11/06/2007, 00.00
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Beijing fears social instability from higher oil prices

Oil companies want price liberalisation, but government says no, fearing higher inflation, loss of competitiveness and social unrest.

Beijing (AsiaNews) – Beijing instructed local officials to stave off an inflationary “chain reaction” at the weekend as fears grow about the social consequences of last Thursday’s fuel-price rise. Teams of supervisors have been sent around the country to monitor the implementation of price adjustments and prevent inflation from spreading, causing unrest.

Soaring global crude oil prices, which are expected to break the US0 barrier, have already forced the central government to abandon its pledge not to increase fuel prices. The National Reform and Development Commission last week raised the price of petrol and diesel by almost 10 per cent to stimulate supply after many loss-making smaller refineries stopped production, causing fuel shortages and long lines at gas stations.

But the price rise, the first increase in 17 months, will only slow the bleeding by half. Oil companies want more government subsidies to compensate for losses.

Fuel shortages have affected rich coastal regions as well because oil companies are holding back on gas and diesel waiting for higher prices (and profits), and possibly price liberalisation. The authorities have instead held prices down fearing their effects on inflation.

Inflation was 4.4 per cent in July with food prices rising as much as 70 per cent.

Beijing is particularly concerned about inflation’s impact on the cost of raw materials and wages which affect the willingness of foreign capital to invest in China to take advantage of its low-cost labour force.

It also fears a wave of social unrest that might be unleashed by hundreds of million of people living at the margins of its booming economy.

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