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Why are fuel prices in China higher than in US?

(People's Daily Online)

07:57, July 13, 2012

From 12 p.m. of July 11, the prices of gasoline and diesel lower by 420 yuan per metric ton and 400 yuan per metric ton respectively, according to a notice issued by the National Development and Reform Commission (NDRC) on July 10.

Three questions responded by NDRC

Since June this year, the international crude oil prices have been tumbling sharply and the range of price hiking and falling even will exceed 9 percent in a day while the prices of domestic refined oil products in China have cut for three times in the last two months. However, this did not dispel the public's questions about the fuel prices' “rising fast but falling slowly”. Therefore, the officials of NDRC made a response to the major questions on July 10.

Question 1: Why do the fuel prices in China rise fast but fall slowly?

To this question, an official of NDRC explained that China adjusts the domestic fuel prices under strict refined oil pricing mechanism.

As for another question that currently the fuel prices are adjusted in accordance with 22 working days, which is significantly a little long, and 4 percent of rising and falling range is also a little big, the official said that the existing refined oil pricing mechanism is also not unalterable.

Zhou Wangjun, deputy director of the NDRC pricing department, said, "I think there is room for improving the pricing mechanism. For example, shorten the current working days and the range of 4 percent can be reduced to 2 percent and even 1 percent."

Question 2: Why are the fuel prices in China higher than that of the United States?

In this regard, another official of the NDRC explained that China's refined oil prices are lower than that of most countries including Japan, South Korea and European countries. However, it is really higher than that of the United States because China collects a higher tax. This part of profits has flowed into the national treasury.

According to professor of China University of Petroleum Wang Zhen, the gap between China-U.S. fuel prices currently is about one yuan per liter because they collect different amounts of tax to the final prices of the refined oil. For example, the United States collects about 12 percent of the refined oil prices as tax while the figure in China is between 28 percent and 30 percent.

Question 3: Where do the excess profits from selling the fuels go?

About half of the refined oil products in China is processed and refined from the domestic crude oil and so the cost is much lower than that of imported crude oil. Then, where does this part of excess profits go?

To this question, Zhou explained that this part of profits was not captured all by Sinopec, CNPC and CNOOC. Of course, some of this part was used in exploration and development of the three companies but most has turned over to the national treasury as special oil gain levy to promote the development of other undertakings of the country.

Read the Chinese version at: 发改委回应油价“涨多跌少”等质疑, Source: People's Daily Online


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