Why China Can’t Avoid Oil Addiction
By Michael Dunne
China raised gasoline prices 7% last week to $4.42 a gallon — the largest single increase in nearly three years — in a move partly aimed at suppressing the country’s expanding hunger for oil. A steady series of such adjustments, combined with massive investments in renewable energy, suggests China is serious about controlling its dependence on fossil fuels. But if the country is hoping to avoid the American experience with oil addiction, it might already be too late.
The central culprit? A zealous car culture remarkably similar in its development to the one that pushed the U.S. into the arms of foreign oil producers.
China’s appetite for the automobile, and hence oil, is only going to keep growing.
China’s annual bill for imported oil averaged just $66 billion between the year 2000 and 2010, according to the International Energy Association. The IEA predicts that figure will jump to $251 billion in 2012, accounting for 60 percent of the nation’s total oil consumption.
Steep as this month’s increase in fuel prices might seem, it will have a limited impact on China’s appetite for oil because the country is just entering the take-off stage of car buying.
That notion might seem to fly in the face of recent media reports suggesting China’s insatiable appetite for the automobile has begun to taper off. But China is still a young market, and the current bout of slower growth comes more from Beijing’s inflation-beating efforts rather than any underlying weakness in demand for cars.
Even with sales growing at a slower pace, car-crazy Chinese are expected to buy 20 million rides this year. Eight out of ten new car buyers in China are purchasing for the first time in their lives, according to the latest numbers from J.D. Power and Associates, and only one in 10 new car buyers relies on car loans to fund their purchases. In other words, there’s plenty of cash around for new cars.
Moreover, at $4.42 a gallon, Chinese drivers are still paying about half as much for gas as drivers in Tokyo or Berlin.
Policy makers in Beijing are acutely aware of the risks to national security that come with too much dependence on foreign oil. But they find their hands mostly tied, in large part because Chinese vehicle owners, like their American counterparts, have grown accustomed to affordable fuel. Raising fuel prices too quickly would produce significant backlash from city folks and farmers alike, increasing the risk of domestic unrest.
Lifting prices too slowly, on the other hand, only deepens the addiction, giving China more headaches in tension centers like Iran and the contested seas around the Spratly Islands.
To relieve some pressure, officials in Beijing are encouraging the auto industry to develop electric vehicle technology. But the batteries that drive electric cars remain expensive: Use of batteries makes an electric car $10,000 more expensive on average than the same model powered by a gasoline or diesel engine.
Moreover, there are limits to how far you can travel an electric car – around 100 miles – before you need a fresh charge. Annual sales of electric cars in China, therefore, remain stuck in the low thousands.
Meanwhile, total car demand in China is projected to climb to 30 million a year – twice the current size of the U.S. market — by 2020, according to an IHS Global Insight report released earlier this month. Assuming a modest increase in oil prices, China will be spending more than a half a trillion dollars on imported oil every year by the end of the decade.
This vexing dependency is bound to get much worse before it gets better. As the U.S. knows all too well, addictions usually lead to trouble. The world should get ready for heightened conflict wherever oil deposits are concentrated.