Effect of preferential trade agreements on China’s energy trade from Chinese and exporters’ perspectives

Abstract

PurposeChina is a major energy import powerhouse, its trade deals have significant impact on international energy trade and global energy markets. The purpose of this paper is to explore the role of energy in China’s preferential trade agreements (PTAs) and their impact on Chinese imports of oil, gas and coal.Design/methodology/approachAn extended trade gravity model framework is applied to explore the dynamics of China’s annualized energy import flows from the 22 economies that have PTAs with it for the period 1995–2015.FindingsThe effect of PTAs on trade patterns varies across the product groups and agreement clauses. The dominant factor affecting trade flows of coal, crude oil and oil products is the average tariff level. Its impact is less significant for gas imports, which are more affected by policy arrangements represented by a PTA variable. The depth and scope of a PTA do not affect Chinese energy imports patterns.Research limitations/implicationsThis paper is focused on exploring the effect of China’s trade and foreign relations strategies on its energy imports through the prism of its PTAs. Estimating the direct impact of China’s initiatives in the areas of trade, investment, security, culture, etc., on its trade flows of energy products and other product groups using the methodological framework proposed in this study would contribute to better understanding of the issue.Practical implicationsThe findings can assist both China and energy exporting countries that target Chinese market in better understanding the drivers of trade flows of energy products and design their PTA strategies accordingly.Originality/valueThis study applies the trade gravity model framework to assess the impact of specific components of preferential trade agreements – tariff reduction and depth and scope of agreement – on energy trade flows differentiated by product group.