Inefficiencies stem from move to a market system

Many of China's major cities�including the country's economic showcase, Shanghai�are struggling with fuel shortages in the face of skyrocketing demand for oil products, RFA reports.

A diesel fuel shortage in Shanghai is the latest sign of trouble in China's energy market as the country's demand for oil races far ahead of forecasts.

Filling stations have run short of diesel throughout the past month in Shanghai, Jiangsu and Zhejiang, as well as Guangdong Province, according to reports in the official Chinese media. Supplies of gasoline are also said to be tight.

The news came at the same time as a report by the official Xinhua news agency that the Chinese oil companies Sinopec and PetroChina had announced plans to export a record amount of diesel fuel to other countries this year in an effort to keep domestic prices high.

Analysts said the contradiction highlighted inefficiencies in China's domestic markets.

"To have these two news reports side by side would seem to imply that the right hand doesn't know what the left hand is doing," Robert Ebel, energy expert at the Center for Strategic and International Studies in Washington, told RFA in a recent interview.

"Some shortages may be more local in nature, may be a problem with the distribution system," he told RFA's special correspondent, Michael Lelyveld.

Others see the trouble as the result of a collision between China's old system of central planning and its transition to a market economy. The government still limits the number of fuel suppliers and the retail prices they can charge, so they try to make money by selling abroad.

"Well, I guess this reflects the fact that China is in between the plan and the market," Philip Andrews-Speed, China energy expert at the University of Dundee, told RFA. "Twenty years ago, under the plan, the diesel would just have been shipped there. Now, you're not in the plan, but neither, it appears, is it a pure market."

He added that while Shanghai could not buy Chinese diesel, it still had the foreign currency necessary to buy diesel from Japan, South Korea or Singapore. "Quite why it isn't is not clear," he said.

There are signs that the diesel shortages in eastern China could be the first of many. The Paris-based International Energy Agency (IEA) has recently raised its estimate of worldwide oil consumption, citing the surge in China's growth as a major factor.

The IEA said China would pass Japan to become the world's second-largest oil importer next year.

Rapid growth in car ownership, boosted by rising urban incomes and the growing availability of auto finance, falling prices following China's accession to the World Trade Organization (WTO), and booming factory output have all had a strong impact on energy demand.

Beijing has made attempts recently to build up reserves of crude oil, to protect it against external economic shocks like the war in Iraq, and to diversify its supplies, reducing its dependency on the Middle East, but without much success so far.#####


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