Government suppressing rises in utility rates

LOCAL governments’ strong desire to raise public utility rates is putting increasing pressure on China’s consumer price index (CPI) – a key inflation gauge.  

This may well explain why the country’s National Development and Reform Commission is now requiring companies providing gas, water and electricity to consumers at the local level to implement mandated price controls.  

A recent notice from the commission to local public utilities forbids rate increases in areas where the CPI rose more than 1% in a one-month period or 4% for three consecutive months.  

Although subject to government regulation, the prices of gas, water and electricity were under pressure as a result of significantly higher demand at both the residential and industrial levels, said Asian Development Bank senior economist Zhuang Jian.  

“China’s fast-growing economy and improvements in residential consumption are creating an enormous demand for these basic services,” he said.  

But the services were monopolised by several state-owned sectors, where competition was not sufficient, he said. 

“Demand always surpasses supply. There is strong internal pressure in the industry to raise rates in proportion to the surging demand,” he said.  

Zhuang also said that without the government moving to keep utility charges from spiralling, the prices paid by consumers for many other products would edge higher, with uncertain consequences.  

“The government may fail to meet its target of keeping the CPI rise to no more than 4%,” he said. – China Daily  

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