(China Daily)
Updated: 2007-11-02 15:27

The 8-percent price hike on major oil products yesterday highlighted the need to address the supply shortage that is creeping across China.

Price hikes for necessity goods should not be treated as a stopgap way to boost production. Policymakers must do more to promote energy conservation.

When announcing that the prices of gasoline, diesel oil and jet fuel would be raised by 500 yuan (US$68) per ton, the National Development and Reform Commission (NDRC), the country's top economic planner, stressed that the revision was intended to ensure domestic fuel supplies and encourage energy saving.

The first argument is self-evident.

The gap between the prices of global crude and domestic oil products is widening significantly, especially since the former recently topped US$90 a barrel. Consequently, Chinese oil refiners are losing money by selling fuel at below-market prices.

When some domestic refineries stop processing to avoid losses, a price hike for oil products becomes necessary to ease shortages or tight supplies.

It is not easy for policymakers to make such decisions.

In the face of the mounting pressure of inflation, which stood at 6.2 percent in September, the authorities have kept a tight lid on domestic fuel prices to keep prices in check. Though it is estimated that the latest price hike will only lift the monthly consumer price index by 0.05 percentage point, it is far from clear what ripple effects it will have on prices of other products and the overall rate of inflation.

From this perspective, it appears that policymakers have risked inflation to ensure oil supplies in the domestic market.