Eye on China: Capitalism continues to expand

11/19/08 02:53PM EST
Prompted by falling global crude prices China announced today its intention to introduce a domestic fuel tax, indicating a bold action towards a more market-based fuel pricing mechanism. Fuel prices are expected be cut in the coming days (“as soon as possible”) by 12-20%. Analysts predict that the pump price cut should offset any fuel taxes, with the tax meant to replace road tolls as a means to fund highway construction.

Shares of Chinese oil refiners surged today, with top Chinese refiner Sinopec Corp closing 10% higher in Shanghai. China’s petroleum industry, long monopolized by large state-owned enterprises such as the China National Petroleum Corporation (CNPC) or NYSE- listed PetroChina, China Petrochemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC), has transformed to allow private petroleum enterprises, including the establishment of Great United Petroleum Holding Co (GUPC) as well as overseas companies like Shell and BP.

While this is an immediate benefit for Chinese refiners and integrated energy, which drove most of the surge in the Chinese stock market overnight, it is also another key data point supporting our bullish thesis on China. As other countries are reregulating and limiting free markets, China is in fact adopting capitalist policies.

Matthew Hedrick
Analyst
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