Crisis on the China Rim: An Economic, Crude Oil, and Military Analysis

"There is a crisis rising on the China Rim, a crisis made of economic imbalances, energy insecurities, ancient hatreds, and unsettled scores. The catalyst for this crisis is success itself, the success of the People’s Republic of China in its de facto rejection of a failed experiment in communism and its rapid transformation into a thriving market economy. The inseparable companion of this success, though, is an insatiable hunger and thirst for precious resources... most important among these, crude oil."

2005.04.14 | 85 pages | download

South Korea's Bank of Korea (BoK) announced on Monday that it has cut its 2005 GDP growth forecast for the world's fourth-largest importer of crude oil to 3.8% from the previous 4.0%.

This cut reflects the combined negative impact of sluggish domestic consumer spending and decelerating export growth.  Both phenomenon are believed by BoK to be the result of soaring world energy prices.

South Korean GDP growth during H1:05 is estimated to have been only 3.0% versus BoK expectations of 3.4% growth.

Unfortunately, BoK's full-year 2005 GDP growth forecast remains on shaky ground.  Specifically, BoK has raised its forecast for H2:05 GDP growth to 4.5% from the earlier 4.4%, despite the fact that global crude oil prices appear unlikely to achieve a sustained decline during the forecast period.

In our 2005.04.14 "Crisis on the China Rim..." (CCR) analysis, Laguna Research Partners included a discussion titled "The China Rim’s 'Crude Oil Haves' and 'Crude Oil Have-Nots'" in which we estimated that the China Rim region includes only four countries - Russia, Kazakhstan, Vietnam, and Kyrgyzstan - that produce more oil than they consume.  The remaining 15 countries in the China Rim region - including China - generate an annual crude oil production deficit of an estimated 5.0 billion barrels.

The China Rim region's four crude oil production surplus generators, particularly Russia and Kazakhstan, are likely, in our opinion, to benefit from the surge in crude oil prices currently being caused by the simultaneous economic rise of China and India.

The China Rim region's remaining 15 countries, however, will likely, in our view, suffer the flip side of the China growth story... surging oil prices and declining rates of GDP growth.  This pain will be most severely felt by Japan and South Korea, both of which are among the world's largest crude oil importers.

Given the fact that the 19 countries comprising the China Rim region generate an annual crude oil production deficit of approximately 2.0 billion barrels, energy security tensions in that region of the world appear poised to intensify.

The countries mentioned above can be referenced in our China and the China Rim map.

Posted by:
Kevin B. Skislock
Partner and CEO
Laguna Research Partners
[bio] [disclaimer]

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