Playing things safe: is China diversifying away from GCC oil imports?
The trade relationship between China and the Gulf Cooperation Council (GCC) countries is buoyant, not only on oil trade, but in other sectors as well, according to a report prepared by Jordi Rof and Mahmoud Galal, both economists at Asiya Investment, an investment firm investing in emerging Asia.
“China is the world’s highest energy consumer, and continues to rely on GCC countries for a large chunk of its oil supplies. Interestingly, in 2014, in line with the deceleration in China’s imports growth, the share of imports from GCC countries is also narrowing,” the report said.
In its report, Asiya Investments says that the importance of the countries of the Gulf as energy suppliers to China has been decreasing throughout 2014.
Imports from the GCC, which are almost exclusively fuel, accounted for 39.5 percent of Chinese fuel imports by May 2014.
Since the beginning of the year, the figure has gone down by 391 bps, breaking the positive trend of 2013.
As a share of total Chinese imports, the flow coming from the GCC decreased 53 bps, also changing the upward trend of the previous year.
Imports from GCC experienced a severe downturn since the beginning of 2014, falling more intensely than the overall fuel imports growth.
This is in clear contrast with the trend of 2013, since imports from the GCC experienced a growth consistently above Chinese imports of fuel.
Although imports from GCC rebounded in May 2014, their pace is still below that of fuel imports, and therefore the GCC keeps losing share. On further analysis of GCC countries, most of Chinese oil related imports comes from Saudi Arabia, forming about 20 percent of the total oil imports.
Saudi Arabia also weighs 46 percent of the total GCC imports basket, and is the main driver of the general slowdown in China’s oil imports from GCC.
Nevertheless, Saudi continues to play the role of an emergency supplier and changes in its exports could be explained by changes in Chinese imports.
Imports from Kuwait remain steadily low, while the UAE contribution is increasing.
In spite of the deceleration that is taking place in the region as a whole, Oman is still resilient and on a rise. The slowdown in oil imports is illustrated by the weaker demand in real terms from China.
Demand from the Asian giant and the evolution of prices determine the growth of GCC exports to China. The slowdown in demand from China already had a clear effect on the growth rate of imports from the Gulf.
Oil prices also play an important role in the equation and the moderation that took place after 2012 also contributed to the slowdown in GCC imports to China.
Looking forward, the Chinese economy is forecasted to slow down, but is very likely that growth rates will remain above 7 percent in the medium term.
Therefore, future growth rates of GCC exports to China could follow the trend that started in the beginning of 2014.
"It is also important to bear in mind that the Chinese government is still making efforts to diversify their energy sources geographically, and since Saudi Arabia is one of its major suppliers it is likely that the share of GCC imports will continue its downward trend,” the report added.
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