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High gas prices run against market

By Li Hong (chinadaily.com.cn)
Updated: 2008-11-04 16:23

Chinese car owners and cab drivers are struggling to understand an abnormal phenomenon. While oil prices are plummeting on the world market gas stations here, nearly all owned by PetroChina and Sinopec, recently hiked their prices in Beijing and other major cities.

Oil hit a record high of US$147.27 a barrel in mid July on seemingly insatiable demand from the United States, Europe, Japan, China, India and elsewhere. Afterwards, the American sub-prime mortgage debacle kicked in, triggering a worldwide financial meltdown. Now, an imminent and dreadful economic recession is gripping everyone, leading average Joes to tighten belts, and cut down on costs like gas.

Falling demand for gas, and a precipitous plunge in new vehicle sales reported by all known car brands in September and October, have offset the crude cartel OPEC's plans to reign in production. The price of oil has slumped to about US$65 a barrel, from the peak only months ago.

Reflecting the marketplace's supply and demand, gas prices at the pumps dipped significantly everywhere, but in China. In early October, the National Development and Reform Commission, the government's price regulator, approved the application from PetroChina and Sinopec, the country's two giant oil conglomerates, to raise prices by about 4 percent in Beijing.

The move has drawn swaths of noisy complaints and mockery from the public and online bloggers, who charge the commission with being in the pockets of the oil moguls who are trying to seize hard-earned wealth from the car-owners. Some even griped that the government is "punishing the successful middle class" that have become well-off and sedan-owners thanks to Mr Deng Xiaoping's epoch-making reform projects started in 1978.

It doesn't make sense that this country has chosen to buck the market trend by keeping the prices of gas at a historical high, while the world's price has dived by more than 110 percent. The back-up for the lofty pump charges by the government has manifested its irresponsibility as the inaction has cut deep into the pockets of the car-owners, and made the life of millions of cab drivers harder.

Some have pointed at local governments, including Beijing, Shanghai and Guangzhou, which have wrongly diverted taxpayer's money to subsidize the cab drivers, while, the high cost of gas should have been lowered according to the market rule.

The financial crisis that started on the other side of the Pacific has made a dent in the Chinese economy, as sagging export shipments and slowing domestic capital investment and consumption dragged down China's GDP growth the July-September period to 9 percent. Now, more coastal processing firms face the dim prospect of being shut down.

Beijing has said over and over again that jumpstarting domestic consumption could prevent a sudden hard landing of the economy. But, keeping the pump price at that high surely isn't a wise move to aid consumption, both for fuel itself and in car sales in China, one of the lasting star markets of the world. As it is known to all, vehicle production, together with auto parts supplying, has become one of China's pillar industries.

In Beijing, Shanghai, and all the big cities, the governments could continue to invest in suburban freeways zigzagging to the mountain slopes and pond-side villas, to jerk up consumption and ignite car sales.

One of my friends told me a few days ago that his family has refrained from dining in Beijings restaurants because of the bulging gas bills. He joked that more money could be saved if gas prices were lowered, which could be spent on other items.

As China is destined to phase in a market-oriented economy, economists have strongly advocated that Beijing trim, and eventually do away with, irrational government planning, such as the current price at the pumps. By trimming government price interventions, the public will feel a sense impartiality and justice instead of indignation.

Contact the writer: lihong@chinadaily.com.cn