It’s impossible to prevent the energy market’s high-level shock pattern

I believe in 2008, the energy market will most likely form a high-level shock pattern. On one hand, because the disturbance of the subprime crisis has advanced and deepened, American economic growth will most likely slow down. On the other hand, for rising developing nations such as China and India the market’s growth outlook remains comparatively optimistic. There are two sides. One side instigates negative phenomena—the energy demand will decrease and oil prices will drop. The other side creates a positive effect wherein newly prosperous economies with continued economic prosperity push up oil prices. It’s impossible to prevent high-level shock patterns.

To China, this type of high-level shock incredibly raises the cost of China’s rise to prominence, and moreover creates certain risk for China’s finance system. When Europe and the US came to power, energy costs were relatively low. One after the other, these nations achieved prominence before the first oil crisis occurred. But for China today, costs for building a nation are without a doubt high—especially those in Chinese industry where they are clearly so and exports will be affected. Most importantly, energy prices that are high in price and value are actually a type of financial phenomenon. A steep hike in oil prices very likely leads to series of financial risks.

Additionally, costs lead by energy prices have already driven inflation pressure to begin emerging, which will create incredible stress for Chinese macroeconomics. In 2005, China emerged with excess liquidity, but actually from excess liquidity to inflation exists a gap in time. And if we adopt feasible economic policy and public finance policy, excess liquidity perhaps can’t transform into inflation. However, looking at the present, the overall prices of commodities continue to rise, inflation has already emerged, and there’s nothing stopping it.   

Speaking from past experience, perhaps in 2008, China’s macroeconomic control could cross that year’s Zhu Rongji-style government-oriented manipulation, because if currency regulations strictly lag behind economic trends, it’s imperative to adopt governmental measure. The greatest negative result to government means is that it leads to unstable Chinese macroeconomics, even to hard landings such as all the results reaped by 1993 to 1994’s macroeconomic controls. 

So, speaking from the level of business, enterprise must conserve energy and improve effectiveness and diminish operational costs. Speaking from the level of the nation, the government must strengthen its supervision of resources and must not open up the financial markets too quickly. It must prevent the possible inflow of outflow of capital instigated by steep rises and crashes in oil prices from moving too quickly and guard against this phenomenon’s attack on the financial system and the turbulence it would cause. At the same time, the government should strengthen risk education for investors. Additionally, the government should subsidize domestic manufacturing businesses. Although the governmental lowering of oil prices can’t be sustained, actually on some level it can alleviate enterprise manufacturing costs and postpone this inflation trend.

But fundamentally speaking, the government, in regards to macroeconomic control policy, must allow for other more suitable for market development strategies—for example, raising interest rates, within a small range raising interest rates, frequently raising interest rates. But, on the downside, in accordance with inflation, we must also shoulder interest rates– this is certainly not ok. Additionally, the country should greatly add to the development intensity of alternative energies because while utilization efficiency is great, saving energy and putting out less emissions great, China’s current energy structure have determined that in the short term there’s nothing that can be done to produce notable results.

美国新闻周刊中文版记者采访稿