GASOLINE at a record 8 yuan per liter, or about US$4.80 a gallon, may not be the end of pain at the pump for Chinese motorists.
If crude oil continues to rise and consumer prices maintain a more stable course, the Chinese government could raise fuel prices more frequently this year, analysts said, following Tuesday's larger-than-expected 6 percent to 7 percent increase in the price of gasoline.
For a long time, amid a government focus on spiraling inflation, Chinese oil companies have been forced to sell fuel products at below cost. In particular, for Sinopec Corp, Asia's largest refiner, domestic refining has turned into a value-destructive business the past decade.
The government in late 2008 announced a market-oriented pricing formula that allowed domestic fuel prices to be adjusted if the 22-day moving average of a basket of global crude rates changed more than 4 percent. More often than not, the formula has been sidestepped. That was especially true last year, when two price hikes and one reduction were announced. As crude prices surged, China's refining industry suffered heavy losses under the government's anti-inflation measures.
The Consumer Price Index, the main gauge of inflation, exceeded the government's 4 percent annual target every month last year.
Price reform to advance
However, top leaders seem to be more determined this year to advance plans for energy pricing reform. They set a higher-than-expected 4 percent inflation target that analysts said leave room for more increases in energy and utility prices. Inflation pressure has moderated in recent months, with consumer prices increasing a tamer 3.2 percent in February.
"We believe China's monetary policies will steadily loosen, potentially leading to more price increases for domestic refined products," said Gordon Kwan, head of regional energy research at Mirae Asset Securities, after Tuesday's price adjustment sent domestic pump rates to record highs.
In Shanghai, the ceiling retail price for the widely used 93-octane gasoline is now 8.27 yuan per liter, up from 7.79 yuan - an appreciation dubbed by local media as the official entry of the "8 era." Eight is supposed to be a lucky number in China, but motorists aren't feeling very lucky when it comes to filling up their tanks. Shanghai's prices are among the highest in China because the fuels here are of higher quality to meet stricter emissions requirements.
At 8 yuan a liter, Chinese motorists are indeed paying much more than those in the US. According to the US Energy Information Administration, the US regular gasoline prices averaged US$3.87 a gallon as of Monday.
China's National Development and Reform Commission, which sets energy prices, has said the higher pump prices reflect higher taxes on fuel.
Gasoline is taxed at 1 yuan per liter under the nation's consumption tax and at 17 percent under the value-added tax. The consumption tax was introduced in late 2008 to replace road maintenance fees and other annual charges and some road tolls.
Lin Boqiang, a Xiamen University energy professor, suggested that the government remit or reduce the consumption tax to mitigate the potential impact of higher fuel prices on China's economy and consumers, though he admits it would be only a short-term solution.
The latest fuel-price rise, announced late Monday, had been expected after the recent spike in international crude prices caused by tensions surrounding key supplier Iran.
However, the size of the increase came as a surprise. It was the biggest in almost three years and caused long queues at gas stations across the country before the new price regime took effect at midnight.
The increase immediately sparked public criticism, as all price rises do.
Source:shanghaidaily