This new Year of the Dragon, the most magical and auspicious of all zodiac signs, gives many Chinese reason to celebrate as GDP and PPP continue to rise steadily.
During the Spring Festival period, it is customary for Chinese to return to their hometowns to spend the nations most important holiday with their family. Thanks to an increase in wealth and social mobility, travel this year has increased by 11.6%, making passenger traffic a heady total of 2.85 billion. This figure is equivalent to the the entire population moving – twice. Population distribution is also a contributing factor, as an increasing number of Chinese people are live around the affluent east coast.
For the first time in Chinese history, there are more people living in cities than in the rural countryside – a milestone reached by the UK and US in 1851 and 1920 respectively. Official statistics report that as many as 691 million people, or 52.2% of the population, now live in major conurbations, compared to 49.9% last year. Some analysts predict that by 2030 this figure will have risen to 70%, or 1 billion people.
While the dragon is a royal, powerful and auspicious beast, which should bring good luck to all, China itself is proving rapacious, insatiable and with an exceptional thirst for energy. Despite IEA lowering oil consumption forecasts from 9.99m bpd to 9.91m bpd in 2012, China is still set to become the world's largest oil consumer by 2030, when it is forecast to reach a staggering 103m bpd, according to BP.
Sino-Russian relations are set to be tested over the next year with plenty of negotiating to be undertaken between Prime Minister Putin and China's new leaders, who are already preparing for their ascendency in 2013. High on the agenda will be a number of major pipeline deals which could transport around 80 billion cubic metres of gas per annum to China.
Although half of Russia's exports to China comes from oil, it is still only the PRCs sixth largest supplier. While Russia will strive to increase trade, it may need to make some compromises on prices as China strengthens its ties with OPEC nations and becomes less and less dependent on Russian oil.
China is also gravitating toward ex-Soviet and Central Asian countries in search of energy. As well as an initial $400m investment to cover exploration, drilling and refineries in Afghanistan, China has also signed an agreement with Turkmenistan to expand its gas pipeline to 60bn cubic metres per year by 2015.
Despite new EU sanctions in Iran, Goldman Sachs expects China to actually increase oil orders from the troubled country to boost its reserves. Iranian imports were worth around $16bn in the first nine months of 2011 and this is likely to attract criticism from the West.
The sustainability of China's growth is being questioned by some analysts as an inflating renminbi will make it more difficult for manufacturers of cheap goods to see the kind of returns they previously made. Any loss of confidence would have a major impact on the auto market, where sales of Chinese brand cars, such as Geely, Dongfeng and BAIC are being outstripped by their foreign competitors, especially Toyota, VW and GM, who all enjoyed record profits last year.
Various factors have been cited for holding back sales last year. Depending on which report you read, reliability or badge prestige of Chinese-made vehicles were the most significant influencers. However, consumer fears may be allayed by a recent J.D. Power report, which asserts that the number of problems-per-vehicle in Chinese cars had actually decreased significantly. Whether or not Chinese cars can break away from their cheap, low-tech image and compete on quality with their foreign counterparts will determine their future success both domestically and internationally.
Either way, this is good news for lubricants manufactures, who can expect to see better quality cars requiring higher lubricant standards, helping the Group II and III producers to start to take the lion's (or dragon's) share of the Chinese market.
It only remains for the OATS team to wish you “gong xi fa cai”, or “happy returns and prosperity” in the new year and, as always, if you would like to contact the OATS China team or have any feedback, ideas or possible content, we would be delighted to hear from you. Simply contact Diana Shen at DShen@oats.co.uk.
Sebastian Crawshaw
Chairman, OATS