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Worthwhile price hike

(China Daily)
Updated: 2010-12-23 07:55

The latest fuel price increase must be quite unexpected when China seemingly has to go all out to fight mounting inflation.

But the real surprise is Chinese policymakers have not allowed long-term development goals to play second fiddle to the urgent task of curbing inflation.

With consumer inflation having accelerated to a 28-month high of 5.1 percent year-on-year in November, it would be only natural for authorities to postpone domestic price hikes made justifiable by international crude oil price fluctuations.

However, the National Development and Reform Commission (NDRC), the country's top economic planner, raised gasoline and diesel prices by around 4 percent to follow the market on Wednesday.

The government adopted an oil-pricing mechanism in the beginning of 2009 that allows the NDRC to adjust retail fuel prices when the international crude oil price changes by more than 4 percent over 22 consecutive working days. International oil prices had increased more than 8 percent since China's last fuel price hike in October.

The pricing authorities are fully aware of the inflationary pressure the country faces. That is why the NDRC has explained its actions to inform the public the move will not affect public transportation, low-income groups or agriculture.

Targeted subsidies certainly can minimize the disproportionate impact the fuel price rises exert on the poor. But it is also true that higher gasoline prices will, sooner or later, make reining in inflation trickier.

Fortunately, the urgency of controlling overall price gains has not blinded Chinese policymakers to the need to secure energy efficiency and security for long-term development.

China's average daily consumption of both gas and diesel hit record highs in November. Consequently, the country's dependence on imported oil is likely to hit 55 percent by the end of this year, up from 33 percent in 2009. Such rapid increases in oil consumption and imports are unsustainable.

The NDRC estimated the rise will add 0.07 percentage points to December's consumer inflation.

It is necessary to inform the public of the short-term costs of such an oil price hike to tame inflationary expectations. But it is far more important to highlight the rocketing long-term costs if fuel prices are not raised.

China's appetite for energy is swelling with car sales, which may hit 18 million new vehicles this year. A gradual fuel price increase can serve as an emergency brake to prevent the world's largest auto market from steering into a ditch.