BEIJING, June 13 -- China's recent wave of domestic energy price increases is very positive both for the nation's economy and for relations with the major net oil-importing industrial economies. The latest, a 10 per cent retail price increase three weeks ago for refined oil products, was the seventh since 2005, and came just three weeks after I predicted such a rise in an article in China Daily.

    The domestic price increases make China consume less energy than it would without the price increases. In addition, they pay for alternative forms of energy both renewable and environmentally friendly, and they make China's economy efficient and stronger by prompting it to produce the same output from less energy, and by enabling Chinese energy companies and investors to earn a profit that gets efficiently reinvested in the economy. They also increase China's national security by making China less dependent on imported oil than it would be without the price increases.

    Bringing oil prices inside China closer to the global market price aligns Chinese strategic economic interests closer to those of major net oil-importing industrial economies and distances them from net oil-exporting economies such as Russia, where economic reform risks being postponed amid the euphoria of high oil-and-gas export prices to Europe.

    The most effective and fastest solution to high world oil prices is high world oil prices. Following the two oil shocks of the 1970s, the world developed and adopted less-energy-intensive technologies and developed and used cheaper substitutes for expensive forms of energy. The result was a permanent loss of customers for oil producers and a 30-year decline in energy's percentage of GDP that is continuing today.

    The most effective way to "globalize" China's domestic energy prices is to "marketize" them by finishing the job, started by China at the end of 2002, of bringing the market economy to the energy sector. The strategic national-defence-related aspects of energy and food do not exempt these two sectors of the economy from the efficiency benefits of market competition and capital allocation determined by the objective laws of supply-and-demand driven pricing.

    Will high oil prices cause China's economic growth to slow? No, although it is government policy to slow growth slightly to avoid overheating and inflation. Not unless the high oil prices are inflationary, in other words, not unless they increase too fast the demand for money whose supply is controlled by the central bank and is reflected in how low interest rates are. But China is capable of further massive improvements in efficiency (think of the huge potential for eventual large-scale industrial farming) that can more than make up for the impact of any price increase on inflation.