A beneficiary of China's artificially cheap gasoline, she drives as though the world's energy resources are limitless.

"The current price of gasoline has no influence on my use of the car," said the 40-year-old, who works for a foreign company in Beijing.

"The price could even go a bit higher as far as I'm concerned. It would limit the use of cars -- there are just too many of them on the streets."

China and other emerging economies have recently accounted for the entire growth in global oil demand as more mature economies have cut consumption.

This is partly expected, since China is in the middle of what looks set to be its sixth year of double-digit economic growth.

But price caps on gasoline and other oil products also play a huge part, insulating China's consumers from the real price of energy.

Observers see the caps as a classic example of how government interference covers up the actual state of the market, leaving people with little direct sense of the value of the goods they consume.

"The money is paid from the tax revenue, so people actually wind up paying the same price," said Li Youcheng, an analyst with Hong Yuan Securities.

China said late Thursday it would raise petrol and diesel prices by more than 16 percent from Friday to cut the gap with international oil prices, which has left domestic oil majors saddled with huge refining losses.

The nation's oil majors, Sinopec and Petrochina, suffer under price caps because they cannot pass the costs on to their customers, although they get subsidies from the government to cover most of their losses.

Even after the cut, the gap will remain wide -- China would have to raise prices by 50 percent to bring the domestic refining gross profit margin into line with international levels.

This is not just China's business. Since it is a power with growing global clout, economic developments such as this have repercussions far beyond its borders.

"A reform in the energy pricing system will not only benefit China itself, but the whole world," the China International Capital Corporation, or CICC, an investment bank, said in a research note.

"The international crude oil price largely depends on China's energy pricing policy, because China accounts for around 40 percent of the increment of global oil consumption."

CICC cited a detailed simulation which showed what would happen if China raises its oil product prices by 50 percent around mid-2008.

Under this scenario, international oil prices would decline to 110 dollars per barrel by the end of 2008, and 90 dollars one year later.

By contrast, if China continues to control domestic oil product prices, international crude oil price will hit 200 dollars per barrel, according to the CICC's simulation, based on calculations made before Thursday's price rise.

According to Lin Yixiang, general manager of TX Investment Consulting, the Chinese system has brought about a litany of social ills.

"The measures have led to waste of energy, chaos in the market, queues of consumers, corruption of those in power and losses of producers. Moreover, it has exacerbated the supply shortage and inflation," he said.

"Curbs on energy prices are policies favourable for the rich classes, putting the unprivileged at a disadvantage and endangering social harmony," he said.

There are fears raising the cap on fuel prices by even a small amount could boost inflation, potentially a source of immense public dissatisfaction.

China's consumer price index rose by 7.7 percent last month, easing only slightly from April's 8.5 percent and still hovering near 12-year highs.

"The caps on oil product prices are vital now, because the government is seeking to rein in inflationary expectations," said Hong Yuan Securities' Li.

"The price caps must be removed, but given the concerns about stabilising the economy, it's not workable now."

The question is how much longer the government can afford to subsidise energy use.

"The subsidies are not sustainable in the long term," the CICC said in its research note.

Related Links
Powering The World in the 21st Century at Energy-Daily.com

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News