Saturday, June 21, 2008

China Reduces Gas Subsidies, Protests on the Way

As noted by our Missionary to the Frozen, Northern Wastelands in a comment yesterday, the Wall Street Journal (WSJ) is reporting that China is increasing the price of gas.
The government, which controls domestic fuel prices, raised its base price for gasoline by 17% and diesel by 18%, a move that global oil traders quickly concluded could diminish the country's voracious appetite for fuel.
Even the Chicoms can't escape the laws of economics.
In addition to international pressure, Beijing faces domestic concerns. Its gasoline and diesel refiners' profits were being squeezed by the high prices of the purchases and low government-set prices of their sales. Lack of domestic refining even made China a net importer of gasoline last month, for the first time on record. Similarly, power plants' losses have been mounting as they burn coal bought at market prices to sell electricity at a low state-set price, which also is being raised. Power shortages have been spreading, and more production would help prevent the possibility of blackouts during the summer, including when Beijing hosts the Olympics in August.
Emphasis mine. Fixing prices causes shortages. Of course, the rising prices will cause riots from the consumers who are just as economically ignorant there as they are here.
(T)ensions also will be on the agenda when Chinese Vice President Xi Jinping attends this weekend's summit of oil producers and consumers in Saudi Arabia.

With the country facing more than 8% inflation, officials seem unwilling to expose Chinese consumers to the full brunt of global oil-price swings. There is deep concern over social stability
When demand rises and supply stays the same, the price goes up. The solution? Why, rioting and protests, of course!
At least 36 people have been killed in two days of violent clashes between protesters and police across Yemen, police and witnesses say.
Tanks have been deployed on the streets of the capital, Saana.

Deaths were also reported in a string of other towns. The unrest began after fuel subsidies were lifted on Tuesday, leading to dramatic price rises.

The government says it needs to reduce the budget deficit, but opponents say the rises hit poor people the hardest.
"Hit the poor the hardest" as an excuse for rioting and destruction. Hmm. That sounds like the New York Times and the Democrats, doesn't it?

You can see a slideshow of protest/riot images over the laws of supply and demand here.

2 comments:

Ohioan@Heart said...

But KT, of course there will be riots. The primary cause of essentially revolution ever has been the failure of the government to maintain a "rising expectation" (this is like the only thing I remember as a takeaway from my History of Civilization classes). It even makes sense. People get more, then more, then more, until they expect more still. When something causes the inevitable failure to produce that, the people get mad, and they turn to blame others, usually the government.

This is perhaps the most dangerous time the current Chinese government has ever faced. Tiananmen Square showed how close the people are to being able to take this government down. With the (since then) massive growth of the imporatance of their nearly capitalistic economic system, the political leaders are dependent upon the economic leaders, who are people they don't really control.

Anonymous said...

Of course if the Chinese Gov needs to free up some capital to build more power stations or subsidise more fuel, they only need to sell a few of those war bonds they have invested in the US.