Market's role in pricing

At a news conference on Monday, Vice-Minister Lian Weiliang of the National Development and Reform Commission said they would allow the market to play a bigger role in deciding prices.

Interestingly, the move has been interpreted by some media as a signal that the prices of water, gasoline, natural gas, electricity and transportation will rise, increasing the cost of living.

That is a misunderstanding of the price reform, says a column in People's Daily. For a long time, China's natural resources have had distortedly low prices; this has resulted in natural resources being over-exploited, causing both a resources drain and pollution.

Lessons should be drawn from the experiences of several provinces that have massively developed high energy consuming industries because they had coal. After the mine owners have filled their wallets, the local people find their sweet home so heavily polluted that no one wants to live there.

It is impossible to curb extensive development unless there is a market pricing mechanism that links prices with the scarcity of resources; that is also necessary for industry upgrading, which requires us never to sell resources at cheap prices any more.

Actually, price reform does not necessarily mean just rising prices. Telecommunication prices have been continuously falling, while gasoline prices follow the trend of the global oil market. Besides, the people's basic needs will be considered and protected by pricing mechanisms if resource prices do rise.

For example, China imports large quantities of natural gas every year to satisfy domestic needs, but its supply price has long been even lower than the import price; it is imperative the mechanism is changed to avoid waste and promote sustainability. In order to avoid hurting people's basic needs, the national reform plan this July has adjusted prices of natural gas for non-residential use only, so that the ordinary people do not have to bear higher living cost.

The principle is widely used in price reforms of other kinds of resource products such as electricity and tap water to ensure the people's interests. Hence there is no need to equal market-oriented price mechanism with price hike, let alone worry it might hurt the residents' livelihoods.

(China Daily 11/28/2013 page10)