China boosts fuel prices to curb demand

Other News Materials 2 November 2007 01:05 (UTC +04:00)

China raised gasoline and diesel prices by nearly 10 percent Thursday, reversing anti-inflation controls in hopes of cooling demand amid fuel shortages that have left trucks backed up at filling stations in the booming south.

Consumers and some Chinese media accused suppliers of creating a phony crisis to get the government to raise prices at the pump.

But fuel supplies have long been tight across China, a problem that oil companies blamed on a lack of investment in refineries because of government controls preventing them from passing along increases in world crude prices to consumers.

The companies say the surge in petroleum prices to new highs led some Chinese refiners to suspend production to avoid losses, resulting in a drop in deliveries that workers at filling stations said began early last week.

Supplies are particularly short in southern China, which is home to many of China's manufacturing areas. Some filling stations imposed informal rationing, limiting the amount of fuel that individual drivers can buy.

"There is just no diesel," said Li Yuanquan, a moving van driver stuck in a line of 40 vehicles hoping to fill up at a station in Shenzhen, a southern boomtown near Hong Kong. "I've already waited for about two hours and I'm mad, but there's no point in being angry."

The National Development and Reform Commission, the country's main planning agency, said China's first fuel price hike in 18 months was ordered to narrow the gap between crude costs and pump prices.

It said prices would rise by 9.1 percent for gasoline and 9.9 percent for diesel, but added that prices at some retailers could increase nearly twice that much.

"To ensure the supply of domestic oil products and the promotion of energy conservation, the state decided to properly increase the prices of oil products," the agency said. It said the rise also applied to aviation fuel.

The announcement was a break with price controls imposed in September on gasoline and other basic goods in an effort to control China's worsening inflation, which hit an 11-year high in August of a 6.5 percent rise in prices over the preceding 12 months.

Higher fuel prices should add less than a tenth of a percentage point to the monthly inflation rate, the commission said.

The recent inflation spike has been blamed on a shortage of pork and some other food items, with annual inflation for other goods only about 1 percent. Economists say inflation should cool in coming months as government efforts to increase food supplies take effect.

Trucking companies said the diesel shortage has slowed deliveries in Shanghai and areas along China's southeast coast that export manufactured goods to the United States and other foreign markets.

After Thursday's increase, drivers will pay the equivalent of up to $3.20 a gallon for gasoline and $2.69 for diesel.

The sudden jump left truckers, taxi drivers and others who must drive for a living in a bind.

"The price increase was just too severe," said taxi driver Huang Youhui. "It will really affect us. But it is not worth protesting. It is a government decision."

Li, the moving van driver, said: "It's just too high. It's really going to hurt our shipping business."

At a Shenzhen filling station owned by China's No. 2 oil company, China Petroleum & Chemical Co., or Sinopec, most drivers were allowed to buy only $12 worth of diesel, or about five gallons. Regular customers with Sinopec charge cards could spend $18.

"That doesn't get you very far at all. Sometimes it just gets you to the next station," said a truck driver who would give only his surname, Liu. He said he had been waiting in line for two hours to fill up.

The government had resisted appeals by oil companies to boost retail prices, saying it wanted to avoid hurting China's poor, who are struggling with the sharp rise in food costs.

The planning commission said it would try to shield the public from some of the increases.

"Prices of railway tickets, natural gas for civilian use and public transportation will not be raised, to reduce the impact of the price hikes on the public, and the government will provide subsidies for taxi drivers," it said.

The agency added, however, that it also planned to raise natural gas prices at some point, but did not say by how much.

China is the world's No. 2 user of oil after the United States, propelled by economic growth that is expected to top 10 percent this year for a fifth straight year.

Government oil companies have spent billions of dollars to secure access to foreign crude oil and natural gas, leading to criticism of their willingness to deal with such isolated governments as Iran and Sudan. ( AP )