Thursday, October 16, 2014

Economy: Why China Will Benefit Most From The Oil Price Drop

(Drivebycuriosity) - The oil price is falling. Brent Crude, the future for oil on the international markets, dropped to $85 from $114 this summer. Other commodities are also getting cheaper, partly because cheaper energy reduces the cost for producing and transporting them.

I believe that China will benefit most form the oil price drop. The country doesn`t have oil, nor natural gas and lacks most of the other important commodities (corn, wheat, iron). Therefore the gigantic country has to spend a lot of its national income to import oil and other commodities. Cheaper oil (by more than 20% then summer) & and other commodities translate into reduced expenditures. This should boost the Chinese economy. The Chinese have now more money to spend for consumer goods, houses & services and Chinese companies, for instance railways, have less energy costs.

Lower costs for oil and other commodities also translate into lower inflation rates. This is also good news for the world´s second largest economy. The government in Beijing has been very inflation  sensitive and has keeping money tight and expensive to constrain price rises. Now they can loosen their monetary policy and reduce interest rates which should boost the  Chinese economy.

Falling oil prices also could foster China`s export because consumers worldwide have now more money in their wallets which could be used for buying electronics, toys, textiles and other goods from China.

No comments:

Post a Comment