HONG KONG (MarketWatch) — All eyes have been on OPEC after its failure to agree to a production cut triggered the latest dramatic slide in the price of crude oil.

But if you want to understand why the demand side of oil has been unraveling — and why it could continue — look no further than China.

Opinion over the state of the world’s second-largest economy is typically divided between whether it is merely undergoing a rebalancing or a more painful slowdown after years of excessive credit growth.

But if the industrial commodities that have fed China’s prodigious economic rise are taken as a guide, there is little need for debate: There has already been a hard landing, as all the prices of these resources have collapsed to multi-year lows.

Now oil is falling in line as it too adjusts to a world where China is no longer bidding prices ever higher. Granted, oil is different from steel, iron ore and coal, where China is the world’s largest consumer (The U.S. still consumes almost twice as much oil as China). Yet Chinese demand is still pivotal.

China became the dominant source of growth in crude-oil demand as it joined the world economy in recent decades. Indeed, Société Générale comments China’s opening to world trade was responsible for lifting the oil price from around $20 a barrel to around $100. This price move approximately correlates with China joining the World Trade Organization at the beginning of the last decade, a period in which the nation, by itself, added the equivalent of Japanese and U.K. total oil consumption.

The oil market is unlikely to find another country, or even a continent, that can take over this degree of heavy lifting in demand growth.

Meanwhile, longer-term forecasts that China can maintain anything close to its recent pace of growth increasingly look misplaced.

Until recently, many economists had assumed that it was only a matter of time before China’s appetite for oil would surpass that of the U.S. But there are a number of reasons to question such bullish forecasts.

For one, we can expect the Chinese investment cycle to be in for a prolonged adjustment as it digests past excesses. There is widespread evidence of industrial overcapacity, and last week researchers at China’s National Development Commission became the latest to highlight this issue. In a new report, they estimated $6.8 trillion of “ineffective investment” had been wasted.

There are other signs that China’s thirst for oil is coming up against capacity constraints. After surpassing the U.S. as the biggest automobile market in the world in 2010, recent years have seen traffic jams and pollution become recurring problems. This has forced authorities to use administrative measures to rein in growth.

We should also expect China’s future demand for oil to be more price-sensitive. In the past, demand appeared inelastic as growth continued even as crude prices reached triple-digits. But this period coincided with state-funded industry being the dominant driver, whereas demand for gasoline for cars can be expected to be dependent on the income growth of the middle class.

Already China’s diminished oil appetite is showing up in various data. According to BP’s annual Statistical Review of World Energy released last June, the U.S. outpaced China’s growth in 2013 oil consumption, the first time it’s done so since 1999. The International Energy Agency has moved to lower its annual forecast for Chinese oil demand five times so far this year, last pegging growth at 2.3% for the current year.

Not surprisingly then, China’s ability to continue its historic role as a source of oil demand is increasingly in doubt. According to Platts, China’s oil import demand rose 2.9%, year-over-year, in October, yet it was down 2.5% versus September. They also described an “unprecedented development,” in which China became a net oil exporter in October, as imports dropped 22% and exports surged 30% to a record high. China could now become a net exporter of oil going forward.

Meanwhile, if lower crude prices are here to stay, then there are winners and losers for China.

Likely beneficiaries include airlines, cruise ships, consumer-product companies, shippers and manufacturers. As lower oil prices feed through to plastic resin, which can be a sizeable proportion of raw-material costs for Chinese manufacturers, gross margins should benefit. Chinese airlines aren’t known to hedge their jet-fuel costs, so they should also feel the full benefit of lower prices.

But given China’s heavy investment in energy production, falling oil and energy prices will result in a sizeable number of Chinese corporate casualties, as in much of the rest of the world. One area where China looks particularly vulnerable is its shipyards, which have expanded aggressively into rig-building for the offshore-oil-exploration industry in recent years, backed by cheap finance.

Meanwhile, on the macro front, cheaper oil is likely to intensify deflationary forces across China’s economy. Investors should be on watch for potential remedial policy responses, such as lower interest rates or a weaker currency.