Would you like a gas shortage with your inflation?

Amazing!Only in China can having an almost complete monopoly on a protected domestic market be a bad thing. The two largest suppliers, Sinopec and PetroChina are now being required by the government to supply more fuel to meet rising domestic demand. Sounds like a good thing right? Think again.The price of fuel in China is fixed to ensure domestic stability. But the price is fixed at a point that the two big companies can’t compete with the quickly rising international prices of crude. Since China is, via these two companies, a net importer of oil, crude is being bought on the international market for a price that is higher than the fixed domestic price in China—so these two companies are losing money on their state sponsored monopoly!So who get’s hurt? Well, the rule in business is that the costs get passed along to the consumers. Currently the shortages are being passed onto the retail filling stations and private citizens are the ones being squeezed at the pumps. In addition, the lines of container trucks waiting outside of filling stations all over the country has been well documented.Each summer for the last few years, as demand goes up, privately owned factories get hit too. And, when it get’s really bad (usually May through September) regional electricity providers implement rolling blackouts. We’ve worked with factories that have had up to three days a week with no power—that means that projects that were bid out at 20 days for product times will actually take more than 30.As inflation in China continues to rise and (if) the price of oil continues to rise too, expect to see less and less imported oil in China. Sinopec and PetroChina aren’t stupid. They want to make money—and importing oil for a higher price than you can sell it at home makes no financial sense. There are already reports that they are selling what limited domestic supplies they have on the international market since the price there is so much better (further exacerbating the domestic shortages). Expect to see higher prices at the Chinese pumps. Expect to have another summer of shortages, rolling blackouts and higher prices for container trucking—if you’re producing inland, your cost advantage just shrunk.I’m not sure what’s worse for an harmonious society, high gasoline price or power shortages.