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Chinese Oil Price Controls

By Chris | November 6, 2007

 The latest Economist reports:

“A price this high should also temper demand for oil. Motorists’ thirst for fuel does indeed seem to be faltering in rich countries. But as Francisco Blanch of Merrill Lynch notes, most of the incremental demand for oil comes from China, India and the Middle East, where the prices of petrol and diesel are subsidised or capped, leaving drivers with little incentive to cut back. Until the governments concerned start making consumers pay the market price, appetite for oil is likely to remain strong. There are signs of this: on October 31st the Chinese government raised the price of fuel for the first time this year.”

The Chinese government raised prices by 10 percent.  With China’s robust market economy, it is easy to forget that many elements of command and control are still exercised by the Communist party.  Hopefully, higher prices will curtail the growth of oil consumption in China.  Last year, Chinese imports of crude oil grew 14 percent.  While oil consumption in a developing country is a positive thing, consumers are purchasing too much oil if they aren’t paying its true price.

Topics: Uncategorized | 1 Comment »

One Response to “Chinese Oil Price Controls”

  1. Lou Says:
    October 6th, 2008 at 9:14 am

    With oil prices now below $90, I do not think that price controls in China are important to the USA.

    We have been in a deflationary spiral that was masked by high oil and food prices. Headline ran hot due to the largest oil using nation competing for oil purchases around the globe. Food inputs were diverted to fuel production creating an illusion of inflation.

    In our stupidity we refuse to drill domestically. We raised the price of oil world wide. Our Fed should have been reflating our economy for a long time.

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