Tuesday, March 20, 2012
China embracing Western ways, an ominous sign
China raising fuel prices to help their refiners. This is mostly aimed at CNOOC the national oil company, which is apparently unprofitable. It's unprofitable because it buys oil at market prices and sells it at below market prices set by the government.
That might seem strange to a Westerner and bad for CNOOC, but it's good for Chinese consumers. It's one way that the government supports incomes and domestic demand. Subsized fuel prices keep inflation down and add to disposable incomes.
The fact that China is raising prices is instructive. It signals concern for corporate profits over consumer demand. That's a very "Western" way of thinking. The problem is, we see what the "Western" way has wrought in terms of unemployment and growth. Corporate profits in the West are at a record, but so is unemployment and the general misery of the public. Policies like these could be dangerous in China.
This price increase constitutes a tax on the lower income and the poor to support CNOOC. So much for helping domestic consumption. Exactly the wrong policy. China hard landing scenario just bumped up a notch.