More pain at the pump for consumers

While China's latest fuel price hike on June 30 took an immediate toll on consumer pocketbooks, a long-term negative effect on the economy appears unlikely, analysts said.

China's gasoline, diesel and jet fuel prices increased as much as 11 percent -- the third increase this year and the second in June -- to reflect recent changes in the global oil market.

For consumers like 24-year-old fashion writer He Yi, it was time to tighten the purse strings, China Daily reported on Wednesday.

He said she is determined to use less air-conditioning when driving, even in the summer heat of Beijing.

According to a survey posted by the Chinese Sina.com website, more than 90 percent of 180,000 respondents said they would drive less in response to the price hike.

Pump prices for 90-octane gasoline in Beijing was set at roughly 5.71 yuan a liter, or about $3.16 a gallon, the National Development and Reform Commission reported in a statement on its website .

That compares to an average $2.69 a gallon in the United States, according to Bloomberg news service.

China's retail fuel prices are controlled by the government under a mechanism introduced in December that takes into account the level of crude prices, taxes and a profit margin for refiners.

The country can adjust fuel prices when crude prices change more than 4 percent over 22 consecutive working days.

Crude oil futures have risen 60 percent to more than $70 a barrel this year on signs of a global recovery.

However, economists and analysts believe this round of price hikes will not have any direct impact on the Chinese economy, which is largely fueled by coal.

"As China only needs oil to supply 20 percent of its energy consumption, costlier oil will not make things as bad as costlier coal," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

"However, the economy will be hurt if higher crude prices drive up coal prices," Lin added.

In addition, China's consumer prices fell for a fourth month in May, making it easier for the government to raise oil prices, said Niu Li, senior researcher at the State Information Center.

The gasoline price hike comes amid a surge in demand for automobiles in the world's third-largest economy.

Passenger car sales rose 47 percent in May to 829,100 units, the biggest jump since February 2006.

Chen Zheng, an auto industry analyst with China Securities Co, said he believes China's car owners can weather the latest increases in gasoline prices.

"But if oil prices continue to surge, I'm sure many people will stop buying new vehicles, especially the high-emission cars," Chen said.

PetroChina and Sinopec, two major oil producers, went high shortly after opening. But they closed with smaller gains -- up 0.28 percent and 0.66 percent to 14.48 yuan and 10.66 yuan, respectively -- in Shanghai early last week.

Xinhua - CBW

(China Daily 07/06/2009 page3)