Chinese Energy Subsidies

If you think we've got energy policy problems, just consider China, where as Art Pine points out "Chinese motorists are paying only $2.50 a gallon for gasoline" and prices have "risen 9 percent since early 2007, compared to 80 percent in the United States." That's thanks to planet-destroying subsidies that in a world of rapidly rising oil prices are becoming hard to afford. Similar subsidies are very common in the developing world, and they're very destructive -- the world would be a much better place if the money spent on this was left in people's pockets or directed at something productive.

But cuts in fuel subsidies tend to lead to the sort of political unrest that no government likes to see but that authoritarian governments like China have particular reason to fear lest a protest about reduced subsidies turn into something bigger.

Photo by Flickr user Robennals used under a Creative Commons license

Comments

Come on matt, chinks are pussies, they don't rebel.

Posted by Lil Boy | June 9, 2008 12:54 PM

check out this naomi klein article about how the authoritarian government in China is linking everything from cell phones to surveillance cameras so they can watch every individual citizen and every public gathering...

"With the help of U.S. defense contractors, China is building the prototype for a high-tech police state. It is ready for export. "

http://www.rollingstone.com/politics/story/20797485/chinas_allseeing_eye

Posted by dj spellchecka | June 9, 2008 12:58 PM

It should also be added that subsidies of this sort benefit the wealthy and well off disproportionately in these poorer countries.

Posted by lfv | June 9, 2008 12:58 PM

The Chinese are trying to hurry along world environmental collapse.

Posted by Jeffrey Davis | June 9, 2008 1:00 PM

Hey, in the old days the Republicans used to classify dictatorships as 'totalitarian' versus 'authoritarian'. Hell, Dennis Prager did it last night. Right wing regimes are 'authoritarian' and not so bad, 'totalitarian' are leftists and are the worst possible.

Now, since China props up Wal-Mart now and vice-versa, did China transit from 'totalitarian' to 'authoritarian' yet?

Posted by El Cid | June 9, 2008 1:08 PM

If gas cost lets say in a country like Pakistan is equivalent to gas cost in the US, there will be mass riots. The average per capita income of a Pakistani is $50 per month. The incidence of gas tax on the third world citizency cannot and should not be compared to the first world.
Lets not be silly here :)

Also in the absence of gas subsidies, food prices and public transportation costs will rocket. That of course can be taken care of by providing subsidies on diesel which provide the mass public transportation of both people and goods.

Posted by Buckeyelegal | June 9, 2008 1:14 PM

Posted by Buckeyelegal | June 9, 2008 1:14 PM

That's all well and good, but the problem is that the subsidies are rapidly becoming unsustainable.

Posted by lfv | June 9, 2008 1:49 PM

This is what will destroy the Chinese government in the end. It has an implicit deal with the people by which it delivers continually increasing prosperity and they put up with its existence. But no government can deliver continually increasing prosperity forever. A downturn, bye-bye.

And at that point, all the linked cell phones in China won't keep it from going down. There is a VERY long tradition of overthrowing governments there.

Posted by sunsin | June 9, 2008 1:52 PM

This could be an interesting endgame for the Chinese government. The similarity to the end of the Soviet regime is hard to ignore.

On the other hand, they still have a command economy. They could ramp up the production of other sources of energy and transportation and force people to transition. A developing economy is not the best place for a massive shift in infrastructure, but they may have no other choice.

Posted by mpowell | June 9, 2008 2:30 PM

China doesn't care.

They are not just subsidizing oil consumption, on Sunday they flat-out said that China would not be stopped or accept any hindrence from development by any global warming restrictions.

China is also interested in decoupling from the global oil market, seeking "guarantees" that oil reserves China helps develop in other countries are China's to decide where they go.

Very smart.

Meanwhile, the West is riddled with idiots talking about wind-powered autos and "exciting" solar-powered buses. As good a reminder as any that China graduates 6 times more scientists and engineers than we do, and now heavily emphasizes the practical in their primary education system.

Posted by chris ford | June 9, 2008 2:34 PM

Also in the absence of gas subsidies, food prices and public transportation costs will rocket. That of course can be taken care of by providing subsidies on diesel which provide the mass public transportation of both people and goods.
Posted by Buckeyelegal | June 9, 2008 1:14 PM

Which is all fine and good, until it simply can't be paid for anymore, which is when you get a spectacular collapse and most likely a change of regime. Much better to have leaders in the country who aregue for getting rid of the subsidy and move slowly but surely in the direction of the market price. It realy is the only choice.

Chris Ford,

All the gold in China will not be enough to keep the Dragon Kindom detached from international oil price. Sooner or later. Again, better for China's leaders to explain why moving to market price is better now.

Finally, I don't think this rise in energy costs will take the ChiComs down. But all the other energy dependent third world regimes are on notice. Frankly America is on notice too. The fat years are over.

Posted by Northern Observer | June 9, 2008 2:46 PM

As good a reminder as any that China graduates 6 times more scientists and engineers than we do, and now heavily emphasizes the practical in their primary education system.

Posted by chris ford | June 9, 2008 2:34 PM

Once again, China counts repairmen as engineers. The quality of engineers and scientists educated in the West is far better, as well.

Posted by lfv | June 9, 2008 2:47 PM

So are we using high energy costs to bankrupt China? "Subsidized" means the government is paying the difference between what the consumer is paying and what the thing actually costs, so by allowing oil to quadruple we're actually forcing money out of the Chinese economy....

Could the rise in oil prices the 21st century version of what Reagan did to the USSR with a crazy arms race?

Posted by west coast | June 9, 2008 2:51 PM

So are we using high energy costs to bankrupt China? "Subsidized" means the government is paying the difference between what the consumer is paying and what the thing actually costs, so by allowing oil to quadruple we're actually forcing money out of the Chinese economy....

Could the rise in oil prices the 21st century version of what Reagan did to the USSR with a crazy arms race?

Posted by west coast | June 9, 2008 2:51 PM

Yes, it's all part of our brilliant plan to transfer most of our wealth to the Saudis, as well.

Posted by lfv | June 9, 2008 2:55 PM

So aren't the Chinese lucky that there government has pursued neo-mercantilist policies that have given them amazing amounts of money, so that they can subsidize chinese drivers? While the U.S. pursues a deadend non-industrial policy, and subsidizes the bonuses of investment bank upper management honchos.

When the U.S. was in China's position in the Fifties, we put in - at taxpayer expense, - that subsidy to carmakers and petroleum companies known as the interstate highway system. It is what you do when you have money. Funny, I didn't know Eisenhower was doing this because his authoritarian government was afraid of a popular uprising.

Posted by roger | June 9, 2008 3:03 PM

If you use purchasing power parity ratios, $2.50 a gallon in China is still quite pricey. It's the equivalent of 5 to 10 dollars a gallon depending on who's figures you use.

Posted by Kolohe | June 9, 2008 3:10 PM

In general, the idea that a one-party oligarchy is especially afraid of adopting unpopular policies, compared to the government of a democracy, just makes absolutely no sense at all. The governments of Canada, the UK, France etc don't feel free to adopt in massively unpopular policies, because they'll get voted out of power quickly.

It's only the USA, with its fixed 4-year presidential term, money-driven politics stacked in favor of incumbents, and the massive inertia of a
Senate with 6-year terms and a 60-vote threshold
for cloture, that lets a government pursue unpopular policies for many years. What kind of democracy can
this be where you look to China's Communists as
being highly responsive to public opinion ??

Posted by Richard Cownie | June 9, 2008 3:15 PM

So what should they be doing with all the US dollars they make from lending US consumers money to buy things they don't need? US Equities? US bonds? Just hold onto them?

It is horrible for the environment but if it buys domestic peace and uses their increasingly worthless US dollars why would they not do it?

Posted by Rob | June 9, 2008 3:56 PM

Similar subsidies are very common in the developing world, and they're very destructive

Totally, what do these poor nonwhites think they're doing trying to use our oil to drive their cars?

The Chinese drive itty bitty euro-sized cars and use small space heaters rather than central air. Per capita, they tons less energy than us. They're also trying pull their economy out of the morass left over from the cultural revolution.

Until we start buying cheap plastic crap from them and driving our SUVs and not recycling, we should probably shut the fuck up.

But cuts in fuel subsidies tend to lead to the sort of political unrest that no government likes to see but that authoritarian governments like China have particular reason to fear lest a protest about reduced subsidies turn into something bigger.

The largest sources of economic unrest in China now come from farmers displaced to make room for large developers. The folks who own their own car are probably comfortable enough not to protest (and risk losing their jobs).

Posted by ben | June 9, 2008 4:27 PM

Chris Ford thinks Chinese carbon-fuel policies are smart and the growing call for more sustainable energy in the West is stupid. Of course, it's no surprise that this is completely backwards--I mean, it's Chris Ford we're talking about.

First, China is investing heavily in coal-fired power plants and petrol-burning autos, which means they are staking their economy on fuels that are becoming ever-scarcer and more expensive. Sure, they can bully Sudan and curry favor with Iran, but that doesn't change the fact that there's not enough oil in the ground to support a China that looks like the U.S. but four times bigger. (Nor is there enough coal--the reserves-to-production ratio falls quickly when you start ramping up production.)

But more importantly, when the West finally coalesces around an integrated energy/climate plan of action, it's going to include a carbon tarriff on products from countries trying to flaut the rules. For a country like China, that makes all their cheap plastic crap prohibitively expensive. Indeed, a strong, integrated commitment to building a clean energy infrastructure would be the best news the American manufacturing sector has had in decades.

Posted by jlw | June 9, 2008 4:55 PM

Re: If gas cost lets say in a country like Pakistan is equivalent to gas cost in the US, there will be mass riots. The average per capita income of a Pakistani is $50 per month.

In places like Pakistan (and China and Inida) the masses do not own cars. This is subsidy to teh upper classes, not to the broad mass of people.

Posted by JonF | June 9, 2008 5:46 PM

"Totally, what do these poor nonwhites think they're doing trying to use our oil to drive their cars?"

Yeah, I'm a little puzzled by this, too. Surely the consumption of gasoline in China cannot begin to compare to the consumption of gasoline in the US.

The total amount of gasoline subsidies should really include the cost of roads and highways and the overall maintenance of a car-centric culture. In that context, the developing world's gasoline consumption isn't even on the radar.

That's not to say that there aren't concerns about their energy consumption in other areas, though.

Posted by Keith M Ellis | June 9, 2008 11:17 PM

This is a worrying issue, but it is a bit beside the point. Chinese oil consumption tends to go towards things like running factories, not city driving. However, if oil prices go high enough, that means people lose their jobs, the "floating population" expands in size, the government has a little less ability to control the populace and the potential for unrest rises. Poor factory workers (as opposed to farmers and non-industrial urbanites) are just about the only people in China nostalgic for the Mao years because of job security.

With that said, I have seen an increase of cars on the roads here as of late, including an increase in the number of SUV's on Beijing's roads. I haven't really seen any little European smart cars or hybrids. China's car-owning population is going to match ours soon and has a much higher ceiling. While overall the average Chinese person will still have a much smaller carbon footprint than the average American, the scale matters enough that a small increase in per capita carbon emissions can have major effects on the world.

Posted by Reality Man | June 10, 2008 11:19 AM

China has to reduce subsidies for fuel in order to dampen inflation. The alternative is to appreciate the RMB, which makes so sense to them.

Expect it to come post-Olympics.

Posted by studly | June 10, 2008 1:54 PM