Seasonal Considerations: Safeguarding “4.9”

The National Development and Reform Commission (国家发展和改革委员会)  recently decided to increase gasoline and diesel sales prices by 350 Yuan. The new prices took effect at midnight local time (16:00 hours Greenwich Mean Time on Saturday), according to China News Net / chinanews.com (via Enorth, Tianjin). The increase is in line with market expectations, but smaller than the gains in crude costs, reports Reuters:

The government will raise the retail ceiling for gasoline and diesel by 350 yuan ($53) a metric tonne, and jet fuel prices by 340 yuan per tonne. China last raised fuel prices by about [310 yuan per ton for gasoline and by 300 yuan per ton for dieselJR] percent on Dec 22.

“Experiences in recent years have told us that by suppressing prices it would discourage refiners to produce or import and lead to shortages and queuing at petrol stations,” NDRC said.

The agency said the price move has been delayed and that the increases fell short of the rises in global crude prices to which Chinese fuel prices have been linked since Jan 2009, due to rising inflation concerns.

Letting the prices rise is based on the commission’s intention to let market forces, i. e. supply and demand, determine the allocation of resources, writes China News Net. Oil consumption had continuously and rapidly risen along with China’s steadily rapid development of recent years (近年来,随着我国经济平稳较快发展,石油消费持续快速增长), the author of the China News Net article quotes a comrade in charge at the Development and Reform Commission. The unnamed comrade explains:

Let’s take the automotive industry as an example. In 2010, the number of cars sold in our country exceeded 18 million, an increase of 32 per cent1). When we calculate the quantity of fuel consumed per car as 1.5 tons, this spells an increase of 27 million tons in demand for refined oil [i. e. gasoline or diesel fuel, basically – JR], and therefore a demand for about 45 million tons of crude oil. Domestic crude oil production within China has continuously been at 190 to 200 million tons, and every added ton in demand had to be imported. In 2010, China imported 239 million tons of crude oil, an increase of 17 per cent. Dependence on foreign oil therefore increased by three percentage points, to more than 55 per cent. This has made China the second-largest importer and consumer of oil, and the security background to those oil supplies can’t be viewed optimistically. Besides, the excessively rising oil consumption exceeds what our country’s economy, resources, and environment can bear. Therefore, price adjustments need to be the levers to take a guiding role in containing excessively rising oil comsumption and to encourage save resources.

Secondly, the commission official points out, the current situation made China too dependent on price developments on the international oil market. Adjusting the prices now would therefore help to protect market supply, avoiding negative shortage effects on production and import dynamics, the phenomenon of queues at gasoline stations, and social operational costs2) (社会运行成本). However, to keep the impact of the price adjustments small, the state had also increased regulation of refined oil prices. The adjustment had come with some delay to the actual market trends, taking the spring festival season into account, even as international prices had kept rising after the most recent adjustment on December 22 last year.

The problems the adjustment constituted for disadvantaged groups was also taken into account, according to the official. Grain farmers and companies whose production was for the common good would be subsidized, as had been the case in the past. Fishery, forestry, urban public transport, rural passenger traffic would be subsidized, and temporarily, there would be subsidies for cab drivers, too. “Unreasonable” price increases in fares and transport fees would be monitored and prevented. The general development of prices, resulting from industrial dependence on fuel, would also be kept stable. National refineries were expected to strictly implement the national pricing policies, and authorities on all levels would intensify price supervision.

Farming today: too subsidized to be concerned?

Farming today: too subsidized to be concerned?

Delaying the price adjustments until after the spring festival season surely was considerate. But given that administrative price controls notwithstanding, the hike in gasoline prices will drive inflation further, the move can also be explained with the government’s desire to keep inflation low during January. Stock markets had been nervous about the January inflation numbers, and there are strong indications that January inflation would have exceeded five per cent anyway, hadn’t the National Bureau of Statistics based its computations on adjusted weightings in the basket of goods.

China’s government reportedly established an inflation target of four per cent for 2011. Alistair Thornton, an analyst at IHS Global Insight, suggested in December that the four-percent target reflected the realisation that inflationary pressures weren’t going to recede as long as excess liquidity remained.

Somehow, the Chinese authorities will be successful – even if only on paper.
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Note

1) According to statistics cited by Southern Metropolis Daily on May 1 last year, the number of car ownerships in China had reached 76,190,000  in 2009. Production and sales that year exceeded 13.6 million. The production and sales of passenger cars also exceeded ten million for the first time in 2009, making China the world’s biggest country in terms of car production and consumption.

2) If I’m getting these definitions right, China usually refers to costs of education, public security etc. as social operational costs. The usual international term should then be public operational costs.

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Related

The Emperor’s new Thermometer, February 16, 2011

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