China’s Economy is Running Out of Gas… Literally

Wednesday, October 31, 2007 23:54
Posted in category Uncategorized

China Gas lineLast week, the China Auto Times printed a story (China Daily Story here) that China was considering a 100% gas tax that would raise the price of petro from 2.50USD a gallon to 5USD a gallon (I am sure you can understand why that story was buried). It was a story I had planned on commenting on, but no one else picked it up. According to the reports:

The government is worried about soaring fuel consumption and worsening air pollution in already smoggy cities with an increasing number of vehicles on the road, said Shi Yaobin, director of the Ministry of Finance’s tax policy department, at a forum on China’s auto industry development held in Tianjin over the weekend.

In hindsight, I should have paid more attention to it (and asked a few questions) as it appears that China is having a gas shortage (see: Business Week, IHT, and the Shanghai Daily)…

China Gas line What makes this most interesting is that it appears to be (1) widespread across China and (2) it is affecting big customers

Why these two things are important are that one of the big incentives the oil firms offered for logistics firms (trucking, shipping, etc) and retail pump owners to sign on for big contracts was a guaranteed supply.. or at the minimum a spot at the front of the line. This is not the first gas-out China has experienced, but it is one of the most wide spread since they made the leap from exporter to 2nd largest importer a few years back.

These stories should serve as warning shot, and that everyone needs to plan for increased transportation costs and also understand that China’s reliance on gas is going to be a natural constraint to the growth of the economy.

China has already raised prices 10% across the board according to the WSJ, and it is only a matter of time before that goes higher (consider the fact that we are not in peak season for ANYTHING right now).

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4 Responses to “China’s Economy is Running Out of Gas… Literally”

  1. Rich says:

    November 1st, 2007 at 7:58 am

    Found an interesting article a couple of days ago about GM’s new 250 million USD investment in alternative fuels in China.

    Nice timing….

  2. Jay Boyle says:

    November 1st, 2007 at 11:48 pm

    China could save an inordinate amount of fuel if:

    1. It created a single department of transportation that was over all air, water, highways, rail and even subways and light rail.

    Currently the rail has it’s own ministry and inter-modal is a pipe dream. As you mentioned in a previous blog each province protects its own trucking industry.

    2. Make all major city roads one way. (It is a lot easier to time traffic signals that way)

    3. Do not allow the right hand turn on red. (The Chinese call that the American rule) BUT Americans stop and yield to oncoming traffic before they make the turn, they do not run over pedestrians and they do not allow the turn in the larger cities.

    4. Bring back the bicycle. In the 90’s there was a push that took bikes off many of the streets. This is fine if you build additional bike streets but I have not seen this. There should however be serious fines or bicycle impoundments for people that do not follow traffic rules. (Note – If you have not seen someone riding their bicycle into oncoming traffic in the middle of the road then you have not been here long enough)

    5. Allow the invisible hand of the free markets to set fuel prices. Today the Chinese government sets the prices and as a result we see fuel shortages as the national fuel companies would rather re-sell their stocks on the international market then sell it below their production cost domestically

    6. Pay tolls to drive inside city limits. Like London! If you need to have your vehicle down town creating grid lock and making the rest of us miserable you should pay for it. These tolls should subsidize the public transit and light rail system.

    7. Bus only roads/lanes that are enforced.

    8. Finally China needs to be following a Japanese or European transportation model instead we are witnessing Californication.

    Jay

  3. Rich says:

    November 7th, 2007 at 6:59 am

    Excellent thoughts Jay.

    While living in SF in the late 90s, there was a group called critical mass who would park 1000 bikes in front of the Golden Gate bridge or other major intersections during rush hour. initially it started off as a way to raise awareness that bike lanes needed to be added, but it then transitioned into a monthly thing as a way to protest cars in general.

    Interestingly enough, the idea for this kind of civil disobedience came from one of the organizers seeing how the traffic in Beijing stopped because of all the bikes.

    I am sure glad they made that trip 15 years ago and not last week.

    R

  4. Will says:

    March 25th, 2008 at 9:12 am

    Although the shortage of the petro-chemicals is first seen by us on the forecourts of the local petrol stations, i don’t believe the number of vehicles in China can be identified as a cause. I think the picture is a little bigger!

    As described in the Forbes article, the current shortage is self induced. The Government imposed a price freeze on oil exports in an attempt to curb inflation and hence to minimize losses, oil companies cut back on production. Now this may be working or at least influencing the growth however side-effects have to be expected.

    Something which i don’t quite understand, 80% of China’s energy demand is not met by the petro-chemical industry but in fact the mining. Imposing restrictions on the price of oil only hurts the man in the street on his bike. The power generation which comes from coal and which has the lions share of China’s energy demand sounds like it is getting off scot free…? Can someone tell me this is not the case.