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China raises prices of fuel, electricity

Beijing: China announced an overnight sweeping rise in its domestic energy prices. Effective from Friday, the cost of diesel is up by 18.1 per cent and that of gasoline by 16.7 per cent. Electricity costs have also been raised.

With global oil prices at a historically unprecedented high, Beijing has been facing complaints that its domestic price controls on fuel were causing turmoil in international oil markets. However, the move is an attempt to cool down China’s voracious appetite for energy and to secure relief for its refineries, which have been reeling under losses.

“The increase in the prices will benefit domestic oil companies,” said the National Development and Reform Commission (NDRC), top planning authority in a statement on Thursday. Soaring oil prices had created “contradictions in the purchasing price of oil being higher than the selling price of refined products that were becoming more glaring by the day,” it added.

This had led some refiners to halt or suspend production, bringing supply interruptions and long lines at filling stations. China, the world’s fourth-largest economy, accounts for around 40 per cent of the increase in world oil consumption to fuel its double-digit economic growth.

The price increase is, however, far from risk-free for China’s ruling Communist Party, given the effect it may have on already spiralling inflation. Inflation rose 7.7 per cent in May year-on-year after touching a 12-year-high of 8.7 per cent in February.

With one eye on potential public outcry over the latest rise in fuel prices and the added inflationary pressure it is likely to result in, Beijing has been careful to announce an array of subsidies for certain groups to offset the effect of the hike.

The Ministry of Finance said on Friday it had allocated 19.8 billion yuan ($2.8 billion) for this purpose.

Grain producers will get 7.8 billion yuan ($1.1billion) while 12 billion yuan ($1.7billion) would be set aside for taxis, urban and rural buses and the fishery and forestry sectors.

Areas in Sichuan province, hit by an earthquake last month, are also exempt from the increases. China’s announcement led to an immediate fall in the price of oil in international markets by around $4, down to some $132 a barrel.

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