INTRODUCTION

China is currently the world's second largest energy producer and consumer after the United States. At present, the country is self-sufficient in its coal supply 1 but is a large and growing oil importer. For natural gas, China started importing its first cargo of liquefied natural gas (LNG) in 2006 and the overall imports of natural gas are projected to increase steadily over the coming decade. In terms of volume and import dependence, however, the large and widening gap between the overall oil demand and its own oil supply is a much bigger energy security concern for China and a growing concern for the rest of the Asia-Pacific region as well.

In this chapter, we will analyse the current situation and future prospects of China's oil demand, and assess their implications and impacts on the Asia- Pacific region. The rest of the chapter is organized as follows. Section 2 reviews the economic issues concerning China and Asia. In section 3, oil market issues in China are reviewed, where we present our views on China's oil demand, supply, and trade. Section 4 and 5 focus on the implications and impacts of the Chinese oil demand on the Asia Pacific, followed by concluding remarks in Section 6.

THE ECONOMY AT PRESENT

China is the largest developing country in the world in terms of not only population but also its economy size. The strengths of the Chinese economy are evident in a number of areas. First of all, China's economic growth is among the fastest in the world. Secondly, China's foreign trade has been growing at spectacular rates over the past two decades and it continues to expand. Thirdly, China is the largest recipient of direct foreign investment in the developing world, which supports growth in its industrial and manufacturing sectors. Fourthly, China is running large foreign exchange reserves. In fact, China is surpassing Japan now to have the highest foreign exchanges reserves in the world. Last but not the least, China's low-cost labour supply is abundant, which may help sustain the country's long-term growth.