BIZCHINA / Backgrounder
First price hike in 2006
(Xinhua)
Updated: 2006-03-26 08:38
China announced Sunday its decision to lift retail diesel and gasoline
prices for the first time in eight months, while setting up a mechanism
to offer some subsidies to disadvantaged communities and public service
sectors.
A fuel station in Zhengzhou, central China's Henan Province, displays oil
prices in this October 14 file photo amid speculations that oil price
hike is expected. [newsphoto]
In a circular made public Sunday, the State Development and Reform
Commission, which regulates energy prices, said the producer prices of
gasoline will be raised by 300 yuan (US$37.5) per ton while that of
diesel oil will be up by 200 yuan per ton.
To offset the impact of the price hikes to communities sensitive to
higher prices, the commission said China's State Council has decided to
launch a mechanism to subsidize some of the communities and public
service sectors.
The recipients of the subsidies include grain growers, fishermen and
fishing firms operating and farming offshore or in inland areas, using
oil-driven fishing boats, state-owned forestry enterprises and nurseries
of forestry centers, urban public transportation firms, said the
commission.
It said the government will pay the unspecified amount of subsidies
directly to grain growers to mitigate the impact of the price hikes of
diesel oil and chemical fertilizers and other agricultural production
materials.
For operators of rural passenger shipping business, the commission said
the government will reduce the impact mainly through such measures as
adjusting the charges of transportation, and offer proper amount of
subsidies to those in difficulty.
The commission said local governments will offset the increased financial
burden on taxi drivers in the urban areas mainly through readjusting the
charges of transportation and imposing surcharge on fuel oil.
It said local governments may offer provisional subsidies to taxi drivers
in the urban areas if they are unable to readjust the charges in the
immediate future.
The Chinese Government has ordered various localities and government
departments to implement the measures on subsides whileprice regulators
at various levels should improve inspection and supervision of prices of
processed oil to maintain the stability of the oil prices.
Energy sector is one of the very few areas that Chinese Government has
yet to liberalize price control since China began to build a market
economy.
The commission said China's current prices of processed oil are far below
that on the international market, which is not helpful to oil refineries
in China, to ensuring adequate supplies and to improving energy
efficiencies, thus having negative impact on the stable operation of the
economy.
Prior to the price hikes, the retail prices of domestically processed oil
is about US$43 a barrel, while that of crude oil on the international
market stands at around US$60, an official with the commission said in an
interview with the press.
China has increased prices by about 20 percent since the start of 2005,
including Sunday's move. Global crude oil prices have soared by 48
percent over that time.
The artificially lower prices have resulted in heavy losses of domestic
refineries and made it difficult for the oil sector to ensure domestic
supplies.
The central government has been slow in raising processed oil prices in
the past two years to reduce the impact of higher oil prices on the
disadvantaged communities and public service sectors,said the official.
The official said imported oil accounts for over 40 percent of the
country's oil consumption, and changing oil prices on the international
market are having growing impact on domestic oil market and prices.
Price Hike Long Speculated
The increase was expected by the end of this month, and a wild guess it
could be as high as 20 percent lifted shares in Sinopec Corp, Asia's top
refiner, and PetroChina.
"It's hard to believe that this is it, after all the speculation," said
David Hurd, oil analyst at Deutsche Bank in Hong Kong. "The stock market
is going to be disappointed."
Shares in Sinopec, which suffers more from low domestic fuel prices as it
imports most of its crude, rallied 4.4 percent last week while PetroChina
stocks climbed 5.2 percent.
Beijing handed Sinopec $1.2 billion subsidy last year to make up for its
huge losses. PetroChina said last week that it lost 19.8 billion yuan
($2.5 billion) on refining and fuel sales in 2005.
Some stock market analysts have said they had expected broader reforms to
align pump rates more closely with global crude costs and allow the rates
to fluctuate more freely.
A bolder plan to allow more frequent price changes in bigger steps may
have been held back by the thorny issue of how to shield lower-income
users, mostly the country's 800 million peasants, against rising fuel
costs.
The government has pledged to use pricing and tax measures to curb
consumption, but is also committed to boosting rural incomes, analysts
said.
(For more biz stories, please visit Industry Updates)
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