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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (26944)	4/5/2005 6:40:30 PM
From: RealMuLan	Read Replies (1) \| Respond to of 116555

Planners to press brakes on fuel demand Chen Aizhu March 30, 2005 Analysts say China may introduce the new tax in phases to allow consumers to gradually adjust to higher costs and avoid any big negative impact on industry. BLOOMBERG Energy planners are ready to take the bitter pill of an unpopular nationwide fuel tax to put the brakes on China's runaway fuel demand. Analysts say Beijing is likely to consider a 20-50 percent tax on retail gasoline and diesel prices, which are among the world's lowest, emulating western Europe's policy of using high taxes to promote energy conservation and protect the environment. But imposing a tax at a time of record-high oil prices could hamper key economic sectors and anger hundreds of millions of farmers, consequences which may delay any imminent implementation despite a surging dependence on fuel imports. ``Beijing has realized the level of China's energy use demands a high tax levy. It will not be imminent but will be soon - in a year or two,'' said Yang Fuqiang, Beijing chief of the United States-based Energy Foundation, which assists China in formulating sustainable development policies. Analysts say China may opt to introduce the new tax in phases to allow consumers to gradually adjust to higher costs and avoid any big negative impact to business and industry. But Beijing would have to boost prices by at least 25 percent to make a perceptible dent in demand, they say. China's oil imports hit a record last year, making up more than 40 percent of its 6.4 million barrels per day of demand. That dependence is set to rise to roughly 65 percent by 2020. Swelling car ownership, sharply growing transport and petrochemical sectors, and a persistent power shortage drove consumption up almost 16 percent last year. Demand remained robust despite international crude prices soaring past US$50 (HK$390) a barrel as Beijing kept a rigid cap on retail prices to keep inflation in check and protect consumers. The government raised retail gasoline prices last week by 7 percent, the first increase since August but analysts viewed it as too little too late to have any significant impact on demand. They say China will do its best to implement a new retail tariff with prices at peak levels if it is really going to tackle its growing dependence on foreign oil. ``The best time to introduce taxes is when prices are high to curb demand and promote new technologies,'' said a State Council senior tax researcher. Yang said the government should be confident that the economy could prove to be more resilient than expected to absorb higher prices. ``It's like catching a cold. But it will help improve your immunity,'' he said. Finance Minister Jin Renqing said this month Beijing was intent on enforcing the fuel tax, but timing was crucial. ``The government is worried a big jump in oil prices may slow growth in key economic sectors. They don't want to see taxi drivers go on strike and trucks blocking up highways,'' Yang said. Higher fuel costs may encourage the ballooning, but minority, young middle-class to buy energy-efficient, low-emission vehicles instead of gas-guzzling sport cars. But a sharp drop in car sales would hurt the auto-making sector, one of the country's cornerstone industries and a key tax revenue source for 80 percent of provinces. A big jump in the price of diesel would raise costs at manufacturers, which ship goods from the poorer inland regions to the booming coast for export. It would also threaten stability in the 800-million strong rural community, which uses the fuel for ploughing and irrigation. Diesel makes up a third of total mainland oil demand, double that of gasoline. The idea of a fuel tax was initiated in 1994, when oil was below US$20 a barrel, as a means of replacing road tolls. But volatile prices and issues such as how to split tax revenues among government agencies have held it up so far. ``Oil prices can't possibly go back to US$25 a barrel. Shall we wait forever?'' said Yang Zhigang, head of tax research at the China Academy of Social Science. China levies a 17 percent value-added tax and a fixed consumption tax of 117.60 yuan (HK$110.89) a tonne for diesel and 277 yuan a tonne for gasoline. The consumption tax accounts for 6 percent of the retail gasoline price and 3 percent of diesel's pump rate. These are sharply below tax rates of most Organization for Economic Cooperation and Development countries at 20-70 percent, which includes VAT. REUTERS thestandard.com.hk