The central government has adopted a comprehensive and
coordinated oil price readjustment plan to counter the effects of
international oil price hikes. In a Xinhua News Agency report on
March 26, officials with the National Development and Reform
Commission (NDRC) explained the main points of the plan.
The background to the plan
In 1998, China set up a mechanism to fix domestic oil prices
against international prices. The mechanism played an important
role in speeding up the establishment and development of Chinese
petroleum and petrochemical enterprises, helping to maintain the
continued development of the petroleum industry, ensuring maximal
use of domestic and international resources, guaranteeing domestic
supplies, and safeguarding the national economy and social
However, major changes over the last two years, in particular,
in both domestic and international markets have destabilized the
situation somewhat. The Chinese petroleum industry now finds itself
faced with the following:
First, the imbalance between oil supply and demand is stark. Per
capita verified oil deposits in China are far lower than the world
average. Further, China's demand for oil and its import volumes
grow every year in keeping with its rapid development. Currently,
imports account for more than 40 percent of the country's total oil
Second, recent international price hikes have hurt domestic
enterprises hard. In 2003, prices were about US$31 per barrel; in
2004 the figure rose to about US$41 per barrel; and in 2005 the
figure jumped to US$56 per barrel. Current prices stand at about
US$60 per barrel.
Third, as a result of international price hikes, crude oil
prices are now more than domestic refined or processed oil prices.
The average sale price of domestic processed oil is only about
US$43 per barrel.
Fourth, the price differential between crude and refined oil
prices is forcing many domestic enterprises out of business.
However, recent price adjustments to refined oil prices to keep
them in line with crude oil prices have put enormous pressure on
other industries such as transportation and agriculture.
Key objectives of the plan
The key objectives of the plan are as follows:
- To guarantee oil supply and promote a steady development of the
national economy. Huge differentials between domestic and
international prices are dampening enthusiasm for production and
import, which has led to increased resource outflow and a markedly
reduced domestic supply of refined oil;
- To adjust the interests of industry and protect the interests
of citizens, particularly low-income earners;
- To cultivate an energy-saving society thereby promoting
economic growth. In this respect, the challenge the government
faces is addressing the negative impacts domestic oil shortages
have on economic and social development. On the other hand,
resource wastage has become an increasingly serious problem. The
vehicles on China's roads, for example, consume 20 percent more
fuel than in developed countries;
- To give full play to basic functions of market-driven resource
allocation so as to improve the market economy system.
Key measures implemented
The NDRC's decision to regulate domestic oil prices was based on
the following considerations: to improve energy efficiency and
better utilize domestic and imported supplies to meet the demands
of economic development; to keep in mind the interests of the
various industries involved; and to unequivocally push forward
One of the measures implemented is a subsidy system for
certain sections of the community and public service sectors.
Further, fees or levies will be collected from oil producers who
sell refined oil domestically.
The recipients of the subsidies will include farmers, fishermen
and fishing firms, state-owned forestry enterprises, and urban
public transportation firms.
For rural passenger shipping operators, the government will also
adjust transportation charges, thereby passing on price increases
Similarly, travel charges and fuel surcharges will be levied for
air, railway and road transportation.
Taxi drivers in the cities have been the hardest hit by
continually increasing oil prices. The NDRC has urged local
governments to lighten their burdens by implementing measures
including regulating rental fees collected by taxi companies and
cracking down on unlicensed taxi operators.
(China.org.cn by Guo Xiaohong and Li Jingrong, April 4,