China to Lower Fuel Costs Under Proposed Price Reform

By Wang Ying

Nov. 27 (Bloomberg) -- Fuel costs in China will be lowered under proposed changes to the nation's oil pricing system as the world's fourth-biggest economy steps up efforts to spur growth and create jobs, the country's top planner said.

Road maintenance charges will be replaced with a fuel consumption tax under the proposed reform, Zhang Ping, head of the National Development and Reform Commission, said today in Beijing. The government will seek public feedback on the plan that will effectively cut fuel charges ``as soon as possible,'' Zhang said.

The world's second-biggest oil user is accelerating oil price reforms as export orders fall, prompting factories to shut and thousands being laid off. Asian countries including Malaysia, Indonesia and Vietnam have cut fuel prices after benchmark oil in New York declined 64 percent from July's record amid a global slowdown.

``The tax reform will mean lower costs for users because current international oil prices are indeed lower than domestic levels,'' Zhang said. ``The tax will be at the same level as that of existing road charges.''

China's average retail gasoline price is 50 percent higher than in the U.S., CLSA Ltd. energy analyst Gordon Kwan said on Nov. 20. The Chinese government first raised the proposal to impose a tax on retail fuel more than 10 years ago to help subsidize road tolls and repair charges.

Government Meeting

The State Council, or Cabinet, held a meeting to discuss the fuel tax changes yesterday, Zhang said. The development commission and other government departments are making amendments to the proposal upon State Council's advice, according to Zhang.

The reform will follow the ``principle of fairness'' and aims to encourage fuel conservation, Zhang said. ``The more you use oil, the more you have to pay for it.''

China's economy grew at the slowest pace since 2003 in the third quarter. The central bank made its biggest interest cut in 11 years yesterday, less than three weeks after Premier Wen Jiabao unveiled a 4 trillion yuan ($586 billion) stimulus plan.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net;