China's economic growth is in the fast lane, and it means higher prices at the pump for us

BEIJING - To understand why Americans are paying more at the pump these days, all you need to do is take a look at Beijing's freeways.

Just like Houston's Loop 610 at rush hour, Beijing's Third Ring Road runs bumper to bumper as commuters make their way from jobs in towering skyscrapers to homes in the suburbs, burning gasoline as never before.

While idling in traffic, members of China's emerging middle class get an eyeful of slick billboards advertising sprawling golf course communities, perfectly "feng shui-ed" luxury high-rises and neat-as-a-pin, single-family dwellings away from the urban chaos — think Pulte homes with pagoda roofs.

Turns out, the Chinese dream looks a lot like the American dream. And as they buy ever more oil to keep their gas tanks full, prices around the world rise.

"We both have big-country syndrome," said Edward Williams, a Beijing-based attorney with the American Chamber of Commerce in China.

Crude oil consumption is one area where China is following right in America's wake — and OPEC, which is meeting Wednesday in Vienna, Austria, knows it.

Since 2003, when China overtook Japan as the world's second-largest importer of oil behind the United States, this country of 1.3 billion people has generated a lot of talk at the table when the Organization of Petroleum Exporting Countries meets.

Wednesday should be no different when the organization convenes to decide whether to push up the summer production ceiling by 500,000 barrels per day, a symbolic move since most members are already pumping more oil than their stated quotas allow.

Jeff Logan, China program manager for the International Energy Agency, says China's roaring economy is still glowing white-hot despite the government's efforts to slow growth. That's nothing but good news for OPEC, which not long ago some were writing off as irrelevant to world oil prices.

According to the IEA, the cartel supplies 38 percent of the world's oil, but by 2030 — thanks in part to China's growing demand — the group's market share is expected to zoom to 54 percent.

That's because once-gushing oil fields are slowly playing out in such places as the North Sea, Gulf of Mexico, Caspian Sea and even West Africa.

And, barring a massive economic collapse, most analysts think China and the United States will increasingly compete for the same barrels of oil in the Middle East in the next 20 to 30 years.

Fereidun Fesharaki, senior energy fellow at the East-West Center in Honolulu, said global oil production will peak in the next 10 to 15 years, although he's quick to add this will not come as a sharp climax followed by a collapse in the number of barrels of oil on the market.

"Prices will go up and then demand will go down. There's going to be a lot of volatility," he said. "You can't argue with what God gave you. Outside of OPEC, we are now hitting the bottom of the barrel."

In May, President Bush gave a speech calling for the United States to help developing countries such as China curb their yen for oil. But the United States seems to set only an example for excess.

With less than 5 percent of the world's population, the United States manages to consume 25 percent of the oil. Gavin Thompson, of energy consultants Wood MacKenzie, said 2005 forecasts show China's crude demand still adds up to just one-third what the United States will need.

Every single day a thousand new cars roll on to Beijing's broad lanes and snaking highways. More than a million new vehicles will be in circulation between now and 2008, when the city hosts the Summer Olympics.

That's just Beijing. The newfound love of the open road is contagious, with cars rapidly replacing the throngs of bicycles in all of China's big cities — from Shanghai to Hong Kong and Chongqing to Guangzhou.

These wheels are not the type of tiny 1-liter-engine cars popular in energy-conscious Europe. The swelling ranks of China's middle class are enamored with the same kind of titanic sport utility vehicles and comfy sedans Americans love to drive.

Western status symbols are all the rage with China's nouveau riche — regardless of how the money is made.

In Beijing's tony watering holes, stories circulate about Bentleys bought with suitcases of cash by men with soot under their fingernails. And on a recent Monday afternoon in front of the State Environmental Protection Agency's headquarters the prime parking space by the front door was taken by a shiny, black Hummer. (The GM gas guzzler retails for more than $100,000 in China.)

For years, the government encouraged driving, initiating construction on a 52,000-mile cross-country superhighway system and making state-owned banks open car financing to the masses.

Gasoline costs a government-subsidized 3.5 yuan per liter in Beijing — about $1.60 per gallon. There is a spirited debate about the price, with some advocating a further drop to help improve China's standard of living and others calling for a fuel tax of between 30 percent and 100 percent to put a damper on demand from the transportation sector.

Environmental concerns about all those cars have come to the fore, too. Clear days are hard to come by in Beijing, but China's leaders say they're doing what they can.

The country finally banned leaded gasoline in 2001, and at the beginning of this year China dialed down the number of auto loans available.

Still, two-thirds of China's oil consumption comes from industrial uses, such as backup generation for factories.

IEA's Logan said expanding the country's power grid and diversifying electricity generation to natural gas, nuclear and hydropower would go a long way to stemming the tide of crude needed to keep China's economy afloat.

"It's not an efficient way to use oil, but it's convenient and the only way to generate power quickly," Logan said.

With all the cars rolling onto the road combined with all the smoke coming out of factories, the government will have to do a lot more to keep Beijing's air breathable.

Xie Feng, a deputy director general in China's Ministry of Foreign Affairs, said balancing environmental concerns, national security and economic progress is a tough task.

Even so, China is most intently focused on taking the country's already rising per capita income of $1,500 per year and doubling it in less than 20 years.

"We've made impressive progress overall, but our main task is to concentrate on continuing to raise the standard of living," he said.

Great post. Food for thought. I've seen predictions by major banks of $100/bbl oil in a few years and even $380/bbl oil in 10 years. Thats certainly going to cause a drop in demand...

I've seen my oil stocks double in price in 12 months, and I live inner city so I hardly ever use the car, so personally I'm not bothered :)

Even so, China is most intently focused on taking the country's already rising per capita income of $1,500 per year and doubling it in less than 20 years.

Hmm, wonder where the double up will happen from, we already have bought as much cheap products as one can handle in their lifetime.

Maybe there are some communities left in the country that does not have wally world in their back yard. But somehow i do not think there is double the amount of space for wally world.

Auto & airline traffic are BOTH UP!

Guess Americans are willing to pay for what they want and I'm with them.

I've seen my oil stocks double in price in 12 months, and I live inner city so I hardly ever use the car, so personally I'm not bothered :)

Talk about a complete and fundamental misunderstanding of how the economy performs. You may not use a vehicle. EVERYTHING around you is brought to you by vehicles. If you think for a second that $400/bbl oil won't "bother you", that illusion will be shattered when you go down to get your latte and it cost $25. Of course, you will have long be out of work and unemployment will be at least 25% so you couldn't have afforded it in the first place. EVERY sector, every single one is affected by fuel prices and they will gladly pass those costs straight down to you.

The economy will be destroyed well before $400 a barrel oil.

Right, I understand that. Comrade Mikesw seems to think it's the evil SUV drivers who will be punished while life in his inner city utopia in Detroit will continue with nary a worry.

As much as I like to drive I think we really ought to move to a better public transport system. I spent three years in Europe and the subways worked fine and I never owned a car while stationed there. I've owned 53 vehicles since coming back but the traffic jams here are absurd. We really need to move beyond the car culture that we have if at all possible. I'm in favor of doing everything possible to increase energy production but we can also do something on the demand side as well. We might lose a few pounds in the process. My $0.02.

Comrade Mikesw seems to think it's the evil SUV drivers who will be punished while life in his inner city utopia in Detroit will continue with nary a worry

I'm not a communist, far from it. The growth of suburbia has been subsidised by the cheap cost of petrol, once that changes suburbs will no longer grow and may even shrink. I don't think I live in utopia or will be protected from the coming crisis, but at least I'm not wasting the stuff. But hey, people have got a right to waste stuff, I agree with that.

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