How Costly is China's Oil Import? Welfare Loss Estimation of Foreign Oil Dependence 2001-2015

摘要

This paper estimates the economic cost incurred by China's foreign oil dependence during 2001-2015. By categorizing the cost into three different welfare components, namely wealth transfer, potential output loss, and disruption loss, our results show the annual welfare loss is between $7.58 billion to $168.24 billion (constant 2000 US dollars), or equivalent to between 0.57% and 3.93% of China's GDP. Wealth transfer is the dominant component, contributing 71% of the cost during the whole research period. As a result of international oil price fluctuation, disruption loss contributes 22% of the welfare loss. The other 6% is attributable to the decline of China's potential output. Taking 2015 as the benchmark, sensitivity analyses show that international oil price change brings asymmetric impacts, i.e., a 10% rise of crude oil price rise will increase the cost by $4.08 billion while the same extent of price drop reduces the cost by $4.72 billion. Every barrel of additional domestic oil production reduces the welfare loss by $16.91, while the conservation of a barrel saves $20.50. Based on the results of this study, policy relevant insights are provided with respect to supply side, demand side, and market power positioning.