Minimal Assurance Needs To Change

2008 Coal Production Transport Requirement Joint Contract Summary Council ended on 18 December 2007. Electricity coal price will rise about 10% next year. According to price linkage system of the coal and electricity, the electricity price will rise if the coal price rises, but it hasn’t been adjusted yet this year. Five main Electricity Groups have complained that the coal price rising will put pressure on enterprises and hope to solve it by raising the electricity price. (December 18, "Beijing Commercial Daily")

Electricity coal is a kind of "plan coal", the price of which is much lower than the price on market. Although under the pressure of Executive Order, the state-owned coal enterprises can’t agree with it all along. Coal enterprises think that the price is too low and always think of raising price or reducing the electricity coal supply indicators. On the contrary, for cost considerations, electricity enterprises not only wish the price of electricity coal to be cheaper but also to buy more.

As the target of the two sides differ too much from each other, in recent years, the Production Transport Requirement Joint Contract Summary Council almost broke up every time – without the "matchmaker" of government, it will fail to reach agreement on fundamental.

This year, the price of electricity coal has finally been relatively highly increasing. It should be said that, it has certain inevitability. On the one hand, electricity coal price exactly has a great deviation from the value of the coal resources; On the other hand, mandatory scheming price does not conform to the laws of the market, even can not reflect the market supply-demand relationship. Moreover, facing the condition of growing shortage of resources, the country considers changing the economic development approach and the intensive use of resources conservation as a national policy, and committed itself to construct a resource-conserving society. In this environment, raising the prices of resources will become a logical choice - not only the price of coal and electricity but also the price of the oil, natural gas and other resources are to be raised, and the rising momentum will continue.

However, the rising of the prices of resources will inevitably bring about a chain reaction, because every walk of life must directly or indirectly consume various kinds of resources. Once the headstream rises, the price of variety of products downstream will sure rise. With the increase in resource prices, the prices of agricultural products are constantly rising. Bringing these two forces together, it will results in sustained growth of the overall price level. Since March of this year, the growth of China's Consumer Price Index (CPI) has remained at more than 3% for nine consecutive months, the whole year of which is expected to 4.6%, and this momentum will continue. Under the growing pressure of inflation, if the price of electricity, oil, natural gas and other resources still rose, it really should be a test to the affordability of the market and the residents.

The rising costs will force price up. The state establishes price linkage system of the coal and electricity is just based on this kind of logic. Changqing Cao, the prices Secretary of National Development and Reform Commission, has made it clear that, to the tariff adjustment, we not only have to consider the impact of the rise in the cost of coal, but also should consider the digestion ability for the electricity enterprises, as well as the affordability of the residents. After the rise of the electricity coal price, electricity enterprises should firstly be trying to digest the increasing cost because of the rise of the electricity coal price. After all, this digestion is limited, and even more the state-owned monopoly enterprises have no such enthusiasm. Therefore, the issue of affordability of the residents must be put on the agenda.

So, how to resolve the issue of affordability of the residents? The most direct and most effective way is to prop up the low-income families and residents, or increase their income, Because prices basically has little impact to the mid/high-income families and residents and the most affected is the low-income ones. As long as low-income families have the protection of the basic livelihood, the affordability of the residents will no longer be a problem. In fact, in this year, the central and local governments have allocated or provided the price subsidies for several times and in some localities have also raised the minimum standards of living. But such subsidies and adjustment are random, without institutional protection. I think that in order to protect the residents’ affordability of inflation, a linkage system of social security standards (including minimal assurance standards, minimum wage standards, etc.) and consumer price index should be the established - like the linkage system of coal and electricity.