"The oil price shocks could weaken, but not derail China's nascent, broadly based economic recovery," said Guonan Ma, head of North Asia economics of Merrill Lynch.

China's August exports and imports rose 27.2 percent and a staggering 54.7 percent year-on-year, respectively, compared to 24 percent and 40 percent in July.

In fact, import growth in August reached a five-year high, surging beyond expectations. As a result, the country's monthly trade surplus shrank by half compared to 12 months ago.

Experts pointed out that while the budding strength in domestic demand and rapid technology upgrading of China play a positive role in the country's economic growth, a much larger oil import bill caused both by higher oil price and rising oil consumption pose a real threat to China's economic recovery.

World oil prices have shot up 250 percent from a low of around US$10 per barrel in early 1999 to a recent high of nearly US$35 per barrel.

China has been a net oil importer since the 1990s, and its oil imports have increased since 1998, mainly because of stagnant domestic oil production and rising domestic oil consumption.

Ma predicted that China's net oil import bill could double this year, and could rise further to US$15 billion in 2001, if the oil price remained at the level of US$33 per barrel.

However, the direct impact of any oil price hikes on China's economy should be much less than that on most Asia-Pacific economies as the ratio of net oil imports to domestic oil consumption is much lower than the Asian average.

The ratio for China is only 22 percent, but 100.2 percent for Japan and 61.4 percent for the rest of Asia-Pacific.

Second, oil occupies only 26.6 percent in China's primary energy consumption, much lower than several other Asian economies, which are heavily dependent on oil, including Singapore, the Philippines, Taiwan and Hong Kong, thus decisively offsetting the effect that higher oil prices could hamper the Chinese economy.

China's economic recovery is still broadening and the 2001 macro story for China will likely be the strength of domestic demand, according to Ma.

Merrill Lynch estimated that, with the oil price at US$33 per barrel, the estimated accumulative direct and indirect impact on China should be no more than 0.5 percent of the GDP.

It maintains its bullish macro call on China and maintains its baseline GDP forecasts of 8 percent and 7.5 percent respectively for 2000 and 2001, in its report on China economics released on September 18.

(Xinhua 09/30/2000)