Continuing high oil prices did not affect the steady trend of China's economy
After the price of international crude oil futures surpassed $100 earlier this year, it hit a new record high of $120.36 per barrel on the 5th. As a major oil importer with over 50% dependence on foreign oil, how will these rising prices affect China's economic performance? To explore this, the author interviewed several experts and scholars.
The international oil price has continued to climb, breaking through $120 per barrel for the first time due to ongoing security concerns in key OPEC countries such as Iraq, Iran, and Nigeria. This has also led to a decline in the U.S. dollar against the euro.
According to Dan Weiguo, director of the Institute of Economics and Technology at China National Petroleum Corporation, the surge in oil prices since the second half of last year has been driven by strong demand from emerging economies, limited output from resource-rich nations, a weaker U.S. dollar, and an influx of speculative capital into commodity markets.
Wang Jian, secretary-general of the China Macroeconomics Committee under the National Development and Reform Commission, noted that with the ongoing subprime mortgage crisis, the weak dollar policy is unlikely to change soon. This means that commodities, especially oil, will remain a prime target for speculation, keeping prices elevated for the foreseeable future.
It’s clear that high oil prices are putting pressure on China’s economy. However, many experts believe that while there is pressure, the overall growth of China’s economy remains stable.
Wang pointed out that as a developing country, China relies heavily on energy-intensive industries to drive growth, and with urbanization accelerating, oil consumption continues to rise. This makes the economy more vulnerable to the impact of high oil prices.
The most direct effect of high oil prices is increased import costs. According to the General Administration of Customs, China imported 44.95 million tons of crude oil in the first quarter of this year, up 14.9% year-on-year. Net imports of refined oil reached 5.47 million tons, a 31.8% increase compared to the same period last year. The trade deficit caused by these imports totaled nearly $33.1 billion.
Wang also emphasized that as a basic energy product, the rising cost of oil is pushing up China’s industrial ex-factory prices (PPI), increasing inflationary pressures. According to data from the National Bureau of Statistics, crude oil prices rose by 37.9% year-on-year in March. Gasoline, diesel, and kerosene prices increased by 9.9%, 10.9%, and 12.1% respectively, while butadiene rubber prices jumped 20.7%. From January to March, China’s PPI rose by 6.9%, and raw material, fuel, and power purchase prices increased by 9.8%.
To curb inflation, China has not adjusted its refined oil retail prices since November last year. However, as domestic crude oil prices have diverged further from international levels, refining companies have suffered losses, leading to shutdowns or reduced operations, particularly among local refineries. This has resulted in tight oil supplies in some regions across the country.
In the first quarter, China’s petrochemical industry recorded its first profit decline since 2001. China National Petroleum Corporation and Sinopec saw their net profits fall by 12.6% and 65.78%, respectively, due to refining losses.
Experts agree that shifting toward a more sustainable economic model is essential. Despite the rising oil prices, China’s oil consumption continues to grow. According to the China Petroleum and Chemical Industry Association, apparent refined oil consumption in the first quarter rose by 16.5% year-on-year, a record increase. Crude oil consumption also grew by 8%, 2.5 percentage points faster than the same period last year.
Zhou Dadi, a researcher at the National Development and Reform Commission’s Energy Research Institute, stressed that as a major oil consumer, China must accelerate economic restructuring, implement energy-saving measures, and promote a more efficient energy structure to cope with the challenges posed by high oil prices.
Wang Jian believes that in the long term, China should establish pricing and fiscal policies that support industrial restructuring, ensuring that high oil price signals reach the market quickly and drive changes in energy consumption and industrial structures.
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