China Environmental Law

In a surprising move, China reduced gasoline and diesel prices at the pump one week before imposing its much publicized increase in the fuel tax.

Xinhua reported that the “benchmark” retail price for fuel, presumably Grade 93 gasoline, was slashed approximately 14% from “6.37 yuan (0.93 U.S. dollar) per litre to 5.46 yuan.”  The wholesale benchmark price was reduced by a similar percentage.

The pictures which accompany the fuel cut stories suggest that pump prices have actually been set below the benchmark price.  This picture taken in Shanghai shows a price of 5.06/liter of Grade 93 gasoline, and a picture from Qingdao shows a price of 5.10/liter. 

The announced retail price decrease (.91 yuan) is about the same amount as the new ”gasoline consumption tax” which will move “from the current 0.2 yuan per liter to one yuan per liter.”  However, the tax will not be imposed until January 1, 2009.

I assumed that China would decrease fuel prices by the amount of the tax so that there would be no noticeable effect on prices at the pump, but

The National Development and Reform Commission (NDRC) made it clear Thursday that domestic fuel prices would remain unchanged on Jan. 1, 2009, when the fuel tax is expected to kick in.

Fuel producers will reportedly be required to “lower the factory gate price again to offset the tax” so consumers will not see a price boost on January 1.

There are certainly market reasons for lowering fuel prices; “Chinese drivers are paying much more than those in many other countries because domestic fuel prices have been unchanged since June despite tumbling global prices.”  But a further reason for lowering fuel prices now is to “help revitalize companies and factories eking out in a slowed-down economy.”  It will also make help mollify China’s increasingly restless taxi drivers.