China's big thirst for oil makes war with Iraq a serious concern

  • Business
  • Thursday, 20 Mar 2003

BEIJING (AP) - China's growing thirst for oil makes the country's economy vulnerable if the war with Iraq drags on, causing fuel prices to shoot up and stay high, analysts said Thursday. 

One potential problem for China _ the world's third-largest consumer of oil _ is the country's lack of strategic reserves that would help cushion it against wild swings in prices. 

Adding to China's concerns, the nation just installed a younger group of leaders who are under intense pressure to keep boosting the economy. 

The new rulers' survival could depend on their success in defusing unrest among the swelling masses of poor farmers and workers laid off from bloated, debt-ridden state factories. 

"Stability is crucial to China's economic development. The problem of energy supplies will certainly bring fluctuation,'' said Wang Zhengzhong, deputy director of the Economic Institute at the China Academy of Social Sciences. 

China's appetite for oil has been expanding steadily in recent years. New classes of affluent Chinese have been trading in their bicycles for cars, and foreign companies have been rushing in to set up factories in booming coastal cities. 

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. 

As long as the war doesn't turn into a quagmire for U.S.-led forces, Wang said that OPEC will be able to meet demand and prices won't rise as high as they did in the 1972 oil crisis. 

"We hope it will end as soon as possible,'' he said. 

Pu Yonghao, a consultant for the Asian Development Bank, doesn't consider China's lack of strategic reserves to be a serious problem. 

"I don't expect a big shock to the economy this year given the external conditions,'' he said. 

Those conditions include OPEC's pledge to increase production as well as moves by China's major energy companies to buy stakes in foreign oil companies, Pu said. 

The country is also building a 4,000-kilometer (2,500-mile) pipeline from its northwestern desert to southern boomtowns, and China recently awarded a huge liquefied natural gas contract to Australia, he said. 

But if the war gets messy and draws out, Pu said, higher fuel costs could eat into China's goal of 7 percent economic growth. 

"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.'' - AP 

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