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Reform of the refined oil pricing mechanism is closely tied to international oil price fluctuations, said Chen Deming, vice chairman of the National Development and Reform Commission (NDRC).

However, the government has to consider people's capacity to adapt to the changes, said Chen.

The purpose of the mechanism is to link the prices of refined oil products on the domestic market in China more closely to theirinternational equivalents.

The vice chairman said that, to make the reform more palatable,the government will give subsidies to sectors such as food production, city transportation, agriculture and forestry. Low income groups will also receive allowances, he added.

Chen said the country will impose a fuel oil tax in the near future.

To date, the Chinese government has endeavored to ensure that prices for refined oil products meet Chinese conditions.

However, the fluctuation of international oil prices, which can move sharply upwards, leaves the government little room for maneuver.

In March 2006, China made a first attempt to lift refined oil prices, while setting up a mechanism to offer subsidies to disadvantaged communities and public service sectors and collect special fees from oil producers who sell domestically produced crude oil.

Experts said cutting domestic refined oil prices might offer the opportunity to levy a fuel oil tax, first proposed way back in1994 but constantly delayed out of concerns that it would impose too heavy a burden on professionals such as bus and taxi drivers.

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