Venezuela, the largest oil producer in South America, is shipping up to 200,000 barrels of crude oil a day to China for repayment of its US$20 billion debts from the country, sources reported.

In April this year, China agreed to lend Venezuela US$20 billion worth of 10-year loan, to finance the South American country's development projects in power, agriculture and technology sectors, in exchanges of oil supplies from the country.

China National Petroleum Corp also signed a US$16.3 billion JV deal this year for a project capable of producing 1 million barrels a day.

Venezuela plans to increase its shipments to China by 1 million barrels a day by 2012, said Rafael Ramirez, Oil Minister of Venezuela.

"The exports to Asia may not be made at market prices, but rather at a discount", said a report by Morgan Stanley.

Trade between China and Venezuela surged to US$8.9 billion in 2008 from US$85.5 million in 1999, according to Venezuelan state bank Bancoex.