Chinese language - Reform hampered by awkward cycle

?  ?

Opinion / Commentary

Reform hampered by awkward cycle

By Ma Hongman (China Daily)
Updated: 2007-09-14 07:15

As the price of oil rises again on the international market, it was
reported recently that the National Development and Reform Commission
(NDRC), China's top economic planner, was preparing for another round of
domestic oil price adjustments.

Pressed by oil giants such as China National Petroleum Corporation and
China Petroleum & Chemical Corporation, the anticipated fuel tax will be
launched together with those adjustments.

Commenting on the move, Cong Ming, director of the Tax Policy and
Legislation Department of the State Administration of Taxation (SAT),
said China would not introduce a fuel tax and adjust oil prices at the
same time, though fuel tax reform here was urgently needed.

The price of resources has long been on the reform list. But the reform
has been postponed for a long time for fear it would cause big impacts on
society. But that delay has its costs, leading to more problems.

As resource prices are controlled artificially, China's economic growth,
to a certain degree, depends on the relentless exploitation of resources.
A report issued by the People's Bank of China, the central bank, last
year pointed out that China's resource prices only reflected the
exploitation costs but not the costs of environmental damage and work
safety, and it could not reflect the true supply and demand relations in
the market or the degree of resource depletion.

From another angle, the result of low pricing of resource products is an
abuse and waste of resources. As a result there comes a typical
structural contradiction - investment becomes the active drive for
economic growth. This is also why we find that bank loans are oversized
and economic growth shows overheating.

China's resource pricing reform thus has fallen into an awkward cycle:
low resource prices have led to an overheated economy together with
inflation, price reform has to be postponed as it will increase the
pressure of inflation, and then the delayed reform becomes the motive for
another round of overheated economy.

The chain reaction between coal and power prices is another example.

As the costs increase constantly, power companies have applied for
approval to raise prices. According to the price-pegging policies
implemented in 2005, if the average coal price rise reaches or exceeds 5
percent in half a year, the power price may be adjusted accordingly.

The latest calculation by the coal industry association shows that the
price of coal has increased by 13 percent compared with the last
half-year period while the power prices were not adjusted accordingly,
which has led to rapid increase in costs for power companies.

The price rise requests from oil companies carry similar reasons. But the
NDRC has to reject the application as the consumer price index (CPI)
growth has kept rising to record highs in recent months. Out of the same
concern, the planned reform on resource prices may be postponed silently.
Probably, the delayed reform may foreshadow the next round of an
overheated economy.

This all has profound negative impacts on the economy. So, how to break
such a cycle? Historical experience proves that price reform should be
carried out resolutely.

Take the fuel tax reform for example. Related departments have long
expected when oil prices fall below $60 a barrel that reform is needed.

They have been waiting for such a chance. But the expected low oil price
has not presented itself. The problem between resource consumption and
price is getting more and more serious.

Also, as an effective measure of fiscal adjustment, fuel tax reform is a
fiscal policy to control total consumption and promote efficiency by
increasing the price of oil products. International experiences prove
that to implement the fuel tax will not only promote energy saving in
automobile use but also help accumulate maintenance funds for traffic
facilities.

The trial reform in Hainan Province shows that collecting fuel tax has
improved road traffic, upgraded the operational efficiency of vehicles
and fulfilled the goal of energy conservation and pollution control.

It is really a regret that the fuel tax reform is to be postponed again.

Of course, before carrying out the reform, there should be a plan in
interest readjustment, especially a plan to subsidize low-income families
accordingly. But these are just affiliated issues, which should not
become bottlenecks impeding the reform.

It is a pressing issue to let the price mechanism play its due role.

The author holds a doctorate in economics from the Shanghai Academy of
Social Sciences

(China Daily 09/14/2007 page10)

Hot Talks

* What's your take of this piece of opinion about China?
* Should Beida recruit more recommended students?
* Nude women and Peking Opera: pornography or art?
* War in Iraq lost?
* Costa Rica cut ties with Taiwan: Who's next?

Most Commented/Read Stories in 48 Hours

Learn Chinese, Chinese Mandarin, Learning Materials, Mandarin audio lessons, Chinese writing lessons, Chinese vocabulary lists, About chinese characters, News in Chinese, Go to China, Travel to China, Study in China, Teach in China, Dictionaries, Learn Chinese Painting, Your name in Chinese, Chinese calligraphy, Chinese songs, Chinese proverbs, Chinese poetry, Chinese tattoo, Beijing 2008 Olympics, Mandarin Phrasebook, Chinese editor, Pinyin editor, China Travel, Travel to Beijing, Travel to Tibet