Boost for growth: China could save over $30 bn this year from falling oil prices

Reaping rich dividends from its Central Asia gas pipelines and falling oil prices, energy-hungry China has not only ensured its energy security but is set to save a whopping $30 billion from its oil bills this year, besides $47 billion worth of trade gains.

Natural gas imports to China through the China-Central Asia Gas Pipelines exceeded 65 million tonnes till October.

The pipelines, China’s first major energy cooperation project in central Asia, run from Turkmenistan via Uzbekistan and Kazakhstan to China, with a total delivery capacity of 55 billion cubic metres of natural gas every year, one-fifth of China’s natural gas needs.

Since China replaced the US in 2013 as the world’s largest net oil importer, a fall in oil prices have aided its economic growth.

The Bank of America Merrill Lynch said for every 10 percent fall in the price of oil, China’s GDP growth would be boosted by around 0.15 percentage points, lower consumer inflation by around 0.25 percentage points and would improve the current account balance by 0. 2 per cent of GDP.

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Oil prices, which have lost a third of their value since June, has hit fresh four-year lows. The benchmark Brent crude oil has fallen below USD 80 a barrel, a sharp drop from market levels of over USD 100 three months ago.

China is dependent on imports for nearly 60 percent of its domestic oil supply. The fall in oil prices, therefore, translates into huge foreign exchange savings.

According to official data, China has imported $281.92 million tonnes of crude oil in 2013, worth $219.6 billion. It means China will save up to $30 billion in oil imports this year if the trend continues, said Lin Boqiang, director of China Centre for Energy Economics Research at Xiamen University.

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China International Capital Corp expects average oil price in 2015 to be 20 percent lower than in 2014, which would generate $47 billion in trade gains for China, or 0.5 percent of GDP, and boost household income and corporate profit.

Lower oil prices may squeeze profit of oil refiners, but could significantly bring down expenditure for heavy users, like logistics firms, airline carriers and private car users.

China’s retail fuel prices have been cut for the eighth-consecutive time since July as the government reacts to lower crude prices and the country is very likely to announce price cuts again late on Friday.

Falling oil prices will also benefit the consumer sector as lower inflation raises consumption through higher disposable incomes, state-run Xinhua news agency reported.

Last week, the central bank cut benchmark interest rates for the first time in more than two years to support its economy, which grew at its slowest pace since the depths of the global financial crisis in the third quarter, and is likely to register its weakest annual growth rate in more than 10 years.

PTI