China Bans Hoarding of Oil and Coal to Cool Prices

November 23, 2010 - 6:58 AM

Shanghai (AP) - China is banning the hoarding of oil, coal and other key commodities, seeking to ensure supplies and cool prices that have surged to politically volatile levels despite repeated moves to curb inflation.

The moves reported by state media Tuesday are Beijing's latest effort to counter unease over inflation that jumped to a 25-month high of 4.4 percent in October. Authorities want to reassure a nervous public that the government can handle inflation pressures that some worry could spiral out of control.

The National Development and Reform Commission, China's main economic planning agency, forbade provinces from limiting shipments of coal beyond their borders, ordering them to ensure stable supplies. The Commerce Ministry, meanwhile, ordered local authorities to crack down on hoarding of oil, gasoline and other fuels, on bogus, or shill, bids meant to drive prices higher, and other illegal practices.

The central bank raised interest rates on Oct. 19 and all signs point to more rate hikes in the months ahead, economists say, as China tries to pull excess cash out of the economy at a time when the U.S. is trying its best to stimulate growth.

Authorities say soaring food prices -- which jumped more than 10 percent in October -- are mainly to blame for the current bout of inflation, but costs for fuel and other necessities have also jumped, as supplies have run short.

Coal, which fuels about three-quarters of the country's electricity generation, is a special concern, especially in winter months when it also is used in heating systems in the north.

Much of the coal is mined in north-central China and then shipped to big cities, utility plants and factories in the eastern coastal regions.

The planning agency complained that some areas, which it did not name, were requiring coal traders to obtain special permits before they can ship coal. "Coal production in some places is rather chaotic and supplies from small mines are unstable," it said.

Seeking to counter widespread shortages of diesel, the Commerce Ministry issued a raft of orders aimed at improving monitoring of supplies and what it calls "market order."

"Oil is important to the people's livelihood strategies for goods and materials, local competent commercial departments at all levels should fully understand the market supply of refined oil security, stability, the importance of oil prices," said a notice posted on the ministry's website.

It urged officials to show a "stronger sense of responsibility." The government has already ordered state-owned refiners to step up production amid signs they were holding back in anticipation of a rise in government-controlled retail prices.

Diesel supplies already were running low after thousands of factories bought diesel generators to cope with power cuts imposed by authorities to meet energy-saving goals, further boosting demand.

Stable fuel supplies are a crucial link in the government's war on inflation, since farmers need diesel fuel to run tractors and other farm equipment.

Economists have forecast that China's inflation rate will likely rise to over 5 percent in November. But local newspapers in Shanghai reported Tuesday that prices for some vegetables had already fallen by as much as 40 percent since last week.

"Stable prices: We have confidence," said a cartoon in Tuesday's online edition of the communist party's newspaper People's Daily. It showed four fists striking at an upward arrow labeled "prices."

Another online illustration, though, was pictures uploaded to one of the newspaper's popular bulletin boards showing people hauling and counting huge bundles of cash during the civil war days of the late 1940s, when China's currency was worth less than its own weight -- an apparently satirical, anonymous, comment on the current situation.