However, analysts said the change will have little effect on the State-dominated sector.

China plans to allow other companies apart from the present four State-designated traders - Unipec, Chinaoil, Sinochem and Zhuhai Zhenrong Corp - to import 7.2 million tons of crude oil and 4 million tons of refined oil, such as diesel and gasoline, this year.

The new importers can be either private-run or State-owned, according to China's commitment to the World Trade Organization (WTO).

"I would not call the opening-up a breakthrough," said an analyst at a Sinopec research center, who wished to be unnamed.

"Even though they could import crude oil, private companies may have difficulty in selling it, as most of the refineries are controlled by the two State companies, Sinopec and PetroChina."

The two companies' refineries process more than 90 percent of the crude oil in China.

"Sinopec and PetroChina could buy from their importing arms, Unipec and Chinaoil," the analyst explained. "Why should they seek from others?"

China joined the WTO last December. According to the WTO requirement, non-State companies can increase their crude oil imports by 15 percent per year for the next 10 years. Their refined oil imports will also be allowed to rise by 15 percent until 2004, when the import quota on refined oil is eliminated.

A Guotai Jun'an Securities analyst said the government still has a strong say in allowing which companies run an oil trading business, since private companies have first to apply for import certificates.

"It is hard to say whether the government will set a very high standard for private companies to access the business sector," said the analyst.

"The WTO document said non-State companies can run the oil trading business. State companies may still get involved via its joint ventures or subsidiaries."

As required by the WTO, China lifted the import ban on gasoline and diesel to allow as much as 16.58 million tons of refined oil to come in this year, including 4 million tons for non-State companies.

Guan Bin, an oil analyst with China International Capital Corp (CICC), said the impact of lifting the ban will be limited because the domestic companies still control the wholesale and retail market.

"Imports of gasoline and diesel still have to be sold to the only two authorized wholesalers, Sinopec and PetroChina, before the market is completely opened five years later," said the analyst.

In that sense, the two State-controlled companies, providing more than 80 per cent of gasoline and diesel production, will maintain enough power to control the market, he added.

China has stalled the imports of diesel and gasoline - which used to hit 20 million tons a year - since September 1998, partly because one-third of the domestic refinery capacity remains idle under the pressure of imports.

A spokesman for Sinopec, the largest refined oil supplier in China, said imports by these companies are unlikely to reach 4 million tons "because they lack the retail outlets to sell imports."

The State can cap the imports of domestic companies by controlling import certificates after non-tariff barriers, such as import quotas, are phased out, the spokesman said.

Earlier in July, Li Yizhong, chairman of Sinopec, said the central government will encourage imports of crude oil rather than refined oil because refined oil can cost as much as 1.4 times that of crude.

Domestic refineries suffered dismal losses last year because of weak market demand and price drops. Insiders are concerned, if imports increase sharply, the market - slightly oversupplied - will be hurt.

A reliable source confirmed the two companies are actively lobbying the central government to "strictly control the import of refined oil products".

"The amount allowed to import does not mean they have to import that much," said the insider who declined to be identified.

The CICC analyst said, as long as Sinopec and PetroChina keep a firm hand on their own production to avert oversupply, "no serious problems would arise with the imports at the moment".

The analyst also said the market will be little changed by the tariffs' reduction for imported gasoline and diesel following the WTO entry because the tariff cut is too small.

Starting this year, tariffs for gasoline will drop to 5 percent from 9 percent, and diesel will remain at 6 percent.

China will open the retail market for refined oil to foreign companies in three years and the wholesale market in five years.

(China Daily January 14, 2002)