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China green rules will boost oil demand instead?
in-en.com  2013-5-23 17:37:35  

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In China's government-driven economy, the law of unintended consequences is strong. So a new rule meant to help the environment could boost Big Oil instead.

Beijing unveiled new fuel-consumption standards in March to help combat record smog in Chinese cities. The regulations are supposed to make cars more fuel-efficient. But a quirk of the rules relaxes standards for heavier cars like SUVs and gives auto makers an incentive to build more gas-guzzlers. That exacerbates growing demand from consumers who anyway see SUVs as both a powerful status symbol and a safer option on China's often dangerous roads.

Already, SUV purchases are outstripping the broader market. Chinese SUV sales expanded 45% year-over-year in April, three times faster than overall passenger cars, according to the Chinese Association of Automobile Manufacturers. At Great Wall Motor, 2333.HK +0.68%the country's largest SUV maker, the 70% year-over-year growth in SUV sales was twice that of its total sales in April.

While this trend is important for auto makers, it could have significant implications for global oil demand too, says Bernstein Research analyst Neil Beveridge.

Bernstein estimates that 22% of the cars in China will be SUVs by 2020, from about 15% today. More gas-guzzlers means more demand for oil, and that could partially offset slowing growth in the broader Chinese economy. Bernstein says transportation will account for more than 50% of China's oil needs by 2020, compared with just 30% a decade ago.

Of course, there are risks to the theory. For starters, further changes to fuel-efficiency regulations down the line could crimp SUV sales. Also, Chinese SUV owners might not typically drive their vehicles as far as SUV owners in other countries.

Author:in-en.com  From:WSJ  Edit:Susan
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