Sharp increases in oil product prices have caused some social problems, but the government is taking steps to minimize the impact
　　
　　
　　PRICE HIKE: The prices of refined oil products in China witness sharp increases from March to late May
　　
　　Responding to surging international oil prices, the National Development and Reform Commission (NDRC) sharply increased the prices of gasoline and diesel oil twice from March to May this year, bringing a shock to the whole society. The latest adjustment on May 24 raised the price of refined oil products by over 10 percent. Now, people are not only worried about the impact of the two price adjustments. They are more concerned about the prices of gasoline and diesel oil after China fully opens the retail and wholesale markets for refined oil products at the end of 2006.
　　Recently, the NDRC told the media that the price of refined oil products will follow the international market, which is an inevitable trend. Some experts believe it probably means the state will speed up the reform of the price of refined oil products and there may be further price increases before the end of this year.
　　After the two price adjustments, those who own private cars are among the first to feel the heavy burden. Some are reducing the frequency of car use and others are thinking of selling their cars. For those who were planning to buy cars, the high fuel prices made them flinch. A recent online survey shows that 43.4 percent of consumers polled have decided to suspend car purchases, 23.9 percent planned to give up their idea of buying a car, and only 23 percent said they were not affected by the price increases.
　　Auto manufacturers were also struck by the rise in fuel prices. Since the beginning of this year, when the consumption tax was adjusted and the limitations on small gasoline engines were lifted, many middle- and top-ranked auto brands have been struggling to change their products. For them, the increased prices of gasoline and diesel oil undoubtedly made the situation worse. Now SUV manufacturers throughout the country are encountering a severe test. Large manufacturers like Great Wall Motor Co. Ltd. and Zhongxing Automobile Co. Ltd. have been looking for overseas markets, while small companies with a single product are likely to be acquired or go out of business.
　　The transportation sector made the quickest and most direct reaction to the price increases. On April 10, the Ministry of Railways announced an increase in the average price of railway cargo transportation nationwide by 0.0044 yuan per ton-kilometer. On the same day, the Civil Aviation Administration of China issued a notice lifting the fuel surcharge for domestic airline passengers from 20 yuan to 30 yuan per person if the distance traveled is within 800 km. The surcharge for distances of over 800 km was increased from 40 yuan to 60 yuan per person. Meanwhile, ocean shipping and highway transportation companies also made adjustments to their transportation fees. Some cities increased taxi fares.
　　The deep impact of high fuel prices on the manufacturing sector or the economy as a whole may be visible in about half a year or a year, experts say. The influence is inevitable, because the increase in fuel prices leads to an increase in transportation and manufacturing costs. Now, many experts have begun to worry that there may be a new round of cost-push inflation, which will sooner or later affect the exports of Chinese manufactured products and put more pressure on export-oriented enterprises.
　　According to the World Bank, if the price of crude oil rises by $10 per barrel and the increase lasts for one year, the growth rate of the world economy will be reduced by 0.5 percent and that of the developing countries will be cut by 0.75 percent. Although in recent years the rise in oil prices did not have a great impact on China"s GDP growth--in 2004 the international oil price rose by $10 per barrel, causing a 0.4 percent reduction in China’s GDP growth rate--in the coming years, when domestic price of refined oil products completely follows the international market, an increase in oil prices will surely exert a bigger influence on the growth of Chinese economy.
　　
　　Responsive policies
　　
　　
　　HIGHER FARES: In response to the increase in oil product prices, taxi fares in many Chinese cities have been raised
　　
　　Unlike in previous years, this year the NDRC issued a series of related policies while raising the price of refined oil products, which include subsidies to some social groups and public service sectors, a price linkage mechanism for related industries and a fiscal adjustment for oil enterprises. All these show that the Chinese Government is trying its best to reduce the negative impact of oil price hikes on enterprises and the whole society.
　　The policy of providing subsidies to disadvantaged communities and public service sectors won extensive acclaim. And this is the first time that China has levied special fees on oil producers selling domestically produced crude oil and used the funds to help disadvantaged communities ease the burden caused by the rise in oil prices. It has a positive meaning for balancing the interests of different groups and keeping social stability. But there is also concern about whether or not this sum of money will really go to farmers and other disadvantaged groups. Some believe that the government should take effective measures to prevent corruption.
　　As for the increased expenses of consumers, experts suggest that more funds be collected from all kinds of monopoly industries and industries that can earn sudden huge profits from a rise in oil prices in order to subsidize consumers or develop public services such as medical treatment, education and housing.
　　In addition, the Chinese Government also stepped up efforts on energy conservation this year. It has set a target of lowering energy consumption, worked out medium- and long-term plans for saving energy and is amending the Law on Energy Conservation. Recently, the Ministry of Finance said it is planning to release new tax policies to encourage research on and the use of alternative energy sources.
　　Not only the government but also companies are thinking of reducing energy consumption. Some airline companies have started to trim the number of magazines at each seat to reduce the weight of the plane so as to lower fuel consumption. Logistics companies prefer to use energy-saving and environment-friendly vehicles for transportation. Auto manufacturers are busy with the development of small engines and energy-saving cars to satisfy society’s demands.
　　
　　The author is with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce

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