The Price of Gas in China

The price for a gallon of gasoline plunged noticeably over the weekend. Maybe it was just my selection of gas stations, but I paid about $.40 less Sunday per gallon of premium on the way home from a funeral in Florence, S.C., than I paid Friday on the way down. It sure would help the ol’ wallet if the price of gasoline backed off even more.

But I’m not counting on prices to ever drop back to the $2.80 average price of a year ago — which now seems blessedly low. Either are American consumers, who are switching to fuel-efficient cars on a scale not seen since the “energy crisis” of the 1970s. A sign of the times: Home-town used-car company CarMax, took massive write-downs on its national inventory of trucks and SUVs because the market price for those vehicles had collapsed 25 percent in just the previous three months.

Americans, Europeans and the Japanese may be conserving gasoline, but not everyone is. The Washington Post has a fascinating article this morning about the phenomenal increase in automobile traffic in China. Not only are more Chinese driving than ever before, they’re driving bigger cars, not smaller. China just may represent the last growth market for General Motors’ Hummer behemoth anywhere in the world.

Fifteen years ago, China had very few privately owned cars. Today it has more than 15 million. The Chinese government, which is stimulating domestic demand to balance the nation’s export-led economy, wants its citizens to buy more cars. National and provincial governments have subsidized the price of gasoline — it costs only $3.40 per gallon — cut the sales tax on cars, improved the availability of bank loans, and built a massive road and parking infrastructure to accommodate more vehicles. The Chinese, who regard automobile ownership as a sign of modernity, are obliging by buying more.

Here’s the scary part. The increasingly affluent Chinese are moving out of their urban high-rises into suburban-style suburbs “with spacious villas and two-car garages, big-box chain stores, strip malls and office parks.” Like American human settlement patterns, these new Chinese communities are totally dependent upon the automobile.

On, there’s one more scary part: Only four percent of the 1.3 billion Chinese people own cars. The other 96 percent represents latent demand. As it is, China accounts for 40 percent of the global increase in demand for oil as. There are no signs that the nation’s appetite is slackening.

Meanwhile, in India, home to a population of one billion, demand for gasoline is growing 20 percent annually. This year, the combined consumption of China, India, Russia and the Middle East will increase 4.4 percent and for the first time exceed that of the United States, according to the International Energy Agency.

Bottom line for Virginia: Barring economic upheavals in China and India, demand for gasoline will continue to increase globally, even as global oil production has peaked. Supply and demand assures that the current lull in petroleum and gasoline price hikes is only temporary. A transportation system built for cheap oil no longer makes sense. We can no longer afford Business As Usual.

(Hat tip: Nova Middle Man.)

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  1. charlie Avatar

    Jim, the hype about Chinese automotive gas demand is mostly hype.

    China will raise/lower their fuel subsides after the Olympics. They are also doubling their consumption tax for importing cars — and imported cars are the heavy gas users. Average size of an engine sold china is maybe 1.2, 1.3 liters.

    If you look at the amount of fuel China imports it is about 1/4 to 1/8 of the amount the US is importing.

    China demand was artificial high this year because of 1) stockpiling diesel fuel for electricity generation of the olympics; 2) stockpiling diesel fuel b/c of earthquake and 3) reluctance to upset people with increase in gas subsidy before the Olympics.

    Number of Indian cars is also growing but the amount of fuel India is importing is tiny compared to US, Japan, and Germany (and Korea).

    if you want to look at 3rd world demand growth, it is mostly in oil producing countries, where the price is REALLY REALLY low.

    The real problem is in the middle distillates (kerosene, diesel) India doesn’t subsidize gasoline but kerosene for cooking use. European demand for diesel continues to rise. And the killer from China is continued use of diesel fuel for electricity generation.

    We’re looking at 70-80 dollars a barrel in the next five years. That is higher than the Saudis want (b/c at that point oil shale makes some sense) but will give you $2.40 gasoline.

    What we need is the courage to tax ourselves to keep $4 a gallon gas — which has proven to reduce our demands. Using extra money to kill the car tax and sales taxes would be a way to make it easier to swallow.

  2. rightwingliberal Avatar


    The reason you see “sprawl” in Communist China is in part because of loca Commies seizing the land from the peasants (in Communist China, you “own” the home, but the Party owns the land under it), to build those suburban paradises. It’s government-fueled supply, as opposed to the government fueled demand we have here with FNMA, FMAC, FHA, etc.

  3. Larry Gross Avatar
    Larry Gross

    Here’s something interesting about China, socialism and roads:


    Nearly all Chinese expressways and express routes charge tolls, ..

    China National Highways, which are not expressways, but “grade-A” routes, also charge tolls.

    Some provincial, autonomous-regional and municipal routes, as well as some major bridges, will also charge passage fees.

    In Hong Kong, most tunnels and some bridges that form part of the motorway networks are tolled

    So… even “socialist” China does it’s roads as “user pays”… rather than taxing gasoline…apparently

  4. charlie Avatar

    Roads are tolled in China because they are luxury goods only used by the Communist Party elite and entrepreneurs. The average car-owner in China is probably making more than the average Virginian in both real dollar and PPP terms.

  5. Larry Gross Avatar
    Larry Gross

    Charlie – how do you reconcile that idea with respect to the idea that it is China’s middle class that is buying more cars and using more gasoline?

    is that true ?

    If so.. who is using those toll roads? Not the middle class with their new cars?

    why would you just toll the elite?

    wouldn’t that be counter productive?

    I don’t know.. so I’m asking.. but I am a bit skeptical of what you are saying..

    Can you convince me?

  6. E M Risse Avatar
    E M Risse

    Larry Gross:

    First, there is no longer a Middle Class as classicly defined in the US of A — See PROPERTY DYNAMICS.

    Second, there never has been a Middle Class in China.

    There are 1.4 Billion people in China. That means the top 5% of the economic Ziggurat in China number about 70,000,000 people.

    That is a lot of traffic congestion potential but a tiny slice of the population.

    charlie may be a little pesimistic in saying it is only the Party elite and entrepreneurs who have cars, but not much. When you add the Agency vehicles (including the Army and Police) and the corporate owned vehicles you have plenty of vehicles to pay tolls and use up roadway capacity.

    Jim Bacon:

    The first installment of the WaPo “Oil Shock” series on Sunday and the Sunday Op Ed on the future of China by Pumfret are must reading as background for the item you qouted.

    Our right-of-center friends have always said that Communists were crazy but I cannot believe they made such a big mistake as to think that Mobility and Access could be provided by Autonomobiles for a population of that size and settlement patterns that intense.

    Expectaions of getting ahead is a ticking time bomb threatening the stability of the nation-state. 86% of the population now believe that the country is going in the right direction. Wait until they find out that Autonomobiles will not go there.

    Your mantra re the power of the Internet will be played out in spades in china.

    The problem is they will suck the post-peak oil reserves dry along the way.


  7. charlie Avatar

    Larry, my original point is that the increase of number of cars in China is not the principal cause of gasoline demand increases.

    We can quibble about what it means to be “middle class” in China, but in a county of over a billion people there are less than 30 million cars. That is something like .03 cars per person. If you have a car in china, in you’re in the top 5% of the country, and that is not “middle class” by any measure.

    Yes, the Chinese car market is growing by leaps and bounds — but compared to the US it is still tiny.

    The point the article should be making is that the rate of increase is high enough that the increased demand will cut into the small margins of gasoline on the market, driving up the price.

    But even that doesn’t work: although it outside the scope of this reply, do the math. The US uses 20 mb/d of gasoline. The Chinese car market is 1/10 of the size of the US market, and even if they drive as much as we do (and they don’t) that is about a 2 m b/d. A 20% increase of 2 million is about 500,000 b/d. A 3% decrease of 20 million is 621,000 b/d.

    The more interesting point you raise is why the Chinese government is using tolls vs. gasoline taxes. As I’m sure you know, China in the last 10 years has built a world class highway system: about 25K miles. That is compared to our 46K interstate system.

    While the cost of construction is less in China, perhaps by a factor of 10, but land and concrete are still expensive. Try building that system using 1/10 the number of cars (and remember, a few years ago the Chinese car market was only about 10 million cars). Gasoline would have to be taxes at 10 times the US rate — maybe $4-$5 a gallon — including state and federal gas taxes. That is roughly euro level of taxation. With lower costs in china you might be able to lower it to around $2-$3 gallon in taxes.

    the Chinese government thinks it important to build an automobile sector, and gasoline at that rate would stop a market from developing. It is better to subsidize roads and drivers, use tolls where you can, and deal with the problem in 10 years.

    These are all back of the envelope numbers, but they do illustrate my point. Will we have problems when 10% of Chinese have cars and the Chinese market is bigger than the US market. Yes, gasoline will be more expensive, but so will steel, plastic, and glass. China is NOT a market based system, but the Chinese consumer is a market animal — at at higher costs they will start to find alternative products.

  8. Larry Gross Avatar
    Larry Gross

    Here’s what I read:

    “Chinese take to roads amid a cultural shift Middle class snaps up cars, clogs highways

    As China’s middle class expands, Chen and his customers are among the hundreds of thousands of new car owners hitting the roads each year, driving up imports of luxury cars, snarling traffic, creating a car culture, and reveling in what many Chinese describe as a newfound sense of freedom. In China today, owning a car is what owning a television set was in 1950s America.

    “I’ve been to Sichuan, Shandong, and Jilin provinces, and I plan to spend Chinese New Year driving to Yunnan,” said Zhu Chao, a website engineer and K-One club member who often takes long drives during his holidays. “I really like what the car brings to my life – convenience, freedom, flexibility, a quick rhythm. I can’t imagine life without it.”

    now this is one of dozens of articles and not withstanding some folks view of either a massive conspiracy or incompetence by the MSM on the issue,,, I’m going to accept reality until convinced otherwise.

    China is doing with it’s road system what we did with our interstate system – except – they are using tolling to pay for it – like we had originally planned to do with our system.

    With respect to Chinese consumerism and conventional wisdom about differences in their consumptive habits relative to us – what should we believe when most most companies whether it be McDonalds or Walmart or Catepillar are convinced that it is a huge untapped market with tremendous potential?

    “Consumer tidal wave on the way: China’s middle class

    “At the moment, China’s consumer economy is about the size of Italy’s, but in two years’ time it is going to start adding an Italy every year,” says Mr. Grant, noting that while the average Italian spends $11,511 on consumer goods each year to China’s $543, the middle kingdom’s enormous population makes up for the difference.

    at some point, we stumble into the premise of what we want to believe and ….realities….

    What I read tells me that there not only is a middle class in the conventional sense of the phrase but that – their middle class will do what our middle class does when it comes to personal mobility.

    and the consequences of adding a new Italy every year – with regard to oil usage… is that also a figment of the MSM?

    my only premise here is to .. understand what seem to be contradictions.. and to seek out what the realities truly are – and tamp down tendencies to ignore implications we don’t like or disagree with.

    you cannot finance and build a nationwide toll road system by tolling only the elite and the military ..which on it’s face is absurd….

    yes labor is cheaper – but what is the biggest expense with our own road experience here?

    Is it not the increase in the price of construction part driven…by the demand from China for the same materials.. and I presume their willingness and ability to pay whatever the world-market price is for those materials?

  9. Anonymous Avatar

    The main point I got from the article was the subsidation piece.

    Its really scary that the government is subsidizing cheap gas, and encouraging bigger cars by setting limits on cars with 1 liter engines.

    Its the exact opposite of what should be happening.

    Its a bit hypocritical I know since the U.S. did what we did but the only thing we can imapct now is the future. The percentage of new demand is already scary and the potential for total demand in the next 20 years is astronomical and will have a profound impact on all commodity costs.



  10. E M Risse Avatar
    E M Risse


    MainStream Media is using confusing words to spin a “story.”

    Look at the numbers, mine or charlies or Pomfret’s.

    You have been snookered by story-telling that sells papers … for now.

    NovaMiddleMan hits it on the head. What was the Central Committee thinking when when they set those policies? As Bill Cower said “you wern’t thinking were you!!”


  11. E M Risse Avatar
    E M Risse


    I went to check via Acrobat on the topic of telling stories.

    It is in Chapter 2 of The Shape of the Future under the section “Storytellers.”

    Middle Class is a Core Confusing word used by MainStream Media in demographic stories.

  12. Larry Gross Avatar
    Larry Gross

    geeze Louise –

    China is growing… it’s using more resources…

    whether the MSM correctly or incorrectly labels the increased demand as coming from a burgeoning middle class or not – does not really change the fact that as a country they are competing more for the same available resources that we are.

    What I do find interesting is that Europe and Japan … heavily tax gasoline and use that tax to build mass transit and the US and China are not so inclined.

  13. Anonymous Avatar

    does not really change the fact that as a country they are competing more for the same available resources that we are.


    “Europe and Japan … heavily tax gasoline and use that tax to build mass transit”

    Incorrect. The fuel tax in Europe goes to the general fund. The vast majority of travel in Europe is still by car, in spite of excellent mass transit.

    Finally, virtually every toll road in the US is suffering large drops in revenue associated with less travel due to high fuel prices. Meanwhile, transit systems are taxed, trying to figure out how they can afford to cover the costs of carrying more passengers.

    Gee, you think it would help if they paid full cost?


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