Oil giant Royal Dutch Shell has bought a 75-per-cent stake in China's largest privately owned lubricant oil company Tongyi, making it the third-largest in China's lubricants market, the firm said on Friday.

"The transaction will increase Shell's global finished lubricants volume by 8 per cent, giving it approximately 16 per cent of the global branded finished lubricants market," the company said in a statement, without giving the financial details of the deal.

"China is the fastest-growing consumer lubricants market in the world, which is to grow annually by 10 per cent at least until 2010," said David Pirret, executive vice-president of lubricants at Shell. "Growing our business in such an important market is critical to extending our leadership in the world market."

"It is also in line with Shell's strategy of profitable downstream through leveraging our portfolio in high-growth markets."

Shell said its lubricants business in China has experienced strong growth over the past few years. It has three lube oil blending plants in China with a total capacity of about 200,000 tons per year.

Tongyi has grown rapidly in 13 years to become China's third-largest lubricants company. It has a network of 2,000 distributors and 90,000 retailers across China and has three lube oil blending plants with a total annual capacity of 600,000 tons.

Commenting on the deal, Lim Haw-Kuang, executive chairman of Shell China, said: "Taking a major stake in a successful Chinese company is a clear demonstration of Shell's ability to deliver on its strategic growth aspirations in the east and positions us as one of the leading international energy companies operating in China today."

This year the Dutch company plans to invest US$500 million in both the upstream and downstream sectors of oil production to increase its presence in the competitive Chinese energy market.

Lim said Shell would spend the money on everything from oil and gas exploitation to downstream refining and oil retailing.

The company plans to add more than 200 retail sites in East China's Jiangsu Province through its joint venture with Sinopec over the next six months. Shell has an agreement with Sinopec to build 500 sites in Jiangsu. Of those, 200 have been established.

In its upstream business, Shell is working with PetroChina to develop the Changbei gas field in Northwest China's Shaanxi Province. The project is expected to supply gas to Beijing and Tianjin municipalities, and Hebei and Shandong provinces before 2008.