For the second time this year, the government comes to the rescue of (state-owned) refineries by raising petrol and diesel prices by 6 and 7 per cent respectively. This will push up inflation, which has always caused social unrest. Meanwhile, the International Monetary Fund gives the thumbs up to government policy, warning however against risky investments.

Beijing (AsiaNews/Agencies) - China has raised the price of petrol by about 6 per cent and diesel about 7 per cent for the second time in 2012, as it struggles with the rising cost of crude oil resulting from the crisis between Iran and the international community. Iran supplies China with 20 per cent of oil imports, but sanctions have reduced sales and increased prices. Now many fear inflation might go up further and cause social unrest.

Chinese authorities have decided to save domestic refineries, which are state-owned, rather than keep inflation low. After consumer prices peaked in July last year at 6.5 per cent, they eased in the subsequent months. In February, it stood at 3.4 per cent from a year earlier, below the government's target of 4 per cent.

China's is the world second largest oil consumer after the United States. Demand for energy has led to more exploration but also increased international and domestic tensions.

"This price hike comes sooner than our expectations," said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd in Hong Kong. "It signals the official ending of China's anti-inflation campaign."

Meanwhile, China's economy is sailing safely towards a soft landing, but it needs to move away from its export and investment-driven growth focus if it wishes to maintain vitality, this according to the International Monetary Fund (IMF).

"China is landing quite well," said Zhu Min, the recently appointed IMF deputy managing director. "However, it still needs to carefully manage its investment-driven development model, as investment takes up about 48 per cent of gross domestic product."

Indeed, to manage unemployment, the government has invested heavily in certain areas, creating significant speculative bubbles. More importantly, it has failed to sustain the new middle classes and help workers, which might lead to rising demands.

 

• china
• fuel
• prices
• inflation