Fueling Change in China's Economy

According to China Daily, Beijing recently announced a 17% rise in fuel costs for private cars (12 cents per liter), 18% increase for diesel, and 25% increase for jet fuel. The increase took place Friday, June 19. There will also be an increase in electricity prices around the nation.

Beijing also announced it will offer subsidies to some industries affected by the new policy (i.e. taxis, buses, grain producers) in an effort to curb inflation.

Many people expected the cheap gas prices (approx. $2.50/gallon) would last until after the Olympics. Beijing decided that the price increase would take effect midnight Friday, which caused long lines at gas stations across the country of drivers trying to save money. In some areas, police were called in to keep motorists from causing problems at gas stations.

This is a good move by the Chinese government. The price of gas is cheaper on the Mainland than most other areas in East Asia. The people who own cars tend to be the wealthy elite of China who could afford an increase in costs. Even with the financial ability to cope with such an increase, car owners are unhappy about the move.

Many people are hoping this price hike will change some driving habits in the cities; much like it has in the US. Most city dwellers in China view a car as a great status symbol, and therefore must drive whenever possible. If habits change, the air quality in and around Beijing may improve slightly prior to the opening of the Olympics. This will also help ease the strain on supply in Shenzhen as many Hong Kong drivers have been crossing the border to the Mainland to fill up on cheaper gas.

This move comes on the heels of the plastic bag ban from June 1, which forced companies to improve the quality of bags and charge customers who do not provide their own. That move was an effort to cut the use of an estimated 3 billion plastic bags every day.

However, not everyone is pleased with the decision to raise fuel prices. Many Chinese citizens believe that this move by the government will seriously harm many industries, thus destroying the national economy. The greater threats to China's economy are the rising minimum wage and the rising value of the Yuan, which are pushing some businesses out of China and into Cambodia, Thailand, and Vietnam. In Guangdong province, the government is raising the minimum wage to approximately 1,000 RMB per month in the cities and slightly lower than that for other areas (US$1=6.88RMB). A rumor in the Shenzhen business community estimates that 15,000 factories may close in the city within the next year.

On the up side, there is a lot of waste in business in regards to energy consumption, and this newest change in policy should affect many habits that will improve business in China. The Chinese economy should survive if businesses embrace the changes and adapt to rising production costs.