Beijing’s decision to suspend approval for new nuclear facilities in the aftermath of the Japanese nuclear crisis caught world markets by surprise and suggested a Chinese energy policy in crisis. But it is vulnerability to oil market disruptions emanating from ongoing events in the Middle East, not the ability to diversify future power supply, which is currently upending China’s energy game plan.
China’s recent nuclear decision, driven by short-term politics, is not likely to change its long-term energy path. The country’s oil dependence, however, is a much more pressing concern. China’s economy is more oil intensive than either America or Europe, while half of its imported oil comes from the Middle East and north Africa, compared with one-quarter for the US. If crude stays at current prices China will spend more on oil this year than it earns selling goods to the US.
What really worries China’s leadership, however, is the risk that oil prices will add to already elevated inflation. Inflation pressures helped to fuel 1989’s Tiananmen Square protests, just as it more recently helped to spark the current uprisings in the Middle East. Consumer prices are now rising at least 5 per cent year-on-year; less than the 11 per cent seen in Egypt but double last year. Unofficial estimates are higher.