PetroChina yesterday set up China's biggest company for the production and sale of lubricants, and officials said it was an important step in the restructuring of the listed company. PetroChina, a subsidiary of China National Petroleum Corp, listed in Hong Kong and New York in April after restructuring.

The new PetroChina Lubricating Oil Co would consolidate PetroChina's existing lubricants production and sales operations, officials said at a ceremony. "This marks an important move for PetroChina in implementing its continuous restructuring programme," said Ren Chuanjun, senior vice president of PetroChina.

"It has deep meaning for us to consolidate the lubricating oil business, centralising production, research and development and marketing," he said. "It will help implementation of the strategy of consolidation and centralisation." The new company would use PetroChina's oil resources to produce several brands of lubricants for the automotive, railway, machinery and other sectors, officials said.

The new Beijing-based firm combines seven production plants and six sales centres covering all of China, as well as two research and development institutions, they said. Foreign industry officials said the move could help PetroChina become more competitive ahead of China's entry to the World Trade Organisation, expected within months.

China's import tariffs for lubricants are relatively low and major foreign competitors have already entered the market, taking market share from PetroChina, they said. "We will be able to build on our strengths to be better prepared for competing in the market and meeting challenges arising from China's entry to WTO," said PetroChina's Ren.

PetroChina now provides 60 per cent of the feedstock for the domestic lubricants market, officials said. Meanwhile, China Petroleum and Chemical Corp (Sinopec) said yesterday China had no plans to depart from a schedule freeing up the country's oil products market to foreign investors after joining the World Trade Organisation.

A Sinopec spokesman denied a China Daily report, quoting a senior official at a research institute, that Beijing would allow qualified foreign companies to invest in the oil products market in two pilot cities from next year. "Our own view is still to abide by the agreed conditions for joining the WTO.

At present, we know the government has not pushed this schedule earlier," Chen Ge, Sinopec's vice-director of the secretariat to the board, told Reuters. Shares in China's number two oil giant and largest refiner closed down nearly six per cent at HK$1.26, after hitting an intraday trough of HK$1.24, its lowest since an October listing.

Analysts said Sinopec's shares had come under pressure because the company was deeply involved in oil retail and wholesale, and a market opening ahead of schedule might expose the firm to competition earlier.

"If China opens up its oil products markets Sinopec will lose the protection it has at the moment," said Herbert Lau, research director with Celestial Asia Securities. The China Daily also said China would allow foreign companies that jointly tap oil fields with domestic firms to sell their oil and gas directly to the market in the pilot cities.

But Chen said the official's comments were merely among various suggestions put forward at a seminar attended by several domestic and foreign businesses, and their opinions did not represent Beijing's policy views. Beijing has said it would open the wholesale and retail markets for oil products three to five years after its entry to WTO, expected in the next few months.

China imposes a tariff of around 69 per cent on imported oil products. The tariff would be reduced to six percent after joining the WTO, while non-tariff barriers like quotas on oil products would also be eliminated. Chen said this plan still stood.

"He (the senior official) did not name the cities identified nor give a schedule...From what I understand, the government at present does not have this plan," Chen said. "He was only expressing a suggestion by his team, which examines (the feasibility) of various policies," he added. Some analysts expected Sinopec's price to recover a bit following its denial.

"Sinopec has denied this...I think the share price will rebound tomorrow (Wednesday)," said Parkson Pan, an analyst with Core Pacific-Yamaichi International in Hong Kong. But other analysts said Sinopec's share weakness could not be resolved overnight.

"Sinopec shares have had quite a disappointing run since listing," said Y.K. Chan, head of research at CEF Brokerage. Sinopec had offered its shares to Hong Kong public investors at HK$1.59 a share and to institutions at HK$1.61 a share.

"Investors had been expecting the privatisation of some of its subsidiary companies, but nothing has happened," Chan said. Chan said some investors may be selling off Sinopec stock to raise funds for an upcoming IPO by offshore oil giant China National Offshore Oil Corp, expected early next year.