- Title: CHINA: Expert says China's fuel price hike is mainly symbolic
- Date: 20th June 2008
- Summary: CITY SKYLINE VARIOUS OF BUILDINGS IN SMOG
- Embargoed: 5th July 2008 13:00
- Keywords:
- Location: China
- Country: China
- Topics: Economic News
- Reuters ID: LVAA466XZGT0D7RF402F53QNJACW
- Story Text: Expert says China's fuel price hike is only symbolic at a time of mounting international pressure for some kind of action to tame soaring global prices, and will have limited effect on driving inflation up further.
China unexpectedly raised retail gasoline and diesel prices by up to 18 percent on Thursday (June 20), the sharpest ever single increase.
It is the country's first hike in eight months and comes after little progress has been made toward its long-stated goal of raising energy prices to reflect higher costs and to encourage greater efficiency.
Prices for gasoline and diesel fuel rose by 1,000 yuan ($145 U.S.
dollars) per tonne each effective from midnight on Thursday (1600 GMT).
The rise comes at a time of mounting international pressure for some kind of action to tame soaring global prices, which have spurred protests worldwide and threaten to cut economic growth.
While neighbours from India to Indonesia had already bowed to the pressures of near $140 U.S. dollar oil by scaling back subsidies and raising fuel prices, most people had expected Beijing to hold out until after the Olympics in August as policy makers focused on battling inflation and avoiding any hint of social unrest.
Analysts however said the surprise increase will not undermine the country's fight against inflation, on the contrary, it reflects confidence that overall price pressures can be contained.
"The government is sending a clear signal to the market by adjusting the price that it was able to increase the fuel prices despite under heavy pressure and with complicated factors involved. I think the government, by adjusting the fuel price, hopes to send a signal to the market and guide it to make adjustment itself accordingly," said fuel expert He Jun.
The higher resource prices will feed into inflation, but in a nation where consumers spend little on fuel products, the impact is expected to be relatively small.
"The average price rise is 16 to 18 percent. Personally, I think considering the economic development and people's living standard in China, the price rise is bearable," said He Jun.
Oil steadied to around $132 U.S. dollars in Asian trade after falling sharply on the Chinese move, which could depress demand for crude there.
China's rapid demand growth was one of the catalysts for oil's almost seven-fold surge from $20 U.S. dollars six years ago to a record high of nearly $140 U.S. dollars a barrel earlier this week.
The 16.7 percent increase in gasoline takes the pump rate to about 75 U.S. cents a litre, still a quarter cheaper than in the United States and about one-third what British motorists pay.
But some people have already felt the pressure of the price increase.
"It definitely affects me. Before five yuan seemed like a lot to pay, but now it is on its way to 10 yuan. I will drive my car less and go out less. And the roads will definitely be less busy," said Mr. Chang.
People who don't own a car hailed the price hike, as the air quality and traffic could improve with less cars on the road.
"Fuel prices have gone up. It will help curb air pollution since people will drive less, and they will rely more on public transportation. The roads won't be so packed anymore," said Mr. Han.
No more than fifty days before the opening ceremony of the Olympic Games, Beijing was again shrouded in smog in a graphic reminder of how much remains to be done to clear the city's skies for the August event and September's Paralympics. - Copyright Holder: REUTERS
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