SHANGHAI, Aug 24: China on Wednesday was wrestling with how to mitigate the impact of higher international oil prices on its state controlled pricing system responsible for sparking a mini oil crisis in the southern province of Guangdong.

The National Development and Reform Commission, Beijing’s key economic policy planning body, is mulling various proposals to prevent the same type of fuel shortage that hit the provincial manufacturing hub next to Hong Kong.

“We hope to build a reserve, and we are doing research on this,” an official with the Development and Reform Commission of Guangdong told AFP.

“It’s something we want to do but we have to seek how we can gain support from the central government on this,” the official said, adding that such a decision would also need the backing of the country’s increasingly powerful state oil groups Sinopec and PetroChina.

“The oil crunch this time is because that we don’t have any reserve,” he said.

After weeks of soaring global oil prices and rising demand in China to feed an economy that powered ahead at 9.5 per cent growth in the first six months of the year, domestic refineries were suddenly cut short in late July.

In Guangdong’s business centres of Guangzhou and Shenzhen drivers were forced to get up in the middle of the night to ensure they could partially fill their tanks.

Although recent shipments of fuel replenished dwindling supply, buying had yet to return to normal on Wednesday, observers and officials told AFP. “They are still lining up for gas,” said a local official.

Although this time the crisis has largely been restricted to Guangdong many officials fear that if international oil prices tip $70 a barrel it could trigger a nationwide oil crisis.

Petrol-guzzling provinces such as China’s eastern Jiangsu province, next to Shanghai, have already tabled a proposal for a temporary, more flexible fuel pricing system.

“We are considering, but it needs to be discussed and approved by higher authorities,” said Ju Hanfang, a spokesman for Jiangsu Price Bureau, but any such move would require further approval from on high.

Although China, a net importer of oil for more than a decade, buys about one-third of its oil on the international market, its quasi-market pricing system forces its oil companies to sell at a loss.

The government fixes oil prices with reference to the previous month’s global trading levels in New York, Rotterdam and Singapore and then allows the price to float within eight per cent of daily trade.

With gas in China currently going for between $43 and $47 a barrel, oil groups Sinopec and PetroChina refused to replenish supplies arguing that the disparity between domestic and overseas prices was destroying their bottom line.

To blame for the crisis in Guangdong is the hangover from China’s command economy past, when all prices were centrally determined.

This theoretical relic continues to affect China’s fast changing economy, especially banking, securities trading and monetary policy, because communist party mandarins feel uneasy about implementing full-fledged market system that it is likely to erode the party’s political control.

Although Beijing’s restrictions may also be well-intentioned — the oil price regime is meant to contain inflation, a real worry in a country that has seen several boom-bust cycles — the economic dualism cannot go on much longer, analysts said.

“There is no way they can keep controlling the price at the pump. It’s like telling the consumer that gas is very cheap but not to use too much,” said Albert Kuang, president of China-focused energy consultancy PetroAsian.

—AFP