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Private petrol kiosks in China 'dying out'

Publication Date : 23-04-2012

 

Even as China pledges anew to rein in state capitalism, private enterprises in a key sector are said to be collapsing under the weight of the mighty state monopoly.

Private petrol kiosks, which one Guangdong newspaper described as 'motherless children' struggling to compete with state-backed giants, are dying en masse in an uneven playing field, according to industry players and analysts.

"These are the worst times they have ever faced. Over half have collapsed over the years," said Commercial Petroleum Flow Committee of China chairman Zhao Youshan.

Private players dominated the industry until 1998, when state-owned enterprises (SOEs) muscled in, he recalled. But now, "it may not be too long before there are no more private companies left", he said.

Such pessimism over the fate of small and medium-sized enterprises (SMEs) jars with the recent pronouncements by Premier Wen Jiabao that the government will redouble its efforts to scale back on state monopolies.

Wen last month pledged to implement the 'new 36 guidelines' to get private investors to enter key state-dominated sectors like energy and banking.

But the biggest shake-up so far this year appears to be the two increases in state-set fuel prices. These, some analysts say, may help the state giants to recover a part of their oil refining losses. Others wonder if this could spell the end for private petrol kiosks and wholesalers.

Said Professor Lin Boqiang of Xiamen University's Energy Research Centre: "Four or five years ago, when oil prices spiked, a large number of private petrol kiosks suffered losses and were acquired by SOEs."

He worries that a replay of this scenario may not be too far away.

In the years leading to an oil price peak of around US$130 a barrel in 2008, one-third of private kiosks reportedly choked on red ink and scarce supplies.

This year, oil prices have stayed above $100 but slipped recently to under $104. Last month, Beijing raised regulated petrol prices by 6.4 per cent.

As private kiosks and wholesalers are restricted from importing supplies, they must buy most of their oil at government-regulated prices from state giants, who are also their competitors.

PetroChina and Sinopec had about 49,500 kiosks at the end of last year, or over half of the overall market. Private kiosks number roughly 45,000, a 40 per cent drop from 1998, the 21st Century Business Herald reported.

It also reported that in the 1990s, these private players would source largely from private wholesalers, which made up 85 per cent of the market. But these players, too, have been whittled down from 3,340 to just 660 these days, unable to compete with the state giants.

One challenge is to keep supplies steady, especially when domestic refineries scale back on production in anticipation of lower demand, and the SOEs refuse to sell to private players while keeping their own kiosks well stocked.

Said Hu Huichun, an analyst with Chinese research company Chem99: "During times when oil supplies were more scarce, such as during the last two years, private petrol stations would have difficulty getting wholesale oil from the SOEs."

But claims that state giants may be deliberately restricting supplies to drive private stations out of the market continue to surface in recent days.

"If this (shortage) continues, 80 per cent of our private kiosks will collapse," the China Reading Weekly cited an unnamed spokesman for Chongqing's Fuling District Oil Association as saying.

Sinopec and PetroChina officials reportedly deny they are restricting supplies. Some analysts say state-run kiosks sell better-quality fuel and offer discounts from time to time, so they are able to outcompete private companies, which may be forced to cut corners.

For now, the SMEs continue to fight.

Some mix better-quality fuel bought from state giants with fuel from private refineries, according to a Beijing kiosk helper, who declined to be named.

And the kiosks are cutting prices to attract price-sensitive consumers like Zhang Baoyu, a Beijing company driver.

Zhang, in his 40s, said the private kiosks in his hometown in Baodi district, off the Beijing-Tianjin highway, are charging 60 fen (12 Singapore cents) less than the average price of 8.3 yuan per litre at state-owned kiosks.

"But I don't think they can sustain these discounts for that long," he said.

Zhao said he has repeatedly lobbied the government to allow private players more access to resources and to import oil from abroad. "But I don't have any confidence that things can be changed," he added.

Lin agrees, saying: "The 36 guidelines are merely principles."

Still, Hu thinks that the government will not allow SMEs to be wiped out, and will offer them aid eventually.

"The government has said it wants a more diversified energy market. Private enterprises and SOEs will continue to coexist," she said.

 

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