BOSTON—China isresisting international pressure to raise its fuel prices as world energy costssoar, experts say. While Chinacontinues to subsidize fuel, its oil demand keeps climbing while consumptionfalls in much of the industrialized world, according to recent reports.
At a key meeting in Japanon June 8, China joined India, South Korea, and the G8 group ofindustrialized nations in an agreement to boost efficiency and fight risingenergy prices.
But Chinaclashed over its response to rising prices and failed to coordinate policieswith the G8, which includes the United States,Britain, Canada, France,Germany, Italy, Japan,and Russia.
In a speech to energy ministers, Zhang Guobao, vice ministerof the National Development and Reform Commission (NDRC), refused to budge onBeijing’s policy of paying Chinese refiners to sell fuel at prices that havebeen frozen since last November, while world oil prices have jumped by 50percent.
The rate of inflation is quite high in China. Itworries the government, and they don't want to do anything to make it worse."<br/>Robert Ebel
Zhang, who heads China’s EnergyBureau, rejected the argument against subsidies.
“Decisive factors for oil prices have run beyond the conceptof supply and demand,” Zhang said, according to China’s official Xinhua newsservice. Zhang instead blamed market speculation and other factors, includingexchange rates and geopolitics.
But China’sregulated gasoline prices are about 38 percent lower than average prices in theUnited States,according to data from Reuters and the U.S. Department of Energy (DOE).
China’sfuel prices are also about 40 percent below those in Indiaand 20 percent cheaper than in Vietnam.
A report this month by the Paris-based International EnergyAgency (IEA) found that China’soil demand will rise by 5.5 percent this year to nearly 8 million barrels perday, more than the previously estimated 4.9 percent.
Other countries in the region have already eased their pricecurbs, but “only a large price adjustment in China has the potential tosignificantly alter the demand picture,” the IEA said.
In an interview with Radio Free Asia, Philip Andrews-Speed—aChina energy expert at the University of Dundeein Edinburgh, Scotland—saidthat China’sgovernment could allow a modest price hike after the Olympics. But he added, “Ican’t see them rushing to bring it up in line with what’s happening in othercountries.”
Inflation fears
China iswidely expected to keep its price freeze in place through the Olympics and continuepaying subsidies to ensure that its oil companies provide enough fuel for theevents in Beijing.
But Robert Ebel, chairman of the energy program at the Washington-basedCenter for Strategic and International Studies—questions whether inflationfears will prevent the government from allowing higher prices even after theOlympics.
Last week, China’sNational Bureau of Statistics said that consumer prices rose at a 7.7 percentannual rate in May, down from 8.5 percent in April but still far above targets.
“The rate of inflation is quite high in China. Itworries the government, and they don’t want to do anything to make it worse,”Ebel said.
China mayalso be worried by the example of India, which suffered a wave ofprotests after a 10 percent increase in fuel prices in early June.
“China’svery much aware of what’s going on in India, and they’re aware that thesame thing could happen in their own country if they’re not careful,” Ebelsaid. Social instability remains a major concern for the government,Andrews-Speed agreed.
“I think it would be sensitive about it, even withoutlooking at India,”he said. “There are enough social disturbances in China for different socio-economicreasons that they wouldn’t need an external example to make them very cautiousabout it.”
Experts have urged China for years to target subsidiestoward sectors of society that need them, rather than pay oil companies tofurnish cheaper fuel to all consumers regardless of need. But the governmenthas been slow to develop systems that can deliver aid to farmers and otherspecific consumers.
“Chinadoesn’t have the social security infrastructure to provide what subsidies maybe needed to agricultural workers or the poor who need access to cheap energy,”Andrews-Speed said.
“Until such institutions and mechanisms are in place, anygovernment in Chinais going to be reluctant to raise oil prices significantly, I think.”
Original reporting by Michael Lelyveld. Edited for the Web by RichardFinney.