When most people think about China’s industrial cities, they picture coastal megacities — Shenzhen’s electronics factories, Shanghai’s financial towers, Guangzhou’s sprawling export terminals. But some of China’s most strategically significant urban economies lie hundreds of kilometers inland, built not around ports or tech clusters but around underground resources that powered the country’s rise. Daqing, in Heilongjiang Province, and Karamay, in Xinjiang, are the two cities most closely identified with China’s oil industry. Together, they tell a story about how a developing nation leveraged state-directed resource extraction to fund industrialization — and how those same cities now face one of the most consequential economic transitions in modern China.
Understanding these petroleum cities matters for foreign businesses not as a curiosity but as a lens into how China manages state-driven industrial transformation, what the decline of resource-dependent models means for labor markets and regional policy, and where new investment opportunities are emerging as Beijing redirects energy-sector capital into renewables and advanced manufacturing.
Daqing: The City Built on Oil
Daqing’s origin story is inseparable from Chinese political history. In 1959, geologists confirmed massive oil reserves beneath the Songhua-Nenjiang Plain in Heilongjiang Province. The timing was critical: China was in the depths of the Soviet withdrawal and desperate to prove industrial self-sufficiency. Mao Zedong launched the “In Industry, Learn From Daqing” campaign in 1964, turning the oilfield and its workers into national heroes of socialist production.
At its peak in the 1990s, Daqing produced over 55 million metric tons of oil per year — roughly 40% of China’s total domestic crude output. The city that grew up around the oilfields had a population of nearly 3 million, with its GDP almost entirely dependent on one state-owned enterprise: PetroChina’s Daqing Oilfield Company. Workers received housing, healthcare, education, and pensions from the company — a cradle-to-grave welfare system funded entirely by crude oil revenue.
The vulnerability became apparent in the 2000s. By 2020, annual production had fallen to approximately 30 million metric tons as the most accessible reserves depleted. The cost per barrel rose sharply. PetroChina began large-scale workforce reductions, and Daqing transitioned from a symbol of socialist achievement to a widely cited case study in the dangers of single-industry dependence.
Karamay: The Desert Oil Capital
Karamay sits in the Junggar Basin of Xinjiang, roughly 400 kilometers north of Urumqi. Its name derives from the Uyghur words for “black oil.” Oil was discovered here in 1955, making it one of the earliest producing fields in the People’s Republic. The Xinjiang Oilfield Company, a CNPC subsidiary, has operated the basin for seven decades.
Karamay produces roughly 14 million metric tons of oil annually and consistently ranks among the highest GDP-per-capita cities in China — a statistic that reflects both oil wealth and the sparseness of its non-energy economy. The Xinjiang Oilfield also processes natural gas from the broader Tarim Basin, making Karamay a node in China’s West-East Gas Pipeline network, which delivers Xinjiang gas to Shanghai and the coastal provinces.
For foreign companies, Karamay presents specific compliance dynamics. Western multinationals sourcing goods with Xinjiang exposure face scrutiny under the US Uyghur Forced Labor Prevention Act (UFLPA), signed in December 2021, which creates a rebuttable presumption that goods produced wholly or in part in Xinjiang are made with forced labor. Petrochemical inputs — including polysilicon, PVC, and synthetic rubber from Xinjiang facilities — fall within scope. Thorough supply chain mapping and documentation are essential for any company with Xinjiang exposure.
The Reinvention Imperative
China’s central government has been explicit about transforming resource-dependent cities. The 14th Five-Year Plan and subsequent frameworks from the National Development and Reform Commission (NDRC) designate cities like Daqing and Karamay as “resource-exhausted cities” (资源枯竭城市), eligible for special subsidies and policy support. The reinvention strategy has three main pillars:
Downstream Petrochemical Processing
Rather than simply extracting and shipping crude, both cities have invested in downstream refining and petrochemical manufacturing. Daqing’s Petrochemical Company operates one of China’s largest integrated refineries, with annual processing capacity exceeding 10 million metric tons. The goal is to capture more local value — converting crude oil into plastics, synthetic fibers, lubricants, and specialty chemicals that carry higher margins than raw commodity sales.
Renewable Energy Transition
Heilongjiang Province has strong wind resources, and Daqing has attracted investment in wind farms and biomass energy. Xinjiang already leads China in solar energy — the Junggar and Tarim basins receive among the highest solar irradiance in the country. As we covered in our analysis of China’s EV charging infrastructure buildout, the State Grid Corporation is investing heavily in western China grid capacity to transmit renewable energy eastward — creating procurement opportunities for equipment manufacturers and engineering firms.
Digital Economy and Data Centers
Both cities are courting data center investment under China’s “East Data, West Compute” (东数西算) national strategy, launched in 2022. Western China’s abundant cheap power from hydro, wind, and solar makes it a natural host for compute infrastructure. Foreign technology companies with cloud operations in China should note that data sovereignty regulations under China’s Data Security Law (DSL) and Personal Information Protection Law (PIPL) require careful attention to where data is physically stored, including when servers are located in politically sensitive western provinces.
What Foreign Businesses Need to Know
Investment Opportunities in Transition Sectors
The reinvention of China’s oil cities creates genuine commercial opportunities for foreign firms with relevant expertise. Environmental remediation is in demand — decades of intensive drilling have left significant soil and groundwater contamination. Germany’s BASF, France’s TotalEnergies, and several US engineering firms have participated in remediation projects in China’s legacy industrial zones. The NDRC’s resource-city transition policy specifically encourages foreign investment in environmental technology, green manufacturing, and advanced services.
Understanding the SOE Workforce Dynamic
PetroChina and Sinopec together employ hundreds of thousands of workers in these cities. The Chinese government has historically subsidized employment in state-owned enterprises to avoid mass layoffs — a dynamic that affects the commercial behavior and cost structure of SOE-linked businesses. Foreign partners entering joint ventures with Daqing or Karamay-based SOEs should model labor cost trajectories carefully; workforce reductions will be slower and more politically constrained than commercial logic alone would suggest. Our guide on The Role of State-Owned Enterprises in China’s Economy covers the essential mechanics of working within this system.
The Broader Pattern
China has over 260 officially designated resource-dependent cities, spanning coal, iron ore, copper, rare earths, and forestry in addition to oil and gas. Their trajectory reflects one of the central challenges of China’s next development phase: how to shift from resource extraction toward higher-value industries without triggering unemployment-driven social instability. For foreign businesses, this transition is creating a new geography of opportunity. Tracking regional policy signals from the NDRC and provincial governments is increasingly important for any company with diversified China exposure. As China’s petrochemical industry continues its structural evolution, the decisions being made in Daqing and Karamay today will shape commodity markets, supply chains, and energy infrastructure for decades.
China’s oil cities are not relics of the socialist past. They are active laboratories for the state-managed industrial transition Beijing is attempting across dozens of legacy sectors — and understanding how that transition works is essential intelligence for any serious participant in the US-China commercial relationship. The U.S. Trade Representative’s China policy page provides current context on energy-sector trade policy and tariff developments relevant to companies monitoring these shifts.