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# **China**

A brief history of petroleum product pricing policy in China is provided below.

|Before 1998|The central government set ex‐refinery prices and retail prices in major cities, and local<br>governments set wholesale prices and retail prices in smaller cities based on the<br>central government prices.|
|---|---|
|1998|The government switched to a system of guidance prices, in principle granting freedom<br>to set prices within a 5‐percent band around the guidance price. The guidance prices<br>were meant to follow spot prices in Singapore, changing when the prices there<br>changed by more than 5 percent. In practice this pricing mechanism was often not<br>implemented. In 2001, the government moved from using spot prices only in<br>Singapore to a basket of prices in Singapore, Rotterdam, and New York; abolished all<br>controls on fuel oil; and also widened the band for diesel from 5 percent to 8 percent.|
|2006|The government changed the basis for the timing of price changes from refined<br>product prices to crude oil prices, given the share of domestically refined products.|
|January<br>2009|The government set a price ceiling for gasoline, diesel, and jet fuel based on a rolling<br>22‐working day average of a basket of Cinta, Brent, and Dubai benchmark crudes,<br>adjusting price ceilings if this average varied by more than 4 percent. The formula was<br>not applied at several points in time, leading to large losses for the refineries and<br>causing fuel shortages at times. There are two threshold levels for crude oil prices that<br>would trigger government intervention: (1) above US$80 per barrel, firms are asked to<br>reduce processing margins; and (2) above US$130 per barrel, unspecified “fiscal”<br>measures are to be implemented.|
|March 2013|The government shortened the averaging period from 22 days to 10 days, abolished<br>the 4‐percent crude price band, and switched from the basket of benchmark crudes to<br>China’s crude oil import slate. Price ceilings are not changed if world oil price<br>fluctuations do not exceed 50 yuan per tonne (about US$1 per barrel of oil). These<br>pricing rules were not always followed.|
|January<br>2015|On January 4, the government removed its controls on the prices of 24 commodities<br>and services, but did not include gasoline, diesel, and jet fuel in the list. Analysts and<br>market players debated the pros and cons of price deregulation (_Platts Commodity_<br>_News_2015a):|
||Argument against deregulation:Lack of competition. Given large market concentration<br>at the refining level dominated by two state‐owned oil companies and restrictions on<br>independent refineries to import crude oil, removal of price ceilings could lead to<br>prices significantly above world market prices. Even if fuel imports were completely<br>deregulated, market concentration at the distribution level could persist for a long<br>time, limiting price competition. One estimate provides that independents control only<br>1 percent of retail outlets.<br>Arguments for deregulation:Competition will emerge if the government withdraws<br>from the sector. According to one industry estimate, there was 3 million barrels per<br>day of unused independent refining capacity out of the total refining capacity of 10|