Price reform is a sensitive matter in many countries, not least on the mainland, where the public remains shielded from the fluctuating prices of key commodities, including fuel oil. So when Beijing announced price drops for petrol and aviation fuel yesterday, questions arose as to whether this was the right move.
At first glance, the fall of about 4 per cent looks reasonable. After all, the price of crude oil has dropped to a 19-month low and Beijing has not adjusted prices since May 2005. Yet, what should warrant our attention is the problematic system under which prices are being adjusted.
The price of crude oil has had a roller-coaster ride in recent years. That has had different effects on the country's three state-controlled oil companies, PetroChina, Sinopec Corp and CNOOC, as their dependence on imported oil varies. Sinopec, which imports about 70 per cent of the crude it refines, received a 9.42 billion yuan subsidy from the central government last year.
Last month, the company announced that it was set to get another 5 billion yuan this year. By contrast, the other two companies were subject to additional levies on the windfall profits they earned from refining cheap domestic crude.
That is an unsatisfactory situation that should be stopped as soon as possible. As the nation's demand for oil soars, China's oil companies are having to compete with international players in acquiring new reserves all over the world. Subjecting them to domestic price controls is like tying one of their hands behind their back as they attempt to fight bigger rivals.
For Beijing, trying to balance the oil companies' gains and losses by using a mix of domestic and imported crude oil can only become an increasingly cumbersome business, as oil imports soar. It also provides a good cover for the companies' inefficiencies.