Original Chang Xu China Social Science Network
China is one of the first countries in the world to discover and utilize oil. "Hanshu Geography" records that "Gaonu has water (fertilizer) that can burn", indicating that people had discovered oil in northern Shaanxi more than 2,000 years ago. The names of ancient petroleum include "stone paint", "water fertilizer", "stone fat water", "black sesame oil", "fire oil", "nagar oil", "mud oil", "well oil", etc. Shen Kuo of the Song Dynasty believed that oil was "born in sand and gravel on the water's edge" and "mixed with spring water", so he called it "petroleum". The evolution of these names reflects people's deepening understanding of petroleum. The main uses of ancient petroleum include lighting, ink making, lubrication, antisepsis, medicine and fire attack. In the early days, oil was mainly collected. After the Song Dynasty, my country began to dig oil wells to collect oil. By the Ming Dynasty, well salt industry drilling technology was also applied to drilling oil wells. However, before modern times, China's oil extraction and utilization technology was still very primitive.
After the 1870s, the Westernization faction of the Qing government tried to exploit oil deposits, such as the Miaoli Oil Mine in Taiwan, the Yanchang Oil Mine in Shaanxi, and the Dushanzi Oil Mine in Xinjiang, but they did not develop. After the Revolution of 1911, Sun Yat-sen pointed out in "Industry to Save the Nation" that "China is also known as a country rich in kerosene production. Oil sources have been discovered in Sichuan, Gansu, Xinjiang, Shaanxi and other provinces…China has such minerals, but it cannot be exploited for its own use. It is a pity that the kerosene, gasoline, etc. imported from foreign countries are increasing every year."
Most of the oil consumed in China in modern times is imported. There are four main categories of petroleum products: kerosene (Kerosene Oil), lubricating oil (Lubricating Oil, or Engine Oil, Machine Oil, etc.), gasoline (Gasoline, or Naphtha, Benzine, etc.), and diesel (also known as fuel oil, Liquid Fuel). Kerosene (commonly known as "foreign oil") is mainly used for lighting, and has penetrated into the urban and rural markets along China's coast and inland, so that "foreign oil" is used in remote areas. This article mainly discusses the transportation, sales and consumption of "kerosene" from 1863 to 1937.
“Foreign oil” enters the Chinese market
Traditional Chinese lighting mainly uses vegetable oil. Kerosene entered China in 1863. The amount imported that year was 2,100 gallons (US gallon, 1 gallon equals 3.7854 liters), exclusively for lighting in the concessions. Since then, the scale of kerosene imports has grown rapidly, reaching 23 million gallons in 1886 and 100 million gallons in 1893. Zhenjiang's business report for 1882-1883 noted that in 1882 "kerosene was already widely used in a considerable area around the treaty ports…Every village has cheap kerosene lamps." Zhenjiang's business report in 1886 also said: "Many industries that used to stop working after dark now work at night, and poor scholars can also light kerosene lamps at night… Shoemakers, grinders, tailors and carpenters all use oil lamps at night." Kerosene gradually spread to all treaty ports and cities, and entered cities and rural areas in mainland China. It was accepted by all classes of Chinese society and became a necessity for production and life.
The rapid growth of kerosene imports is not only due to the economic and political privileges that Western powers seized in China after the Opium War, but also related to other reasons. First, kerosene is brighter and cheaper than traditional vegetable oil or candles. For example, in 1879, in the Hankou market, camellia oil cost 5 taels and 6 yuan per quintal, cannabis oil cost 5 taels and 4 yuan per quintal, and kerosene only cost 2 taels and 8 yuan per quintal. Secondly, the supply of vegetable oil used in traditional lighting in China is not guaranteed. When agricultural harvests fail, oil crops are often used as food rather than for oil extraction. Again, kerosene lamps were freely available or cheaply manufactured. In order to promote kerosene to mainland China's cities and rural areas, Mobil Oil Company developed a can-type kerosene lamp with a glass shade that was delivered free of charge as long as kerosene was purchased. As a result, homemade simple kerosene lamps also appeared in China.
Changes in the way kerosene is transported and sold have reduced its costs and, to a certain extent, reshaped the pattern of kerosene trade. Before the 1890s, kerosene was usually packaged in a 5-gallon can or two cans in a box, shipped to various ports in China by ship, and unloaded into warehouses for sale. This shipping method has limited transport capacity and is expensive to load, unload, and store. In 1894, the Shell Oil Company transported 3 million gallons of kerosene to Shanghai in a tanker, thus starting the import of bulk kerosene. Oil tankers directly transport bulk kerosene to treaty ports, and then the oil is introduced into oil pools for storage. The kerosene can also be transported to other places via railway tankers. As a result, kerosene formed a combined transportation system of sea, waterway and railway. A factory for manufacturing wooden boxes and tinplate cans for storing oil was also established near the oil pool to facilitate canning, transportation and sales.
This new transportation and marketing method received preferential taxation and management, and the General Taxation Department of Customs issued circulars for this purpose, such as the "Measures for Taxation of Re-Transportation of Imported Bulk Kerosene" in July 1894 and the "Special Chapter for Kerosene Pools" in March 1895. The "Special Chapter for Kerosene Tanks" stipulates the management regulations for the construction of kerosene pools. It stipulates that kerosene stored in closed warehouses will be levied an export tax when it leaves the warehouse. If the kerosene is stored in non-closed warehouses, import taxes should be paid when it is brought in. Therefore, "Guanzhan" has the characteristics of a bonded area. The 1897 Jiangguan Customs Trade Report described the sales of bulk kerosene: "There is a pond factory in Pudong so that the goods can be unloaded and stored in the pond at any time without having to pay the tax first; when they are sold, they will be counted and levied. Its value will be calculated according to the silver market."
The core competitiveness of kerosene – price and brightness – has given it a firm foothold in the Chinese market. "No matter how difficult the times are, it cannot stop its booming sales (fire, water, oil, tap fire), which seems to be the same as the seven things that open the door to the home." At the end of the 19th century, foreigners in China believed that "when the Chinese find a commodity that is both suitable for their needs and suitable for general consumption, and the price is within their financial resources, the demand of the Chinese is great. The Chinese are undoubtedly conservative, but once they believe that they must abandon their old habits and prejudices for their own interests, they can easily do so." No wonder Chen Chi, the author of "Strategies to Continue Prosperity", exclaimed: "Oils from Russia and the United States were sold into China and spread like wildfire. They became popular in various ports. As a result, in addition to foreign medicines and foreign cloths, there were endless loopholes."
The competition of various brands in the modern market
The American Mobil Oil Company was the first to enter China and completely monopolized the early kerosene market. In 1888, Russian kerosene entered the Chinese market. In 1889, the customs classified and counted kerosene according to its place of origin. Only Beihai and Mongolia Customs had no records of Russian kerosene imports, which shows how quickly it entered the Chinese market. Sumatra kerosene was first imported in 1893, Borneo kerosene also began to enter China in 1901, and Myanmar kerosene was imported for the first time in 1904.
Although American kerosene monopolized the early kerosene market, Russian and Sumatra kerosene could still quickly enter the Chinese market and occupy a larger market share because their oil prices were lower. Among the three types of kerosene, the price of American kerosene was the highest. From 1889 to 1904, it was on average 0.19 customs taels per 10 gallons higher than that of Russian kerosene. The price of Sumatra kerosene was slightly lower than that of Russian kerosene. In the early days when Russian kerosene entered the Chinese market, American kerosene had a price-cutting competition. In 1894, the price was even slightly lower than that of Russian kerosene, but it later recovered and maintained the original price difference. From a price point of view, 1901 and 1902 were the key periods for Sumatran kerosene to seize the Russian kerosene market share. The average price in these two years was actually 0.25 and 0.27 customs liars lower than Russian kerosene per 10 gallons.
In terms of kerosene brands, the quality of American kerosene, such as "Devoe's Brilliant" and "Warden", is significantly better than that of Russia's "Anchor" and Sumatra's "Crown". The quality of Russian kerosene varies. Some of the kerosene contains high sulfur content and corrodes the iron cans, so it cannot be stored for a long time. If the can is opened for a long time, the brightness of the kerosene will weaken. There is a lot of smoke, more heat but less brightness. Judging from the competition between American and Russian kerosene at various ports, after a short-lived boom, Russian kerosene gradually regained the market from American kerosene. At some ports, Russian kerosene was even put into American tanks and sold as American kerosene. Sumatran kerosene appears to be of slightly better quality than Russian kerosene and is less expensive. A large part of Russian and Sumatran kerosene was transported to cities and villages in the vast interior beyond the treaty ports. This is because there, price is the main deciding factor. The 1914 Jianghanguan Trade Report discussed kerosene from various sources, divided the grades of kerosene, and discussed the sales market of each grade of kerosene:
It should be noted that there are grades of oil used in China: the first is high-grade oil, such as American and Persian tank kerosene; the second is medium-grade oil, such as Mobil's Eagle tank kerosene and Asia's Sumatra kerosene; the third is third-grade oil, such as Polo Island kerosene; and the fourth is vegetable oil such as Chinese rapeseed and peanut. Ordinary people tend to prefer cheap prices, but they like the combination of light and energy. Therefore, medium-priced Sumatra kerosene and Mobil cabin kerosene are the easiest to sell, but high-grade and third-grade oil can be slightly reduced. These two items may still be sustainable, because high-grade oils can find new sales markets, and third-grade oils can gradually crowd out local vegetable oils. However, the medium-sized Mobil and Sumatra kerosene are moving smoothly and are stable.
Distribution by the three major oil companies
In China's modern kerosene market, the three most important oil companies are Mobil Oil Company and Texaco Oil Company of the United States, and Asia Oil Company, a joint venture between Britain and the Netherlands. Among them, Mobil is the oldest and largest, followed by Asia, while Texaco is smaller and the last to enter the Chinese market. In the early days, major oil companies mainly operated through foreign agents. At the end of the 19th century, foreign banks began to be directly established in China, relying on the comprador system to sell oil. At the beginning of the 20th century, in order to better control sales, branches began to be set up in China and a directly controlled distribution system was implemented.
Take Mobil, for example. After the Shanghai office of Mobil Oil Company was established in 1894, Sanda Oil Company was established in 1900 (Sanda is the transliteration of "Standard"). In 1901, the foundation of the oil stack was purchased in Shanghai, and the oil stack was built in 1903. After that, Mobil Oil Company expanded to the mainland and successively set up branches and offices in various places. Mobil established its head office in Shanghai (also known as the "head office"), and established 6 district companies (also called "district branches") in Shanghai, Nanjing, Tianjin, Qingdao, Hankou and Guangzhou. The district companies also have branch companies (also called "branch branches"), and under them there are branch companies (also called "sub-branches"). Below the branches, Chinese businessmen at all levels act as dealers, taking advantage of China's original urban and rural business networks and extending their marketing systems to all parts of the country.
In order to facilitate transportation and marketing, Mobil Oil Company has set up large oil pools and oil stacks at important trading ports such as Shanghai, Tianjin and Hankou, as well as auxiliary factories for manufacturing kerosene barrels (50 gallons) and kerosene cans (5 gallons). Other ports generally also have oil storage pools and can factories. The company also has a specialized transport fleet of tankers and oil barges, as well as oil tankers and oil stacks. Mobil Oil Company also had factories that manufactured kerosene lamps, glass lampshades, and more.
The three major oil companies, Mobil, Asia and Texaco, have completely monopolized China's oil import and sales market through their sales networks throughout China. The competition between the three companies in the Chinese oil market is extremely fierce and they often start price wars. Later, the three companies increasingly adopted a joint strategy to carve up the market and jointly squeeze out other small oil companies.
Mobil established an oil lamp factory in China and first opened up the market in mainland China and rural areas by giving away mast lanterns, table lamps, lampshades, etc. In order to capture the market, Asia Oil Company sold half of the kerosene and half gave it away. In 1905, China launched a boycott of American goods, and Asian oil companies took the opportunity to compete for the oil market at low prices. Before World War I, Mobil gradually reduced comprador commissions and distributed them to salesmen, hoping to gradually establish a directly controlled sales network. Asia Petroleum Corporation has adopted a tit-for-tat system of heavy use of compradors in order to seize the market. When Texaco Oil Company first entered the Chinese market, Mobil Oil Company and Asia Oil Company jointly used low-price dumping to squeeze it out. Texaco responded "tit for tat" by setting lower prices, and it took a year or two of hard work to gain a firm foothold. Texaco also launched a publicity campaign, placing large advertisements in newspapers and publications in major cities in China, mailing promotional materials, and giving away calendars and other souvenirs. In addition to obvious price wars, they also have endless "secret wars", such as trying to win over dealers, winning over big customers and buying off each other's staff.
In order to jointly carve up the Chinese market, the three major oil companies have also adopted a cooperative approach to agree on the annual sales ratio in each region. For example, in the North China market, the average sales over the years are approximately: 40% for Mobil, 25% for Asia, and 35% for Texaco. The three major oil companies have also agreed on specific measures to maintain this ratio: for example, the number of agency stores for each oil company must not be increased or decreased at will, and the sales volume must also be limited. For the oil used by large customers, such as government agencies, industrial and mining enterprises, etc., the three companies have agreed to take turns supplying oil using the "bid-combining" method, that is, they meet and negotiate before bidding each time to determine who will supply the oil. During the bidding, the other two companies deliberately raise the bid price so that the third company can win the bid. Even if there is a temporary buyer, the three companies must negotiate to determine the underwriter. In order to enforce their market shares and agreed prices, the three major companies also each hired investigators to secretly investigate the import and sales data of the other two companies at various terminals, stations, warehouses and important marketing areas to conduct mutual supervision.
When facing competitors, the three major oil companies always coordinate their operations and spare no effort to completely crush them. For example, in 1925, the American Daming Kerosene Company was established in Tianjin and prepared to promote the "Silver Box" brand kerosene. It was immediately boycotted by the three major companies and was merged with Texaco. In the same year, a British employee of the Guangzhou branch of Mobil established the Hu Brothers Company in Hong Kong, ordered kerosene from American independent oil merchants, and created the "Butterfly" brand of kerosene. Compared with Mobil, the price was cheaper and the quality was similar, so it became popular. The three major oil companies jointly lowered prices, causing it to go bankrupt. As for the Guanghua Petroleum Company, which was run by Chinese businessmen, they tried their best to lower prices and suppress them. Due to serious losses, Guanghua Fuel Oil Company had to sell all its oil pools and oil warehouses to three major companies.
In 1928, China's kerosene imports were 263 million gallons, an increase of only 11.4% compared to the pre-World War I peak of 236 million gallons in 1911. This actually reflects the basic trend of kerosene imports during this period, which is generally stable; since the three major oil companies have exhausted their marketing capabilities in China, this also indicates the largest market size for kerosene consumption in China in modern times. In the 1930s, kerosene imports showed a downward trend. The most important reason for the slowdown in the growth trend of kerosene is the rise in prices. Especially after the Great Depression of the world economy in 1929, China's silver standard currency devalued and the price of kerosene skyrocketed, resulting in a decline in kerosene imports. In China's vast rural areas, as the price advantage of kerosene over vegetable oil is gradually lost, vegetable oil has once again become one of the important lighting oils. In addition, the gradual popularization of electric lighting and the more important utilization value of gasoline than kerosene after the invention of the internal combustion engine have also affected the development of kerosene import trade.
After the founding of the People's Republic of China, the era of imported "foreign oil" ended, but until the early days of reform and opening up, kerosene was still one of the important lighting tools. Although kerosene is mainly domestically produced, the term "foreign oil" is still commonly used in rural areas as a mark of an era.
[This article is a phased result of the National Social Science Fund general project "Research on China's Modern Petroleum Import and Interport Transportation Network (1863-1937)" (19BZS080)]
(Author’s unit: Institute of Economics, Chinese Academy of Social Sciences)
