Deregulation

While the long-anticipated new pricing system could to some extent free the State from subsidizing the deficits of State-owned refiners, it may also lead to further deregulation.

"The much-awaited new pricing mechanism will help better tune the business operations of major refiners. Moreover, it may pave the way for further wholesale deregulation," a senior analyst with BP (China) Holding Ltd, told China Daily on condition of anonymity.

The market will soon open to foreign and private competition, but newcomers might find it difficult to enter the wholesale business. It is because the oil supply and pricing mechanism are still under the duel control of the existing monopoly and the government.

Also, many analysts are concerned that lower local prices will prompt refiners to focus on selling oil products abroad once the wholesale market opens up next year.

"Because of this, we believe authorities should make pricing more flexible and give more space for all players to perform," an anonymous industry source said.

Han Xuegong, a veteran analyst with CNPC, China's top oil producer, said that wholesale deregulation would actualise pricing reform and lift import controls. "The new pricing proposal is better, but pricing reform does not necessarily go with wholesale deregulation. That is a principle followed by many countries," Han said.

Han didn't believe the entry standard for oil product wholesale is too high, because every country tightly controls its oil industry.

Zhao Youshan, who as director of the Petroleum Flow Committee (PFC) of the China General Chamber of Commerce represents 138 private oil firms doing business in China, agreed.

The newly appointed director said that thorough market deregulation won't happen overnight. He believes that the local oil business should be subject to adequate State control and regulation because it a strategically important sector of the national economy.

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