Beijing shuns fuel hike ahead of holiday

(Agencies)
Updated: 2009-08-31 22:09

BEIJING: China said on Monday that its market-based oil pricing scheme remained intact, despite holding off a much-anticipated price hike last week in a move analysts said was to avoid uneasiness ahead of a major national anniversary.

The step back from a possible 6-8 percent increase in retail gasoline and diesel prices, which would have been the fourth this year, sent share prices of state refiner Sinopec Corp down 3 percent in Hongkong and 10 percent lower in Shanghai on Monday.

Planning agency the National Development and Reform Commission (NDRC) said late on Monday that no recent changes had been made to its exisiting fuel price system, and denied a media report that Beijing would reduce the frequency it adjusted prices.

To ensure a harmonious National Day on October 1, the 60th annivesary of the founding of the People's Republic of China, Beijing may hold off its next price move till after the holiday, worried that an immediate fuel price rise would have stirred public resentment, analysts said.

"The government wants to ensure a harmonius National Day," said Liu Bo of Guojin Securities, adding that Beijing's other concern was the building of inflation expectations after rapid credit growth and fast-rising asset prices.

If the 22-day moving average of global crude prices, on which Chinese fuel prices were based, is sharply above the previous price change in late July, Beijing may emerge to announce a bigger price increase post-holidy to make up for last week's inaction, said Liu.

New System

But if crude prices retreat sharply, the government may cancel out a previous increase with a price cut.

Beijing ushered in a "perfected" fuel pricing system at the start of 2009 to track a basket of global crudes that more or less guaranteed a margin for refiners when crude was under $80.

Energy price reforms have been long discussed.

The mechanism, replacing road taxes with sharply raised consumption taxes for gasoline and diesel, was aimed at curbing wasteful fuel use and also to stave off shortages that were frequent between 2004-2008 when rigidly capped pump prices forced refiners to cut output.

But the system, tracking a basket of three international crudes on an unpublished formula which manadates a price change when that average shifts more than 4 percent, has become a new tool for speculation, analysts said.

Fuel wholesalers, by closely monitoring the global markets, hoard oil in anticipation of a price hike and unload stocks ahead of an expected price cut.