Plunging oil prices won't solve China's economic problems

Tracking oil's fall across four countries
Tracking oil's fall across four countries

Falling oil prices are typically seen as great news for major energy importers, but even rock-bottom prices won't be enough to lift China's economy out of its current malaise.

China is the world's largest net importer of oil, and plunging crude prices should cut costs for consumers and businesses. It is also expected to help keep inflation under control and give China's central bank room to lower interest rates.

"The sharp reduction in world oil prices will help to provide a stimulus to Chinese GDP growth in 2015 and reduce China's oil import bill, boosting Chinese net exports," wrote IHS Asia-Pacific chief economist Rajiv Biswas in a research note.

Lower crude prices may also give the central government greater flexibility to pursue fiscal, financial, land and household registration reforms, according to a report by Bank of America Merrill Lynch.

Related: China growth expected to miss government target

But China is facing a bevy of longstanding economic risks, such as escalating debt levels and a waning property market, that are likely to overshadow gains from lower oil prices. Recent corporate defaults in the real estate sector have only added to concerns.

Analysts say relief will be temporary and a major boost to China's GDP is unlikely. Economists surveyed by CNNMoney are expecting a ho-hum fourth quarter to round out the year, and growth in 2015 is expected to slow further to around 7%.

"Given no evidence of a sharp and sustained improvement in demand growth on the horizon, the boost from lower oil prices will be washed out by the many persistent and growing challenges China faces," said IHS China economist Brian Jackson.

Overall, Asia remains the biggest global winner as oil prices continue to tumble. The slump in prices represents an estimated transfer of around $1.5 trillion from global oil producers to oil importing countries, according to IHS.

South Korea is getting the largest boost to its economy, followed by Thailand and the Philippines, according to Bank of America Merrill Lynch.

Read next: China bulls refuse to back down as market skyrockets

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