China, India Announce Intent to Cut Fuel Subsidies

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Bloomberg reports (hat tip Calculated Risk) that the US, Japan, China, India, and South Korea agreed on the need to cut energy subsidies and take other measures:

The U.S. and the four Asian nations, together accounting for half the world’s energy consumption, said today wider use of alternative fuels such as clean coal, nuclear power, and renewables will help bolster energy security.

Investing more in oil and gas to boost output capacity and greater effort in accessing petroleum reserves will also expand supplies of conventional fuels, helping to tame energy prices, according to the joint statement.

Note that no timetable was annouced.

The real significance of this move was China’s statement that it intends to reduce subsidies. Of the countries participating in the announcement, only China and India keep prices artificially low. India’s regime has been under tremendous strain, and price increases for fuel (save kerosene, used by the poor for cooking) were announced last week, but more are expected to be in the offing.

By contrast, China has given no sign that it intends to let prices rise, although many observers anticipated it would once the Olympics are past.

Bear in mind that Indonesia, Sri Lanka, Malaysia and Vietnam have also reduced energy subsidies as skyrocketing oil prices are making them untenable.

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  1. Anonymous

    “At the meeting in Aomori, a hub of Japan’s nuclear energy industry 600 kilometres (370 miles) north of Tokyo, the major economies put blame on developing countries that subsidise fuel to ease the burden of their poor, which keeps up demand for oil and thus keeps up prices.”

    The “major economies” that have wagered everything on a religious-like faith in classical liberal economics are in for a rude awakening. The little piece of ground they stand upon (as measured by world population) is slowly but inexorably being eroded away. Almost unbeknownst to them, a sea change is underway. More and more people around the world are defiant, refusing the neo-liberal nostrums they prescribe.

    The message should be quite clear. China and India, despite all the badgering and browbeating from the “major economies,” and despite the lip service they so facily serve up, have no intentions of doing away with subsidies for oil and gas based on some “free-market ideology.”

    Likewise, Russia, Mexico, Saudia Arabia and other OPEC contries–who together control more than 80% of world oil reserves–have made it quite clear that they will not open up their borders to private oil and gas investment, and the rate they produce their oil will not be determined by market demand.

    The Mexican writer Carlos Fuentes summed it up concisely in comments regarding the neo-liberal ideologues who govern Mexico:

    “The first (problem) is the narrowness of the governing group, ever smaller and self-involved. Many of its members are graduates of Ivy League and eastern universities (Harvard, Yale, MIT). For them, the economy unfolds on a blackboard, never in real life; it is something that happens to statistics, not to flesh-and-blood men and women. This group is increasingly distanced from public opinion and the raw material of the nation. It holds out the promise of Adam Smith’s optimistic eighteenth-century definition of economics–the science of human happiness–and ends up confirming Thomas Carlyle’s prsimistic definiton in the nineteenth: the dismal science…”

    “It is worth recalling that the prefix neo is particularly well suited to this doctrine, which already had its chance in Latin America during the last century. Throughout the nineteenth century, Latin America followe the precepts of laissez-faire and the magic of the maket, and its nations implemented policies geared toward exporting raw materials while importing capital and manufactured goods. Powerful economic elites emerged from Mexico to Argentina. The hope was that the wealth accumulated at the top would sooner or later find its way down to the bottom. This did not happen. It has never happened. Instead, the wealth generated at the working base found its way up to the top and stayed there.”

  2. juan

    anon, while I fully agree that neo-liberal/Washington Consensus policies have had disasterous consequences, fuel subsidies also have fiscal, inflation rate and environmental consequences that are not necessarily so positive.

  3. Anonymous


    It was not my intention to offer a judgment on fuel subsidies. The point I was trying to make is that globally the vox populi seems to be asserting itself–its own values, beliefs, experiences and priorities–and rejecting the received knowledge from the G8. And sometimes, but certainly not all the time, there are some pretty darned good reasons for this. But that is not really my point, because right or wrong, for good reasons or bad reasons, the fact is that there is wholesale global rejection of classic liberal economic theory.

    My other point is that economists in the United States seem to be completely unaware of the seismic shift that is taking place under their feet. They seem to be too caught up in advocating their own economic theories, or maybe it’s because they just live in some insular little bubble world, to take notice of what is happening around them.

    In closing, I’d like to cite a passage from Richard Bernstein’s “Dictatorship of Virtue” as to how difficult it is to accept or understand other people’s values or reasons for doing things, especially when they run so counter to our own:

    “Deep attachment to culture is one of the things that prevents different people from understanding one another. It is what pushes groups into compliance with practices that can be good or bad, depending on one’s point of view. Suttee (the practice, eradicated by British colonialism, in which Indian widows were burned alive on the funeral pyres of their husbands) and female circumcision, as well as the spirit of rational inquiry and a belief in the sanctity of each human life, are products of cultural attachments of different kinds. Those who practiced suttee, or who believe that women who commit adultery should be stoned to death, do not believe there is anything bad about these practices, any more than those who practice rational inquiry under conditions of freedom think there is anything wrong with that.”

  4. juan

    anon, I agree and see one of the disconnects as a failure to notice hegemonic decline and shifting into a multi-polar world system, a failure possibly enhanced by long-held notions of ‘exceptionalism’.

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