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The impact of the increase of oil price Li Shantong He Jianwu Xu Zhaoyuan Department of Development Strategy and Regional Economy Development Research Center

1 The impact of the increase of oil price Li Shantong He Jianwu Xu Zhaoyuan Department of Development Strategy and Regional Economy Development Research Center of the State Council September 11~15, 2006 Note The views expressed in the ppt are that of the author and should not be attributed to his affiliated institution.

2 Outline Data in China China s Social Accounting Matrix The Effect of the increase of Oil Price

3 Economy Growth % Before Census Adjusted by Census After Census 15% According to 1st China National Economy Census in 2004, the China s 2004 GDP are enlarged by 16.8% and reaches trillion RMB ( trillion Dollar) 11% 7% %

4 GDP, (100 million Yuan) Old Data New Data Difference %

5 GDP Structure (old data) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Pr i mar y I ndus t r y Secondar y I ndus t r y Ter t i ar y I ndus t r y

6 GDP Structure (new data) 80% 60% 40% 20% 0% Pr i mar y I ndus t r y Secondar y I ndus t r y Ter t i ar y I ndus t r y

7 Share of Agriculture in GDP Ol d New

8 Share of Secondary Industry in GDP Ol d New

9 Share of Tertiary Industry in GDP Ol d New

10 IO Tables in China The Input-Output tables for China s Economy 82, 87, 92, 97 and 2002 Tables based on large-scale input-output survey across the country 90, 95 and 2000 Extension tables

11 2002 Input-Output table The latest input-output table for China s economy This table is constructed based on largescale input-output survey across the country and the 1st Economic Census of China in 2004

12 Cont. The basic structure of 2002 IO table is the same as 97 table Final demand: Household consumption, government consumption, capital formation, changes in stock and exports Value added: Depreciation of fixed capital, Compensation of employees, Net taxes on production and Operation surplus The sectoral classification for the 2002 IO table 122 sectors, of which there are 5 sectors for agriculture, 81 sectors for mining and manufacturing, and 36 sectors for services. 42 sectors

13 Cont. Some new service sectors are introduced e.g Information communication and Service, Computer service and software Some issues to be paid more attention The errors term in 2002 table are relatively large, There are16 of 122 sectors the error term is beyond 4 percent of sectoral gross output. W hile the error terms are relatively small, most of them below 2 percent of sectoral gross output in 97 IO table. In some sector the export is larger than the gross output As to the Cultural and office equipment sector in original 2002 China I-O table, the export is billion RMB Yuan. But the gross output is only 75.0 billion RMB Yuan.

14 Social Accounting Matrix for China 2002 SAM for China s Economy 2002 Input-Output Table The data of China s 1st National Economy Census Other data

15 The schematic macro SAM, 2002 Expenditure Receipts 1. Commodity (42) 1. Commodity (42) 2. Activity (42) 2. Activity (42) 3. VA- Labor (3) VA- Capital Households (2) Enterprises Gov. Subsidies Extra-budget Intermediate Consumption Private Consumption Extra-budget Consumption 9. Government 10. Rest of the World 11. Capital Account 12. Stock change Government Consumption Export Gross Fixed Capital Formation Changes in Inventories Domestic Production Total Total Commodity Demand Total Domestic Production 3. VA- Labor (3) Compensation of Employees Labor Earning 4. VA- Capital Depreciation; Operating Surplus Capital Earning 5. Households (2) Compensation of Capital employees distr. income distr. to HH to HH 6. Enterprises Capital income distr. to Enterprise. 7. Gov. Subsidies Subsidy on Production (Negative) 8. Extra-budget extra-budget fee 9. Government 10. Rest of the World 11. Capital Account Import tax (incl. Tariff) Transfers to households Subsidy on households Transfers to households Enterprise income Government Subsidy on Household Extra-budget Income Income tax Earning Government from ROW Deficits. Income tax Compensation of Capital employees paid to income paid to ROW ROW Government income paid to ROW Households savings Enterprise savings Extra-budget savings Government saving 12. Stock change Total Household Income Expenditure of Subsidy Indirect Taxes Imports Earning from ROW Total Foreign Exchange Outlays Foreign Saving Total savings Changes in Inventories Total Commodity Supply Total Cost of Production Total Labor Payments Total Capital Payments Total Household Expenditure Total Total Government Enterprise Subsidy on Expenditure Household Total Extrabudget Expenditure Total Government Expenditure Government Revenue Total Changes in Inventories Total Total Foreign Total Changes Investment Exchange in Inventories Expenditure Earnings

16 Energy Consumption Total Energy Available for Consumption Primary Energy Output % 93% 96% 95% 2% 2% 1% 1% Recovery of Energy Imports 1% 4% 12% 11% 12% Exports (-) 6% 5% 8% 8% 8% Stock Changes in the Year -3% 0% 1% 0% 0% 1.Farming,Forestry,Animal Husbandry, Fishery, 5% 4% 4% 4% 4% 2.Industry 68% 73% 69% 69% 70% 3.Construction 1% 1% 1% 1% 1% 4.Transport, Storage and Post 5% 4% 8% 7% 7% 5.Wholesale, Retail Trade and Hotel, Restaurants 1% 2% 2% 2% 2% 6.Others 4% 3% 4% 4% 4% 7.Residential Consumption 16% 12% 11% 11% 11% Total Energy Consumption Consumption by Sector

17 Oil Consumption Output 121% 93% 72% 67% 62% Imports 7% 23% 43% 41% 48% Exports (-) 27% 15% 10% 9% 9% Stock Changes in the Year 0% -1% -5% 0% 0% 1.Farming,Forestry,Animal Husbandry, Fishery and Water Conservancy 9% 7% 7% 7% 6% 2.Industry 64% 58% 51% 50% 50% 3.Construction 3% 2% 2% 2% 2% 4.Transport, Storage and Post 15% 18% 25% 25% 26% 5.Wholesale, Retail Trade and Hotel, Restaurants 1% 2% 2% 2% 3% 6.Others 7% 9% 8% 8% 7% 7.Residential Consumption 2% 4% 6% 6% 6% Total Energy Available for Consumption Total Energy Consumption Consumption by Sector

18 The effect of increase of Oil Price W ith the increase of oil price, what are the price transmission effects on other sectors, on factors, and eventually, on the living standard of households All Countries Spot Price FOB Weighted by Estimated Export Volume (Dollars per Barrel) Ja 1- n-9 M 7 a 1 - y -9 Se 7 p Ja 7 1- n-9 M 8 a 1- y-9 Se 8 p Ja 8 1- n-9 M 9 a 1- y-9 Se 9 p Ja n -0 M 0 a 1- y-0 Se 0 p Ja n -0 M 1 a 1 - y -0 Se 1 p Ja n -0 M 2 a 1 - y -0 Se 2 p Ja 2 1- n-0 M 3 a 1- y-0 Se 3 p Ja n -0 M 4 a 1- y-0 Se 4 p Ja 4 1- n-0 M 5 a 1- y-0 Se 5 p Ja n -0 M 6 a 1 - y -0 Se 6 p06 0

19 The adjustment of the price by NDRC Oil products The increase of price (Yuan/Ton) The price of 90# Gasoline (Yuan/Ton) Gasoline Diesel Oil Gasoline Gasoline Diesel Oil Gasoline Diesel Oil Gasoline Diesel Oil Date The increase (%) relative to the Beginning of the Year (90# Gasoline ) 18.9% 18.2% Gasoline Diesel Oil

20 Methodology SAM-based Price Multiplier Analysis Extend the IO Multiplier, take the interaction between production and institution( especially, households) into account SAM-based Price Multiplier decomposition method is used to shed light on detailed linkages between economywide costs and the prices faced by households.

21 Overview of the 2002 SAM I Production II Factor III Households IV Others V. Total T13 T14 Y1 I. Production 42 Sectors n1 T11 II. Factors Labor Capital n2 T21 O O O Y2 III. Households (Rural, Urban n3 ) O T32 O T34 Y3 IV. Others (Enterprise Government, etc. n4 ) T41 T42 T43 T44 Y4 V. Total Y1 Y2 Y3 Y4 O

22 Multiplier Decomposition Analysis In a market economy, a web of interactions delineate the path from initial expenditure to ultimate incomes. Multiplier decomposition methods can shed light on these complex linkages.

23 Path Decomposition To elucidate the complex chains of price interaction, we use path decomposition analysis. To summarize the methodology: An arc is a pair <i,j> of indices in the SAM accounts A path is a sequence s of indices s=<i,k,l,...,m,j> decomposable into consecutive arcs <i,k>, <k,l>,...,<m,j>. The influence of i on j through path s is denoted (i->j)s To estimate the price influence of account i on account j along <i,j>, before economywide linkages are taken into account, we have: Pj Pi = aij

24 Path Decomposition For any given path s=<i,k,...,m,j> the Direct price influence the composite D( i j)s = aki...a jm In any given path s there may exist feedback effects among its indices, each of which can be represented by a multiplier µs (actually the ji entry in the multiplier matrix M. All of these feedback effects taking place along the path amplify the direct influence to produce Total influence: T( i j)s = D( i j)s µs

25 Path Decomposition Finally, note that more than one elementary path may span two indices i,j. Therefore the Global income effect must sum total effects over all paths: G( i j)s = s S T(i j )s = s S D(i j )s µs Direct, Total and Global influence are three distinct components that make up the transmission mechanism underlying income determination.

26 Price Transmission Sector Price Multiplier Sector Price Multiplier Agriculture waste Coal mining Electricity 0.08 Crude petroleum and natural gas Gas Metal ore mining Water Non-ferrous mineral mining Construction Food Transport Textile Post apparel Information and computer services 0.03 Sawmills and furniture Trade 0.05 paper, printing and record medium Hotels and restaurants Petroleum processing Finance and insurance Chemicals 0.08 Real estate Nonmetal mineral products Leasing and business service Metals smelting and pressing Tourism Metal products 0.07 Scientific research Machinery General technical services Transport equipment Other social services 0.06 Electric equipment Education Electronic equipment 0.03 Health, social security and social welfare Instruments Culture, Sports and recreational services Average Households 0.04

27 Publ i c admi ni s t r at i on and ot her s ect or s Cul t ur e, Spor t s and r ecr eat i onal s er vi ces Heal t h, s oci al s ecur i t y and s oci al wel f ar e Educat i on Ot her s oci al s er vi ces Gener al t echni cal s er vi ces Sci ent i f i c r es ear ch Tour i s m Leas i ng and bus i nes s s er vi ce Real es t at e Fi nance and i ns ur ance Hot el s and r es t aur ant s Tr ade I nf or mat i on and comput er s er vi ces Pos t Tr ans por t Cons t r uct i on Wat er Gas El ect r i ci t y was t e Ot her manuf act ur i ng I ns t r ument s El ect r oni c equi pment El ect r i c equi pment Tr ans por t equi pment Machi ner y Met al pr oduct s Met al s s mel t i ng and pr es s i ng Nonmet al mi ner al pr oduct s Chemi cal s Pet r ol eum pr oces s i ng paper, pr i nt i ng and r ecor d medi um Sawmi l l s and f ur ni t ur e appar el Text i l e Food Non- f er r ous mi ner al mi ni ng Met al or e mi ni ng Cr ude pet r ol eum and nat ur al gas Coal mi ni ng Agr i cul t ur e t he cons umpt i on of oi l pr oduct s per capi t a out put t on of SCE/10 t hous and RMB Pr i ce Mul t i pl i er

28 Top 8 sectors affected 3. 5% 3. 0% 2. 5% 2. 0% 1. 5% 1. 0% 0. 5% ty t ri ci El ec ica he m C ro d N on m et al m in er a lp tru on s ls s uc t n ct io g C al s sm el t in in g M et or e m in G as M et al Tr an sp or t 0. 0% Notes: Given that the price of oil products increased by 18.2% (for the first half year in 2006), the column in this figure indicates the change of the cost of these sectors.

29 Path Linkages from Oil products to Producers Path Transport <- Petroleum Processing Global Effects Total Effects % of Global Effects Accumulative total (% ) Gas <- Coal Mining <-Petroleum Processing Gas <- Electricity <-Petroleum Processing Metal ore mining <- Transport <-Petroleum Processing Metal ore mining <- Electricity <-Petroleum Processing Metal ore mining <- Chemicals <-Petroleum Processing Metals smelting <- Transport <-Petroleum Processing Metals smelting <- Metal ore mining <-Petroleum Processing Metals smelting <- Electricity <-Petroleum Processing Transport <- Electricity <-Petroleum Processing Gas <- Petroleum Processing Gas <- Transport <-Petroleum Processing Metal ore mining <- Petroleum Processing Metals smelting <- Petroleum Processing

30 Path Linkages from Oil products to Households Path Rural Households <- Petroleum Processing Global Effects % of Global Effects Accumulative total (% ) Rural Households <- Agriculture <-Petroleum Processing Rural Households <- Transports <-Petroleum Processing Rural Households <- Chemicals <-Petroleum Processing Rural Households <- Trade <-Petroleum Processing Rural Households <- Agriculture <- Transports <-Petroleum Processing Urban Households <- Transports <-Petroleum Processing Urban Households <- Agriculture <-Petroleum Processing Urban Households <- Chemicals <-Petroleum Processing Urban Households <- Electricity <-Petroleum Processing Urban Households <- Trade <-Petroleum Processing Urban Households <- Petroleum Processing Total Effects 0.04

31 Main Conclusion The increase of price of oil products has a significant effect on the cost of other producers. Given that the price of oil products increases by 10%, the average price will rise by 0.7%. The increase of price of oil products results in the increase of households consumption cost. Given that the price of oil products increases by 10%, the consumption price will rise by 0.4%. In addition, the transportation, electricity, chemicals and agriculture are the main bridges for this effect.

32 Cont. As to the oil-intensive sectors, the effects of increase of price of oil products will larger than that on other sectors. These sectors include transportation, gas, non-metal mineral production and chemicals. Transportation and electricity become the two important bridges for the price transmission of oil products

Time Series Data of Japanese Capital Stock by Sector: Cascaded Leaky Buckets in INFORUM approach

Time Series Data of Japanese Capital Stock by Sector: Cascaded Leaky Buckets in INFORUM approach Toshiaki Hasegawa Faculty of Economics Chuo University, JAPAN Prepared for 14 th International INFORUM Conference,