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Fuel price rise triggers public debate

(Xinhua)
Updated: 2009-07-02 14:06

China's latest fuel prices hike, which is intended to reflect rising international crude cost, sparked widespread debate as consumers grumbled that the record domestic prices were even higher than those in the United States, the world's biggest oil consumer.

The 9-10 percent State-set price rise in gasoline and diesel as of June 30, the second in a month, forced the Chinese motorists to pay more than $3 a gallon, compared to an average of $2.69 a gallon in the United States last week.

According to a survey by the Chinese web portal sina.com, 94.3 percent of over 260,000 respondents thought fuel prices are too high now.

"We have to pay one-eighth more than the US consumers, but we earn only one-fifth of their income. It is really confusing," said a netizen from Guangdong province.

"Why is it so easy to see a domestic price rise when international prices rally, but so hard to see a price cut when global prices fall?" asked a netizen from Sichuan province.

Related readings:  Sinopec, PetroChina to increase output after fuel price hike China's economy regulator denies fuel price hike  Sudden fuel price hike ruled out   NDRC rules out fuel price cuts

However Zhou Ruohong, chief analyst with the consultant branch of the China Petrochemical Corporation (Sinopec), the nation's top refiner, told Xinhua Tuesday that the 600 yuan ($88.24) per ton increase was still not enough, according to the current price change mechanism.

Under the mechanism introduced in December, the National Development and Reform Commission (NDRC), the nation's economic planning agency, may adjust fuel prices when crude prices change more than 4 percent over 22 straight working days.

In the 22 working days through June 30, crude futures at the Brent, Cinta and Dubai markets averaged at around $68 a barrel, up 19 percent from the previous calculation period, said Niu Li, a senior researcher at the State Information Center who has kept recording the data.

By the current rules, the domestic prices should rise 1,000 yuan per ton at least. Refiners still face cost pressure, said Zhou.

Sinopec said on May 22 that it will lose money turning oil into fuel if the international crude prices rise above $60 per barrel and the Chinese government holds down domestic retail prices.

China's producer price index (PPI), the inflation gauge at the wholesale level, fell for four straight months in May, which gives the Chinese government room to raise prices.

Yu Chunmei, analyst with the Shenyin and Wanguo Securities said the prices could increase 400 yuan per ton at the end of July to prevent refiners from losing money.

She predicted the domestic price will change frequently in the future as international prices fluctuate.

As consumers questioned on the widening gap with the US fuel prices, experts held a different view.

"Fuel prices between the two nations are incomparable because of their different composition," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

According to the new rules, fuel prices takes into account crude prices, taxes and a profit margin for refiners.

Lin cited the increased fuel consumption tax in China, which is twice the average in the United States.

On Jan 1 this year, China raised the gasoline consumption tax from the previous 0.2 yuan per liter to one yuan per liter and diesel consumption tax from 0.1 yuan per liter to 0.8 yuan one liter and annulled six types of fees on road maintenance and management, to enable drivers to pay less if they drive less.

Lin noted in China the costs of transportation and marketing takes up 20 percent of the retail prices, while that number for the United States is only 12 percent.

"The cost gap could be 0.8-1.0 yuan per ton," he said.

He also attributed the gap to higher refining costs in China.

China's domestic fuel prices have long been lower than the international costs as government capped the prices to prevent the increasing costs passing to end users.

In response to the netizens' concern over easy price rises but harder-to-see price cuts, which had lingered for months, Xu Kunlin, deputy head of the pricing department of the NDRC said in an interview with Xinhua on May 8 that it is a "misunderstanding".

He said since the new rules took effect, the gasoline prices were cut by 1,140 yuan per ton and boosted by 290 yuan per ton. Diesel prices were cut by 1,260 yuan per ton and raised by 180 yuan per ton.

Lin Boqiang noted if China wants to keep links with international prices, the domestic prices will be higher than the US prices because of higher tax.

High fuel use tax and the retail price rise will help curb oil consumption amid the mounting oil use in China, said Niu Li.

According to Sina's survey, 90 percent of the respondents said they will drive less because of the high fuel prices.