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China plans fuel and rice prices “stabilization” to contain inflation

As fuel prices climb, Chinese commuters are turning to public transport and bicycles

China will introduce tax measures to ensure sufficient fuel production if global oil prices exceed 130 US dollars a barrel, China National Radio reported Thursday. Domestic prices of gasoline and diesel may not be increased after crude reaches that level the state broadcasting system said quoting a National Development and Reform Commission official

China raised retail fuel prices this week (6% on average) for the second time this year after oil advanced to the highest in more than 30 months, undermining government efforts to cap costs and cool inflation. Crude in London settled at 122.67 USD a barrel Wednesday, the highest since August 2008.

“The government won’t allow imported inflation to spur increases in domestic consumer prices”, China National Radio reported, citing NDRC Vice Chairman Peng Sen. Price increases will taper off towards year-end, Peng said.

In a separate report by China Central Television, Peng said China is studying measures to stabilize the price of rice. The government may implement measures for rice “similar” to what it did for wheat last year, when subsidies were handed to the country’s large grain companies, according to Peng.

In the longer term, the government aims to “further optimize” the way it prices gasoline and diesel before 2015 and will adjust the pricing system for natural gas, water and renewable energy, China National Radio said.

The government also wants to guarantee the profitability of the nation’s electricity generators by making “gradual” changes to power pricing, the broadcaster said, citing Peng.

Experts said the oil price increase would add to inflationary pressure in China, whose consumer price index (CPI), a major gauge of inflation, has remained high since mid-2010. China's CPI jumped 4.9% in February from one year earlier, exceeding the government's full-year target of 4%.

”The oil price rise will contribute 0.07 percentage points to April's CPI increase”, said Zhao Jidong, an official with the National Bureau of Statistics. The price hike exceeded people's estimates, as China's fuel prices increase are usually in the range of 0.2 Yuan to 0.3 Yuan per litre.

The ceiling for gasoline prices rose by 500 Yuan (76.34 USD) per ton and diesel by 400 Yuan per ton, the National Development and Reform Commission (NDRC), China’s top economic planner, said in a statement.

China’s official news agency Xinhua said that rapid economic development over the past three decades has led more people to abandon bicycles and buses for cars as the main method of transport. However with fuel price hikes, for many a return to bicycles “seems to be getting closer”.

Furthermore Beijing raised daytime parking fees in downtown areas starting April in a bid to curb traffic congestion. Fees for roadside parking were raised to 10 Yuan for the first hour of parking and 15 Yuan for each following hour. Underground car parks now charge 6 Yuan per hour, and off-street parking spaces cost 8 Yuan per hour.

“On one hand, higher oil prices will test the government's ability to contain inflation. On the other hand, it will promote the use of public transport, which is good for our environment” said An Tongliang, a professor with Nanjing University quoted by Xinhua.