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China: Raising fuel prices, raising tempers

Categories: East Asia, China, Economics & Business, Environment, Governance, International Relations, Protest

As China's economy continues to grow, so too do the kinds of complaints that come with modern life [1]. And while gas prices are kept lower than can be found in many other countries, two prices hikes in the last year alone have left many of China's rapidly-growing middle class grumbling, and taking to their blogs.

Journalist-blogger Zhao Mu takes a very close look at China's petroleum industry and the government's role in managing it and doesn't like what he sees [2] in his May 27 post ‘There's a saying: There's a reason for the sudden rise in China's gas prices':


There's a saying: There's a reason for the sudden rise in China's gas prices


Against the backdrop of falling international crude oil prices and the revaluation of the renminbi, the National Development and Reform Committee has once again enhanced the sales price of refined oil. Prices for #93 gasoline in greater Beijing are at an historical high. The explanation from the parties concerned is that the previous price hike had been set low, that our prices for refined oil were still lower than the international market price. From now on both the conditions of the international market and the price society is able to withstand will be considered in continuing price adjustments. The rumors have circling around, but from the start we've been able to counter each one. Clearly they are just brazen deceit.


1. China's oil imports have not reached USD 60. The Development and Reform Committee announced in 2005 a price of USD 51. The international market price of USD 60 is for that of North Sea oil. The quality is the best in the world, but the oil exported from the Middle East, South America and Russia are not able to reach this price. That and China's high-volume imports are of low-grade, high-sulfur oil. According to analyses of well-known economic magazines, when the international oil price was at USD 54, the price of most of China's oil imports were at about USD 30. It's generally understood that China is the world's largest buyer of low-grade oil.


2. Comparing American and Chinese oil prices. The average price for a litre of #93 oil in America is around RMB 4.7, although they've added a 30% fuel tax, and most people don't pay road fees. Highways are basically the same, otherwise the toll fees are quite low. Similar gasoline in Beijing sells for RMB 4.23, when in fact the price is higher than in the U.S. If the concerned parties say China's oil prices are far below the international standard, then they will be denounced and refuted by the following example. Customs announced that in smuggling cases over the last six months, refined oil and cigarettes tied for third place. Since China's refined oil is so cheap, shouldn't it be being smuggled out of China? Why would it be smuggled from abroad into China? All the major smuggling cases which have been exposed in the past have all been of gasoline and diesel. Obviously the price difference between inside China and outside must be huge to bring smugglers to take such dangerous risks.


3. Oil enterprises reports show huge profits. Sinopec became the most profitable of all companies listed in Hong Kong. Reports show returns in the hundreds of billions of renminbi, and its annual turnover at around five hundred billion renminbi. Their profit space is already quite considerable, and profit margins extremely so. With an analysis of the net assets income, even the hottest of the hot high-grade real estate companies, when listed on the market, primarily see a net profit of 5-10%. But according to its 2004 annual report 17.32, Sinopec's weighted average net profits for were 20.32%. People, tell me, is this astounding or what? That's three times higher than the average high-grade listed real estate company, and four times higher than the average real estate company. Now this is astounding proof of sudden huge profits! Not long ago I was in touch with the people at Yanshan Petrochemical Co.; their profits last year exceeded four billion yuan, the main reason being the prices are high and the market good. As you can see, Chinese oil corporations have achieved some great results, so how is it that they've had such a longterm negative view? Could it be they're deceiving the brainless common folk?


4. A rivalrous profession: monopolize upstream and plunder competitive industry downstream, distort economic structures, unscrupulously raise prices, intensify the complex aspects of Chinese economic and macroscopic regulations. Terrible. Hike gas prices because you have a monopoly, when competitive industry downstream cannot. For example, for public transportation and taxis, relative to lives of the masses, whose prices must undergo a strict examination to gain approval, the price of oil just rose from two yuan to four, but bus price and taxi rates were not raised. You can see, hiking gas prices can only be absorbed through cost and government subsidies. The automotive industry is the one in which the country has the most hope, but the consumer environment is not good. Add to that the gas price hike, and it doesn't look to be getting better any time soon. The common folk's wages haven't seen any marked growth over the last two years, so the doubling of gas prices hasn't been easy for anybody. As you can see, this is naked pludering, distortion of China's economic structure, an increase of so-called bulging pressure. Although SinoPec's sudden explosion in profits has left the state and certain unmentionable communities dancing with joy, this kind of hurtful mentality of plundering China's economy will only harm China's healthy economic development.


I've noticed that most people are aware that the gas price hike is PetroChina and Sinopec's hanky-panky, but do they know the key points? Let me fill you in. Oil is a strategic material. Domestic oil fields are monopolized by the two large corporations. Only they have mining and selling rights. State imports of oil over the last few years have been increasing; today amounts already to 150 million tons. The proportion of imported oil being consumed is increasing. How could it be that these two large corporations don't have final say?? Don't worry. Key control over imported oil still rests with these two large corporations alone. Even if oil was cheaper, domestic oil refining corporations don't have the freedom to import it; they can only only buy crude oil from these two large corporations at a jacked-up price.


Internally, these two large corporations dominate oil fields, and externally dominate power over crude oil imports. Are domestic crude oil prices determined by them? Domestic refineries, including the two large corporations’ own refineries, are all losing money, the reason being that the price of raw petroleum (regardless of whether it's domestic or imported) is set by these two large corporations! It's no big deal if the two large corporations’ own smelteries are losing money; in any event, those involved in the trading and mining already have profits enough to leave one dumbfounded! Further, refineries losing money could just be used as an excuse for the price hike. And then because the so-called refineries are losing money, thus will our pockets be stripped clean!

石油是工业血液,现代基础工业的王道!!两大集团在上游敲骨吸髓,危害的是整个国家竞争力甚至国家安全!!90#油从今年3月份的3.18上涨到7月份的4.06,快一块钱了,还不到半年!! 到底有多少物流企业破产阿?到底有多少企业背上沉重的运费成本阿?无耻的抢劫!!2004年两大集团净利润2000亿,咱们国家gdp才多少?11万亿,各行业综合净利润最多按照5%算,也就5000亿。可见40%的国家利润都是两大集团的!大家伙都在给两大集团打工呢!!

Oil is the blood of industry, modern industry's king! The two large corporations are upstream sucking marrow out of bones, while what's being hurt is the competitiveness and security of the nation! From March last year until July, #90 oil rose from 3.18 to 4.06 yuan. Nearly one whole yuan, all within half a year! Is the plan to see how many enterprises can be made to go bankrupt or what? Or to see how many corporations can carry the weight of these transportation costs? Shameless robbery! These two big corporations had a combined profit in 2004 of two hundred billion yuan. And how much is our country's GDP? Eleven trillion. The combined profits of the various industries only comes to five percent at most, of five hundred billion yuan. You can see that forty percent of the nation's profits belongs to these two large corporations! Everyone's workin’ for these two large corporations!


Some of you might ask, since oil fields belong to the state, and these two large corporations have a monopoly, in the end don't they too still belong to the state? Why then does this mad plundering of wealth not seem to hurt the nation's vitality? Actually, these two large corporations are listed overseas. The property and capital does not come from the state. Capital is greedy; its profit demands can never be satisfied. If you've read this far, I believe you should be very clear already about the future trends of China's oil prices.


I'm quite worried about overseas investors using these two large corporations’ monopoly position to plunder the Chinese peoples’ fortunes. Speaking from this perspective, the two large corporations are already standing on the opposite side of the people. Sometimes you can see female textile mill workers with twelve-hour shifts every day, and can't even get their five hundred yuan in pay—the reason being some factories, due to increases in weaving materials (the majority of non-cotton textiles are made with petroleum) stop production or go bankrupt. My frame of mind is really hard to describe. A short while ago I heard of one taxi driver in Beijing who worked himself to death taking extra shifts to make more money…I really don't know how Sinopec and PetroChina can have two hundred billion yuan in net profits and, claiming to still be losing money, call for a price hike. Of that two hundred billion yuan of people's hard-earned money, how much of it is going into to those already-rich foreigners’ pockets? In any event, the two big corporations are in the process of crushing those domestic refineries which aren't yet theirs. At the same time they are also in the process of crushing all the gas stations around which don't yet belong to them. If the current situation doesn't change, the goal of these two large corporations will very quickly be realized.


Maybe some people will ask, at present the Development and Reform Committee has already approved nineteen non-state-owned companies to import oil. In fact, for private enterprises to import oil, except for needing to have import rights, they also have quotas. Import quotas for non-state-owned enterprises in 2005 totalled only ten million tons; never affected the market at all. Not only that, these two big corporations, except for themselves being state-owned companies, and having no limits on imports, still registered non-state-owned enterprises, included among those nineteen companies, using their strength to rob and seize the majority of the quotas. Too ruthless! For concrete details regarding import rights and quotas of privately-owned enterprises, everyone can check out the National Department of Commercial Affairs website and see!


I work within this industry, that's why I know the goods on these two big corporations. I noticed many people misunderstood the reasons for gas prices being hiked, and that's why I spoke up. It's just too bad I'm not a journalist, or else I could have exposed them earlier. Thanks everyone for the support. Spread the word if you have time. Don't let the whole of society be deceived by these two big “everything's going bankrupt” camouflaged corporations.

And a small selection of comments from readers:


America is the most rotten capitalist country. Even with anti-monopoly laws it still places restrictions.


Seeing this made me cry. Such a careful data analysis. I've realized just what an evil society is. I have nothing good to say! Teacher Zhao is really great! Who's sucking the marrow out of our bones? Ha! That's the evil old society.


First I was angry. After reading this I'm even more so.

Hexun blogger aw98, while not as prominent as Zhao, has written a shorter but equally informed and passionate post [3] which, as the four pages of comments seen following show, speaks with a certain voice on a particular issue that many netizens are able to identify with:


When will gas prices ever stop rising?

May 24, 2006


Just sixty days since the last hike, prices are hiked again. I know, because everywhere you look people are saying, that China's refined oil and international crude oil prices have been kept down for a long time already, and if the prices don't get hiked the petroleum companies will go on strike. Price hikes make everyone unhappy. That's why this time the prices got hiked up hard and you can curse if you want to. Last time it was an increase of two hundred and fifty yuan per ton; this time it's five hundred. And still too low, say the professionals and experts.


Then if we want to meet international standards, just how big is this different? Actually, every country's gas prices are different. England's is almost twice as much as America's; because within everyone's retail gas price is included a fuel oil tax.


Yesterday on MSN I consulted a friend who's now working in New York (He's from Nanjing, been in America more than ten years already). He told me the price of gas in New York right now for #93 gasoline is USD 3.5 per gallon. One American gallon equals 3.785 liters. With eight renminbi for one American dollar, the price of #93 gasoline in America right now is 7.40 yuan per liter.


But now the price of #93 gasoline is just RMB 5.09 per liter. In comparison, there evidently remains a rather large space for further increases. This, I believe, makes our Development and Reform Committee and our oil companies extremely happy; there's still a ways to go. But, we still need to consider some things. America's gas prices already include fuel tax; people don't need to pay any more road maintenance fees. Not only that, but many highways there are free. Insurance fees aside, if you took other random automotive costs and included them with the price of gas, what kind of price would that be? Let's think about one more problem: how much are American wages? How much are ours? It's hard to believe that being brought in line with international standards means that with a salary a tenth of theirs, we'll have to buy the same cars at higher prices and gas which is of the same rate.


In September last year, Forbes predicted that the international crude oil market would collapse within the year, that the oil prices would eventually plummet down to USD 35 per barrel. Inflation as well as increased Chinese and Indian demand, it said, are only a small part of the reason oil prices have soared from just USD 25 to 30 a few years ago to the current level. The present petroleum price, it said, was a pure and simple investment bubble. The reason oil prices float upwards is because of investment capital. North America practically doesn't have a single hedge fund that's not speculating on crude oil futures, leading to the oil price bubble. Idle funds sitting in the oil market at present amount at least to eight trillion dollars. This capital has played a key role in giving impetus to oil's dramatic price rise. Forbes’ fearless forecast shows that within the next twelve months, the price of crude oil stands to drop to USD 35 yuan per barrel.


It now appears that Forbes’ calculations were trumped by divine design, because their close-minded president, after having dragged Iraq into the throes of war, has now set his targets on the great oil-producing nation of Iran. Even if this ticking time bomb never were to go off, it will still become the reason why spectators never let gas prices go down again. Sometimes I wonder whether Bush himself has bought shares speculating on the future of crude oil.


Somebody pointed out early on that high gas prices are part of an American plot to get China. By intentionally pushing up gas prices, on one hand it's to benefit their own oil companies, and a weapon on the other, to break China and suppress the momentum behind China's economic growth.


But have heads of our relevant ministries and commissions realized this? Like whether or not we can hold our ground on not raising the price of of the renminbi; can we hold our ground on not raising the price of gas as well? Because after all, our gasoline does not entirely depend on imports; the state should take this into account. What would be greater: the negative influence and great losses that fully opening up China's economy would bring? Or fighting tooth and nail against the price hike and the money the state would pay to keep prices of imports low? Are the current low gas prices more conducive to China's healthy economic development than higher prices?


But, as the assistant director of the National Development and Reform Committee has said, “higher refined oil prices leads people to consider using less, and to develop alternative energy sources.” Right…keeping with this line of thinking and one-size-fits-all-truth, it goes without saying that the next logical step would be to raise the price of everything! Those of you who have cars, get ready because before the end of this year the price of #93 gasoline for sure is going to go up to six yuan. This would still be less than in America. Further, this is just if America doesn't attack Iran. If America does have another war, prices of USD 100 or even 140 per barrel wouldn't be strange at all. When the time comes—ha!—it'll be ten or even fifteen yuan per liter!


What? You're not gonna buy a car? How is that any good? Our automotive industry needs support, and car prices will go down. Down far enough to change your mind. Once you get one, don't worry, you'll use it. Expensive? That's the price. If you want it that's how much you'll have to pay! Take the bus? Too tiring and cramped, right? Ride a bike? The city is spreading out like a pancake. And if you ride til you drop? Buy a scooter? Ha! To protect the environment and because of safety, many cities have banned them. Forcing you to buy a car. Forcing you to spend! Let's pray for peace, pray that this timebomb Iran defuses itself soon. Let's pray that the relevant departments dig deep and send down some price controls. Pray they don't keep on raising gas prices and cause inflation.


I'll stop here, but add one more sentiment: hording oil, this is one investment that will never pay off!



Well-written. If what the Development and Reform Committee official says is true and a gas price hike can prevent waste, then why not raise the price of rice to one hundred yuan per kilogram? Wasting of food is quite severe and common.


When will wages get in line with America's?


Car owners don't even make up one percent of the population. If prices are raised higher for them, the gap between rich and poor will be drawn a bit closer, make us a little more equal. Just don't raise bus or taxi fares!

油价放开,政府今后通过调节供需来调控油价. 但首先要做的是征收燃油税.以税补民.

Loosening restrictions on gas prices, from now on the government will have to adjust supply and demand to regulate gas prices. But first of all there needs to be a levy on fuel. Tax people for the people.