India, Malaysia, Bangladesh and other Asian countries in recent days have been abandoning or lifting some of their price controls and fuel subsidies, but China has stuck by its fuel subsidies, which consume 3 percent of the state’s budget.
China’s ambassador to the United States, Zhou Wenzhong, defended the subsidies as necessary to maintain growth in China’s economy, but said the Asian giant will withdraw them very slowly.
“You will see subsidies cut gradually,” he said in an interview with editors and reporters of The Washington Times last week. “If you liberalize the prices suddenly, it will upset the economy a lot.”
Mr. Wenzhong disputed economists who say China’s rapidly rising demand for fuel has been driving up prices. “The oil we import amounts to a very small percentage of oil trade - 6 percent,” he said.
The International Energy Agency predicted Tuesday that China’s rapid growth in fuel consumption would continue, surging by 5.5 percent this year as the country rebuilds from a devastating earthquake. The agency said that increase would more than offset a big reduction in demand in the United States and other Western countries, where high prices are cutting into consumption.
Demand for fuel has been dropping in the United States at a 1 percent rate - something that has not happened since the 1970s.
Helping the administration in its jawboning campaign, Federal Reserve Chairman Ben S. Bernanke repeated the Fed’s vow to fight a rise in inflation that could result from the latest round of oil-price increases.
In a speech late Monday, Mr. Bernanke dismissed apparent weakness in Friday’s jobs report showing unemployment increased from 5 percent to 5.5 percent in May. The economic outlook has not materially changed and the pace of job losses remains modest, he said.
Mr. Bernanke’s comments boosted the dollar by bolstering expectations that the Fed will not lower interest rates again to support the economy, and in fact may consider raising rates later this year if inflation heats up.
The Democratic proposals to curb speculation would require traders to put up more collateral in the energy-futures markets, and regulate traders who are based in the United States but use foreign trading platforms.
The proposals were part of a larger energy package that included a 25 percent “windfall profits” tax on large oil companies.
The plan also called for making oil and gas price-gouging a federal crime, and would have given the Justice Department authority to file price-fixing charges against countries that belong to the Organization of the Petroleum Exporting Countries oil cartel.
Democrats said Republicans bowed to pressure from the oil industry, while Republicans said the majority party’s plan would do nothing to increase domestic oil production, which would lead to lower gas prices.
*Sean Lengell contributed to this report.