Oil Price Hike not to Hamper ChinaThe recent oil price hike poses a real threat to China's economic recovery, yet it is not threatening enough to spoil it."The shock of rising oil prices could weaken, but not derail China's nascent, broadly based economic recovery,'' said Guonan Ma, head of North Asia economics for Merrill Lynch. China's August exports and imports rose 27.2 per cent and a staggering 54.7 per cent year-on-year, respectively, compared to 24 per cent and 40 per cent in July. In fact, import growth in August reached a five-year high, surging beyond expectations. As a result, the country's monthly trade surplus shrank by half compared to 12 months ago. Experts pointed out that while the budding strength in domestic demand and China's rapid technology upgrading play a positive role in the country's economic growth, a much larger oil import bill caused both by higher oil prices and rising oil consumption poses a real threat to China's economic recovery. World oil prices have shot up 250 per cent from a low of around US$10 per barrel in early 1999 to a recent high of nearly US$35. China has been a net oil importer since the 1990s, and its oil imports have increased since 1998, mainly because of stagnant domestic oil production and rising domestic oil consumption. Ma predicted that China's net oil import bill could double this year, and could rise further to US$15 billion in 2001, if the price of oil remained at the level of US$33 per barrel. However, the direct impact of any oil price hikes on China's economy should be much less than that on most Asia-Pacific economies as the ratio of net oil imports to domestic oil consumption is much lower than the Asian average. The ratio for China is only 22 per cent, but 100.2 per cent for Japan and 61.4 per cent for the rest of Asia Pacific rim. Oil occupies only 26.6 per cent of China's primary energy consumption, much lower than other Asian economies, which are heavily dependent on oil, including Singapore and the Philippines, decisively offsetting the effect that higher oil prices could hamper the Chinese economy. China's economic recovery is still broadening and the 2001 macro story for China will likely be the strength of domestic demand, according to Ma. Merrill Lynch estimated that, with the price of oil at US$33 per barrel, the estimated accumulative direct and indirect impact on China should be no more than 0.5 per cent of the gross domestic product (GDP). It maintained its bullish macro call on China and its baseline GDP forecasts of 8 per cent and 7.5 per cent for 2000 and 2001, respectively, in its report on China economics released on September 18. |
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