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Growing oil addiction

(China Daily)
Updated: 2008-06-11 11:41

The unprecedented surge of international oil prices by $10.75 a barrel last Friday shook almost all stock markets around the world with a good reason. But the sharp fall of Chinese shares that followed does not mean that domestic investors are frightened by rocketing oil prices too.

The benchmark Shanghai Composite Index plunged 7.7 percent yesterday after the three-day holiday of the Dragon Boat Festival in the steepest drop in more than a year.

However, the panic selling is largely a result of investors' concerns over the impacts of the reserve-requirement ratio hike announced on Saturday by the People's Bank of China. With the fifth such move this year, the central bank has decided to bring the ratio to a record high of 17.5 percent to curb liquidity growth.

As a big net importer of crude oil, the country should have ample reasons to worry deeply about soaring international oil prices. But because of the government's effort to cap fuel prices below global levels to limit their impact on domestic inflation, Chinese consumers and producers are yet to fully wake up to the dire consequences of unchecked growth of demand for oil.

Double-digit growth of production and sales of homemade automobiles in the country laid bare the lack of sense of urgency to cut the use of oil.

Latest figures released by the China Association of Automobile Manufacturers showed that the country was well expected to sell a record 5 million domestically-made cars in the first half of this year. About 4.5 million autos were already produced and sold in the first five months, up 17 percent and 19 percent year on year, respectively.

In contrast to weakening sales in much of the world's other major auto markets, the super performance of China's auto markets does speak of both the resilience of the Chinese economy and the desire of its people to improve living standards after decades of fast economic growth.

Policymakers should not deny Chinese consumers their aspiration to own a car. But they should also not turn a blind eye to the danger of growing oil addiction.

A booming auto industry may propel economic growth while satisfying consumers for the moment. But it will prove too expensive in the long run for the country that is fighting a hard war to save energy and environment.

Record-high oil prices should justify an overhaul of the country's energy policy, particularly the pricing mechanism, in order to adapt Chinese consumers and companies to the era of dearer oil.