Determinants of China’s Energy Imports: An Empirical Analysis

Sustained economic growth in China has triggered a surge of energy imports, especially oil imports. This paper investigates the determinants of China’s energy import demand by using cointegraiton and VECM techniques. The findings suggest that, in the long run, growth of industrial production and expansion of transport sectors affect China’s oil imports, while domestic energy output has a substitution effect. Thus, as the Chinese economy industrializes and the automotive sector expands, China’s oil imports are likely to increase. Though China’s domestic oil production has a substitution effect on imports, its growth is limited due to scarce domestic reserve and high exploration costs. It is anticipated that China will be more dependent on overseas oil supply regardless of the world oil price.