48 million daily barrels in 2014. There is an anti‐monopoly law in China that can be invoked to discourage anti‐competitive behavior.

In December 2015, the National Development and Reform Commission (NDRC)—the agency in charge of fuel pricing policy—for the first time since March 2013 did not adjust prices against the backdrop of the continuing oil price slide, saying that keeping price stability would help prevent faster growth of oil consumption and reduce air pollution. The NDRC added that it would accelerate improving the fuel pricing system in the new environment of low oil prices. In October 2015, the Central Committee of the Communist Party of China and the State Council issued a document entitled “CPC Central Committee and State Council on promoting the reform of the price mechanism,” indicating that oil, gas, and electricity prices would be largely deregulated by 2017, except where economic regulation is needed to regulate natural monopolies, and the government would fully implement a market‐driven pricing regime with economic regulation for natural monopolies and anti‐trust legislation by 2020 (Reuters 2015b, Huanbao 2015).

Recently, the government has also begun liberalizing imports and exports. Independent refineries were not permitted to import crude oil and had to buy heavy fuel oil, but in 2015 several were granted permits to buy imported crude oil. In November 2015, the Ministry of Commerce stated that the government would permit 87.6 million tonnes of crude oil imports by private trade in 2016, equivalent to about 1.6–1.7 million barrels per day (SECB 2015). In the same month, the government for the first time authorized independent refiners to export refined fuel products (Reuters 2015a). Because the success of fuel price deregulation depends, amongst others, on having fair and rigorous competition in the market, liberalization of oil trade is an important component of sector and pricing reform.

The impact of steadily improving pricing practice on the financial health of the midstream petroleum sector can be seen from the operating profits of Sinopec and PetroChina. The losses declined steadily from 2011 to 2013 (Table 7). The companies attributed the losses 2014 to the time lag between procurement of crude and sales of refined products when oil prices were declining.

**Table 7: Operating profits of the refining segment of Sinopec and PetroChina, US$ million**

|Company|2011|2012|2013|2014|
|---|---|---|---|---|
|Sinopec|5,535|1,814|1,399|‐317|
|PetroChina|9,295|5,338|‐766|‐1,162|

_Sources:_ Sinopec and PetroChina annual reports.

Wholesale price ceilings for gasoline and diesel are set at least 300 yuan per tonne (about US$0.04 per liter) below the retail price. By guaranteeing a spread between wholesale and retail prices, regulated wholesale prices help ensure the viability of China’s private gas filling station network. Some analysts believe that this allows private stations to provide limited price competition through small but noticeable discounts relative to the retail price cap and prices offered by Sinopec and PetroChina, the two national oil companies with a large combined market share in the downstream oil sector.

Government, military, and some other customers are eligible for nationally‐uniform government and military prices that are about 1,000 yuan per tonne (about US$20 per barrel) below retail price ceilings for gasoline and diesel. Fishing, agricultural, forestry, and land reclamation users have longstanding