China May Start Fuel Tax, Change Pricing in January

By Ying Wang

Dec. 4 (Bloomberg) -- China, the world's second-biggest energy consumer, may implement a retail fuel tax and changes to oil pricing as early as January, said the deputy head of the nation's economic planner.

``I personally think Jan. 1 is a good time to introduce the fuel tax,'' Zhang Xiaoqiang, the vice director of the National Development and Reform Commission, said at an interview at the Strategic Economic Dialogue forum in Beijing today. The State Council, or cabinet, has granted an initial approval of the plan, which includes fuel price reforms, he said, without elaborating.

China is accelerating plans to change the country's oil- pricing system to reflect the 70 percent decline in New York crude prices from July's record. The proposal will cut fuel costs and help stimulate growth in the world's fourth-biggest economy as factories close and export orders decline, Zhang Ping, the commission's chairman, said last week.

The government may seek public feedback on the plan by next week, he said earlier today. Fuel subsidies to PetroChina Co. and China Petroleum & Chemical Corp., the nation's biggest fuel producers, may be scrapped if prices are ``completely deregulated,'' said Zhang Xiaoqiang.

The Chinese government controls fuel prices to contain inflation and grants the nation's biggest refiners fuel subsidies to help them cope with crude oil costs. Sinopec, as China Petroleum is known, in October posted its fifth straight decline in quarterly profits because the subsidies weren't enough to offset crude costs, which reached a record $147.27 a barrel on July 11.

Scarce Resources

``The government should implement the changes as soon as possible,'' said Zhang Xiaoqiang, who spoke at the fifth round of the Strategic Economic Dialogue between China and the U.S.

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 nation's economy grew at the slowest pace since 2003 in the third quarter of this year as half of its toymakers shut in the first seven months. Rising fuel costs have also prompted China Southern Airlines Co. and China Eastern Airlines Corp. to ask for government aid.

``The price reforms will reflect scarcity of resources, market supply and demand and environmental costs,'' said Zhang Xiaoqiang.

China last cut fuel prices in January 2007. The government raised fuel prices in November 2007 and again in June 2008. In June, prices were increased by as much as 25 percent.

The fuel-price reform will follow the ``principle of fairness'' and aims to encourage conservation, Zhang Ping said Nov. 27. ``The more you use oil, the more you have to pay for it,'' he said then.

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 costs.

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