All the crew members of the tanker, 30 Iranians and two Bangladeshis, are missing while all those who were overseas the Chinese vessel have been rescued. The tanker was carrying 136,000 tons (nearly one million barrels) of condensate and headed for South Korea.
Eight Chinese ships have been sent for the search and rescue operation, China's official Xinhua news agency said.
Analysts say the region is so unsafe for ships because of the sheer amount of cargo being transported through its waters. "There is an oil slick and we are pushing forward with rescue efforts", said China's ministry of transportation in a statement. He declined to be identified as he was not authorised to speak to the media.
Dramatic pictures show plumes of black smoke rising from the scene as the ship is engulfed by a huge fire. The Foreign Ministry said in a separate statement the cause of the incident was under investigation.
The 274-meter-long oil tanker SANCHI, owned by an Iranian shipping company, was heading to South Korea with its cargo.
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State-run China Central Television reported Sunday evening that the tanker was still floating and burning, and that oil was visible in the water.
Hanwha Total was not immediately available for comment.
CF Crystal, which was built in 2011, suffered "non-critical" damage, China's transport ministry said.
The collision between the Panama-registered Iranian tanker Sanchi and Hong Kong-flagged bulk freighter CF Crystal took place at about 8pm local time on Saturday, 6 January.
The AP reports that this is the second collision for the National Iranian Tanker Company in less than two years.