Diesel Shortages and Gasoline Price Policy

A recent trip to 绥中, an unremarkable town near Liaoning's border with Hebei entailed a 5 hour bus ride. Fortunately the bus was only half full providing ample opportunity to catch up with some reading. Earlier in the week I'd heard of diesel shortages around Liaoning province, yet service stations we passed didn't seem to have any major problems, until we came to here, somewhere near Yingkou:

Around 300 large trucks were backed up along the motorway. The preceding 5 service stations were out of diesel, explaining their seeming underutilisation. The above picture shows the forecourt of the first gas station with fuel for over 200km. Some drivers had been waiting over 4 hours and expected to wait a wile longer; the gas station had only 2 pumps.

The price of fuel in China is significantly lower than most countries. Like many products deemed essential to the economy, fuel prices are controlled by the state, as international prices have increased yet domestic retail prices haven't producers such as Sinopec have their margins squeezed and shortages emerge. Even with the recent rise in prices, domestic retail fuel prices remain lower than US prices.

To what extend are is domestic fuel consumption price-sensitive? Trucks and cars use fuel. Trucks, at least over the short term, are logistically essential for business and factories. Cars, unlike most developed countries, are owned by the rich, a symptom of such large income inequality China is experiencing. The fuel subsidy is funded by taxation.

I cannot help but feel this is another justification for a government mandated 'crunch' after the Olympics. There are serious structural bottlenecks emerging in China's economy, fuel and electricity being just one, principally caused by recent rapid economic growth. There are additional grounds suspecting inflation has also been spurred by strong monetary growth.

When this has happened in the past, the government has hit the brakes hard.