Shanghai Strike Highlights China’s Oil Dilemma

Shanghai Strike Highlights China’s Oil Dilemma

Chinese truckers at the port of Shanghai ended a three-day strike on April 23 after local authorities released a communiqué promising the reduction of logistics fees and attempts to mitigate the effect of rising fuel prices. The incident made headlines in global media coverage, as it threatened operations in the world's largest port. But it is just the latest in a widespread pattern across China, with similar protests by independent truckers and taxi drivers angered at rising fuel costs taking place on a regular basis in all Chinese cities. The mix of repression and accommodation shown in Shanghai is also very common, as the Chinese government tends to make significant concessions on price controls and subsidies.

The wave of protests inflaming the Arab world has reinforced this tendency. On the one hand, the hike in international crude oil prices triggered by the Arab popular uprisings has forced Chinese planners to increase diesel, gasoline and jet fuel prices twice since the beginning of the year, fomenting discontent. On the other, the Chinese government has become even more concerned with maintaining social stability in light of the Arab unrest and has shown itself reluctant to take unpopular measures.

As a consequence, China is finding it particularly hard to reform its oil pricing system to make it fully responsive to market signals. The current mechanism, introduced in January 2009, allows adjustments in the price of domestic refined products only if the international market price for a barrel of oil rises or declines by more than 4 percent over 22 working days. A transition toward fully market-based pricing has been announced, but progress is slow and bumpy. An official from the National Reform and Development Commission (NRDC), the top economic planning body in charge of the reform, recently declared that there is no timetable for implementing such plans.

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