China likely to impose tax to stem demand for fuel

  • Business
  • Wednesday, 30 Mar 2005

SINGAPORE: China’s energy planners are ready to take the bitter pill of an unpopular nationwide fuel tax to put the brakes on runaway fuel demand in the world’s second-biggest oil consumer. 

Analysts say Beijing is likely to consider a 20% to 50% 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 the country’s hundreds of millions of farmers, consequences which may delay any imminent implementation despite a surging dependence on fuel imports. 

“Beijing has well realised that 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, the Beijing chief of the US-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% to make a perceptible dent in demand, they say. 

China’s oil imports hit a record in 2004, making up more than 40% of its 6.4 million barrels per day (bpd) of demand. That dependence is set to rise to roughly 65% by 2020. 

Swelling car ownership, sharply growing transport and petrochemical sectors, and a persistent power shortage drove consumption up almost 16% last year. 

The government raised retail gasoline prices last week by 7%, the first increase since August but viewed as too little too late to have any significant impact on demand. 

Analysts said China would do its best to implement a new retail tariff with prices at peak levels if it was really going to tackle its growing dependence on foreign oil. 

Yang from the Energy Foundation said the government should be confident that the world’s seventh-largest economy could prove to be more resilient than expected to absorb higher prices. 

“It’s like you catching a cold. But it will help improve your immunity,” he said. – Reuters 

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