Oil prices eating away at Chinese economy
(AFP/chinadaily.com.cn)
Updated: 2005-09-12 09:36

Rocketing global oil prices are eating away at the high-flying Chinese economy, provoking a slowdown that officials and analysts warn could lead to inflation, AFP reported.

"I have to admit that the rise in oil prices is having an impact on the Chinese economy," Zhu Zhixin, vice chairman of the National Development and Reform Commission, said at a business forum in Beijing last week.

Although Zhu did not give concrete estimates, analysts say that China's 2006 growth in gross domestic product will easily drop off by one percentage point.

They also estimate the consumer price index, its main measure of inflation, will jump two percentage points from around two percent now.

While China is not as vulnerable as other oil-reliant Asian economies, the prospect of high prices over a sustained period is a serious concern to economic planners in Beijing, analysts said.

Zhang Guobao, vice chairman of the National Development and Reform Commission, said on Saturday in Beijing that 94% of China' energy consumption was met with its own production in 2004, and it relied on imports for merely 6% of its energy consumption.

China is the second largest energy producer, and also the world's second biggest oil consumer, Zhang said. It relied on imports for about 3.7 million barrels per day, or 40 percent of its oil needs.

Demand in China is currently at 6.4 million barrels per day and though demand growth has slowed this year, consumption is expected to continue to expand, driven by strong economic development and the low domestic retail fuel prices.

Beijing fixes oil prices by using a basket of the previous month's global trading levels in London, New York and Singapore and then allows the price to fluctuate eight percent.

Even though the two-tiered system is meant to protect consumers the discrepancy between pricing and suppliers sparked shortages of fuel this summer in southern China, pressuring the government to liberalise prices.