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Tuesday, August 23, 2005

China's Refinery Wars

Hat tip to Instapundit: Read The Peking Duck: Oil Wars for some interesting information on distortions in the Chinese economy caused by its - uh- "unique" way of doing business:
That’s the ‘how’ of it, as to the ‘why’, we need only to glance at the balance sheets of the mainland’s oil refiners. Together they lost 4.19 billion yuan in the first half of this year. Compare that to a profit of 16.38 billion yuan for the same period last year (figures from the China Petroleum and Chemical Industry Association). No wonder there are few happy bunnies among the executives at Sinopec and PetroChina. Their crude oil refining companies have been sacrificed for the greater good of society, i.e. to bear the losses incurred in providing cheap subsidized oil...
Earlier post on China refining here.

Some general information of oil prices here and at links therein. It's a complicated business and as can be seen from China, one that governments have trouble keeping under control.

UPDATE: Simon was on this issue earlier and notes this:
One other interesting part of the article that is mentioned in passing but has greater significance:

..as Sinopec and PetroChina have listed many of their business operations in overseas securities markets, they are increasingly able to cite "shareholder interests'' as an excuse to defy government orders.
Maybe market economics can triumph over Communism after all? The writer is implying that Sinopec and PetroChina are using shareholder interests as a fig leaf to ignore orders. What if, perhaps, they actually believe in creating shareholder value and subverting Government orders is a means to that end?
Stockbrokers as subversives. Who would have thought?
Well, I suspect most dedicated Communists and anarchists have thought so for some time...

It's interesting to sit on the sideline and watch which system will deal with increasing gasoline prices better- those that have subsidized cheap gas or those which let the market work its magic..

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