As pricing liberalization speeds up Chinese businesses will have to cope with continuous rises in the cost of resources.    

 

Despite concerns, the nation's top policy-making body, the National Development and Reform Commission, has vowed to push ahead with its liberalization campaign.

 

"We'll allow the scarcity of resources to determine their price," Bi Jingquan, the commission's vice minister in charge of price reform, said at a national forum last week. "That's the basic principle of the price reforms."

 

His words were echoed by a think-tank report released over the weekend, which called for price reforms to encourage more efficient economic growth.

 

Bi said liberalizing the pricing of raw materials and energy will definitely increase costs in the long run but the government was determined to make prices more dependent on market forces.

 

Industry insiders said his speech was the first time the government has formally expressed its determination for pricing reform.

 

The major concerns over liberalization were possible consumer price hikes that could cause financial difficulty for farmers and groups of vulnerable people.

 

Bi said the government was considering further measures to liberalize the price of coal, electricity, oil, natural gas and water. "And related social policies, such as offering subsidies, are being considered to lessen the impact on vulnerable groups," he said.

 

Over the weekend, the government's top think-tank, the Development Research Center (DRC) under the State Council, also called for reforms on resource prices to promote more efficient economic growth.

 

"The price reforms should increase the costs of resource products for businesses with low efficiency," said the DRC report, cited by Xinhua News Agency yesterday.

 

The DRC attributed China's current high energy-consuming growth rate to a price system that failed to reflect the scarcity of resources.

 

Statistics from the DRC show that water is China's most precious resource yet the price for it is only one-third of the international average. The low cost has led to over consumption and water being wasted, said the report. The same problems have affected rural land and other resources.

 

Government statistics show that China's energy consumption per unit of gross domestic product (GDP) rose slightly by 0.8 percent in the first half of this year. The rise represents a major challenge for economic planners who have envisaged a 4-percent cut in the country's energy consumption per unit of GDP in 2006.

 

Possible measures to deregulate prices include levying a resource tax, a windfall-profit tax or higher land utilization fees to encourage companies to reduce their projects' environmental impact and solve the difficulties posed for people on low incomes.

 

The government should also increase resource utilization fees, said Huang Shengchu, president of the China Coal Information Institute. For example, mine owners were charged only 1,000 yuan (US$125) annually per square kilometer of coalmine. "The government should raise that by a big margin," said Huang. "Low fees have caused a lot of waste."

 

The reckless exploitation of resources has led to shocking waste. As an example the DRC report cited northwestern Shaanxi Province, where mines on average extract only 30 percent of the coal in a seam, leaving the remainder underground.  

 

Amid recent requests from government departments to speed up the liberation of the pricing regime the Ministry of Commerce ruled out the possibility of rapid price hikes for major resources and energy during the second half of this year.

 

But they forecast further price increases for oil-related products because of a shortage in supply. For other production materials the prices may remain "stable" or be "lowered" due to the balance of supply and demand.

 

The ministry released the survey results after questioning companies in China and abroad on the price trends of nearly 300 production materials.

 

(China Daily August 14, 2006)