China cuts fuel prices to stimulate economy

China has implemented cuts to fuel prices, which are heavily regulated, to further stimulate the economy, which has recently been showing signs of recovery. The lowering of the retail prices of gasoline and diesel fuel is believed to help lower input costs, while simultaneously easing inflation which is already at its lowest in almost three years. While China’s 3rd quarter gross domestic product (GDP) grew at the slowest pace since the first quarter of 2009, industrial production has accelerated in September and October, partly due to higher infrastructure spending.
According to the National Development and Reform Commission (NDRC), China’s top economic planning body, gasoline prices were reduced effective November by RMB310 (US$49.75) and diesel fuel prices by RMB300 (US$48.09) per metric ton, which brought the average retail price of gasoline in China to US$4.11 per gallon (US$1.08 per liter) and the price of diesel fuel to US$4.28 per gallon (US$1.12 per liter). Price ceilings vary geographically.
It was generally expected that the cuts would be made after the appointment of China’s next generation of leaders at the Communist Party Congress, which took place shortly before the announcement.
Fuel prices have been raised four times and reduced four times in 2012 so far, following international oil price movements. However, price reductions are generally smaller than price increases, most likely to protect the profit margins of state-controlled local refiners who cannot pass on higher crude costs to consumers due to government price regulations.
PetroChina Co. and China Petroleum & Chemical Corp. (Sinopec) have booked combined losses from refining amounting to RMB41.81 billion (US$6.62 billion) in the first half of the year due to higher crude acquisition costs. (November 16, 2012)