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NERVOUS BEIJING RAISES FUEL PRICES AS SHORTAGES BITE
The murder of a man who jumped a petrol queue in China's central Henan province on Wednesday is the stuff of nightmares for the authoritarian Chinese government.
Faced with worsening fuel shortages across the country Beijing raised petrol, diesel and jet fuel prices at the pump by almost 10 per cent yesterday, in an effort to boost domestic supplies and exorcise the spectre of social unrest.
The policy reversal came as shortages spread to the capital, which is usually immune from the country's periodic supply crunches.
But the government is unwilling to allow prices to rise too much because of a morbid fear of spiralling inflation, which has a history of toppling governments in China and is currently running at a 10-year high, above 6 per cent.
In announcing the price increase the government said it would not allow rising fuel prices to be passed on to transport and other fuel-dependent industries but would provide direct subsidies to these sectors instead.
Soaring global crude oil prices, which were pushed above $96 a barrel in Asian trade yesterday – partly in reaction to China's increase – pose a serious dilemma for Beijing, which last raised its tightly controlled fuel prices in May 2006.
China is the second-largest crude oil consumer after the US and although it was a net exporter as recently as 1993 it now relies on imports for nearly 50 per cent of its crude supply.
The current shortages, particularly of diesel, result from a combination of high global oil prices and strict government controls, causing huge losses for Chinese refiners that must pay more for oil but cannot raise prices at the pump.
Even after this week's rise, wholesale petrol prices are equivalent to only about $76 a barrel in China, compared with the international average of $102, according to analysts.
The one-off price increase therefore appears to be a stopgap measure made by an administration that is betting falling international prices will eventually allow it to loosen its the FT in a recent interview.
Yanshan, which provides 60 per cent of Beijing's petrol, expects to lose more than Rmb1bn ($130m, £65m,
