August 19, 2008 at 6:54 pm #3471
China Fuel-Price Increases Shift Losses to Fishermen (Update2)
By Winnie Zhu and Wang Ying
Aug. 18, 2008 (Bloomberg) — Fisherman Cao Jianzhou may abandon
the job his family has done for more than half a century because
rising fuel costs mean he loses money every time he sets out to
sea from his home northeast of Shanghai.
“About 70 percent of the fishermen in our village lost
money in the first half of this year,” said Cao, 44, who
catches crab and shrimp with his eight-man crew off Chongming
Island. “Some have quit and survive on the fee from selling
their boats for scrap.”
Cao is one of 750 million Chinese fishermen, farmers and
their families who are being squeezed after the government in
June joined India, Malaysia and Indonesia in raising state-
controlled fuel prices to cut losses for refiners. The 17
percent increase in gasoline prices and 18 percent jump in
diesel fall disproportionately on rural China, where household
incomes average 315 yuan ($46) a month.
“This will add to the pressure on millions of Chinese
fishermen and farmers suffering because they have to pay more
for raw materials,” said Tommy Xiao, a research director at
Shanghai JC Intelligence Co., which advises investors on
commodities. “Farmers have no choice but to keep chugging
While the central government has eliminated taxes on grain
and increased subsidies to keep farmers on the land, rising
fertilizer and fuel costs have canceled out those incentives,
Billions in Subsidies
About 730 million Chinese earn a living from farming and
more than 20 million depend on fishing, using diesel to fuel
their tractors and trawlers. Average rural incomes are less than
a third those in urban areas, government figures show.
The state pledged 19.8 billion yuan in subsidies to ease
the pain for fishermen, farmers and public transport operators
after the latest fuel-price increase.
Cao says that may not be enough to save him or the jobs of
his crew, even though he lives in one of the largest houses in
his village — a two-story, whitewashed building that he shares
with his wife, parents and 18-year-old daughter.
“The government has said there will be some subsidy, but
nobody knows when we will get it or how much it will be,” Cao
said in the kitchen, decorated with a picture of the local deity
who is believed to protect fishermen and bring them prosperity.
Including payments from the state, he made a profit of
about 100,000 yuan last year, down from about 200,000 yuan in
previous years. That’s about the same as Cao estimates he could
earn by scrapping his 6-year-old blue, wood-and-metal boat,
moored just meters from his front door, along with dozens of
China resisted increasing fuel prices for almost eight
months, even as oil in New York advanced more than 40 percent,
to shield the world’s most-populous nation from inflation and
reduce the risk of civil unrest. Instead, it paid billions of
dollars to subsidize money-losing refineries run by state-
controlled oil companies China Petroleum & Chemical Corp. and
Even so, fuel supplies dried up as some privately owned
refiners cut production rather than sell goods at a loss,
prompting China to raise prices.
Ma Bingshen, a farmer in Hebei province, south of Beijing,
said the cost of harvesting a field of wheat had almost doubled
before the latest fuel increase. Ma, 54, is paying twice as much
for fertilizer as a year ago.
“Even though the government scrapped the agricultural tax
two years ago, rising farming costs have put increased pressure
on our lives,” said Ma, whose family has worked 20 mu, an area
equivalent to 3.3 acres, for at least three generations.
The cost of harvesting each mu of wheat has increased to 60
yuan from 35 yuan last year, Ma said. That’s reduced the income
he uses to support his wife, 78-year-old mother, three daughters,
a son, daughter-in-law and 1-year-old grandson.
China increased gasoline prices to about 23.50 yuan a
gallon, or $3.42, on June 20, encouraging refiners to produce
fuel. That’s still 31 percent below the price of imported fuel,
Goldman Sachs Group Inc. said at the time. Diesel rose to about
24 yuan a gallon, or $3.49.
While oil prices have dropped 16 percent since June 20,
that hasn’t relieved pressure on consumers because fuel prices
are set by the state, not the market. PetroChina, the nation’s
second-largest refiner, last month said it doesn’t expect the
government to raise prices before the Beijing Olympic Games end
A decision on adjusting fuel prices after the Games will
depend on the market situation, Zhang Guobao, director of the
National Energy Administration, said in Beijing today.
“We all know that there’s likely to be another price hike
in the coming months,” said Dou Pingsheng, 23, who uses his
truck to deliver soy sauce to customers near Shanghai. “It’s
always like this. When crude oil goes higher, supply becomes
tight and then the government is forced to increase prices.”
Cao, the fisherman, has abandoned plans for his daughter to
follow him in trawling the waters off Shanghai, and is
considering his options if he sells his boat.
“I haven’t figured out what to do after that,” said Cao,
who like most of the island’s fishermen, is the only earner for
his family. “But I cannot remain in a business that makes me
August 19, 2008 at 6:57 pm #6648
Here is good Bloomberg article on update of China Fuel-Price increase & impacts on farmers/fishermen & families.
Keep in mind that the increase is from a government controlled price under US$0.87/gal and that the Chinese Government will still have to bail out the Government controlled refining industry (Sinopec & Petrochina) for the 5th year in row at $Billon losses. The independent refineries have shut down except niche areas using domestic crude or black market Iraq crude.
I think major crack is developing in the China growth & subsidy machine used to shift jobs/industry & products from Western world to China isn’t going to be able to continue at +$100/Bbl levels IEA/Pickens & rest of the “High Crude Price” forecast folks are trying to project. (Also just wait till all speculators that didnt get caught or bankrupt with price shift start playing the market on the short/downside position.)
So even if US & Western world governments continue sit on their collective butts and let China subsidize this unfair trade advantage (via logistics/fuel cost raw materials and products to market) – the market forces will drive them out. If US consumer demand is buckling under weight of $USD 80-124/Bbl crude selling products at $US3.75/gal. then China export demand stands no chance of continuing support at these sub USD$1.0/gal. prices and the current China high unemployment and inflation values are going to really shut down their economy. And that is in addition to & before they get the backwash from US demand shut down impacting their export shipments.
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