China Fuel Hike Sparks Complaints

April 6, 2006: Mid-afternoon traffic flows along Beijing's Second Ring road. Photo: AFP/Frederic J. Brown

China’s second fuel price hike in two months has sparked complaints from hard-pressed consumers, but the country’s oil companies say they will need even more to avoid further losses.

The average 10-percent increase for gasoline and diesel fuel ordered by the National Development and Reform Commission (NDRC) on May 24 came as a surprise to most motorists following more modest increases for fuel in March.

In Shanghai on May 11, taxi drivers received authorization for their first fare increases since 1998 following complaints that fuel costs had been eating into their earnings since last year.

In Beijing, fares rose on May 20 after a long delay. Now, less than two weeks later, fuel prices have gone up again.

Meanwhile, according to China’s National Bureau of Statistics, the oil company Sinopec lost 7.88 billion yuan (U.S. $985 million) during the first quarter of this year, while the country’s entire refining sector lost 9.8 billion yuan during the same period.

In an interview with Radio Free Asia, Frank Verrastro—director of the energy program at the Washington-based Center for Strategic and International Studies—said the NDRC is trying to steer a course between two unhappy constituencies: companies and consumers.

They obviously picked a number that they thought they could sell to the population and that wouldn’t be a drag on the economy,

Petroleum Argus

“It’s the classic one step forward and half-step backward,” Verrastro said.

Pointing out that the recent government-ordered rise in fuel prices has wiped out any benefit to taxi drivers from their increased fares, Verrastro noted that in Beijing that benefit lasted only four days.

“It was a brief respite, here. Two o’clock on a Tuesday, you’re feeling pretty good, and by Wednesday morning, you’re back in the hole again.”

Verrastro added that although China’s government appears to be committed to moving toward market prices for fuel, the pace of change “seems to vary depending on the public’s discontent, for political reasons.”

Jason Feer, Singapore bureau chief for the industry weekly Petroleum Argus , agreed that the NDRC has been “picking numbers” for fuel prices instead of letting the market decide.

For now, said Feer, “they obviously picked a number that they thought they could sell to the population and that wouldn’t be a drag on the economy.”

“The taxi drivers are almost certainly going to be unhappy, though,” he added.

“I guess obviously the government decided they could live with that unhappiness, so I think it may just be bad luck for the taxi drivers. I guess the flip side of that argument would be that you endanger employment in the oil industry if you don’t do something about the losses on the refining side.”

Feer said that China will probably still move toward reforms, since the state pays the high cost of subsidies to refiners and to poorer consumers like farmers.

Meanwhile, the gap between controlled prices and market prices remains dangerously high.

“Trying to raise prices to international levels right now would almost certainly be a jolt to the economy,” Feer said. “They’d have to raise them 20 to 30 percent all in one go, probably even more than that. And I think they’re just not prepared to do that.”

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.


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