HONG KONG Faced with severe fuel shortages and the prospect of power outages during the summer air-conditioning season, the Chinese government on Thursday unexpectedly announced sharp increases 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 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.
China's 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, and the price of gasoline by 16 percent, to $3.83 a gallon. Electricity tariffs and the price of jet fuel were also raised.
The higher prices could prompt businesses and people across China to use less fuel and electricity, potentially slowing the country'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.
But some experts said the Chinese market was so heavily distorted by state subsidies for fuel that the higher prices may encourage refiners to produce more gasoline and diesel for Chinese consumers, possibly stoking new demand.
Farmers were exempted on Thursday night from the latest increase in fuel prices, as were three provinces damaged in earthquakes in May: Sichuan, Shaanxi and Gansu provinces.
Power plants that rely on oil have also been shutting down because of high prices. While China relies mainly on coal and hydroelectric power for electricity generation, oil-fired plants are important in southeastern China.
Severe snowstorms in January and February, followed by earthquake damage and disruption for the national rail network in May, have interfered with coal shipments to some power plants and made electricity generation from oil-fired plants even more important.
The government also announced on Thursday night that it was limiting increases in coal prices, which would help power companies afford their fuel.