In terms of bang for buck, oil shock meaningless for HK

PUBLISHED : Friday, 23 November, 2007, 12:00am
UPDATED : Friday, 23 November, 2007, 12:00am

And so oil at US$100 a barrel is almost upon us, is it? That's as good a reason as any to send markets down when they are already in a downish mood. Bring on the doom and gloom.

But just one moment first. Perhaps we may want to think of one or two trends that could take some of the gloom off the doom, particularly for Hong Kong.

Look at the first chart below. It shows you a 12-month rolling average of the value of net mineral fuel imports relative to gross domestic product.

I shall mention the caveats to this chart before you do. 1) Mineral fuels include coal and we're talking about oil, not coal. 2) A sizeable proportion of our petroleum product imports comes in the form of jet fuel and bunker fuel. These leave Hong Kong again through the airport and the container port and we cannot really call them retained imports. 3) A 12-month rolling average does not take full account of how oil prices have spiked since mid-summer.

All true, but, 1) the figures indicate that by value, coal accounts for only a small proportion of the total mineral fuel import bill; 2) try imagine our economy without an airport or seaport; and 3) your cost of petrol at the pump has also never gone up and down quite so sharply as the spot price of crude oil.

Right, that's the caveats dispensed with. Now look at the chart again. What matters is that even as of last month, our net cost of mineral fuel imports was still less than 5 per cent of GDP. That may sting but it doesn't injure.

And look how high that figure was at the beginning of 1982, almost 6.5 per cent. I wish I had data on the net value of Hong Kong's fuel imports earlier than 1980 or better yet, earlier than 1973, but I don't. If anyone can find these figures, please send them to me.

However, I don't need them to tell me that the Hong Kong economy is less vulnerable to high oil prices now than in the oil shocks of 1973 and 1980. It is what you would expect as a country grows wealthier. The efficiency of energy use rises and the economy diversifies into activities that are not so energy-intensive.

An excellent example of this is apparent from the table. Japan's economy last year was still 65 per cent larger than the mainland's in US dollar terms at prevailing exchange rates. Yet Japan's total primary energy use (oil, coal, gas, nuclear, hydro) was less than a third of the mainland's.

I have devised an efficiency ratio to put this comparison on an exact basis. Take GDP in billions of US dollars and divide it by primary energy use in the equivalents of millions of tonnes of oil. The lower the figure, the more energy-efficient your economy has proved. The mainland has a ratio of 8.39. Japan has a ratio of 1.56. In rough terms, Japan is almost five times as energy-efficient as the mainland.

Time to deal with your caveats again, I see. Yes, the difference may lie in the US dollar exchange rate I have used for GDP. Perhaps the yuan should be stronger and the yen much weaker.

But no, I am not going to put this on the basis of purchasing power parity (PPP), a World Bank trick for fudging exchange rates when bureaucrats can't make their economic assumptions match the facts. They would like you to think it is a hard and fast measure. It isn't. Japan uses energy far more efficiently than the mainland and probably because it is a much more developed economy.

But notice also from this table that the mainland relies proportionally less on oil than other countries do. Oil accounts for only 20.6 per cent of total primary energy use. The Chinese economy is a coal-fired economy.

Note also that Malaysia has a low percentage figure for oil use. The country relies heavily on gas taken straight out of Malaysian sovereign territory. The Singapore economy, on the other hand, is an oil-fired economy through and through.

And back to Hong Kong. Our energy efficiency ratio is Asia's second best after Japan. It's what you would expect from Asia's second-wealthiest economy after Japan.


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