Demand: China’s unquenchable thirst: Stunning rise in car ownership is key to China’s emergence as the world’s fastest-growing oil market

Shanghai — The auto makers dutifully displayed their hybrid models at the Shanghai auto fair this spring.

Under pressure from Chinese authorities, they knew they had to show an interest in conserving fuel.

But look past the energy-efficient hybrids, which are unlikely to be sold in China for many years, and you soon glimpse the truth of Chinese tastes. The Shanghai show was filled with gas-guzzling luxury models and sports cars, aimed at China’s nouveaux riches and its fast-growing middle class.

Bentleys, Porsches, Rolls-Royces and Lamborghinis were dotted around the exhibition halls.

Ford Motor Co. was touting the China launch of its massive tank-like Lincoln Navigator, beloved of American rap stars. Even Ferrari SpA was forecasting a 50-per-cent rise in its China sales this year, predicting China would be the fifth-biggest market for its ultra-expensive sports cars by next year.

The dramatic rise in car ownership is one of the key reasons for China’s emergence as the world’s fastest-growing oil market. China’s oil consumption shot up 16 per cent last year, with its oil imports soaring 40 per cent in the same period.

The Chinese market is rapidly becoming a key influence on world oil prices. China is believed to account for 40 per cent of the rise in global oil demand in the past five years, and its oil consumption is expected to keep rising at double-digit levels for the foreseeable future.

Just a few years ago, China was an oil exporter. Now it’s the world’s second-biggest petroleum consumer, behind the United States, and is increasingly dependent on foreign oil to fuel its booming economy. By 2030, China may be importing as much oil as the U.S. is now.

The transportation sector will soon account for half of China’s oil consumption. Within 15 years, China is projected to have as many as 140 million private cars on its roads — a spectacular rise from the 24 million cars it has today.

Traffic jams have plagued Shanghai and Beijing for years, but anyone who ventures outside the big cities can see the latest astonishing evidence of the car boom. Everywhere there are gleaming new roads, bridges, expressways, toll booths and gas stations.

“The country is building one of the most extensive highway infrastructures on earth, so that it can replace its one billion bicycles with cars,” says a new study published by the Asia Pacific Foundation of Canada. “China will rival the U.S. in the number of cars on its roads within a few decades — if such growth can be sustained.”

Cars are not the only reason for China’s oil-guzzling habits, of course. Its economic modernization has been heavily dependent on energy-consuming industries, such as steel and cement. It has also been wasteful. For every dollar of gross domestic product, China consumes more than three times as much energy as the global average. Even its electricity sector is increasingly turning to oil-fired generators, because of the power shortages that have struck the country recently.

Fully aware of its vulnerability on the oil question, Beijing has unleashed its corporate sector on a global hunt for secure sources. The government has ordered its national oil companies to participate in international oil exploration and production deals wherever they can — and almost regardless of the cost.

Chinese oil companies have responded with such aggressive efforts that they are beginning to intrude on the traditional U.S. sphere of influence in the Middle East and Latin America. Backed by government connections and state financing, these companies often beat their American rivals by offering multimillion-dollar aid packages to pay for everything that a Third World country might need: housing, hospitals, railways, schools and electricity. And they can freely ignore U.S. efforts to isolate “rogue states” such as Iran and Sudan.

Among the most controversial deals negotiated by Chinese oil companies in recent months: a $70-billion (U.S.) deal to purchase oil and gas from Iran; a $700-million line of credit to Venezuela to provide housing aid in exchange for the right to develop 15 oil fields and buy 120,000 barrels of fuel oil a month; a $2-billion line of credit to Angola to reconstruct its war-damaged infrastructure, in exchange for 10,000 barrels of oil a day; and oil deals with Argentina and Brazil that could be worth several billion dollars.

China has also become an active player in many other oil-producing countries, including Russia, Kazakhstan, Saudi Arabia, Indonesia and more than a dozen African countries. Despite U.S. disapproval, China has become a major arms supplier to Sudan, which provides 5 per cent of China’s annual oil imports. Of the 15 biggest foreign companies in Sudan, 13 are Chinese.

All of this was recently topped by China’s biggest move into America’s backyard: two oil agreements in Canada that are seen as foreshadowing much bigger deals to come.

Under one of the deals, China National Offshore Oil Corp. is investing $150-million (Canadian) for a one-sixth stake in MEG Energy Corp., a new company in the Alberta oil sands. The other deal is a memorandum of understanding between Canadian pipeline company Enbridge Inc. and the Chinese company PetroChina International Co. Ltd. that would give PetroChina a stake in the $2.5-billion Gateway pipeline from Alberta to the West Coast, which would supply as much as 200,000 barrels of oil a day to China when completed. Some analysts estimate that up to one-third of Canada’s energy exports could eventually go to China.

In an interview with The Globe and Mail last fall, Chinese Foreign Minister Li Zhaoxing confirmed that China planned to invest in Canada’s resources sector to feed its insatiable appetite for oil and other commodities. He also confirmed that Beijing is encouraging Chinese corporations to buy assets in Canadian resources.