The Difference Between Communist Capitalism (As In China) And Capitalist Capitalism (As In The US)....The China Price…To Drive

It looks like the China story is becoming more and more fishy....... Keep this in mind when the next blowout nominal GDP number out of China is making waves......

Es sieht immer mehr so aus als wenn es im gelobten Land China immer mehr brodelt...... Ohne diese staatlichen Eingriffe könnte man wohl guten Gewissens von einer galoppierenden CPI sprechen....Behaltet diese Themaktik im Auge wenn demnächst wieder sagenhafte nominale Wachstumszahlen aus China die Schlagzeilen beherrschen....Spreche bewußt von CPI ( Consumer Price Inflation ) und nicht Inflation da ich was die Definition angeht mit Mish übereinstimme Inflation: What the heck is it? .

The China price…to drive FT Alphaville
Here is what we consider to be a graphical representation of the difference between Communist capitalism (as in China) and Capitalist capitalism (as in the US) - divergent costs of motoring.

It comes from John Kemp at Sempra Metals, who notes that in China domestic gasoline and diesel prices are set by the government rather than the market, with the National Development and Reform Commission setting a benchmark price. Filling stations are required to sell fuel at a price within plus or minus 8 per cent of the benchmark.

The government has raised the benchmark repeatedly over the last five years but by nowhere near as much as the increase in crude oil prices. Until the end of 2006, the benchmark gasoline and diesel prices were raised broadly in line with crude. But since then the government has authorised only one price increase in Nov 2007. NDRC officials are reluctant to sanction further increases in case they fuel already high rates of inflation or provoke social unrest. Gasoline and diesel prices are being held down in line with many other basic commodities as part of the government’s broader strategy of relying on price controls to bring down the inflation rate.

China’s refiners now make losses on every barrel of imported crude oil they refine and the government has agreed to provide subsidies to the second-largest refiner, Sinopec, amounting to more than $10bn a year.

There are repercussions here:

The artificially low level of the controlled prices means that China’s manufacturers and households are not receiving a strong signal to conserve fuel. Even as crude oil prices rise, China’s consumers and businesses have no incentive to cut gasoline and diesel use. Rising crude oil prices are helping ration demand in the advanced industrial economies, but have no impact on demand in China, which is where all the marginal demand is coming from for increasingly subsidised gasoline and diesel.

Indeed, price controls are not restricted to gasoline and diesel. China has also banned price increases for electricity and a whole host of other raw materials and foodstuffs - keeping commodity demand artificially high despite surging prices and adding to global inflationary pressure despite the slowdown in the United States.

> The latest numbers are even higher....

> Die letzten Daten sind sogar noch extremer......

Such market-bending policies are evident across the Middle East and Asia, Kemp notes, before concluding:

The Great Depression of the 1930s was made deeper when the United States Smoot-Hawley), the United Kingdom (Imperial Preference) and other countries tried to protect their own economies by resorting to price- and trade-distorting tariffs, causing world trade volumes to collapse. The global downturn of 2007-2009 will be made deeper and longer if emerging economies across Asia and the Middle East refuse to allow domestic commodity prices to rise in order to restrain demand, ensuring that inflation worsens even as the economies of the United States and Western Europe slow.

> And lets not forget some other issues with China..... In the longer term these kind of issues will cause probably more headaches for the central planners.......

> Und ich kann mir einfach den Hinweis nicht verkneifen das China auch abseits der Wirtschaft mit einigen Problemen zu kämpfen hat die längerfristig weitaus schwerer wiegen.....

Thanks to Bob Gorrell

> Now back to the regular program....

> Nun wieder weiter mit dem bekannten wirtschaftlichen Blogschwerpunkt.....

China Gas Price Game Starts To Show Cracks 24/7 Wall Street

The large difference between crude prices and gas is beginning to show up more prominently in the P&Ls of China's largest oil operations. According to the AP "China's second-biggest oil company, Sinopec, says its first quarter profit fell 69 percent due to government controls that bar it from passing on record crude costs to consumers." The firm is offers some subsidies to make up the difference, but they are not enough.

Over the last six months, shares in PetroChina (PTR) and China Petroleum (SNP) ,as Sinopec is known, are well down. SNP has fallen by 30% and PTR by 40%. Shares of Exxon (XOM) are flat over that period.

Public shareholders are being punished for the government policy, but it will not end there. If the economy in China slows, the treasury will find it harder and harder to finance the underwriting of gas prices. China may have to pour more money into the market to support its actions. Or, it may have to let the price of fuel move up.

In a country where inflation already borders on double digits, an oil crisis is brewing. It will be not long until it will moves out into the open.