Oil data raises doubts about GDP growth

New official figures indicate that China’s oil consumption may have declined in 2001. If accurate, these reports suggest that last year’s official estimate of 7.3 per cent GDP growth could be exaggerated by a wider margin than previously thought. Alternatively, they may reflect a rapid recovery in unofficial oil imports, which were sharply curtailed after the exposure of the Yuanhua smuggling scandal in 1999.

Some academics have drawn similar conclusions from stagnant growth in China’s consumption of coal and electric power, but these can partly be explained away by gains in energy efficiency as China’s output mix shifts away from less efficient state-owned enterprises. Oil consumption, by contrast, should be tied more closely to demand for automobile travel and freight transport by road, and therefore a better proxy for overall growth in GDP.

Since oil is consumed by tens of millions of individual end-users, it is unlikely that any available statistical measure can calculate consumption directly. Rather, consumption estimates need to be constructed from several more easily measured quantities: domestic crude oil production, imports and exports, and changes in inventory – held largely by China’s two main onshore oil producers, CNPC and Sinopec.

The most striking change at the margin is in China’s net imports, or the surplus of oil imports over exports. According to China’s General Administration of Customs, net imports fell by 6.7 per cent year-on-year in 2001, from 69.6m tons to 64.9m tons.

Meanwhile, the National Bureau of Statistics has reported that domestic crude production rose by 1.3 per cent in the year, to an absolute level of 164.93m tons. This implies a production level in 2000 of approximately 162.81m tons. In other words, domestic oil supply rose by just 2.12m tons, while the contribution of net imports fell by 4.7m tons. Therefore, the total supply of oil to China seems to have fallen by around 2.58m tons year-on-year. In light of rising vehicle ownership and high rates of reported economic growth, this trend is a cause for concern.

Changes in stockpiles might potentially explain away the discrepancy – but in fact, they make it worse, since both CNPC and Sinopec actually accumulated inventory during 2001 after over-purchasing in late 2000. An Interfax report from Shanghai on February 27 indicates that total stockpiles at both companies rose by 1.2m tons during the calendar year.

With all these component figures in place, it becomes possible to calculate China’s total domestic oil consumption in 2001. The formula is: domestic production plus net imports minus growth in inventory; or 164.93+64.9-1.2=228.63m tons.

Since total oil supply fell by 2.58m tons during the year and another 1.2m tons of this supply was diverted into stockpile growth, it follows that China’s oil consumption in 2001 must have fallen by approximately 3.78m tons from the previous year. This decrease is equivalent to 1.65 per cent of estimated consumption in 2001.

An additional twist is provided by the market behaviour of offshore oil producer CNOOC, whose exports of crude oil fell by 36 per cent, or nearly 2m tons, during the year. According to Reuters, a company official attributes the drop in overseas sales to rising domestic consumption of heavy crude, driven by demand for bitumen. The decline in CNOOC’s exports gave significant support to the figure for net oil imports, which would otherwise have fallen even more steeply. This implies that China’s consumption of oil as fuel may have declined by well over 1.65 per cent, with the drop partly masked by rising asphalt consumption driven by massive new spending on infrastructure.

It should be noted, however, that China’s import and export statistics are frequently distorted by both smuggling (which leads to an under-reporting of imports) and tax evasion (which often takes the form of overreporting exports in order to collect valueadded tax rebates).

During the late 1990s, the notorious Yuanhua Group, based in Fujian province, smuggled both crude and refined oil into China in staggering quantities. At one point, it supplied a substantial fraction of the country’s demand for diesel fuel. The exposure of the Yuanhua case in 1999 led to a dramatic fall in smuggling, both for oil and for other goods, and to a sharp rise in customs revenues, but there are reports that the problem may be re-emerging. A report in the People’s Daily from last August refers to a ‘resurgence of smuggling’ of fuel and other products along the coast of Fujian.

Nevertheless, the volume of new fuel smuggling is likely to be only a tiny fraction of what it was in Yuanhua’s heyday, when oil tankers allegedly arrived at the port of Xiamen under naval escort. The underlying trend still seems to one of flat or slightly declining oil consumption in 2001, raising yet another question about the accuracy of China’s GDP statistics.