At a meeting of energy ministers in Japan over the weekend, a senior official at China's top economic policymaking body said the surge in crude prices should not be attributed to rising demand from developing countries such as China and India. Rather, Zhang Guobao, vice chairman of China's National Development and Reform Commission, blamed the high oil prices on speculators.
Refined-oil prices in China are half of international levels, leaving Beijing to shell out about $30 billion in subsidies in 2007, according to China International Capital Corp., an investment bank in Beijing.
The tab this year and next will be substantially more. Some analysts predict oil could hit $200 a barrel next year, partly because of constrained supplies.
But even worse than their draining effect on government coffers, China's price controls create market distortions and disincentives for consumers and businesses to reduce consumption and conserve energy, many analysts have long argued.
The transportation industry uses about half of the gasoline and diesel in China, while ordinary motorists accounted for 7% of gas consumption in 2006, according to China International Capital. But the number of car owners is growing rapidly.
"It would definitely be better if gas prices went up and people changed to smaller cars," said Li Xianglong, deputy chief at a Sinopec service station in Shanghai. The market distortions are significant.
Two state-owned giants -- PetroChina and China Petroleum & Chemical Corp. -- supply 90% of the gasoline and diesel sold through about 88,000 stations nationwide, researchers say.
PetroChina and Sinopec (as China Petroleum is called) also produce, refine and import oil. They buy crude at global prices but must sell at government-set levels. Although the companies are state-owned, their executives are nevertheless loath to sell at such a huge loss.
The upshot: They're holding back supplies until the government lets prices rise, some analysts say.
But Gong Jinshuang, a senior researcher at Sinopec in Beijing, said that the two big companies actually have been increasing supplies recently, in part to meet the big demand caused by rebuilding in the earthquake zone.
Motorists, he says, may be feeling a supply crunch because Sinopec and PetroChina, which also operate most of the filling stations, may not be delivering as much fuel to non-affiliated gas stations outside the earthquake zone. As a result, some gas stations have temporarily closed.
