Andy Xie’s Take on Oil Price Drop and it’s Impact on China

Leading Chinese Economist Andy Xie shared his insights on oil price drop and it’s impact on China.

Andy Xie

But Andy Xie, the often-contrarian former top Asia-Pacific economist for Morgan Stanley, warned that the massive investment overhang in China, valued at more than $6-trillion, will dramatically affect its energy demand growth, and will, as a result, rein in oil prices for a long time to come.

“China’s energy demand, the only source of growth for a decade, has fallen sharply,” he said in an interview. “There are several conspiracy theories out there. None can affect demand supply balance, which determines prices.”

In mid-September, more than a month before Goldman Sachs rocked markets with its prediction that oil prices would fall to $70 a barrel, Mr. Xie told a conference in Kuwait that he expected oil prices to nosedive to $60. The audience laughed. Now, he’s being invited back to speak again.

“I told them the whole damn thing is driven by China. When the investment cycle turns down, everything goes down.”

For years, China alone propelled fully 50 per cent of the annual world growth in oil demand. But, Mr. Xie said, the country may bow out of its role in supporting global energy demand for a while. “The oil price will be range-bound between $60 to $80. There’s not another cycle coming. You look at China’s infrastructure – it’s built.”

China has already become uniquely important as the world’s largest importer of oil, buying roughly 60 per cent of its 10-million barrels per day from others. And Mr. Xie believes China’s vast energy demand, beyond oil alone, will play an even more outsized role in the future: “My call is based on the oil price eventually following China’s coal price,” he said. “China’s coal is equal to four Saudi Arabias in energy equivalent.”

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Dr Andy Xie

Dr Andy Xie 謝國忠Shanghai-based independent economist, has just been named “ 50 Most Influential Persons in Finance”by Bloomberg, and is currently director of Rosetta Stone Advisors.Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.

Dr Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.

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