By Ma Hongman
BEIJING, June 26 -- Last Thursday, the National
Development and Reform Commission (NDRC), the country's economic watchdog,
announced the rise in prices for gasoline and diesel by 1,000 yuan (144.9 U.S.
dollars) per ton and the price for aviation kerosene by 1,500 yuan (217.4
dollars) per ton from June 20. And from July 1, the price of electricity will
also be raised by 0.025 yuan per kilowatt.
The unexpected energy price rise by the NDRC has
significant influences on all market players. More importantly, its effects on
the economy in the short term differ dramatically with those in the long run.
Therefore, a detailed analysis is worthwhile at this moment.
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Vehicles line up at a gas station before
the midnight deadline for price rises, in Qingdao, east China's Shandong
Province, June 19, 2008. (Xinhua, File Photo)
Photo Gallery>>> |
Energy price is closely related to prices of nearly
all commodities, hence key to the economic soundness. An energy price rise is
sure to drive up the Consumer Price Index (CPI) growth instantly and would
likely strengthen the inflation expectation.
However, when the energy price is subject to the
market rule instead of the administrative price intervention, it would help ease
the shortage of supply against demand and improve the efficiency of macro
economic policies. Therefore, this price rise is a benefit viewed against the
long-term prospective.
After this energy price rise was announced, the
research departments of prestigious investment banks predicted that it would
bring the CPI growth in the later half of 2008 up by 0.4 percentage point,
driving the annual CPI growth above 7 percent.
Compared with the 4.8 percent growth in CPI expected
by the policymakers for the year, this possible change in the inflation
indicator will intensify the pressure for economic policymaking. It is also
going to worsen the market worry that the economy would be threatened by
inflation.
But all these negative conclusions only remain valid
in the short term. A pricing scheme for refined oil products decided by the
market is an inevitable trend in the long run. Price control would always
produce more devastating consequences upon the economic soundness than returning
the power of pricing commodities to the market.
In the market economy theories, one of the
cornerstones is to respect the role of price in the market, because it is born
as the most sensitive and effective element to balance demand and supply. Its
change would directly encourage or suspend demand, which would, in turn, improve
or distort market structure.
In the face of such a natural tool for balancing the
market, any macro control policy might have problems in what to choose from the
policy tools and how far to push them. And it is also a frequent result that the
economy evolves in the opposite direction from the policy targets.
When it comes to the specific issue of energy price
in China, price rises on the domestic market could not be avoided although the
timing of such a rise should be chosen with prudence.
When the administrative department imposes a ceiling
on the price of refined oil products, one of its key targets is to try to
prevent the industrial users of energy from cutting their energy demand and
reducing their supply of consumer commodities. But when the ceiling is lower
than reasonable, it would depress the supply.
Pressured by the financial burden from low price, the
oil refiners either stop their manufacturing, or limit their output. The reduced
supply has the same effect in raising the demand costs with lifting the price.
It is not rare that drivers have to go to several gas
stations to get enough gasoline for the gas stations portion their limited
supply of fuel to every driver. Some car-owners even stop driving for the
difficulty of getting fuel. When the small consumers of energy products like
family car owners feel the pressure of energy shortage, it is not hard to
imagine the trouble the industries face.
Yet, a low energy price, thanks to price control,
encourages energy-intensive industries. In a sense, the administrative subsidy
to the oil refiners to maintain their low price has become an incentive to the
energy-intensive manufacturers.
After the price of agricultural produces slows its
growth, the prominent driving force of inflation in China becomes the price of
energy product on the global market for the country's heavy dependence on
imported crude oil.
When the Chinese authorities try to let the market
set prices for energy products, it also has a global significance: the crude oil
futures traded on the New York Mercantile Exchange dropped more than 4 dollars
per barrel upon China's release of the oil price hike. It could be a clue to the
long-term benefits for the global energy market balance.
Oil price rise might cause some immediate pressure or
trouble, but a respect to the law of market economy would definitely promote
smooth economic growth in the future.
(Source: China Daily)
China allocates another 3.78 bln yuan
in subsidies to offset fuel hikes
BEIJING, June 20 (Xinhua) -- The Ministry of Finance said
late Friday it allocated another 3.78 billion yuan (548 million U.S. dollars) in
subsidies to help low-income families against the latest fuel price hikes
announced a day earlier.
Of the total, 1.85 billion yuan will go to urban
low-income families, and the rest will be offered to such families in rural
areas, the ministry said. Full story
Chinese official says refiners lost $435 per tonne before
price hike
BEIJING, June 20 (Xinhua) -- Chinese oil refiners suffered
a loss of about 3,000 yuan (435 U.S dollars) for each ton of production before
the overnight price rise. This was due to the widening gap between the frozen
domestic and soaring global prices.
Xu Kunlin, deputy head of the pricing department with the
National Development and Reform Commission (NDRC), made the remark during an
online interview on Friday. Full story
NDRC: Latest fuel, electricity price rise part of "steady"
reform on resources prices
BEIJING, June 20 (Xinhua) -- National Development and
Reform Commission (NDRC) experts told Xinhua on Friday that Thursday's move to
raise fuel and electricity prices was intended to adjust market supply and
demand and better allocate resources with the leverage of prices.
The move was in line with the country's goal to bring the
market more into play in forming prices under macro controls, said the
unidentified NDRC experts. Full story
China to raise prices of refined oil,
electricity
BEIJING, June 19 (Xinhua) -- China's top economic planner
announced Thursday night the country will raise the prices of gasoline, diesel
oil, aviation kerosene and electricity, revealing an unprecedented broad plan to
raise energy prices.
Beginning Friday, the benchmark gasoline and diesel oil
retail prices will be marked up by 1,000 yuan (144.9 U.S. dollars) per tonne,
with the price of aviation kerosene up by 1,500 yuan per tonne. Full story
