Chinese Oil Conundrum

China’s subsidized fuel prices worked miracles in the past, but because they hurt energy stocks, they are now a major policy concern.   

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Related:
For Chinese, the Reality of Higher Gas Prices   
JIMMY WANG
NYT, June 21, 2008
http://www.nytimes.com/2008/06/21/business/worldbusiness/21gas.html

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  1. OldBrokenRecord commented on Jun 30

    I know this is off topic, but it seems that just as the Fed and the ECB differ on monetary policies, the US media coverage of the looming crisis is not the same as in Europe.

    With all due respect Barry, even you seem to show “restraint”.

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml&page=1

    ~~~
    BR: I often link to the UK papers — Financial Times, Telegraph, London Times, Guardian, and in general, their reporting is more aggressive and shows no cheerleading.

    However, I have enough of a (undeserved) reputation for being a perma-bear. Sensationlist forecasts of another great depression aren’t my thing . . .

  2. Mike in Nola commented on Jun 30

    I have thought for awhile that the present situation is an analogy to the 1920’s with China playing the part that the US did then and the US playing the part of Europe. They have all the money, we have the debt (although it’s not war debt, it’s still debt).

    Their riches seeking an outlet have produced explosive growth leading to major dislocations. They have way too much productive capacity and factories are being shut down, esp. as the exchange rate bites. Peasants (like our farmers then) are suffering. The newly wealthy are getting decadent. Their stock market is reportedly as corrupt as ours was in the 1920’s and their banking system may be just as brittle. By various accounts on Bloomberg, et al, their banks have a huge bad debt problem from lending to factories that were not profitable but were politically connected. We’ll find out over the next couple of years.

    As, unlike ours in 1930’s, their political system has no history of stability, there may be more than just economic crises. The current regime’s legitimacy is based as much on prosperity as anything else. If enough people loose that, there could be a major change in government.

    Before the brickbats arrive, I understand analogies are never perfect, but they often help us to understand what history has to teach. Too bad W didn’t study the history of the British in Iraq and Afghanistan.

  3. Melancholy Korean commented on Jun 30

    Normally, I find the Times hopelessly behind the curve on financial news. Instead, the wire services and Bloomberg were most helpful to me when I was trading derivs on the Street (this was before the blog explosion).

    But this is fantastic reporting. Linking the subsidies to the stock market–very sharp.

  4. rickrude commented on Jun 30

    I have a prediciton…… all those
    rickshaws will become the next hot import
    to the US as the US goes green.

  5. brasil commented on Jun 30

    Green lies..Brazil ethanol miracle..look again…http://www.economist.com/world/la/displaystory.cfm?story_id=11632886…typical lie repeated over and over taken as truth…Brazil cut down the Mata Atlantica a rain forest that was at one time as big as the Amazon running along most of the coastline ..to plant sugar cane ..certainly not an environmental success story on any level..second ..this was built on the backs of slave labor ..when oil was cheap…literally ….third …the vast majority of Brazilians do not own cars..the workforce is a bus economy..there is very little upward mobility possible…

  6. wally commented on Jun 30

    To ask the Chinese to decrease gasoline subsidies would be seen as asking them to remain a third world country. Yet, for the Chinese to let their economy grow on the back of cheap gas – as the US did – would eventually put them in the same structurally untenable position the the US is now in.
    How do you suggest something to somebody that is in their long-term interest if it also happens to be in your own short term interest without looking like a liar?

  7. Larry commented on Jun 30

    Too bad China didn’t consider this when planning for economic growth. Having economic growth based on automobiles has bit them in the ass.

    Take Beijing as an example: as Beijing has continued to sprawl out with every increasing numbers of ring roads, the city had only three running subway lines (before the Olympics); the third of which was completed only a few years ago. The bus system is a disorganized mess, while all the bike lanes were torn out.

  8. worth commented on Jun 30

    Mike in Nola, that’s a great analogy of today’s China to 1920’s America – what most people miss is the role played by today’s America, which you correctly equate with 1920’s Europe (esp. Britain). And here we are in Iraq, treading in the Brits’ ill-advised footsteps as they sought to gain control of Persia’s oil supply with the forerunner of BP being the result (Anglo-Persian Oil Company was its original name). We fail to realize, now as then, that they want our money, not us, in their countries.

  9. Sinomania! commented on Jun 30

    Well, I guess that’s why Warren Buffet sold off his PetroChina shares! At one time last year Berkshire Hathaway owned 5% of the company.

    Most of the images and footage in that video were from last fall’s fuel “shortage” engineered by Chinese oil majors. They got a 20% price increase then and another one recently.

    I would argue though that China is moving pretty quickly to reduce exposure to oil — renewable energy law in effect since that start of 2006, big new state directed investment in wind energy, nuclear (Westinghouse AP1000 and Areva’s latest technology, and many leading companies in solar.

    The NYT is always predicting the demise of China!

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