China is working to finalise a strategy to deal with high world oil prices but so far has only decided that it will not import crude to set up a strategic oil reserve, a top planning official said Tuesday.
Zhang Guobao, deputy director of the National Development and Reform Commission, said China needed a strategic reserve to help maintain robust economic growth but it was too risky to import oil at current prices.
"International prices are at high level and to purchase oil for the strategic reserve now would be too risky," Zhang told a news briefing.
The strategic reserve would likely be filled with domestically produced oil, Zhang said as he underscored government efforts to maintain energy self-sufficiency.
"We think that under present conditions that we need to set up a oil reserve system but there are many different views among economists on how many days of oil reserves is the optimum (level)," Zhang said.
"Some people say 90 days, others say 120 days; I beleive that this must be decided in accordance with the specific needs of each country."
On Tuesday, New York's main contract, light sweet crude for delivery in October was trading around 63 dollars a barrel, down from record highs of over 70 dollars at the end of last month.
Domestic oil and diesel prices in China remain 1,500-2,000 yuan (185-246 dollars) cheaper per ton than international prices, Zhang said.
China produced 175 million tons of crude oil in 2004 and had net imports of 117 million tons. Domestic production is expected to reach 180 million tons this year.
With oil imports jumping 34.8 percent in 2004, China overtook Japan as the world's second largest importer after the United States.
However, in the first eight months of this year, oil imports were up only 3.9 percent to 83 million tons, according to government statistics.
Zhang reiterated that China had no plans to set up a special energy ministry in the near future despite chronic shortages afflicting the country.
Instead, China has established a top level task force headed by Premier Wen Jiabao to handle urgent energy needs, including how to overcome the price differential between international and domestic markets.
China would cautiously raise domestic oil prices but some in the government hope to maintain a distinct domestic oil pricing system in order to cushion the shock of rising international prices, Zhang said.
"One way of thinking put forward by the Asian Development Bank is to bring our prices in line with the international price and then the government can issue subsidies (domestically)," Zhang said.
"Another way of thinking is that not conforming with international prices is a way to protect our own domestic industries."
To hold down inflation, Beijing fixes retail oil prices but as they rose to record highs last month, China's refiners suffered huge losses due to the massive discrepancy between what they had to pay for supply and what they got in sales.
Raising oil prices drastically could also trigger inflation which would effect the livelihoods of millions of people along with government expenditures, Zhang said.
"As oil prices have gone up, this will surely mean that state finances will need to be adjusted. Therefore, a whole series of adjustments need to be made which is not an easy thing," he said. "This is a very complex issue."
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