The Chinese government raised the prices of gasoline, diesel and aviation kerosene by 500 yuan (US$62.4) per ton on Wednesday.

 

Of the nine price hikes for refined oil products since July 2003, including two this year, this is the highest as the prices of gasoline and diesel have each risen by over 10 percent.

 

While the industry and markets reacted optimistically, motorists admitted to more caution about taking their cars out.

 

"Higher prices on oil products will encourage efficiency," said Zhang Guobao, vice-chairman of the National Development and Reform Commission (NDRC) at the international seminar with a theme of "Energy Security: China and the World".

 

Niu Li, an economist with the State Information Center, said the hike continued the policy of reducing the gap between international and domestic prices and connecting domestic price fluctuations to those of international crude oil.

 

Despite soaring crude oil prices, the NDRC, which regulates domestic prices according to changes on the world market, had kept domestic prices relatively low, resulting in losses for processors and consumer waste.

 

A statement of NDRC said prices of processed oil were far below those on the international market, while crude oil had climbed to about US$70 a barrel. "It is not helpful to processors in China nor to ensuring adequate supplies."

 

The last price rise was on March 26, when the producer price of gasoline was raised by 300 yuan per ton and diesel by 200 yuan per ton.

 

The current retail price of 93 gasoline is 5.09 yuan per liter, 0.44 yuan higher than two months ago.

 

"I will have to pay 50 yuan more on gasoline after this rise," said Chen Yi, who earns 5,000 yuan a month in the publishing industry.

 

Chen said gasoline was still affordable, but admitted he would think twice about the cost before taking his car out.

 

"It is a step in the right direction," said Tao Dong, chief Asia economist at Credit Suisse First Boston,

 

Tao said the rise would encourage more efficient fuel consumption.

 

However, despite the government's efforts to connect the hike to world prices, the gap was still as much as 26 percent with international crude prices hitting new highs in the past two months.

 

Major cities, including Beijing, Shanghai and Hangzhou, capital of East China's Zhejiang Province, have already raised taxi fares this year.

 

Those measures reduced the impact of price rises on those worst affected by rising operating costs, said Niu.

 

He said as macro-economic growth was stable and would suffer little effect from the rise, which was good news for China's oil processors as it would reduce their losses.

 

The China Petroleum and Chemical Corporation (Sinopec), China's largest oil processor, reported losses of 7.88 billion yuan in the refining sector in the first quarter despite a net profit of 9.13 billion yuan.

 

Responding to the news, the petroleum and chemical sector of China's A share market held up well on Wednesday despite Sinopec's suspension for its annual general meeting.

 

Analysts forecast buoyant Sinopec stocks and the total A share market when Sinopec resumed trading on Thursday.

 

(Xinhua News Agency May 25, 2006)