What oil-hungry China means for the rest of the world
Last month the world witnessed a paradigm shift: China surpassed the United States as the world鈥檚 largest consumer of foreign oil, importing 6.3 million barrels per day compared to the United States鈥� 6.24 million. This trend is likely to continue and this gap is聽, according to the EIA鈥檚 October short-term energy outlook. Wood Mackenzie, a leading global energy consultancy, echoed this prediction,聽聽Chinese oil imports will rise to 9.2 million barrels per day (70% of total demand) by 2020.
This trend has been driven by a combination of factors. Booming American oil production, slow post-recovery growth, and increasing vehicle efficiency have all served to reduce crude imports. In China, however, continued economic growth has brought with it a growing middle class eager to take to the road. While the automobile market had cooled earlier this year, September saw sales聽by 21%鈥攁 trend that is putting increasing strain on China鈥檚 infrastructure and air quality in addition to oil demand.
Some of the world鈥檚 largest traffic jams are now commonplace in major Chinese cities, and air quality issues have pushed authorities to pursue聽聽technology to offset the need for coal-fired electricity. Increasing oil consumption will only serve to exacerbate these issues.
Furthermore, the per capita consumption聽聽between the two countries is still vast, with an average Chinese citizen consuming a mere 2.9 barrels of oil per year compared to an average American who consumes 21.5. This indicates that China鈥檚 growing thirst for oil isn鈥檛 going to slow down anytime soon.聽
So what does this shift in oil imports mean?
More than anything else, it is a sign that China will increasingly depend on global markets to satisfy its ever-growing oil demand. This necessitates further engagement with the international system to protect its interests, encouraging a fuller integration with the current liberal order. This will have effects on both China鈥檚 approach to its currency and its diplomatic demeanour. 聽
Derek Scissors聽聽last week that this shift might usher in a world where oil is priced in RMB as opposed to solely in USD. This transition could only occur, however, if the RMB was made fully convertible and Beijing steps back from its current policy of exchange rate manipulation. Earlier this year, HSBC聽聽that the RMB would be fully convertible by 2017, a reality that is surely hastened by its position as the single largest purchaser of foreign oil. A fully convertible RMB would be a 鈥渒ey step in pushing it as a reserve currency and enhancing its use in global trade,聽Sacha Tihanyi, a strategist at Scotia Capital.
On the diplomatic side, while the United States is unlikely to withdraw from its role as defender of global oil production or guarantor of shipping routes, an increasing reliance on foreign oil will push Beijing toward a more engaged role within the international community. It is likely that we will see a change in Beijing鈥檚 approach to international intervention and future participation in multilateral counterterrorism initiatives鈥攁nything to ensure global stability. In the future, anything that destabilizes the oil market will increasingly harm China more than the United States. While Beijing views this increased import reliance as a strategic weakness, it a boon for those hoping to see Beijing grow into its role as a global leader.
Bottom line: as Chinese oil imports grow, Beijing will become increasingly reliant on the current market-oriented global system鈥攖his is nothing but good news for those that enjoy the status quo.
Original Article:聽
