China cracks down on oil product smuggling

China has launched a ‘Yangtze clean up' campaign to clamp down on oil smuggling in coastal areas as part of tougher scrutiny of environmental violations and tax evasion.

Chinese customs officials this month arrested 171 people who they accused of smuggling almost 1mn t of oil products valued at 5bn yuan ($760mn) or an average of Yn5,000/t.

The seizures, in one of the biggest ever cross-provincial efforts against oil smuggling, are equivalent to almost half of the total value of smuggled oil products uncovered by customs last year.

The scale of the arrests suggests the smuggling trade remains lucrative and, together with a surge in blendstocks, is helping to meet Chinese diesel demand.

In total, officials said they have uncovered 14 smuggling rings in eight provinces including Zhejiang, Jiangsu, Fujian and Shandong.

"This case is one of the most extensive operations in China's southeastern coast to combat refined oil smuggling that involves the most areas and government departments," the General Administration of Customs (GAC) said.

Authorities did not give details of the products involved, but the smuggling is likely to involve off-specification diesel used in the farming and construction sectors. The product has high sulphur content of 500-1,000ppm, compared with the 10ppm limit under the China 6 tailpipe emissions standards.

The value stated by customs is only an estimate, an official at one state-controlled firm said. The prevailing price for off-specification or un-invoiced diesel is Yn4,500/t at least in some parts of China, so traffickers' costs are likely much lower than Yn5,000/t, according to market participants.

Customs authorities in Zhejiang province's Hangzhou city separately busted 11 smuggling rings involving 250,000t of oil products last month. The products were valued at Yn1.23bn, or an average of Yn4,920/t.

Smugglers sometimes transfer diesel from countries including Vietnam, Hong Kong and Taiwan smaller river barges, and then resell the supplies to private wholesalers.

Customs, marine police and local law enforcement officials in 18 provinces and several government departments launched a joint crackdown on oil smuggling in August last year and have so far broken up smuggling rings in Zhejiang, Fujian, Guangdong and elsewhere.

Chinese authorities investigated around 370 cases involving oil smuggling with a combined value of Yn11.35bn last year, according to government figures. Based on a minimum Yn4,500/t value, this suggests at least around 50,000 b/d of diesel shipments could have been smuggled into China last year, although actual volumes are likely higher.

China is also cracking down on imports of light-cycle oil, which is used in diesel blending. China could extend its oil product consumption taxes to cover LCO as early as May and is also ramping up its scrutiny of cargo origins to prevent some suppliers from wrongly claiming tax exemptions.