On the government's part, it has given rebates on the 17-percent value-added tax paid by Sinopec and PetroChina on their gasoline and diesel imports to encourage purchases in the current quarter, and directly subsidized the two companies to boost refining activities.

Sinopec's senior vice president Zhang Jianhua has reportedly said the tax rebates may be extended to the third quarter. Even so, some analysts said the refined oil-import business is still unprofitable.

Many analysts said the government can still afford the payouts for a while, so it may raise fuel prices after the August Olympics.

Inflation fears

Ha Jiming, an economist at China International Capital Corp, said if the government could raise fuel prices by 50 percent in mid-2008 to cover refining losses, inflationary pressure for 2009 could be eased.

The government has long promised to improve the pricing mechanism to solve the distortion of prices in China's oil market.

Shares in Sinopec and PetroChina surged yesterday after Zhang Xiaoqiang, a deputy director of the National Development and Reform Commission, said China intended to make its energy prices better reflect the market but will act with prudence due to concerns about inflation.

Xinhua news agency said the government will improve the pricing of refined oil products as well as natural gas at a proper time.

A week earlier, shares in Sinopec and PetroChina had been hit after NDRC Deputy Director Zhang Guobao said in Japan that China's fuel price controls are conducive to social stability.

He said accelerating pricing reforms would worsen the impact of rising crude oil prices on farmers. Zhang's comments dented hopes that fuel prices would be raised in the short term.

"Remarks by officials haven't included much concrete information so far," said Orient Securities analyst Wang Jing. "But the market is nervous about any speculation with regard to a possible price rise."

(Shanghai DailyJune 19, 2008)