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To raise oil prices or not, that is the question

(China Daily)
Updated: 2008-05-13 09:21

These developments have given rise to speculation that the government will raise the price of refined oil to balance its domestic demand and supply mechanism, prompting some people and enterprises to stock up on gasoline and diesel.

Scorching price rise rumors, however, the country's two oil giants, PetroChina and Sinopec, have said on the National Development and Reform Commission (NDRC) website that the government has no intention of doing so. In fact, it is committed to ensuring enough oil supply.

"The government is worried that the higher price of oil could push up the already very high rate of inflation," says Zhou Dadi, director of NDRC's Energy Research Institute. Although the country's inflation, measured by the CPI, eased from 8.7 percent in February to 8.3 percent in March, the figure was far from comforting. April's CPI, released yesterday, was 0.2 percentage point higher than in March.

On many an occasion, Premier Wen Jiabao has said that the government would tackle the problem of rising prices and mounting inflationary pressure, even though it was not an easy job. "Pricing is a serious problem, and timing is of the greatest importance because any delay could create serious problems," says Zhang Liqun, a research fellow with the State Council, the country's cabinet. "Oil-dependent sectors, such as transport, building and textiles, will be hit the hardest if the price of refined oil is raised. And these sectors, in turn, will pass on the cost to others."

Zhao Jinping, deputy department director of the State Council's Development Research Center, says: "Raising the price of refined oil is not an easy job. To ensure that the interests of the people and industries are protected, the government has to take many factors into consideration."

"The price is likely to be raised at the end of this year or the beginning of next, but not before that," says Zhuang Jian, a senior economist with the Asian Development Bank's China Representative Office. Despite the government subsidies, Zhou Dadi concedes "it is a complex problem that could not be solved at one go".

Han, who drove from Beijing to Guangdong, best presents the complexity of the problem when he says: "On one hand, drivers may not need to wait for oil (if prices rise). On the other, I'm not willing to pay any extra amount. So the government has to find a better balance."

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