Inflation challenged as diesel shortage looms

0 CommentsPrint E-mail Xinhua, November 21, 2010
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The State Council, China's Cabinet, yesterday ordered local governments to take further measures to combat inflation.

Local governments must boost production and ensure supply while checking irrational demand and punishing illegal activities that push prices up, a circular on government website said.

The measures cover agricultural production, the stabilization of the supply of agricultural products, reduction in the cost of agricultural products and temporary subsidies.

From December 1, road-toll stations are forbidden to collect fees from vehicles transporting fresh agricultural products, including vegetables, fruit, aquatic products, meat, eggs and milk.

China's consumer price index, the main gauge of inflation, rose to a 25-month high of 4.4 percent year on year in October. The hike was mainly due to a 10.1 percent surge in food prices. Food prices have a one-third weighting in the calculation of China's CPI.

Meanwhile, China's largest oil refiner, Sinopec said on Friday it has suspended diesel exports as the domestic market faces shortage and the country fights rising inflation.

Sinopec also said it is seeking to import 200,000 tons of diesel.

PetroChina Co, China's largest oil producer, has also ordered 200,000 tons of diesel, among which 35,000 tons has arrived.

Insiders said China's diesel output in the first nine months soared, prompting the two oil giants to expand exports.

Sinopec attributed recent hikes in the domestic price of diesel to hoarding, seasonal factors, transport factors and energy-saving measures.

"The fundamental reason for the diesel shortage is the industry monopoly. Oil refiners are not keen to increase production because profit margins in the sector are relatively low," said Qi Fang, director of the Hebei Provincial Petroleum Industry Chamber of Commerce.

"The two oil giants operate on a planned-economy basis, resulting in an unbalanced supply-and-demand situation. Supply and demand can easily outstrip each other as government planning cannot keep pace with changes in the market," Qi said.

Statistics from the General Administration of Customs show China exported 360,000 tons of diesel in October, while diesel imports that month rose to 400,000 tons.

The diesel shortage and inflation are linked. Farmers need diesel fuel to run tractors and other farm equipment, so the diesel shortage could directly worsen a shortage of vegetables because farmers can't plant and harvest as many.

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