BUSINESS

Lower Oil Prices Puts China’s Economy In Pole Position

China is a sleeping lion, Napoleon once warned. “Let her sleep, for when she wakes she will shake the world.

Is China going to oust the United States as the world’s superpower? Is China ready to rule the world? Is a one party political structure ala China better for achieving economic growth and development in the 21st century?

The foregoing are thoughts that pass through one’s mind when looking at happenings in China, today.

In 2013, China replaced the United States as the world’s largest net oil importer.

Lower Oil Prices Puts China’s EconomyNow, with the falling oil prices, China has much to celebrate as the drop in prices by extension means further economic growth and development for the country.

It is reported that for every 10 percent fall in the price of oil China’s GDP growth would be boosted by around 0.15 percentage points, lower consumer inflation by around 0.25 percentage points and would improve the current account balance by 0.2 percent of GDP.

The fact is oil prices have lost a third of their value since June, and has shown no sign of an upward movement as OPEC maintains its output despite a huge oversupply in the world market.

The benchmark Brent crude oil has fallen to below $80 a barrel, a sharp drop from market levels of over $100 three months ago.

China stands to gain tremendously from this decline in prices as 60 percent of its domestic oil supply comes from abroad. Consequently, the country will save a huge amount of foreign exchange as the price of oil continues to fall.

According to data from the National Bureau of Statistics, the country imported 281.92 million tons of crude oil in 2013, worth $219.6 billion.

It means China will save up to $30 billion in oil imports this year if the declining trend in oil prices continues, said Lin Boqiang, director of China Center for Energy Economics Research at Xiamen University.

According to Press reports, China International Capital Corp (CICC) expects the average oil price in 2015 to be 20 percent lower than in 2014, which would generate $47 billion in trade gains for China, or 0.5 percent of GDP, and boost household income and corporate profit growth.

Although the lower oil prices may have a negative effect on the profit margins of oil refiners, there is an upside for heavy users such as logistics companies, airline carriers and private car users as their operational cost could be reduced significantly.

On the other hand, China has cut its retail fuel prices for the eighth-consecutive time since July as the government reacts to lower crude prices.

Moreover, the country is poise to announce another cut in price by late Friday.

This undoubtedly will have a positive chain effect on industries right across the various sectors, but the impact will be felt more strongly by the consumer and the agricultural sector.

Davy Desmond Readers Bureau, Fellow

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