China unlikely to come to world’s rescue this time
For all the self-congratulation of Western central bankers and economic policymakers when the world pulled out of the recession caused by the global financial crisis, it was China that really made the difference back then.
The multibillion-dollar stimulus package put in place by Beijing not only got the Chinese economy going again, but also, as the fastest-growing economy, got the rest of the world back to work too.
Chinese policy was less to do with altruism than to self-interest, but the upshot was that the global economy recovered faster from recession than could have been hoped in the dark days of 2008.
The oil market, in particular, was grateful for Chinese largesse. All that infrastructure build was a huge guzzler of crude oil products, as the rapid recovery in the oil price showed. Crude prices rose threefold in the two years after January 2009 and stayed high for the next three years.
But it is unlikely China will pull off the same rescue act this time round in the coronavirus disease (COVID-19) pandemic recession.
The world has changed a lot since then, notably in the growing hostility between the US and China which neither side seems willing to deescalate. It is hard to predict where that will end up, but the signs are not encouraging for a resumption of Asian-led world growth.
For Saudi Arabia and the other oil-producing countries of the Middle East, the obvious area of concern is in energy demand. China is the biggest consumer of imported oil in the world, and if it slackens off on stimulus, or if its economy does not recover as quickly as expected, that is bad news for the region.
On growth, the formal numbers are still looking encouraging. China is the only advanced economy forecast to show a positive upturn this year, according to the summer projections of the International Monetary Fund (IMF). Its economy will be 1 percent better than 2019, and a huge 8.2 percent leap is anticipated in 2021. Those projections could easily be revised when the IMF next assesses the global economic outlook, but the question is whether they go up or down.
It is hard to discern a clue as to the pace of Chinese economic recovery from the country’s oil demand statistics. They were aggressive buyers when prices were low after the convulsions of March and April, rising to a record number of imports of nearly 13 million barrels per day in July.
Since then, imports have fallen off to some degree, but what is perplexing oil analysts is why this is so. There are two possible reasons, neither of them encouraging for the oil outlook. Either the Chinese economic recovery has stalled as the country’s factories manufacture and export less to a world struggling with a resurgence of COVID-19 and a corresponding falloff in economic activity, which would be bad news for all of us.
Or China is simply full to the brim with crude oil and has nowhere else to put it. The tanker watchers report a big buildup of ships in the ports in Shandong province that serve the country’s industrial hinterland.
Other reports say that the Chinese strategic reserve is virtually full, with inventories in the country close to the astonishing level of 1 billion barrels in storage. Hard data on the reserve is difficult to get, but whatever the exact number, it looks as though China has all the oil it needs for a while, barring the rapid discovery of an effective vaccine and a sharp V-shaped leap in economic activity.
It is not just oil that the Chinese are buying, but a whole range of commodities that have led some experts to believe that the country expects an escalation of the face-off with the US that would shut down its vital import lifeline. That is not an encouraging thought either.
These worries are of direct concern to the region’s energy policymakers and will frame the backdrop for a crucial meeting of the OPEC+ ministers later this week.
Their deliberations will take place amid the possibility that China will not be digging the world, and the oil price, out of a hole this time.
• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai