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Oil Crisis Looms
China's perverse system of oil production and retailing is coming
home to roost. Until recently the price of oil was tightly controlled
and it is still directed from Beijing. There is essentially no
domestic competition, since CNPC services half the country, Sinopec
the other half, and CNOOC runs the offshore platforms.
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News
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This year global prices have jumped from $11 to $28 per barrel. That
should have induced two reactions: more domestic production, to take
advantage of higher prices, and less domestic consumption, to avoid
higher prices. Instead, price controls keep production down while
demand growth is unabated. A combination of cheap oil and inadequate
supply have also encouraged hoarding and smuggling.
The government is playing catch-up, raising prices six times this
year. It is afraid to do more in light of strain on already fragile
state-owned enterprises. The oil bill for the first half has already
exceeded the total for 1999 by more than 50 percent. Indeed, the
recent rise in consumer prices is in large part due to oil, a
worrisome development at best. Domestic demand is conservatively
estimated to rise from 190 million tons last year to 300 million in
2010, even while production is stagnant. This problem is going to
get much worse before it gets better.
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China
E-Bytes
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| The US ran a monthly record $7.2 billion deficit with the PRC in
June, bringing the deficit for the year to date to $36.1 billion, also
a record. Think presidential election. |
| Fears of ethnic separatism are prompting Beijing to apply for the
first time population control rules to minority groups in the West.
The long-standing effort to resettle Han Chinese to the area continues
undisturbed. |
| Taiwan approved 119 percent more investment in the mainland from
January through July than the same period of 1999. The value of the
projects is $1.3 billion, over half in the field of consumer
electronics. |
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| Keep
up with the fast changing business environment in
China, the world's biggest and fastest-growing emerging
economy. Sinomania! recommends Orbis
Publications, Experts in Emerging Markets, for
a full range of in-depth coverage on China including
daily/weekly/monthly reports and more. |
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