Sinopec Group Acquires Subsidy Again        

In June 2007 CCR ever discussed the subsidy on refining business in an article titled with Awkward Prices of Oil Products and Disputed Subsidy. This year, under public criticism pressure, Sinopec Group with a monopoly position in China's refining industry again obtains a financial subsidy from the government that has ordered Sinopec Group to sell oil products at a price under the cost line. As before, public media now places judgment on refineries rather than government. In fact local refineries may be innocent. According to survey, the price of gasoline in Shenzhen is pretty lower than that in Hong Kong, so that many Hong Kong drivers fill their car in Shenzhen and return back home. If the government looses controlling on prices of oil products, it will get criticism from private car-owners. But more and more other companies are jealous of the huge subsidy. How much fairness can the government maintain among the sectors under control of government? Supplies of chemical fertilizers and oil products, those affect social stableness more and are under strict control, are making more troubles to the government.
    The growth of CPI in January hit 7.1% year-on-year, a new historical high. Higher consumption in holidays and snowstorm may constitute of the main driving factors. The price of meat increased by 58.8% compared with the same period of 2007. Some organizations are reporting a price decline of house, drawing by the affection from the United States. The stock indexes in Shanghai and Shenzhen markets also descended by nearly 30% compared with the highest numbers in October 2007. Many indexes give a sign of cutback for economic growth, according to an analyst from an investing company. Control on inflation maybe the biggest problem for China's financial deciders.
    Price of mono-ethylene glycol, one of the main feedstock in manufacturing PET resin, went down around 20% in the past one month, which may be thought as a normal reaction because PTA, another raw material in manufacturing PET resin, has already suffered a price down for ten months or longer. The increasing potash fertilizer price is a highlight topic for China's chemical players. As a monopoly importer, SinoChem is challenged and criticized by domestic analysts from the Potash Fertilizer Association. Three solutions have been proposed to solve the heavy deficit.

Zhong Weike
March 3rd, 2008