China Hikes Prices for Refined Oil, Power
The government's economic planner relaxed price controls for oil products and electricity while capping prices for coal.
China's top economic planner, the National Development and Reform Commission (NDRC), unexpectedly announced significant price hikes for gasoline, diesel fuel, aviation fuel and electricity, effective June 20.
NDRC also set the first price caps since the 1990s for coal sold to power plants.
Retail prices for gasoline and diesel were scheduled to rise 1,000 yuan per ton, while the price of aviation fuel was set to jump more than 1,500 yuan per ton, NDRC said on its Web site late June 19. Prices for natural gas and liquified natural gas would remain unchanged.
The adjustments in government-controlled prices increased the nation's benchmark retail prices more than 16 percent for gasoline, to 6,980 yuan per ton, and 18 percent for diesel, 6,520 yuan per ton.
NRDC also lifted the average electricity tariff paid by power grids 2.5 cents per kilowatt hour starting July 1, up 4.7 percent on average. But exemptions were announced for residential customers, farms, fertilizer producers, and the earthquake-hit provinces of Sichuan, Shaanxi and Gansu.
NDRC said the fuel price adjustments � the first since November 2007 -- were aimed at closing the gap between rising international crude oil prices and the relatively low domestic prices controlled by the government. Crude prices on the international market have been rising steadily since February, topping US＄ 138 per barrel June 6.
"The price rise will help alleviate pressures on refineries and secure the market supply of refined oil," said an official from NDRC.
Over a half of China's demand for crude oil relies on imports. The widening gap between international crude prices and domestic oil prices has squeezed refiners and forced refineries to reduce production, creating shortages of refined oil products.
However, concerns about the country's high inflation rate made the government cautious about adjusting domestic oil prices.
NDRC Deputy Chairman Zhang Xiaoqiang said in mid-June that China would integrate its domestic oil prices with the international market. Speaking with U.S. Treasury Secretary Henry Paulson during bilateral economic talks, Zhang said "the adjustment will take place at the proper time, through proper measures."
Han Xiaoping, a senior researcher with the industry Web site China5e.com, told Caijing the NDRC decided to raise domestic oil prices partly because the nation's early harvest season is nearing its end, which means the adjustments would have limited impact on agriculture. Moreover, he said, the government was encouraged by a slowdown in the consumer price index growth in May.
To lessen the blow to the economy, NDRC said more fuel price subsidies would be offered to farmers, public transportation, low-income families and taxi drivers.
Electricity prices were allowed to rise in response to rising costs for the nation's power plants, particularly coal costs, NDRC said.
Official statistics show power plant coal prices rose more than 80 yuan per ton over the past two years. And more than 80 percent of China's power companies reported losses in the January-May period due to higher costs.
NDRC announced a temporary price intervention for coal sold to power plants effective December 31 that would cap prices below the June 19 level. It was the first government intervention in coal prices since 1990s.
The power industry expects more price increases. "The (latest) rise in electricity prices is too small compared with the coal price," said one expert. "It is probably not the final adjustment. We expect more power price hikes after the Olympics."
1 yuan = 14 U.S. cents
The Shanghai Composite Index opened high Friday at 2811.08, up about 60 points from Thursday's close as traders reacted quickly to a government decision to raise refined oil and electricity prices.
By mid-morning the index had jumped 4 percent, sharply reversing Thursday's 6.5 percent plunge to the lowest closing in 15 months and the 11th decline in 12 days.
All the country's oil companies gained Friday on the latest policy incentive. The rally was led by refining giant Sinopec (SHSE: 600028), which opened higher at 13.20 yuan before easing to 12.71 yuan by late afternoon.
Jing Ulrich, chairman of China Equities at JP Morgan Securities, noted the recent volatility on the A-share market has unfolded amid speculation that the government was considering fresh measures to support the market.
The rumors seemed true when the National Development and Reform Commission (NDRC) announced the energy price control decision Thursday evening. But rather than help the market, NDRC said the change was aimed at easing earnings pressure for Chinese oil refiners and power companies.
NDRC announced price hikes of 16 percent for gasoline, 18 percent for diesel and 25 percent for aircraft fuel, which will go into effect June 20. Retailers were also told they could raise prices an additional 8 percent, which means pump prices for drivers could potentially rise 26 percent.
Due to soaring prices for global crude oil and China's oil price controls, NDRC said downstream oil companies are under enormous economic pressure and have been forced to rely on state tax cuts and subsidies.
Oil prices fell on the NYMEX commodity market Thursday, and analysts said demand may be contained following China's oil price increase. China is the world's second largest oil consuming country, importing half of its crude.
Deng Min, an analyst with Star Futures, told Caijing the new policy was not a surprise. "So many from the market have already predicted that the refined oil price would be adjusted upward that since May the price of Shanghai fuel oil has risen, with large amounts of money pulled in," Deng said.
Ulrich said the most substantial, near-term boost to market sentiment may come from relaxed energy price controls. "Listed companies' earnings are heavily weighted toward refiners, and thus a lift in price caps would boost the board earnings outlook," he said.
Some analysts also interpreted NDRC's decision not as a state measure to strengthen the stock market but as a measure to balance the current domestic economy. Gui Haoming, chief analyst with Shenyin Wanguo, told Caijing that "as state controls on oil and electricity prices have not been lifted, the fundamental pressure on downstream oil companies still remains."
Liang Hong with Goldman Sachs agreed. In a report, Liang described the latest price adjustments as a positive first step for improving resource allocations. "We believe the energy price hikes are more likely to be a relative price adjustment rather than an overall inflationary impulse," she said.
Thirty years have passed since the publication of an article in Guanming Daily entitled"Practice Is the Sole Criterion for Testing Truth." The essay, which held that the integration of theory with practice was a fundamental part of Marxism, touched off a fierce national debate. It was part of a great movement to free the minds of Chinese people from the strictures of the Cultural Revolution and to lay a solid ideological foundation for the reforms that would follow.
The article appeared under the name of Hu Fuming, a scholar at Nanjing University, though in fact it had many fathers. Among them was Hu Yaobang, a senior party official who had himself been persecuted during the Cultural Revolution. Hu realized that China had suffered enormous setbacks during that tumultuous period. "How can a nation comprised of people shackled and oppressed mentally as well as organizationally compete with developed countries of the world?" he asked.
Hu went on to become Deng Xiaoping's right hand in the campaign to reform China and open it to the world. Hu was eventually ousted from the leadership over his passionate commitment to that process. His death in 1989 sparked an outpouring of grief that led to the student protests at Tiananmen, and his name was rarely mentioned again publicly until 2005 � the 90th anniversary of his birth. By then it was clear that one of Hu's most enduring legacies was his campaign for innovative thinking.
That practice is the criterion for testing truth should not have been a controversial issue for the Communist Party of China, which upholds the historical materialism of Marx and Engels. Practice as the touchstone of truth is a basic view of Marxism. It was a weapon used by Lenin to fight spiritualism and agnosticism, and it was the cornerstone of Mao Zedong's famous 1937 essay "On Practice."
Nevertheless, this golden principle of Marxism was trampled during the Cultural Revolution with the culmination of Mao's personality cult. Even after the Gang of Four was smashed, which symbolized the end to the Cultural Revolution, the theory behind that movement still dominated the minds of many. In February 1977, five months after Mao's death, supporters of the Gang of Four promulgated the "Two Whatevers" principle, based on the notion that "we will resolutely uphold whatever policy and decisions Chairman Mao made, and unswervingly follow whatever instructions Chairman Mao gave."
An individual has his or her own personality and, likewise, theory and thoughts. Style is the man. Whether someone can seek truth from facts usually depends on his or her level of thinking. However, during unusual periods of history, whether a person can connect truth and practice lies in his or her courage to stand up. That was especially true during the Cultural Revolution. Hu blazed a trail for a great movement to emancipate the mind.
Hu was in a feisty mood on January 1 and 2, 1977, when he told cadres of the Communist Youth League: "Current problems focus on the fact that we have to do whatever Mao has said, and continue to criticize Deng Xiaoping, and prolong the practice of the Cultural Revolution... I would rather go home to care for the family than do something against my own will here."
Hu's dissention represented a powerful trend within the CPC, and it outraged Gang of Four supporters. They promulgated the "Two Whatevers" just a few weeks after Hu's Youth League speech. It was during this period of conflict that Hu was transferred to a job as vice president of the CPC Party School.
Hu did not hesitate to fight the ideological remnant of the Cultural Revolution from his new post. On March 28, he told school staff that erroneous thoughts, theories and guidelines would all be addressed. His fight involved great political risk, since the old ideology still prevailed within the CPC, whose power the "Two Whatevers" had reinforced.
But Hu was fearless. At a conference held in May, he surprised the audience by saying: "There is a political whirlpool in Beijing. Do you dare jump into it? I am ready to fling myself into it. I intend to launch three periodicals… I will take care of the three periodicals myself." What did Hu intend to express or do through these three periodicals? A question he posed provided the answer: "How can a nation composed of people shackled and oppressed mentally as well as organizationally compete with developed countries of the world?"
The Eleventh CPC National Congress was convened in August, and Hu was elected a member of the CPC Central Committee. Soon after the meeting, Hu organized a panel to write an article in which he tried to rehabilitate those persecuted during the Cultural Revolution. The article, published in People's Daily on October 7, 1977, received an enthusiastic response across China. Within a month the newspaper received more than 10,000 letters and phone calls concerning the article. "The merit or characteristic of this article is that it dares to touch a sensitive issue concerning millions of people," wrote one reader. "By touching such a great issue, the article endows us with more courage to push forward with genuine Marxism."
At the party school, Hu was assigned another important task by the Central Committee: drafting a CPC history textbook. At a conference, he proposed two standards for editing the book. Hu advocated for the complete and accurate adoption of Mao Zedong thought, and for making practice the criterion for testing truth.
Senior party leader Ye Jianying gave a speech at the school's opening ceremony on October 9. He declared, "Theory has to stem from practice. Theory has to be able to guide practice and stand the test of practice. Theory shall not be equated with idle speech or even lying." It was the first time that one of the CPC's highest leaders had spoken publicly about the issue of a standard for truth. Later, Hu was appointed director of the CPC Central Committee's Organization Department.
On January 18, 1978, a committee researching three remaining conflicts in party guidelines drafted its findings. The draft stated that "the correctness of a guideline is not an issue of theory but an issue of practice. The results of practice may test the correctness of a guideline." The draft showed that Hu's thought had evolved from a dualism in standards � from Mao's thought and practice � to a monism that elevates practice as the sole criterion for testing truth.
On May 6, Hu organized a conference to discuss the draft of the article that would become "Practice is the Sole Criterion for Testing Truth" and, on May 11, it was published in Guangming Daily. The article was not only concerned with demolishing the "Two Whatevers"; it also dealt with Mao's thought during his later life, theories of the Cultural Revolution and other pressing topics. The evaluation is tough as well as fair, and it tries to present history as it was. To unveil the myths surrounding history requires great courage, which Hu certainly had.
Hu Deping, vice director of the United Front Work Department of the CPC Central Committee, is Hu Yaobang's eldest son.
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