Last month I brought you analysis of China’s Oil Manipulation, arguing that China’s price controls for energy is one of the reasons for the elevated worldwide price. My fellow contributors Mul and Nator challenged me on this point, but a story out today that China will lift some fuel subsidies has led to a modest sell off of oil today. This shows at least oil traders agree with my earlier viewpoint.
From the China domestic standpoint, it will be interesting to see how this ripples through the marketplace. China is already under inflationary pressures, and if the economy at large is exposed to higher energy prices, this will exacerbate those pressures.
John McCain says that the US has 21 billion barrels of proven oil reserves, and that exploration and drilling should be opened up in areas where a moratorium restricts disallows it (Alaska’s Arctic National Wildlife Refuge (ANWR)). This is one of the ways he would respond to high energy prices in the US.
Well, it wouldn’t. And it’s a bad idea.
Bloomberg reported in January ‘08 that worldwide oil consumption is 88 million barrels a day. If you accept the rough math and oversimplification, and you’ll see that this means the US’ proven reserves could supply the world’s need for all of about 8 months.
Does that sound like a lot of oil to you? Does it sound like its worth ripping up ANWR for? And what would it accomplish?
I say it would serve to bring down the price of oil ever so slightly, ever so shortly. And it would the typical politics of ‘give it to me now and pretend there are no consequences.’ And when that oil runs dry quickly, the crisis will be deeper and energy prices higher, and Americans will still need to get off oil. I really hate that about high level American politics. (Obama/Deomcrats are just as bad or worse, his pandering theme this week in Wisconsin is “Change that Works for You“).
If McCain wants to be a leader on this issue, he should be focusing more on how to really bring energy alternatives to market quickly. And if those alternatives can’t be brought about quickly, then I’d like to see the US hold on to ANWR oil for a true rainy day. You know, it could get a lot worse than $4/gallon gas…
Ever think you blogged about something, then went back to find your old post, only to see that you never wrote it? Well, a few months back, a regulation was issued in China that stores could no longer give out plastic bags for free. I was looking for my write up about it then, but it appears that was done in my imagination, or in one of my private love notes to nator. Anyway, the reason is because the cheap flimsy bags clog landfills and drains, etc. So now stores must charge for plastic bags, and they may not bundle the price into other merchandise, i.e. there must be a line item on the receipt. It went into effect on June 1, and sure enough, I had to drop 0.2 yuan (US 2.9 cents) for a bag. I think this is a good measure and support it.
NATOR ADDS: If they’re going to force a policy onto merchants, I’d rather they require that the bags be biodegradable.
Everyone knows that China has been under pressure for years, led by the US Congress, to allow the value of its currency, the RMB or yuan, to appreciate. But the “weak” RMB that hurts American exporters is not likely to be the main issue of concern to American voters. They’ll be more worried about $4/gallon (or higher!) gasoline. And this (Chinese article) is a big reason why. China has price controls on diesel and other fuels, such that there is now an RMB6000 (US$870) disparity between what a ton of diesel goes for in China and what it goes for abroad. Chinese oil refiners like Sinopec are getting slammed, since their costs are rising but the sale price of fuel is controlled by the Chinese government. The government is responding with measures to import more oil to help ease pressures.
Why does China control prices? Well, it’s obviously a good way to spur growth, and it’s been working as the country has been growing at 10%+ for over a decade. It’s also a way to over pollute the country and congest the roads. And it’s contributing to the skyrocketing oil prices worldwide, since 25% of the world’s population, the Chinese, are paying a lot less for the oil they use than everyone else.
SHTig adds (5/28 6:50pm PRC time): Mul called to ask what this means, and nator commented below also asking for clarity. To answer - yes, China buys oil on world markets at prevailing prices. But then, when that oil is sold domestically it is done so at a price lower than the prevailing world price. The government forces Sinopec and others to sell it on the cheap, and makes up for this by subsidizing Sinopec with the difference. This process allows everyone in China to get oil in all forms for less than the ‘true’ price, which results in more oil being consumed in China than what should be. We expect consumption to be inversely proportional to price - and when prices are kept artificially low, consumption is artificially high. With oil consumption artificially high in China, China demands more oil from the world markets than it should from an economic prospective and this is what adds to the upward pricing pressure on oil.
If your taxi driver had to pay the prevailing market price for gasoline, your taxi flagfall would be higher than RMB 11 (as it is in Shanghai), and you’d pay more per kilometer. The ride might cost you 50% or 100% more, and at the margins, some people would opt to take a bus instead. Multiply this behavior by 1,300,000,000 and remember that China is the world’s workshop, and we’re talking about a lot less oil being used, if only they - the end users - paid the prevailing price. That would reduce global demand and thus the price of oil as well, ceteris paribus.
Wonder if John McCain and Barack Obama will talk about this when asked what they plan to do about $4/gallon gasoline? If Chinese consumers paid the same price for fuel as everyone else, it might serve to put them on the same competitive playing field as other countries, and it might also serve to increase efficiencies within China.
Sina.com is now reporting that the Wenchuan, Sichuan earthquake measured 8.0 on the Richter Scale. No wonder they could feel it in Beijing and Thailand. The China State Council has ordered that from May 19-21 all flags be flown at half mast.
SHTig Update at11:45pm PRC time (5.18): CNN is reporting on the 3 days of mourning that will begin in China tomorrow. CCTV1 has reported that when the mourning period begins at 2:28pm (1 week after the earthquake), everyone should observe 3 minutes of silence. People should stop work, classes should stop, traffic should stop. This is an interesting time to be in China and observe the country’s response to the calamity. 加油中国!
When I first heard about the smoking ban in Beijing, I thought “Wow, fantastic. Beijing finally joins New York, London, Dublin, L.A. and Chicago.” They’re leaving the French behind as the last bunch of a-holes insisting on the right to smoke in people’s faces. Finally, I can go into a restaurant and not have to slurp down a pack of charcoal-filtered Honghe’s while eating my Xinjiang-style duan mian. And then I read this nugget.
Basically, restuarants (and, I’m sure, coffee shops and any other place that serves food) are exempt from the rule. “It’s just part of the culture” informs certified genius Zhang Peili, one of the Beijing municipal government officials involved in rolling out the rule. So is spitting. So is littering. So is getting loaded on erguotou at lunch. That is why the government bans these things. So that they are not part of the culture.
WUHAN, March 15 (Xinhua) — A five-year pig raising project involving 1.36 billion U.S. dollars in investment launched on Saturday in Hubei, making the central China province the nation’s largest pig raising base.
China National Cereals, Oils and Foodstuffs Corp.( COFCO), the country’s largest oils and food importer and exporter and leading food manufacturer, started the project in Wuhan, the provincial capital.
Mul’s recent post on pollution got me thinking a bit. It’s pretty obvious to anyone who comes to Beijing, or any number of places in China, that the air is terrible. A few weeks ago, Steve Andrews released a study, apparently done on his own, claiming that the government had been playing with the pollution numbers:
The study, written by an American environmental consultant, found flaws in Beijing’s “Blue Sky” system of air quality monitoring stations and noted that the city changed its method for measuring pollution in 2006. In particular, officials stopped including readings from two stations in polluted areas and began using readings in three other stations in less polluted locales…
“Irregularities in the monitoring of air quality account for all reported improvements over the last nine years,” said Steven Q. Andrews, the author of the study, in a telephone interview.
I have met Steve once or twice here in Beijing; he seems like a smart and honest guy, and I don’t doubt the veracity of his findings. What’s fascinating to me is how the debate on this topic, especially in the run-up to the Olympics, is focused on the government’s goals of “blue sky days”, the pollution index, etc.
When the pollution here gets bad, you can see it. You can smell it. So why are so many people caught up arguing over numbers with the government? Even by winning this argument, what has been proven, other than that there were a lower number of “blue sky days”? As Steve’s report shows, the numbers were likely fudged to begin with. I can’t see how the government lets pollution stop the Games, and I can’t see any real solution to the pollution problem in the coming years. Beijing alone isn’t the problem; you can find horribly dirty air in many rural areas far from big cities. China’s in trouble, and it’s going to be many years before things get better.
