The rising price of crude oil will not have as serious an impact
on the Chinese economy as it seems, analysts said.
The oil price for the first time hit $100 a barrel in New York
on Wednesday, thanks to what analysts called the deepening fears
about the weakness of the US dollar and strong speculative
buying.
If the price remains strong for some months, it will further
drive down the dollar and deal a heavy blow to the US economy, said
Sun Lijian, an economist with the School of Economics of Fudan
University.
"It may influence the decision-making of the US manufacturers
and, coupled with the deepening subprime crisis, drag down the US
economy," he said.
And that may dampen global economic growth and indirectly affect
China's exports, one of the three main engines of the economy along
with consumption and investment, he said.
Foreign demand accounted for more than a fifth of China's
economic growth in the first three quarters of last year, according
to the National Bureau of Statistics.
Every $20 rise in crude oil prices would cut about 1 percentage
point of economic growth in China, according to a 2004 research by
the Asian Development Bank. Its assistant chief economist Frank
Harrigan said in November that as the price climbed from $68 to
$85, China's economy would suffer a 0.9 percentage point loss.
"High oil prices would also push up the country's consumer price
index (CPI), the key gauge of inflation," said Zhuang Jian, senior
economist with the Asian Development Bank in Beijing. "It may also
raise the production costs of enterprises and possibly reduce
China's imports of oil, thus changing its trade structure."
Higher oil prices may also push up demand for alternative energy
products, such as biofuel, said Li Huafang, economist with the
Shanghai Institute of Finance and Law. "It may in turn lead to a
rise in international grain prices and the effect will spread to
the domestic market, raising domestic grain and food prices."
That would deepen the inflationary pressure, he said. Food
prices account for about one-third of China's CPI basket.
According to Wang Qing, chief economist of Morgan Stanley
Research Asia-Pacific, China's CPI may be pushed up by 0.3-0.4
percentage point by a $10 rise in oil price.
Asian Development Bank's Zhuang, however, said the overall
impact of high oil prices on China may not be very serious,
although it may bring more pressure on inflation and corporate
profits.
"China's energy use structure remains largely unchanged, with
coal being its main source of energy," Zhuang said.
Agreed Wang Qing, saying the impact would probably be "moderate
and quite manageable" because of China's low dependence on oil as a
source of energy.
Coal accounts for about 70 percent of the country's total energy
consumption and the nation has over 1 trillion ton of coal
reserves, about 320 billion tons of which can be extracted
immediately, according to official figures. This can meet domestic
demand for at least 100 years, analyst said.
Wang said the government would subsidize the refiners as oil
prices remain high, which will make up for a large part of the
gross domestic product losses.
Analysts said the speculative buying of oil is the major force
behind the current oil price spurt and it will not last very
long.
(China Daily January 4, 2008)
