cars driving the rebalancing of chinese economy
Last Updated : GMT 16:22:18
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Cars driving the rebalancing of Chinese economy

Arab Today, arab today

Arab Today, arab today Cars driving the rebalancing of Chinese economy

The International Energy Agency says rapidly expanding gasoline demand in China
Paris - AFP

Chinese consumers are getting behind the wheel more, spurring a heady increase in petrol demand, a sign that consumer spending is helping the slowing Chinese powerhouse achieve a soft landing, the IEA said on Friday.

"Upending year-earlier forecasts that Chinese gasoline demand would struggle in 2015, confirmed data for the first ten months of the year show growth of roughly 10.4 percent year-on-year" the International Energy Agency said in its monthly oil report.

Rapidly expanding gasoline demand, in contrast to weak gasoil/fuel oil, adds to "the increasingly compelling argument that the Chinese economy is undergoing a structural transformation –- shifting from heavy manufacturing/exports towards a more domestically-focused economy," it added.

One of the key issues facing the global economy in recent years has been how to ensure a smooth transition of the world's second largest economy from an export powerhouse towards a more balanced model with higher domestic consumption.

Chinese growth hit a 24-year low of 7.3 percent in 2014 and Chinese officials have indicated the trajectory is downward.
This is of concern worldwide as China has accounted for a major share of global growth in recent years, thus its slowdown could erase expansion elsewhere.

Even though the 3.3 percent increase in auto sales from January to November is much lower than the 6.1 percent gain during the same period in 2014, according to data released Thursday by the China Association of Automobile Manufacturers, that still means an additional 21.8 million vehicles have hit the nation's roads

Beijing reacted quickly to slumping sales earlier this year, cutting vehicle purchase taxes, resulting in record sales in November.

"Although the economic outlook grew more precarious in 2015, Chinese consumers maintained sufficiently high confidence levels to stimulate escalating vehicle usage," said the IEA.

And it isn't only cars. Demand for jet fuel rose by 19.1 percent as more Chinese took to the skies.

"Such heady gains ... proved more than sufficient to offset China’s otherwise ailing industrial oil use."

In fact the IEA sees China's overall oil demand to increase by 100,000 barrels per day to an average of 13.0 million barrels per day, driven by demand for more petrol.

- Strategy 'beginning to work' -

Despite world crude oil prices crashing to near seven-year lows under $40 per barrel, the IEA did not change its outlook that the increase in demand due to cheap fuel will gradually taper off.
It held steady its forecast of increased demand of 1.2 mbd next year to 95.8 mbd, pointing to the first signs in a slowdown in demand.

Meanwhile the IEA said that the decision by the OPEC oil cartel last week to continue its policy of targeting market share rather than price "does not –- for now -- alter the status quo on its supply".

The Organization of the Petroleum Exporting Countries, which pumps out around a third of world's crude, effectively abandoned its production target of 30 million barrels per day.

The cartel is currently pumping out around 32 million barrels daily.

"As oil flirts with $40 per barrel and approaches a seven-year low, the [cartel's] early December move appears to signal a renewed determination to maximise low-cost OPEC supply and drive out high-cost non-OPEC production –- regardless of price," said the IEA.
Led by Saudi Arabia, OPEC last year shifted policy, abandoning its efforts to support prices as oil from US shale rock producers flooded the market.

That has led oil prices to plunge by over 60 percent from peaks in June 2014, with the low price putting pressure on high cost shale producers in the United States along with many other oil producers.

"There is evidence the Saudi-led strategy is beginning to work," said the IEA, which said it expects non-OPEC supplies to drop by 600,000 bpd next year as US shale oil production drops.

 

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