* China's main stock index jumps 3 percent, refiners up
* Economists says inflation pressure will be muted
* Car owners angry, but Beijing aims subsidies at poor
(Adds bullet points, links to graphics)
By Chen Aizhu and Simon Rabinovitch
BEIJING, June 20 Chinese stocks soared, oil
fell, then steadied and some motorists threw up their hands in
despair on Friday after Beijing announced a rise in fuel prices
which had not been expected until after the Olympics.
China raised retail gasoline and diesel prices by up to 18
percent on Thursday to rein in demand at the risk of stoking
inflation which is within striking distance of 12-year highs.
Economists however said inflationary pressures would be muted.
While neighbours from India to Indonesia had already bowed
to the pressures of near $140 oil by scaling back subsidies and
raising fuel prices, most analysts had expected Beijing to hold
out until after the Olympics in August as policymakers focused
on battling inflation and avoiding any hint of social unrest.
The higher resource prices will feed into inflation, but in
a nation where consumers spend little on fuel products, the
impact is expected to be relatively small. Most economists
expect that an extra percentage point, or even less, will be
added to consumer inflation over the rest of the year.
Nevertheless, the yuan rose against the dollar in offshore
non-deliverable forwards CNYNDFOR=, as traders said the fuel
price increase would prod Beijing to tighten monetary policy to
The Shanghai Composite Index .SSEC climbed 4.7 percent by
midday, suggesting its months-long slide may finally be ending.
PetroChina (601857.SS), the biggest stock in the index, surged
5.1 percent, as its refining margins will be aided by the price
The largest oil refiner, Sinopec (600028.SS), was up only
2.31 percent to 12.88 yuan, but it had already risen 11.6
percent this week in anticipation of the fuel price adjustment.
Oil steadied to around $132 in Asian trade after falling
sharply on the Chinese move, which could depress demand for
crude there. The dollar held steady against the yen, hovering
within sight of a four-month high after rising the previous day
due to the drop in oil prices.
After making little progress in recent years toward its
long-stated goal of raising energy prices to reflect higher
costs and to encourage greater efficiency, China also increased
power tariffs by nearly 5 percent, while freezing thermal coal
prices to revive generators' profits.
China's first hike in eight months and its sharpest ever
one-off rise comes at a time of mounting international pressure
for some kind of action to tame soaring global prices, which
have spurred protests worldwide and threaten to cut economic
On Sunday the world's biggest oil producers and consumers
will convene a crisis meeting in Jeddah, Saudi Arabia, to try
to halt oil's six-year rally -- blamed by some, including the
U.S. Energy Secretary just weeks ago, on subsidies in countries
like China that shield consumers from soaring costs.
"This is very significant, a watershed move which suggests
the Chinese government is prepared to risk unpopularity to curb
the growth in domestic fuel demand," said John Kemp,
commodities economist at RBS Sempra in London."
"We've already seen other Asian economies cut subsidies and
the one big hold out, until now, was China."
Fearful of stirring popular resentment, Beijing also
pledged subsidies to lower-income groups such as farmers,
fishermen and cab drivers, similar to the targeted payouts that
countries like Malaysia are now adopting as they reduce fuel
subsidies that distort markets and benefit the rich more than
But that did not stop some car owners, part of a burgeoning
new middle class flush with money and Mercedes, to vent their
At least one gas station told customers on Thursday that it
would shut for repairs until the price hike took effect at
midnight, prompting an altercation between staff and angry
"You guys make a huge profit and get high prices. We
consumers are pitiful," said a Shanghainese waiting to fill his
"It's crazy," said another Shanghai man driving a Passat.
"Inflation is becoming serious and harming my ordinary life --
I won't be able to stand it for long if prices continue to
Analysts also ruled out the possibility of protests,
although inflation was a key factor behind the 1989
demonstrations on Beijing's Tiananmen Square.
"People are more able to tolerate price rises today than
they were in 1989," Liu Xubuo, a dissident writer, said. "There
won't be chaos."
And food prices, the dominant source of inflationary
pressure in China over the past year, have dipped over the past
two months, allowing headline inflation to slow to 7.7 percent
in May from 8.5 percent in April.
"That is a significant decline and that also gave them a
window of opportunity to make the price hike," said Qing Wang,
Morgan Stanley's chief China economist.
Although unpopular with drivers, who at least will now be
able to fill up without rationing or queues, the petrol price
hike would not spark social unrest ahead of the Olympics, mused
one Beijing businessman surnamed Xu as he wiped his dusty van
down with a cloth.
"Common people don't have cars," he said. "They'll welcome
the decision as it hurts the rich."
For a graphic on retail prices in Asian countries, click
For a graphic on how China's retail fuel prices have lagged
crude oil, click on:
(Additional reporting by George Chen in SHANGHAI; Writing by
Nick Macfie; Editing by Sambit Mohanty)