Until now, the state has allowed China National Petroleum Corp (CNPC) and the China Petrochemical Corp (Sinopec Group), the only two oil companies permitted to sell oil wholesale, to increase retail prices by up to 5 percent more than a benchmark price set by the government.

According to a circular issued on Tuesday by the State Development Planning Commission, the firms can now only increase prices by up to 3 percent.

Any retail price cuts by the firms are still permitted to drop up to 5 percent below the benchmark price, the circular stated.

A commission official in charge of price adjustments refused to comment on the rate cut, but said the adjustment was based on "market conditions.''

The official refused to say how long the lower rate would last.

An insider said the state's move aims to control the monopoly profit of the two conglomerates.

"The two companies never drop their retail price below the benchmark. They have been raising the price up to 5 percent above the benchmark since last June, when China decided to change the domestic price for refined oil every month in line with international prices,'' he said.

He said refined oil, such as gasoline and diesel, was the kind of product that would be consumed no matter what the price was.

The price for refined oil has risen by around 30 percent since last June, but demand has changed little.

Tuesday's circular also said the benchmark retail price for gasoline for July dropped by 450 yuan (US$54.4) to 3,363 yuan (US$406.7) a ton, while the price for diesel went down by 60 yuan (US$7.3) to 3,132 yuan (US$378.7) a ton.

It is the biggest price cut for gasoline since last June.

Gong Jingshuang, a senior expert from the China Petroleum Information Institute, said the price drop was mainly triggered by the downward price in the international market in June, which was the result of a slowdown in the US economy and the swelling stockpile.

Li Yizhong, chairman of Sinopec, admitted that the falling price would mean lower profits for its refineries.

But Li said Sinopec, the largest refinery company in Asia, would spare no efforts to promote its sales and slash its production costs.

Li predicted that the price would rise later this month.

(China Daily 07/05/2001)