China's New Fuel Price Hike Hurts Drivers, Impact Limited on Economy

Park Sae-jin Reporter() | Posted : July 1, 2009, 22:09 | Updated : July 1, 2009, 22:09

China's latest fuel price hike from Tuesday would certainly pinch the pockets of consumers, but may not leave a lasting impact on the nation's economic recovery, analysts said.

Gasoline, diesel and jet fuel prices in the country were raised by as much as 11 percent from Tuesday, the third increase this year and the second in June, to reflect recent price changes in the global oil market.

For many like the 24-year-old fashion writer He Yi, it is time to tighten their purse strings, Wednesday's China Daily reported.

He said she is determined to use less air-conditioning when driving, despite the scorching heat in Beijing.

According to a survey by the Chinese web portal, more than 90 percent of the 180,000 respondents said they had decided to drive less in response to the price hike, and more than 94 percent thought fuel prices are too high now.

Pump prices for 90 octane gasoline in Beijing was set at roughly 5.71 yuan a liter, or about 3.16 U.S. dollars a gallon, the National Development and Reform Commission, the nation's top economic planning agency, said in a statement on its website late Monday.

That compares to an average of 2.69 U.S. dollars a gallon in the United States, according to Bloomberg.

China's retail fuel prices are controlled by the government under a mechanism introduced in December that takes into account of crude prices, taxes and a profit margin for refiners.

The country may adjust fuel prices when crude prices change more than 4 percent over 22 straight working days. Crude oil futures have risen 60 percent to more than 70 dollars a barrel this year from a July record on signs of a global recovery.

However, economists and analysts believe this round of price hike will not have any direct and obvious impact on the Chinese economy, which is largely fueled by coal.

"As China only needs oil to supply 20 percent of its energy consumption, costlier oil will not make things as bad as costlier coal," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

"However, the economy will be hurt if higher crude prices drive up coal prices," Lin said.

In addition, China's consumer prices fell for a fourth month in May, making it easier for the government to raise oil prices, said Niu Li, senior researcher at the State Information Center.

The price hike comes amid a surge in demand for automobiles in the world's third-largest economy. Passenger car sales rose 47 percent in May to 829,100 units, the biggest jump since February 2006.

Chen Zheng, an auto industry analyst with China Securities Co, believed that consumer demand would not be seriously dampened by this round of price hikes, as China's car owners are largely social elites, who can afford the moderate increases in gasoline prices.

"But if oil prices continue to surge, I'm sure many people will stop buying new vehicles, especially the high-emission cars," Chen said.

PetroChina and Sinopec, two major oil producers, went high shortly after opening, but closed with smaller gains, up 0.28 percent and 0.66 percent to 14.48 yuan and 10.66 yuan respectively in Shanghai Tuesday.
By Xiong Tong (XFN)

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