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September 2, 2009

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Home » Business » Energy

China lifts fuel prices by 4-5%

CHINA took long-awaited action to raise prices at the gas pumps, boosting fuel costs by 4 percent to 5 percent at midnight last night.

But the hike was only about half the amount it would have been had the country's price-setting scheme been followed precisely.

The moderation was an apparent effort to spare consumers too much pain in the pocketbook as the October 1 National Day holiday - and the celebration of the 60th anniversary of the founding of the People's Republic of China - draws closer. Analysts said the smaller increase may also reflect concern that too big a jump could harm the nation's industrial output at a time when the economy is trying to achieve a recovery.


In Shanghai, the maximum retail price for the widely used 93-octane gasoline is now 6.05 yuan a liter, up from 5.81 yuan. Diesel fuel rose to 5.80 yuan from 5.54 yuan.

Rates vary among regions. Overall, the benchmark gas and diesel prices were increased by 300 yuan a ton, according to the National Development and Reform Commission, the top planner and price setter, or a rise of 4 percent to 5 percent.

The increase, however, fell far short of calculations based on the country's fuel price mechanism, which tracks a basket of global crude prices and calls for an adjustment if the figure moves by more than 4 percent. The 22-day moving average had risen 11.8 percent by Monday, and in accordance fuel prices should have increased by 540 yuan a ton, according to commodities research firm CBI China.

"The government is adjusting the degree of the price increase based on overall considerations, so the price increase was almost halved," it said.

The latest hike came after the NDRC denied a media report that it would cut the frequency of fuel price adjustments and said its market-based scheme would remain intact. The market had anticipated the price hike would occur last week based on the basket mechanism. Shares of Sinopec Corp, Asia's top refiner, plunged the maximum allowable 10 percent on Monday in the absence of a price hike.

Cui Xinsheng, a professor at Beijing Institute of Technology, said the situation underscores the dilemma the government faces.

"A good pricing scheme should be able to take into account domestic fuel demand and global crude prices and not simply follow crude price changes," Cui said.

Rong Guangdao, chairman of Sinopec Shanghai Petrochemical Co, a unit of Sinopec, earlier raised concern about the government's commitment to the pricing mechanism. He said in Hong Kong on Monday that the company's oil processing operations were on the verge of losses with the government delaying a fuel price increase. He said uncertainty and non-transparency in pricing makes things harder for refiners in investment decision-making.

The latest hike is the fourth increase this year, along with two price cuts.


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