China to push for pricing mechanism for energy

It is reported that China should push forward the pricing mechanism reform of energy products, despite concerns that the move may add to inflationary pressure. Analysts and government officials have long been advocating for a reform of the energy pricing mechanism, which could link refined fuel prices with production costs.

Energy prices in China are mainly decided by the government. Over the past year, it has managed to hold down the prices of electricity and refined oil products, which is seen as an effort to rein in inflation. But the move has led to the loss of energy producers which then chose to suspend part of their operation, as soaring oil and coal prices eat into their profits.

The government moved to test the idea in the electricity sector in 2004, as it decided to review electricity prices every six months and make adjustments if it deemed it necessary. The government said earlier that they would extend the reforms to the fuel sector, which could bring China's under priced fuel in line with the international market. Yet, the reform was kept at bay as inflation started to pick up from last March. It shot to a 12 year record of 8.7% in February this year. The government worried energy price hikes would translate into a spurt of consumer inflation. Moreover, rising energy costs could deal another blow to the manufacturing sector, which already suffered from weakening overseas demand and rising labor costs.

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