Op-Ed Contributors
Transparent pricing mechanism
By Wu Yixue (China Daily)
Updated: 2009-11-25 07:53
The government's recent decision to charge non-residential consumers an additional 5.7 percent for electricity signifies a major step toward reforming its long-standing pricing mechanisms involving resource products.
The National Development and Reform Commission (NDRC), the country's top economic planner, announced last week that it would raise the electricity price for industrial and commercial users to 0.533 yuan (3.4 US cents) per kilowatt-hour from 0.494 yuan. Residential electricity rates remain the same for the time being, but a "ladder pricing" model is expected to be adopted in the future after an in-depth investigation and consultations, according to the NDRC.
Some domestic media and analysts have labeled this year a milestone one for adjustment of long-controversial energy prices. Since a new refined-oil pricing mechanism came into being last December, domestic concerns about a similar move in the pricing of natural gas and electricity have become particularly high. During the first half of this year, some cities raised water prices in what they said was to make up for increased costs.
Undoubtedly, a reasonable and scientific pricing mechanism involving the country's limited energy and resources, especially non-renewable, will give providers an incentive to expand production and help reduce waste among consumers. In recent years, China has been the subject of some controversy on the international stage over its lower energy and resource prices. And in China, more and more people have started feeling that excessively low resource prices are tantamount to encouraging a resources-consuming economic model.
As China regains economic growth momentum amid the global economic slowdown and its consumer price index (CPI) and producer price index (PPI) still at a low level, some domestic experts and scholars believe now is the best time for the country to push forward long-awaited reform of the pricing of energy and resource products. Also, the country's improving economic performance in the first three quarters has also highlighted the necessity to shift its focus from "growth pre-occupation" to a long-term and effective energy saving strategy to sustainably fuel its ever-expanding industrial structure.
According to the NDRC, the latest non-residential electricity price increase will help cushion the impact on power producers of rising costs for coal, on which the country depends for about three-quarters of its electricity generation. To encourage economical use of energy and resources, it said it would consider charging more for heavy residential users, while keeping unchanged the price for those who consume little.
In a sense, fuel price increases would help alleviate pressures on domestic refiners who have long claimed to be vulnerable to huge losses when prices for imported crude oil jump, and dovetail with the country's long-expected plan to limit its reliance on expensive crude oil imports. It would also help check the investment in energy-guzzling projects in the country where decades-long economic growth has been partly bolstered by investment, together with foreign trade.
However, some experts have also expressed deep concern that any widespread reform involving resources pricing will inevitably push up the prices of a variety of domestic energy and resource products, including those closely linked to the livelihood of the majority of ordinary people and thus contribute to inflation. Such worries are by no means groundless, especially at the time when the Chinese central and local governments have injected a lot of fluidity into the market to boost the economy in the context of the worst global economic slump in decades.
To preserve the country's limited energy resources, any move to this end should be warmly welcomed. But pricing reforms do not necessarily mean the rise of prices, which has usually been the case in China. What people need is for the government to set up a reasonable, scientific and transparent pricing mechanism involving products that are closely related with their daily life, even if such kind of mechanism leads to an increase in living costs.
In a country where most energy and resource supply has been mainly monopolized by a few State-run enterprises, all the costs that bolster their prices should be made public, and if necessary, some competition mechanisms should be introduced from private, or even overseas, sectors.
(China Daily 11/25/2009 page8)
