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U.S. Energy Information Administration, “Country Analysis Briefs: China,” August 2006

August 1, 2006

China is the world's most populous country and has a rapidly growing economy. China’s real gross domestic product (GDP) is estimated to have grown at 9.9 percent in 2005, down slightly from the 2004 rate of 10.1 percent. Economic forecasts remain strong for China, with real GDP expected to increase 9.9 percent in 2006. Inflows of foreign direct investment (FDI) into China totaled $86.1 billion in 2005, a new record and roughly double the level of 2001. China’s merchandise trade surplus soared to $102 billion in 2005, its largest surplus ever and roughly three times larger than the 2004 figure.

Together with strong economic growth, China’s demand for energy is surging rapidly. EIA forecasts that China’s oil consumption will increase by almost half a million barrels per day in 2006, or 38 percent of the total growth in world oil demand. China is the world’s third-largest net importer of oil behind the United States and Japan, an important factor in world oil markets. Economic development has proceeded unevenly in China, with urban coastal areas experiencing more rapid economic development than in other parts of the country. As strong growth continues unabated, the Chinese government has taken measures to cool the economy. In August 2006, the central bank raised interest rates by 0.27 percent to bring lending rates to 6.12 percent, the second rate increase in four months. The central bank also raised the reserve requirement for commercial banks by 0.5 percent in June and July 2006, bringing the requirement to 8.5 percent. These moves serve to take money out of the money supply to help ward off possible economic overheating.

Breaking with previous policy, China delinked its currency, the renmimbi, from the U.S. dollar in July 2005, resulting in an initial devaluation of 2.1 percent. The renminbi now floats within a very narrow 0.3 percent band against a basket of currencies from the country's major trading partners. Since the devaluation, the renminbi has remained well within the narrow band and has appreciated about 1.4 percent against the U.S. dollar as of mid-July 2006.

With China's entry into the World Trade Organization (WTO) in November 2001, the Chinese government made a number of specific commitments to trade and investment liberalization which, if fully implemented, will substantially open the Chinese economy to foreign firms. In the energy sector, this will mean the lifting or sharp reduction of tariffs associated with imports of some classes of capital goods, and the eventual opening to foreign competition of some areas such as retail sales of petroleum products.

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Green Energy Programs in China and the U.S. | US-China Study on CO2 Storage | China’s Greenhouse Gas Emissions | Strategy for Clean Air and Energy Cooperation between EPA and SEPA | U.S.-China Renewable Energy Partnership | U.S.-China Energy Efficiency Action Plan | U.S.-China Clean Energy Research Center | Politics and energy policy in post-Mao China | US-China Memorandum of Understanding to Enhance Cooperation on Climate Change, Energy, and the Environment | To Change the Mode of Development and Speed up the Restructuring of Energy Industry | Country Analysis Briefs: Taiwan | Country Analysis Briefs: ChinaU.S.-China Energy Policy: Toward Closer International Partnerships | US Treasury Secretary Paulson on Energy and the Environment | China’s Energy Conditions and Policies | Sustainable Development in Asia: Coal, Oil, and Renewable Energy in China | 11th Five Year Plan on Energy Development | Engaging Developing Countries, House Committee on Energy and Commerce hearing | Carolyn Cartier | Richard Louis Edmonds | David Zweig |