Fuel is not only getting expensive in China -- it's getting scarce too [subscription required]. According to The Wall Street Journal yesterday, "China announced an almost 10% increase in domestic gasoline and diesel prices, in a dramatic move to tamp down demand."
The move may cut consumption, but is this a good thing? China's enormous economic engine relies on the ability of industries to expand as fast as is reasonably possible. Putting the brakes on fuel consumption could undermine that.
The knife in China cuts both ways. Demand for oil there has moved up almost 9% annually for the last five years. The average annual rate for the rest of the world is well below 2%. In other words, global oil prices are being pushed up by the big Asian nation.
But if Chinese business has to pay more for fuel, the country's hot economy could start to cool. That could hurt the value of the country's stock markets and cause a recession among the middle class. It could also hamper China's export growth. Cheap goods from China allow companies like Wal-Mart (NYSE: WMT) to offer inexpensive retail inventory.
At first it may appear that China's fuel problem is a local issue, but it could become a global one very quickly.
Douglas A. McIntyre is an editor at 247wallst.com.
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