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China's Economy Well Set to Overcome Impact of Rising Oil Price
China's economy looks well placed to withstand the shocks of high oil prices, economists said, after fears of all-out war between Israel and the Palestinians sent oil prices up and stock markets around the region tumbling last week.
Share prices in Tokyo hit a 10-month low Friday falling 1.4 percent, while Hong Kong's Hang Seng Index slumped 2.6 percent, South Korean shares slid 1.9 percent and Shanghai B-shares dropped 3.5 percent.
But while Shanghai's foreign denominated B-share bourse took a bigger battering than other regional markets, China is in a stronger position to withstand coming months of high oil prices than many of her Asian neighbours, economists noted.
The ratio of net oil imports to domestic oil consumption is around 22 percent in China, much lower than corresponding figures for Thailand and the Philippines, which import 55 and 60 percent of their oil respectively, said Brian Murray, the Asian Development Bank's resident China representative.
Neighbouring Japan imports 100 percent of its domestic oil consumption and the average ratio of imports to domestic consumption stands at around 60 percent on the Asia Pacific Rim, Murray added.
Oil prices hit a 10-year high of US$37 a barrel last week as fears of escalating conflict in the Middle East, coupled with a strike by Venezuelan oil workers, left world markets jittery.
If the oil price remains over US$30 a barrel for the rest of the year, up almost US$10 on last year's levels, China will definitely feel the pinch, pundits said.
"Higher oil prices have a direct effect on China. China imports about close to 2 million barrels a day if you include oil derivative products," such as petroleum, said Andy Xie, Greater China Economist at Morgan Stanley Dean Witter.
Over a year, an extra US$10 for each barrel of oil and oil products will cost China close to US$7 billion, which is almost 1 percent of the country's gross domestic product (GDP).
"A significant amount," of extra expenditure, "for a developing economy," noted Xie.
China's GDP rose 7.8 percent on the year to 8.04 trillion yuan (US$971 billion) in 1999, according to official figures.
Furthermore, regional stock markets will likely be dampened by sky-high oil prices which will make it harder to raise money through corporate listings.
But again, China is in a better position than some of her Asian neighbours.
Korea, which imports around 18 percent of its domestic oil consumption has recently failed to sell two insolvent firms, Daewoo Motor Co. and Hanbo Iron and Steel, to foreign investors.
By contrast, China is expected to raise almost US$20 billion in share placements by the year-end in a sell-off of state silver, which has included China Unicom, a share placement by China Mobile, and listings by two oil industry giants -- Sinopec and PetroChina.
Chi Lo, head of regional treasury research at Standard Chartered in Hong Kong, sees the biggest blow to China coming from a loss of intra-regional trade if oil prices remain at current highs.
Korea, the Philippines and China's Taiwan region may suffer due to higher oil prices and bring Asian growth rates down by an average of one percent around the region, Lo said.
"But as long as China's growth continues and Japan doesn't collapse, you may see weaker growth in Asia but (oil prices) not going to kill regional economies," Lo said.
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