(Adds analyst comment, detail)
By Eadie Chen and Tom Miles
BEIJING, Dec 5 (Reuters) - China unveiled a long-awaited overhaul of its subsidised domestic fuel price regime on Friday in a move that should make petrol cheaper in the short term and allow for more predictable profits at its state-owned refiners.
From January 1 Beijing will let gasoline and diesel prices move more regularly in line with the global market, ending years of infrequent, often unpredictable price adjustments by the central government that roiled share markets and oil prices.
Announcing details similar to what Reuters reported last
week, the National Development and Reform Commission will grant
state-owned refiners Sinopec
It will also raise the consumption tax on gasoline five-fold to 1.0 yuan per litre and the tax on diesel eight-fold to 0.8 yuan per litre, with other fuels following a similar pattern, but pledged that the change would not increase prices at the pump.
While Beijing did not say how the changes would ultimately affect retail rates, most analysts expect an overall reduction in prices for the first time in nearly two years, aiding it flagging economic growth by allowing Chinese drivers to enjoy most, if not all, of the over $100 fall in crude oil costs since July.
"It was really inevitable that they would adjust prices as they were pricing products as if crude was about $90 a barrel," said Jeff Brown, managing director of consultants FACTS Global Energy.
China raised fuel prices in late June but has not lowered them since, making its petrol some 50 percent more costly than in the United States, a subject of some domestic discontent.
But cheaper fuel is unlikely to do much to offset the sharp slow-down in demand from the world's No. 2 consumer.
"Chinese demand is taking a big hit with the global economic downturn and this will not change that," said Brown.
For a table of Chinese retail fuel price changes since 2003, please click on [ID:nPEK185129]
LONG DISCUSSED
The reforms have been the subject of growing speculation as officials had said Beijing was set to take advantage of tumbling global crude prices to address a domestic pricing system that officials have said for years is inefficient and unsustainable.
The new pricing regime will reflect changes on the international market and oil production costs, as well as domestic supply and demand and the scarcity of oil, the NDRC, China's chief economic planning body, said in a statement.
But the government will still impose a ceiling on retail prices, it added.
"We will adjust the oil price regime in line with certain social groups' ability to bear the burder and to promote energy saving as well as environment protection," it said.
The tax increase would add more than 10 percent of current prices. Since the government says the reform will lighten the load on consumers overall, refiners and wholesalers will have to accept a large cut in the profits they have been enjoying on state-set prices that have not moved since June.
The higher tax will replace road tolls, airline maintenance fees and water administrative fees, and will not lead to an overall increase in retail prices.
One driver said China's top fuel supplier, Sinopec, had already cut 0.15 yuan or about 2 percent off the price of gasoline in Shanghai in the past few days.
Analysts said the reform was an easy one to make now, with cheaper fuel to help stimulate growth in an economy being hit hard by a global recession. The real test will come if crude began to rally again.
"My caveat to that is that the new pricing structure hasn't been tested when oil is up towards $150 a barrel. So it sounds like the government has the ability to short circuit the pricing system if oil prices rise too high too fast," said Ben Simpfendorfer, China economist at RBS.
China has pledged to seek public feedback on the reforms. The consultation process will run until Dec. 12, Xinhua news agency said.