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Cheaper oil could lead to commodity price reform
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17:05, September 09, 2008

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Cheaper international crude oil would be a good opportunity for China to reform its commodity prices, said an expert with the National Development and Reform Commission (NDRC).

Chen Dongqi, vice president of the NDRC's Academy of Macroeconomic Research estimated crude oil to fall to under 70 U.S. dollars a barrel in coming months. Currently, oil is more than 100 U.S. dollars a barrel.

"It would be a rare chance for China to accelerate its price reform of oil, electricity, gas, water and grain products," he said. "This chance only appeared once, shortly after the Asian Financial Crisis. We should make good use of it this time," said Chen.

China had been suppressing the prices of commodities since last year in order to keep consumer prices down. For example, the NDRC had interfered with coal prices and the country's domestic oil prices.

Most power and refinery plants are reporting losses and are pressing for a market-oriented energy pricing system.

The recent plunge in crude prices, together with a weakening greenback, would ease pressure from imported inflation on overall prices in China. The upward pressure of the consumer price index is also expected to ease in the latter half supported by a bumper summer grain harvest, all facilitating a reform on resource prices.

Chen said price reform should be done in a gradual way. "In implementing reform, we should avoid too much immediate shock to prevent triggering a second wave of inflation."


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