Even the Chinese Expect Subsidy Decreases post Olympics

By: TraderMark Sunday, June 15, 2008 12:24 PM

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Again it won't change the long term story one iota, but stocks and the emotional human beings buying and selling said stocks won't care to hear about the long term in the middle of a correction...

Again China is so flush with cash they could in theory subsidize for a long while (whats $30 Billion to them? a month or two of Americans buying Chinese products at Walmart?), but it appears even the citizenry of China are expecting some level of subsidisation to be stripped away post Olympics. Stay tuned - this will get very interesting.

The lines are getting longer, and Tang Yao is finding fewer gasoline stations open in his neighborhood here. But the 48-year-old motorist has no gripes about the price at the pump. While consumers in much of the world have been reeling from spiraling fuel costs, the Chinese government has kept the retail price of gasoline at about $2.60 a gallon, up just 9% from January 2007.
During that same period, average gas prices in the U.S. have surged nearly 80%, to about $4 a gallon.
But Tang and millions of other Chinese are bracing for a big jump in pump prices. The day of reckoning? Everybody believes it's coming right after the Summer Olympics in Beijing conclude in late August.
The reason, as most see it, is that the central government doesn't want to risk doing anything that could upset the populace before the Games, which open Aug. 8. China is already grappling with inflation running at an annual pace of more than 8%, mostly because of higher food costs.
"Before the Olympics, stability is paramount," said He Jun, an oil analyst at Beijing Anbound Consulting Co.
Other countries that subsidize fuel costs have boosted prices recently, in some cases stirring unrest. Protests flared late last week in India, where the government upped prices by about 10%, and there were calls for mass rallies in Malaysia after gasoline prices jumped 41% overnight.
China is the world's second-largest consumer of petroleum, behind the U.S.
China relies on imports for roughly half its oil use, which is growing at about 7% annually.
China raised pump prices only once in the last year, in November, by a little more than 9%.
Refined-oil prices in China are half of international levels, leaving Beijing to shell out about $30 billion in subsidies in 2007 (that was at $70, $80, $90 oil)
But even worse than their draining effect on government coffers, China's price controls create market distortions and disincentives for consumers and businesses to reduce consumption and conserve energy, many analysts have long argued.
The transportation industry uses about half of the gasoline and diesel in China, while ordinary motorists accounted for 7% of gas consumption in 2006, according to China International Capital. But the number of car owners is growing rapidly.

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