 |
 China Slashes Fuel Prices as Economy Enters Slowdown (Update3) By Winnie Zhu Dec. 18 (Bloomberg) -- China cut fuel prices for the first time in almost two years after crude oil slumped, seeking to reduce costs for companies and factories as the economy enters its deepest slowdown in almost two decades. The ex-factory price of gasoline was lowered by 14 percent to 5,580 yuan ($816) a metric ton, diesel by 18 percent to 4,970 yuan and jet fuel by 32 percent to 5,050 yuan, the National Development and Reform Commission said on its Web site today. The cuts will take effect tomorrow, the economic planner said. Crude oil's 73 percent decline from its July peak has given China room to ease costs for manufacturers hurt by a collapse in exports and slowing demand at home. Half of China's toymakers shut in the first seven months, while China Southern Airlines Co. and China Eastern Airlines Corp. are seeking government help after recording losses from fuel hedging. "The price cuts are earlier than we expected and show the government's determination to spur the economy," Qiu Xiaofeng, an oil analyst with China Merchants Securities Co., said by telephone in Shanghai. The magnitude of the cuts is in line with market expectations, he said. A plan to increase fuel consumption taxes was also approved, the commission said. The gasoline consumption tax will rise to 1 yuan a liter from 0.2 yuan and the levy on diesel will climb to 0.8 yuan from 0.1 yuan. Taxes on other fuel products will increase too, the commission said without giving details. The government is raising fuel consumption taxes to replace road maintenance fees to encourage energy conservation. The tax changes will be effective as of Jan. 1, the commission said. 'Appropriate Profit' Gasoline and diesel prices will be set based on global crude-oil prices, domestic refining costs, taxes and "appropriate profit" for refiners, the commission said. China last cut fuel prices in January 2007, when oil was mostly between $50 and $60 a barrel. The benchmark crude contract in New York has plunged since reaching a record $147.27 a barrel in July on concerns the global recession will diminish energy demand. Crude for January delivery was at $40.07 a barrel at 9:30 p.m. Singapore time. China also set a price cap for refineries to charge private wholesalers and certain users, such as railway builders for gasoline and diesel, to protect them from higher costs. The gasoline price is capped at 5,980 yuan a ton, and diesel at 5,370 yuan a ton. For qualified wholesalers, the charges can be further lowered by 400 yuan each, the commission said in a separate statement. Economic Slowdown China's economy may grow as little as 5.5 percent next year, the weakest pace since 1990, according to CLSA Asia Pacific Markets. That's less than the 8 percent needed to create jobs and maintain social stability, according to China Banking Regulatory Commission Chairman Liu Mingkang. Gross domestic product expanded by 9 percent in the third quarter, the least since 2003. To shore up the economy, the government last month cut interest rates by the most in 11 years and announced a 4 trillion yuan ($584 billion) stimulus package running through 2010. The lower fuel prices will probably cut earnings at China Petroleum & Chemical Corp. and PetroChina Co., the nation's largest refiners. Sinopec, as China Petroleum is known, has reported five straight quarters of profit declines as the government capped retail fuel prices below the cost of crude. Regional Cuts Most Asian countries have lowered or are planning to cut fuel prices as their economies slow. Tokyo Electric Power Co., 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 company is acceding to a request by the government to ease the cost burden on households. Vietnam reduced gasoline prices four times in October to curb inflation. Malaysia has cut fuel costs five times since June. Indonesia may lower gasoline prices next month. To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net. Last Updated: December 18, 2008 08:34 EST |
