How Big a Problem is Oil for China?
China has shown a willingness to trade with some unsavory countries in the interest of oil. They love Venezuela, Iran, and Sudan, to name a few. Cheap, subsidized crude has to a certain degree fueled (honestly no pun intended) the rise into middle class for many people. The car, that great status symbol, would not be attainable, or at least be unsustainable without reasonably price gasoline.
However, all of that subsidization money has to come from somewhere, and even with a booming economy, the government cannot afford to foot the cost indefinitely. So as price subsidization has become less feasible, Managing the Dragon points out that China has moved to price controls and buying limitations in some cases. As everyone who has taken Econ 101 knows, this is not realistic or logical solution. Instead it leads to long lines and less production, which is exactly what Jack Perkowski reports has been happening.
The price controls are a short-term problem. They are unsustainable, and not a real concern in the long-run unless CHina is to go back on 30 years of progress. On the other hand, rising oil prices could change the dynamics of the Chinese economy considerably. It is a country that has built up a number of industries based on razor thin profit margins. With a Yuan that is rising (against the Dollar anyway) and oil prices that have double over a few years, the current boom could be in doubt. Then again maybe it won’t be. I’m not really sure where this ends up, but one of the biggest economies in the world can’t have subsidized oil forever.
Is China’s economy mature enough to take the next step?
Larry responds:
Posted: December 14th, 2007 at 1:05 am →
There is one more nice thing about price control: It makes people think that oil is still cheap, and they can continue to use oil wasting practices. This will ensure that oil consumption in China will continue to rise, and making the demand for goods from state owned oil companies to stay high, and strengthening their monopoly. It also ensure that the state owned oil companies have great reasons for asking for more subsidy, and the company executives can continue to benefit from the flow of money.
Zhongguoist responds:
Posted: January 17th, 2008 at 11:38 am →
I think that oil is a huge problem already in China. Huge parts of the country still don’t have access to railway lines so rely on oil to take their goods about, for transportation of people and for bringing the raw resources followed by the finished products to and away from the cities. In December I was in Yunnan for the 2nd time and I saw a queue about 30 trucks long outside a gas station, they had been waiting for a few days for petrol. Without oil, a huge part of the chinese economy will slow down not to mention bring cities to a standstill. The rising price of oil is already pushing up the cost of buses around China(when I take long-distance buses people tell me that less than a year ago things were like 10kuai cheaper at least) not to mention pushing up the prices of goods.