasing revenue for the local government and is part of the support package unveiled at the central work conference held in Beijing in May. Xinjiang will be a pilot project in resource tax reform to be introduced nationwide.

Xinjiang is about one-sixth of China’s landmass and has a population of about 21 million, around 60% of which consists of ethnic groups, such as Uygur, Kazak and Uzbek. However, Han Chinese population has been on the steady rise due mostly to the energy projects expansion. Xinjiang has about 13% of the country’s crude oil production and almost 30% of its natural gas output. This new sales tax in Xinjiang will generate over 2 billion yuan by the end of this year( China Daily June 6, 2010), and expect to generate much more starting 2011, because Xinjiang has been the only area in China with a steady increase on both oil and gas production while the mature eastern oilfields have been on steady decline since the 1990’s.

 This new tax is a step forward for China to reform its royalty to a based on price system (which has been the common practice for the rest of the world), rather than on volume which has deprived the right of the local people to share the benefit of the huge price hikes in the past 15 years. The central government calls this a pilot program and set no specific time table for the follow up nationwide. Additionally there has been no mention of a similar tax on coal production, although Xinjiang has huge coal reserves as well (up to 40% of the country’s total coal reserves).

 It is no coincidence that this hugely favorable policy went into effect just one month before the one year anniversary of the deadly riots in Xinjiang. The central government realizes that just an iron fist policy will not really do the trick in keeping the region in tow. With the modern communications, most Uygurs have cousins living in bordering countries who have benefited from their energy wealth in recent years since their independence from the former Soviet Union.

 Xinjiang, with huge energy resources and a long border with many oil and gas rich central Asian countries, is strategically invaluable to China’s energy security, and the Chinese government fully recognizes the importance and the urgency to implement policies favorable to the region.

  http://www.energytribune.com/articles.cfm/4727/Xinjiang-Enticements