National Development and Reform Commission (NDRC) experts told Xinhua on Friday that Thursday's move to raise fuel and electricity prices was intended to adjust market supply and demand and better allocate resources with the leverage of prices.
The move was in line with the country's goal to bring the market more into play in forming prices under macro controls, said the unidentified NDRC experts.
They said the increase was adopted to ensure market supplies. The production halt and suspension at local refiners had made it very difficult for the two state-owned oil companies to meet the entire market demand.
Local refiners in China produce about 20 percent of the country's total oil products output, but they suffered huge losses due to the gap between the frozen domestic prices and rising international prices. Some halted production to shun further losses.
The relatively low prices should also be blamed for the fast-rising demands, some even from neighbouring countries and regions, they said.
The country's power companies were also squeezed by rising power coal prices.
The experts said the price increases were expected to increase supplies and therefore ensure the market supplies. It would also help lift companies in the refining and power sectors out of losses.
Before the price increases, Chinese refiners suffered a loss of about 3,000 yuan (435 U.S dollars) for each ton of production, while each ton of imported gasoline and diesel led to losses of about 3,000 yuan and 5,000 yuan respectively.
China National Petroleum Corporation, the country's largest oil producer, saw its large amount of profits devoured, while China Petrochemical Corporation, the country's major refiner, began to report losses.
In the power sector, four of the five power companies in China reported losses in the January-May period.
The NDRC experts added the pricing reform on resources was in slow motion, with prices still too low. The country had worked out comprehensive plans on the reform of energy prices, and such increases were part of the reform, they said.
They also noted such increases in energy prices would promote the conservation of resources and the environment, and urge the shift of the country's heavy reliance on resources for economic growth.
The overnight price increase was also made in the principle of "being steady" in price adjustments to make it acceptable for all walks of life, said the NDRC experts.
The commission said late Thursday the country would raise retail prices of gasoline, diesel, aviation kerosene and electricity. It also made clear that prices directly related to people's livelihood, such as public transport, taxis, household electricity, would remain unchanged.
(Xinhua News Agency June 21, 2008)