And you thought you had pain at the pump . . . Today, China is descending into a Hobbesian energy crisis that pits market capitalism against the Marxist umbilical state. In a couple of weeks, I may have to duck and cover.

Reuters tells of a deadly dust-up in a gasoline queue in Henan province, very near the major city of Xi'an, where I will be in just a couple of weeks as part of my Asian investment research junket.

Now, there are lots of disparities between the English-language Chinese press and free foreign news. So instead of the Reuters headline, "China fuel crisis spreads," telling of a man beaten to death at a fuel station in central China, we see in China Daily the relatively placid "Fuel rationing spreads to gas stations across China."

Though my own previous experience in the country leads me to doubt just how orderly this "queue" was in the first place, the scramble by Chinese drivers to fill their Chinese-made Buicks or even SUVs sure adds another dimension of chaos to the kind of ticket-window pile-ups I've seen.

Crowded coastal areas have already felt the pain of reduced supplies in recent weeks, as a succession of events have spread the petrol pain around the country, to citizens, businessmen, and government officials alike. Among the factors:

• $95 oil is hitting refiners hard, pushing out smaller-scale distillers who buy at spot prices.

• Heavy subsidies lock retail diesel at 64 cents per liter, compared to $1 in nearby Singapore.

• State refining leader Sinopec is bearing the brunt, balancing state concerns with business.

Fuel Riots Loom

In Iran, which has become a net importer of refined fuel products even though it is the world's number-four oil exporter, this summer's decision to ration monthly fuel supplies caused widespread protests and riots.

Beijing doesn't take kindly to such behavior.

If growth is a numbers game, which for local party officials is certainly is, the tension between economic expansion and a fading popular sense of growing wealth is putting pressure on the nerves of consumers and CPC (Communist Party of China) leaders alike.

The economy expanded at an astonishing 11.5% rate in the first nine months of 2007, challenging Beijing's attempts to gradually apply the brakes to this fast-moving market juggernaut. Despite four interest rate hikes this year, stock market exuberance continues to mount.

The last rate adjustment was announced in August, yet news that Chinese investors might soon be able to invest in Hong Kong shares (which are considered foreign) spurred a radical rise not only in Hong Kong but also in Shanghai, which would apparently suffer from a major outflow of funds.

In the meantime, as upwards of 100,000 trading accounts are opened daily, consumer prices (mainly foodstuffs) are at an eleven-year high.

As bank deposits still return less than inflation at a scant 3.6% official central bank rate, the soaring stock market is the obvious, if specious, temptation for where to put your cash.

Consumers and producers are all taking part in a nationwide boom, and the recent major CPC conclave emphasized the need for wealth to be spread to all of China's 1.3 billion citizens. After all, though gross GDP is skyrocketing, GDP per head leaves much to be desired.

President Hu Jintao wants to quadruple per capita economic power by 2020, but he cannot ignore the realities of a changing supply and demand structure in the Chinese and wider global economy.

The only thing more impressive than China's GDP growth is the fact that its energy appetite outpaces it, and if healthier per capita GDP translates to more robust personal fuel demand across the board (not just among newly-minted Chinese yuppies, or "Chuppies"), then the subsidy regime will have to be intensely re-examined.

Government-run energy companies can only be asked to remain taut for so long, yanked between the traditional Party mandate to serve the people and the new WTO-age China's quest for economic supremacy along western lines.

I have a feeling the scuffles have just begun to get nasty.

Regards,

Sam Hopkins

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