Beijing, Jan 29: China will consider its domestic oil supplies and consumer purchasing power when s

Beijing, Jan 29: China will consider its domestic oil supplies and consumer purchasing power when setting refined oil prices under a new system designed to link them with global crude markets, a top official said on Monday.

The comments by Han Yongwen, general secretary of the National Development and Reform Commission, suggest that China is still not ready to adopt solely market-driven pricing for the world's second-largest consumer of oil.

Asked on the sidelines of a news conference whether China was already using international crude markets to set domestic product prices, Han said: ''That is not the whole story. The first thing is to link up with international prices, the second is to consider domestic supply and demand.

''The third is to consider what businesses and consumers -- particularly consumers on low incomes -- can bear.'' The NDRC, China's main economic planning agency, has effective responsibility for setting energy policy and prices under the direction of a group of top officials.

Industry sources say the system links domestic gasoline and diesel prices with the cost of crude benchmarks Brent, Dubai and Minas, plus a fixed margin for refiners.

State media quoted industry sources as saying the new system had been scheduled to start on Jan. 1, and China in mid-January made its first pricing change since May 2006, trimming the price of gasoline and jet fuel on the back of a fall in global markets.

Officials have pledged to fully liberalise prices eventually but for years largely ignored the previous price system, which in theory linked China's pump prices to international physical refined fuel prices.

The government is caught between a desire to use prices to curb booming demand growth and fears that more expensive fuel could spark inflation and social unrest.

The new scheme was expected to provide relief to Sinopec Corp and PetroChina , China's two top oil firms, which suffered huge losses in their refining arms over the last two years.

Beijing has handed out more than $1.8 billion in subsidies to Sinopec, which has a larger refining unit and less production capacity than its rival.

Reuters