August 22, 2005

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Oil is thicker than blood

The recent oil shortages in China had plenty of people, including myself, claiming it was a result of market distortions due to price controls. But Wu Zhong in today's Standard says I was only partly right and indeed missed the bigger picture. The three drivers that fuelled an 'oil crisis':

There are strong reasons to believe [Sinopec and PetroChina] have deliberately halted supplies to create seeming chaos...they want to pressure the NDRC for an immediate increase in oil product prices, thus cutting their considerable losses on refinery production stemming from the rising price of imported crude...the energy companies want to eventually force the NDRC to completely free oil product pricing so that they can completely dominate the market...[and] to take the opportunity to acquire the few petrol stations that they don't already run.
Read the whole article to see the bureaucratic powerplays that are driving (pardon the pun) this dispute. Of course it is the people who suffer, but since when have they mattered?

One other interesting part of the article that is mentioned in passing but has greater significance: Sinopec and PetroChina have listed many of their business operations in overseas securities markets, they are increasingly able to cite "shareholder interests'' as an excuse to defy government orders.
Maybe market economics can triumph over Communism after all? The writer is implying that Sinopec and PetroChina are using shareholder interests as a fig leaf to ignore orders. What if, perhaps, they actually believe in creating shareholder value and subverting Government orders is a means to that end?

Stockbrokers as subversives. Who would have thought?

posted by Simon on 08.22.05 at 10:43 AM in the China economy category.


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Excerpt: Simon was on this issue earlier and notes this: One other interesting part of the article that is mentioned in passing but has greater significance: Sinopec and PetroChina have listed many of their business operations in overseas securities ...
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Even yesterday I passed petrol stations guarded by armed PLA soldiers (I live in GZ). One station had a sign saying petrol was only being sold to public vehicles.

The Standard article is spot on as the reasons it outlines are common knowledge among the taxi drivers etc in China. The govt are loathe to even raise fuel prices let alone allow the Chinese oil companies a free reign to set the price at whatever the market dictates.

The old worry of social unrest rears its ugly head once more. Until the current conflict between the oil companies and the govt is resolved, the oil companies continue to lose money and crude prices creep nearer to US$70 a barrel.

A nice conundrum.

posted by: Martyn on 08.22.05 at 12:18 PM [permalink]

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