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Demand side of oil issue: 1.3 billion Chinese

BEIJING – I think the average Chinese is genuinely puzzled when the West, especially the United States, points its finger at China as a gas-guzzling energy hog responsible for driving up fuel costs worldwide and polluting the planet all at once.

After all, in this developing country where hardship is a not a distant memory and where conservation was a learned necessity, the amount of energy consumed by the average Chinese is still roughly one-sixth of the typical American. The majority of pollution comes from industry, not individuals.

VIDEO: Chinese oil consumption vs. U.S.

The problem for China is its population: 1.3 billion people, many of whom are experiencing economic opportunity for the first time and who are working for some of the advantages many Americans take for granted, including owning a car.

In the world's most populous country, it means every day about 1,000 new cars hit the streets in the capital city of Beijing alone. These new cars and the existing ones require fuel, which accounts for some of the reason why China's oil consumption has been increasing by about 9 percent annually.

Shift on gas prices
To be sure, gasoline at the pump has been relatively cheap here. To encourage economic growth, China had set fuel prices well below international prices. To do that the government last year alone forked over $22 billion of its own money to subsidize fuel costs and give motorists and commercial transportation a break.

But no longer. The international community has been pressuring China to set realistic prices in hopes that it would help stabilize world oil prices and without any advance notice, on June 19, China complied. Pump prices were raised by about 18 percent, which almost instantly dropped the worldwide price of a barrel of crude oil by over $4.

With the increase, the price of a gallon of gas here is now $3 a gallon. That may sound like a deal to most Americans, but it's worth noting that multiple federal and state taxes aren't riding piggyback on the price of fuel here – and hence driving up the costs at the pump – as they do in the States. Also, the average income in China is only about $1,200 a year. When we interview Chinese motorists about higher gas prices, their answers sound a whole lot like the ones heard in the United States.

Rising middle class
The fuel price hike may curb some driving habits, but is not likely to significantly slow the purchase and use of cars in China because the standard of living is rising so quickly.

That means at some point in the future, it seems inevitable that the United States and China may be directly competing for the same oil. Hardly anyone wants to speculate what that contest would do to the price you pay for fuel.

Each country theoretically has the ability to mandate sweeping fuel efficiency standards in new vehicles put on the road, if there is the political will.

China, with an authoritarian government and a car culture in its infancy, may have an easier time pulling that off, although they may want to move fast.

Many of China's new motorists want a Western lifestyle and a vehicle that reflects it. Imported SUV sales in China are already up 40 percent this year.