Why Oil-Hungry China Isn’t Reaping Benefits From Low Prices – China Real Time Report – WSJ

China – which gets 60% of its oil from abroad — is on its way to becoming the world’s largest petroleum importer, and is already there by some measures. So in theory it stands to be a huge beneficiary of plummeting oil prices.

However, as The Wall Street Journal reports, the benefits of cheap oil for several major economies are far less clear, as governments from Europe to Japan battle fears that falling prices—in part a result of cheap energy—will deter spending by consumers and new investment by companies.

In China, cheap oil hasn’t been nearly the boon many may have thought. That is the result of several factors.

The government controls prices, meaning the drops for Chinese businesses and consumers lag those of international oil markets. China’s central government has raised fuel taxes, offsetting prices declines. Both factors add up: The government-maximum price in Beijing for basic-quality gas comes out to roughly $3.50 a gallon, once currency conversions and other factors are weighed. Compare that to the U.S., where that same gallon costs about $2.07.

Then there are the structural issues in China’s economy like overcapacity that low prices can’t fix.

“If you look at the lower oil price, it’s true China is a net importer of oil so in theory it should be beneficial,” said Vincent Chan, a research analyst at Credit Suisse CSGN.VX +0.05%. “But at the same time you have other issues like some of the structural issues that are more important in China.”

The bottom line for China: While consumers and some industries have gotten a boost from lower oil prices, the benefits have been pared by the central government’s preference for price stability. Similarly across Asia, governments have used low oil prices to unwind complicated and costly subsidies, which in recent years have kept prices at the pump artificially low for many Asian consumers.

via Why Oil-Hungry China Isn’t Reaping Benefits From Low Prices – China Real Time Report – WSJ.

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