Their comment was that China is rapidly approaching the $15,000 GDP per capita level when oil consumption intensity starts to rise. Given the vastness of Chinese population, this would mean that global oil demand would take off like a rocket [emphasis added]: "Were China’s per capita oil consumption to be brought up to South Korea’s, its share of global consumption would increase from today’s 10% to over 70%."
By implication, such a development would be incredibly bullish for oil and other energy prices.
Does the new five year plan mitigate demand?
Or does it?
In some ways, China's communist based central planning approach gives us a better picture of her intentions. In a recent interview with Caixin, Liu He, a vice minister of the Office of the Central Leading Group on Financial and Economic Affairs, expounded on the Chinese government's latest five-year plan:
In other words, China's aim in the latest five year plan is to move from low value-added production up to higher value added production, both for domestic consumption and export. Romer calls it growth based on creativity, i.e. more design. Michael Porter would call it moving up the value-chain.
In the past, China's insatiable demand for natural resources has been the result in some silly projects, e.g. inefficient steel plants. This mis-allocation of capital has gobbled up a lot of natural resources such as iron, copper, coal, oil, etc. A transformation of the economy that is more oriented to higher value-added and more creative design oriented output is likely to dampen some of the oil and other raw material intensity nature of the Chinese economy.
Long-term bullish or bearish for energy?
Does this mean that crude oil demand intensity is not poised to skyrocket as per the Center for Geoeconomic Study chart above? On the bullish side, we have seen this same level of rising affluence drive up energy demand in other countries. On the bearish side, the Chinese government seems to be at some level working to restrain energy and other natural resource intensity of their economy. Don't forget the transformation in the American economy in the 1980's, when prolonged oil prices resulted in more efficient use of energy, e.g. smaller cars, etc., and oil demand dropped as a result.
I am still leaning bullish on the case for rising oil demand. However, there are risks to this story and the bearish case shouldn't be ignored.
Addendum: Further to my post, I see that the latest IEA report concludes that oil demand would peak in 2020 if CO2 is cut aggressively (also see story here). While it is unlikely that individual countries would adhere to global accords on CO2 emissions, it does show that efforts to cut consumption, such as fossil fuel subsidy reductions, can have a significant impact on demand.
In the past, what was proposed was transforming the economic growth model. Transforming the economic growth model means increasing efficiency, which involves Paul M. Romer’s New Growth theory, which is to improve total factor productivity and the knowledge content of growth. Transforming the economic growth model is really improving the efficiency of supply.