China Says Needs Time to Move on Fuel Subsidies

China intends to make its energy prices better reflect market fundamentals over time, but needs to move cautiously because of concerns about inflation, an official said on Tuesday.

China, Chinese Flag
China, Chinese Flag

China's domestic fuel price subsidies have shielded consumers and businesses from record-high crude oil prices.

The subsidies have drawn criticism from some Western officials, including U.S. Treasury Secretary Henry Paulson, who last week urged Beijing to reduce them and let market forces play a greater role in setting prices and regulating supply.

Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, China's main economic planning agency, said on Tuesday that, because China was facing its worst inflation in over a decade, it needed to be "prudent" about moves to lower subsidies on the domestic price of fuel.

Annual consumer inflation has been skirting 12-year highs, and Beijing has said preventing the spread of price rises from certain products such as food through the broader economy is one of its most important tasks this year.

"We are firm in our resolve in the general direction," Zhang told reporters on the sidelines of two days of economic talks with the United States. "It is only an issue of timing and which measures to take."

Energy and environmental issues are an important topic in the current round of bilateral economic talks, part of the "strategic economic dialogue" between the two countries, being held at the U.S. Naval Academy in Annapolis, Maryland.

Jeffrey Kupfer, U.S. acting deputy energy secretary, told reporters the two sides recognized in a discussion on China's oil subsidies that removing them would "have some pretty serious effects" on China's economy.

"There was a general discussion about how it is important to work towards a goal of a market price system" for fuels in China, Kupfer added.