According to the World Bank's latest Chinese Quarterly Update, the surging international oil price is posing a significant challenge to the Chinese economy, and the Chinese government needs to raise fuel prices, the official Shanghai Securities News reported Friday.

The report said that the adjustment is necessary even if China can still afford the fiscal burden of price control policy over oil products.

Based on the 2008 average oil price of US$ 108 per barrel (WB's latest forecast), in the oil refinery industry alone the government will pay a total of 218 billion yuan of implicit subsidies to domestic consumers, about 0.8 percent of 2008 GDP, according to the report. If international oil prices stay at the current high level till the end of this year, total implicit subsidies could reach as much as 333.6 billion yuan.

"Although China, along with several other countries, keeps fuel prices at a low level to make fuel and other daily necessities affordable for people with medium-and-low incomes," the report noted, "that cheap oil is available for everybody, including the rich."

The report also suggested that the current low price policy is causing abnormal demand.

"Energy is a scarce commodity around the world," the report noted, "therefore it ought to be priced higher."

For more details, please read the full story in Chinese (http://paper.cnstock.com/paper_new/html/2008-06/20/content_61986805.htm).

(China.org.cn by Yan Pei June 20, 2008)