China has raised fuel prices by almost 10% in an effort to ease the country's worsening supply crisis. Officials hope the extra revenue will make refiners increase production, easing the long queues and rationing at filling stations.
The rise is a reversal of policy. In September the government promised to keep fuel prices at current levels fearing that the move could add to rising inflation (5 to 6%), which is already at record highs. China has long had a system of price controls to prevent inflation and social unrest but since oil prices are sky rocketing Chinese refiners were unable to pass those rises on to consumers. Many had already cut their supplies to limit losses. The National Development and Reform Commission, China's main planning agency, said the government had decided to increase fuel prices to "guarantee domestic refined oil supply and promote energy conservation". But the commission promised to shield the public from some of the increases. "Prices of railway tickets, natural gas for civilian use and public transportation will not be raised to reduce the impact of the price hikes on the public," the commission said in a statement. It also added that subsidies would be given to taxi drivers. Following the announcement of the increase to fuel prices, China's main oil companies moved to double their imports of diesel and benefit from the extra cash on offer. Sinopec and PetroChina were reported to be looking for an extra 120,000 tonnes of diesel for November. However, analysts warned that the companies would still be losing money. Following the announcement Sinopec's shares jumped 10%, while PetroChina's advanced 4% to a record high.