China’s reopening may not cause a big jump in oil prices

China has gone through three distinct phases in its response to COVID-19 since the Wuhan Municipal Health Commission reported the first small cluster of “pneumonia” cases in Wuhan, Hubei Province on December 31, 2019. a ‘zero-COVID’ policy that allows for rapid economic growth China in the second quarter of 2020. Elsewhere, it was a time when more than 3.9 billion people in more than 90 countries or territories were asked or ordered to stay at home by their governments. It was marked by the second stage repeated locks In various regions of China, including several major cities, the outbreak of COVID-19 and related strains of the virus have led to complete lockdowns under a strict ‘zero-COVID’ policy. He gave impetus to the third stage nationwide protests against such ongoing comprehensive locks and comprised maintaining policy effectively which in turn led to massive waves of infection and death. The next phase, which may come sooner than many people expect, is likely to be a boom in China’s economy.

To put this economic boom back into context: the huge gap between China’s huge oil and gas needs based on the economy and its minimal domestic oil and gas reserves meant that China almost single-handedly created a commodity “super boom” for the period 2000-2014. created the “period”. with ever-increasing price trends for goods used in an evolving manufacturing and infrastructure environment. In late 2017, China’s high economic growth rate allowed it to overtake the United States the largest annual total crude oil importer in the world, in 2013 it became the world’s largest net importer of total oil and other liquid fuels. More specifically, on the economic side of the equation, China’s annual economic growth rate from 1992 to 1998 was mostly between 10 and 15 percent; Between 8 and 10 percent in 1998-2004; between 10-15 percent again in 2004-2010; It is 6-10 percent in 2010-2016, and 5-7 percent in 2016-2022. For much of the period from 1992 to the mid-2010s, much of this activity focused on energy-intensive economic drivers, particularly manufacturing and the consequent construction of sector-related infrastructure such as factories, worker housing, roads, and railways. and so on. Even after some of China’s growth began to shift to less energy-intensive service sectors, the country’s investment in building energy-intensive infrastructure remained very high.

Related: India’s oil imports from Russia rise 33-fold to record high

According to China’s National Health Commission (NHC), current infection and death rates from COVID-19 and related strains are extremely difficult to measure. stopped publishing Daily COVID-19 case data as of December 25, 2022, this practice is effective as of January 21, 2020. However, during a recent press conference, Kan Guancheng, a senior official in China’s third most populous province of Henan, announced that about 90 percent of people now infected with COVID-19 and related strains, which equates to about 88.5 million people in that state alone.

Cases have risen to these levels due to the zero-COVID policy and its strict implementation, as only extremely limited immunity to the virus has been allowed to develop. By the time it effectively ended its zero-Covid policy, China still had no effective vaccine against the disease or any of its variants, despite offers from all major vaccine-producing countries to provide it with such supplies. Despite offers from several Western countries to make such antiviral and post-infection treatments available to it, China also lacked an effective post-infection antiviral drug. As highlighted in addition to these negative factors Recently, China has been suffering from extremes intensive care unit shortage capacity in hospitals.

Although this unbridled increase in COVID infections has had a more profound impact on activity in the near term – Eugenia Victorino, head of Asia strategy for SEB in Singapore, exclusively said. likely to ease to 2.8 percent GDP growth in 2022 – China’s annual Central Economic Work Conference (CEWC) signaled in mid-December that boosting growth in 2023 would be a priority. “Investment in research and development in high-tech sectors will be accelerated, especially in new energy, AI, biomanufacturing and quantum computing,” he said. While the CEWC calls for expanding market access for foreign capital, particularly in the modern services industry, the long-term policy direction of greater self-reliance in key sectors will be maintained and public spending will “maintain appropriate intensity” in fiscal policy. “he added. “Therefore, there are upside risks to our 5.5 percent GDP growth forecast for 2023,” he concluded.

Rory Green, chief China economist for TS Lombard in London, believes activity will start to pick up by March at the latest, despite a peak of COVID infections on the east coast and a tough time for central and rural China. “We noted in December that China wants to start consumer activity and sentiment in 2023. [Premier] Xi Jinping’s New Year’s Address,” Green told exclusively: “Beijing seeks to restore domestic and international economic and political relations by toning down its ‘Common Prosperity’ and ‘Wolf Warrior’ rhetoric and, more importantly, stronger growth.” . he added. “We think China is rapidly moving from a COVID coma to a re-opening boom, and a GDP target of ‘above 5 percent’ will be set for 2023, and Xi will try to report GDP comfortably above that floor,” he said.

However, the earlier automatic transmission of China’s rising economic growth through oil prices may not be as pronounced this time around as it has been in previous years. “China’s central government is relying on reopening and removing negative policies — ownership, consumer internet and geopolitics — rather than aggressive stimulus to boost activity,” Green told “For the first time in China, the cyclical recovery will be driven by household consumption, mainly services [as] After three years of continuous mobility restrictions, there is clearly much reduced demand and savings – about 4 percent of GDP.

As for oil prices, it should be noted that transportation accounts for only 54 percent of China’s oil consumption, compared to 72 percent in the United States and 68 percent in the European Union. Last year, net oil and refined oil imports were 8 percent lower in volume than their pre-pandemic peak, as infrastructure and export-oriented manufacturing partially offset lower mobility and less property construction. “Demand drivers should change this year, with travel rising and property less negative, while infrastructure and manufacturing are slow,” Green said. “A certain result is an increase in oil demand – we estimate a 5-8 percent increase in net import volumes – but this may not lead to an increase in oil prices, especially since China buys from Russia at a discount,” he said.

By Simon Watkins for

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