CICC: China braces for leap in fuel prices\

A response from a major domestic investment bank. China International Capital Corporation says this reform in the energy pricing system could in fact help ease inflation in the country.

A chief economist at CICC has released a report suggesting that more prudent use of energy resources could help China in ongoing efforts to tame inflationary pressures. Ha Jiming goes even further, proposing a price-hike of as much as 50 percent to put domestic refining gross profit margins in line with international levels.

The report suggests that a 50-percent rise by mid 2008, could bring inflation rates down to 7.3 percent by as early as next year.

Ha Jiming, chief economist of CICC, said, "China should increase fuel prices by 50 percent to put domestic refining gross profit margins in line with international levels. It will also benefit the country economy itself, including improving energy efficiency and easing inflation pressure. The delay of a energy price reform will mean more risk for the Chinese economy. Central budget subsidies are unlikely to be maintained in the long-run, as they pose considerable risk to fiscal sustainability. The level of international oil prices depends on a significant degree on China's energy pricing policy, as the world's most populated nation accounts for about nearly 40 percent of the increase in world consumption."