Abstract
This paper uses two different approaches to investigate the relationship between the oil price shock and the macroeconomy in China. The first approach is the reduced form regression based on the Hamilton (2005), and the second approach is the VAR analysis based on Blanchard and Gali (2007). Instead of a significant negative effect of oil shocks on output growth documented in the literature on the US economy, I find through both approaches small but positive effects of oil shocks on Chinese economy. My explanation of this puzzling result is the regulatory details of energy policy in China, namely its relatively fixed price mechanism of refined oil.