Post 44 - 2005.08.14
China: Oil Import Growth Accelerates to 15.0% in JulyChina's Customs General Administration
announced on Thursday that year-over-year growth in that country's oil imports accelerated
to 15.0% in July. An estimated 11.1 million tons of oil were imported by China
during the month. During the first seven months of 2005, China's oil imports
increased only 5.5% to 74.5 million tons. Excluding July from the year-to-year
comparison, China's oil imports increased just 4.0% to 63.4 million tons during the first
six months of 2005.
On China Central Television (CCTV) today (Sunday), Chinese Vice Premier Zeng
Peiyan exhorted China's populace to improve energy efficiency. In his CCTV
appearance, Zeng said, "Economic development will be restricted if we don’t
restrain the waste of resources. We’re at a stage of economic development where
we don’t have the luxury to be wasteful."
Many observers mistakenly concluded that China's
sluggish oil import growth during the first half of 2005 reflected a slowdown in economic
growth. That analysis was shown to be faulty when China's National Bureau of Statistics announced on
July 20 that the country's economic growth was a blistering 9.5% during the first six
months of 2005. This matched the 9.5% growth rate achieved during 2003 and 2004, and
is considerably in excess of China's 8.0% to 8.5% GDP growth target for full year 2005.
Laguna Research Partners continues to conclude
that weak Chinese oil import growth during H1:05 reflected a confluence of factors. Notable
among these is the fact that domestic oil derivative prices in China are fixed at
relatively low levels, and the import of increasingly expensive crude oil has simply made
no economic sense for that country's domestic refiners. Second, our research and
analysis indicates that China's central planners have executed an energy resource
"mix shift" during H1:05 in the face of sharply higher crude oil prices.
Specifically, Chinese coal imports have been up sharply during 2005 to date. The
jump in oil import growth in July indicates that this mix shift might be at its structural
limits. Further, world oil prices sustained at the US$65.00-plus level could force a
re-thinking of China's domestic price control regime vis-a-vis oil derivatives.
While much of the US's trade deficit ire has been focused on China's fixed currency
exchange rate, little attention has been focused on the fact that much of China's economy
is benefiting from artificially low domestic energy prices.
As long as China's domestic energy prices are
maintained at artificially low levels, investment in that country's outdated and highly
inefficient energy sector infrastructure will be inefficient at best. Alternatively,
free market economics could instantly create the urgent attention to energy efficiency
that Vice Premier Zeng is demanding on patriotic grounds. (For instance, in the US,
higher gasoline prices are causing a sharp drop in SUV unit sales as well as in new and
pre-owned SUV prices.) Until price control reforms are instituted in China, though,
Chinese price inflation will remain understated and economic dislocations will compound.
Posted by:
Kevin B. Skislock
Partner and CEO
Laguna Research Partners
[bio] [disclaimer]
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