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China Sharply Raises Energy Prices

HONG KONG — Faced with increasingly severe fuel shortages and the prospect of power failures during the summer air-conditioning season, the Chinese government unexpectedly announced sharp increases late Thursday, June 19, 2008 night in regulated prices for gasoline, diesel and electricity.

The increases are the latest sign of how China’s integration into the global marketplace has limited the flexibility of the country’s leaders in responding to economic crises.

The government has come under intense pressure recently from both environmentalists and other governments to ease up on its fuel subsidies, which are blamed for distorting global markets, encouraging greater consumption and pushing oil prices higher for other nations.

The government, like many around the world, has struggled to keep up those subsidies as oil prices have spiked in recent months.

Finally, despite fears that it will spur inflation, the government raised the retail price of

diesel by 18 percent, to the equivalent of $3.58 a gallon (0.95 $ liter), and the price of

gasoline by 16 percent, to $3.83 a gallon (1,01$ lt).

Jet Fuel by 25%

Electricity tariffs by 5%

The higher prices could prompt businesses and people across China to use less fuel and electricity, potentially slowing China’s voracious oil consumption as well as its steep rise in emissions of global warming gases. Following the news, world oil prices immediately dropped more than $4 per barrel to 132 US$ a barrel.

But some experts said the Chinese market was so heavily distorted by state subsidies for fuel that the higher prices might encourage refiners to produce more gasoline and diesel for Chinese consumers, possibly stoking new demand.

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