China's big thirst for oil makes war with Iraq a serious concern
China's big thirst for oil makes war with Iraq a serious concern
William Foreman, Associated Press, Beijing
A long, messy war against Iraq that causes a spike in oil
prices could pose a threat to China - a key economy with a
growing thirst for fuel and increasingly tighter ties to global
markets, analysts said.
The conflict also puts additional pressure on the new leaders
who took over China this week, pledging to keep stoking economic
growth. If the economy sputters, the communist rulers might be
unable to calm the mounting unrest among impoverished farmers and
legions of laid off workers in the northern rustbelt.
"Stability is crucial to China's economic development. The
problem of energy supplies will certainly bring fluctuation,"
Wang Zhengzhong, deputy director of the Economic Institute at the
China Academy of Social Sciences, said Thursday.
Adding to China's worries, the nation doesn't have strategic
oil reserves - an emergency supply that countries like the United
States and Japan use as a cushion against wild swings in fuel
prices.
"China could take a hit because it doesn't have a buffer,"
said Fred Hu, managing director at Goldman Sachs China.
But other economists have said that China should be able to
avoid a crisis as long as OPEC sticks to its pledge to increase
oil production during the conflict. The country is also starting
to build strategic reserves, and its major oil companies are
buying stakes in foreign producers.
China's demand for oil has been expanding steadily in recent
years. Newly affluent Chinese have been trading in their bicycles
for cars, and foreign companies have been opening factories in
booming coastal cities.
"There was a 60 percent increase in the number of cars in
China last year," Hu said. "That gives you an indication of the
voracious new appetite for oil."
Last year, China imported 69.4 million metric tons (76.3
million tons) of crude oil - a 15 percent increase from 2001,
according to customs statistics. About 40 percent of the oil came
from the Middle East.
Some economists say that war can be good for the shipping
industry. Ships are in greater demand to transport supplies, and
large manufactures ask suppliers to ship more parts that can be
squirreled away during a crisis, they say.
But the giant China Ocean Shipping Company issued a gloomy
outlook about its wartime business.
"Not only will it cause a big increase in the price of fuel
and insurance, it will bring about a sharp rise in the overall
cost of shipping," it said in a statement.
Another possible source of trouble for China's economy is its
growing integration in the global economy. China is already one
of the world's biggest exporters, and it recently joined the
World Trade Organization, which requires members to comply with
global regulations.
China's closer links to the rest of the world could be a mixed
blessing, Hu said. A sluggish global recovery caused by the war
could reduce demand for Chinese exports. But it could give China
a boost, making the country look like a prosperous "safe haven"
for investment, he said.
Pu Yonghao, a consultant for the Asian Development Bank,
predicted that if the war drags on and oil prices keep climbing,
the fuel costs could eat into China's goal of 7 percent economic
growth this year.
"It could shave off 1 percent if oil prices stay at about
US$40 (330 yuan) a barrel," he said.
However, Pu doubted the conflict would seriously cut into
China's exports because they are so diversified. They're also
more resilient because production capacity continues to expand as
more foreign companies relocate plants to China, he said.
"Compared to many other countries, China should be least
affected because it is big and domestic demand also plays a
part," he said. "It's not like Hong Kong or Singapore, which rely
more on external demand."