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China’s Energy Dilemma

China cannot singlehandedly lower global energy prices, but it can tackle deflation at home. After years of maintaining a conservative macroeconomic policy stance, the time has come for a new round of fiscal and monetary expansion.

HONG KONG – As the wars in Ukraine and Gaza show, energy markets are highly vulnerable to geopolitical developments. At the same time, energy is the main driver of global geopolitical competition – a point that Helen Thompson of the University of Cambridge has often highlighted. The rivalry between the United States and China is no exception.

The relationship between energy and geopolitics came to the fore during the Industrial Revolution. Western countries harnessed wind, coal, and steam power to increase productivity sharply and achieve unprecedented prosperity at home, while colonizing faraway lands and appropriating their resources. It was control over energy that enabled the West to consolidate its economic, political, military, and scientific dominance over the rest of the world.

Geopolitical competition has since amounted essentially to a fight over human capital and natural resources – especially energy resources. For Germany and Japan, World War II was partly about securing vital oil resources in southeastern Europe and Southeast Asia, respectively. A number of other conflicts – from the two Gulf Wars to Russia’s current war against Ukraine – can be considered largely energy wars.