Long-run Behaviour of Oil Consumption in the Chinese Economy

Abstract

China is a major consumer of global oil output. China’s burgeoning demand for oil has had a disproportionate impact on both global oil production and prices. Hence, knowledge about the long-run oil consumption patterns in China is crucial given its significant impact on the Chinese economy and by extension, on the world economy. This study aims to examine the influence of real output, oil price, industrialisation, and financial development on oil consumption patterns in China from 1965 to 2016. The results indicate that oil consumption in China is responsive to oil price, industrialisation, financial development, and real output. The long-run elasticity of industrialisation, financial development, oil price, and real output are approximately 1.23, 0.91, –0.84, and 0.39, respectively. The results affirm the critical role played by industrialisation in determining oil consumption patterns in China, which has implications on both policy formulation and direction.JEL Classification: C32, O13, Q43