In the IEA’s latest oil market report, which just came out this morning, they devote some time to one nagging mystery. Why is China’s car market booming, but not its thirst for oil? Unfortunately, they don’t say anything definitive or satisfactory.
Who’s (Not) Driving?
Chinese apparent demand data feature some odd trends. The most glaring is the seeming mismatch
between subdued gasoline demand and surging car sales, which we have highlighted over the past few
months. We have argued that this inconsistency is probably largely related to incomplete data (notably the
lack of inventory figures and possibly missing or understated estimates from independent retailers), but
other observers have proposed alternative explanations.
Some contend that the reason behind subdued gasoline demand is simply due to a dramatic efficiency
improvement, as small cars have accounted for over two‐thirds of total sales given higher sales taxes on
bigger engines and rising retail gasoline prices. A variant of this argument is that, since tax incentives on
small cars are due to expire by year‐end, consumers are rushing to buy new cars or replace existing, less
efficient ones even if they do not really intend to use them for the time being. Along the same lines, other
analysts suggest that local governments and state‐owned companies have been ordered to purchase cars in
order to support local manufacturers, but that these vehicles are sitting idle in car parks.
Some behavioural explanations have also been advanced. One posits that Chinese motorists drive
intrinsically less than elsewhere. Cars would serve primarily to enhance the social status of their owners,
who typically would use them only during the weekend, preferring public transportation during the working
week, notably in large urban areas (in Beijing, for example, all private vehicles are not allowed to circulate
one day per week based on their number plates’ last digit). Another explanation is that some sales reflect
second‐car purchases by wealthy households, and these vehicles would also tend to be driven only on an
However, as compelling as these explanations may be, they remain largely anecdotal, while some appear to
be contradictory. As much as efficiency may have improved, the sheer volume of car sales should arguably
point towards much higher gasoline demand than currently inferred from official statistics. Moreover, sales
of big, gas‐guzzling imported cars have also increased strongly (albeit at a slightly lower pace than domestic
ones), thus somewhat downplaying the alleged price sensitivity of Chinese consumers. In addition, the
central government has frozen expenditures of new cars and has strongly encouraged local governments to
follow suit, thus casting doubts on its supposed willingness to support the local industry at all costs. Finally,
the behavioural explanations are virtually impossible to assess, although they may become retrospectively
clearer in a few years. Yet the mystery remains unsolved: are the Chinese highly circumspect about driving,
has the vehicle fleet become extremely efficient or is gasoline demand under‐reported?