china plans first fuel price cut

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    China Plans First Fuel-Price Cut in 2 Years

    By Winnie Zhu

    Nov. 20,2008

    China, the world's second-largest energy user after the U.S., is accelerating plans to cut fuel prices for the first time in two years as the nation's economy slows and oil costs fall, the country's top planner said.

    The government will separately introduce a levy on retail gasoline and diesel sales to replace road tolls and maintenance charges, the National Development and Reform Commission said in a statement today. The finance and transport ministries and local provinces have been consulted on the plan, it said.

    Lower fuel charges will help stimulate growth in the world's fourth-biggest economy. China's gross domestic product expanded at the weakest pace since 2003 in the third quarter as half of its toymakers shut in the first seven months because of rising costs. China first proposed to impose a retail fuel tax more than 10 years ago.

    The government may cut gasoline and diesel prices by about 15 percent as early as next week, Gordon Kwan, the head of China Energy Research with CLSA Ltd., said in e-mailed comments today. The average gasoline price at the pump in China is currently 50 percent higher than in the U.S., Kwan said.

    Mu Hong, vice director of the commission, said last week increased oil-product supplies and falling demand have provided an opportunity to change the nation's fuel pricing.

    The changes may be announced in 20 days, the China Daily newspaper reported yesterday.

    Price Controls

    China regulates energy prices to limit their impact on inflation. The price cut may help the government bring the nation's inflation closer to a March goal of 4.8 percent. Consumer prices rose 6.7 percent in the first 10 months of this year, compared with 4.8 percent in 2007. Prices in October climbed 4 percent, the least in 17 months.

    A 15 percent cut will leave a refining margin of $5 to $6 a barrel for PetroChina Co. and China Petroleum & Chemical Corp., the nation's two biggest refiners, Kwan said.

    Sinopec, as China Petroleum is known, posted a 39 percent decline in third-quarter profit because of refining losses after crude oil surged to a record $147.27 a barrel in July.

    China last cut fuel prices in January 2007, when oil was at about $53 a barrel. Benchmark New York was trading at $52.58 at 4:31 p.m. Beijing time. The government increased fuel prices in November 2007 and again in June, when gasoline and diesel were raised by 18 percent.

    Most Asian countries have lowered or are planning to cut fuel prices as their economies slow. Tokyo Electric, Japan's biggest power company, may scale back a planned retail fuel price increase for the first quarter of next year by 50 percent, company officials said in October.

    The Chinese economy expanded by 9 percent in the third quarter. The nation's industrial production grew at the slowest pace in six years as exports markets dried up.

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