(Corrects typos in seventh paragraph)
By Jim Bai and Eadie Chen
BEIJING, Dec 8 (Reuters) - China is promising a big cut in petrol prices to sweeten a major fuel price reform that will leave drivers paying much more in the longer term and even more likely to drive less if fuel prices rally again.
China could cut net pump prices by almost a quarter when the reforms start on Jan.1, according to Reuters calculations.
By allowing the limited liberalisation of domestic gasoline and diesel prices and shifting to a much bigger consumer tax, Beijing sent a clear signal that consumers -- not its refiners -- would be required to bear more of the future cost of fuel, making the world's No. 2 oil consumer more sensitive to prices.
For oil markets counting on China's growing demand to help offset contracting consumption in the industrialised world, the reforms may give one more reason to think twice before bidding U.S. crude back toward its record $147 high. U.S. crude fell last week to nearly $40, its lowest in almost four years.
"China's fuel pricing and tax reform will definitely curb its consumption of refined oil products," said a senior official at the energy department of the National Bureau of Statistics.
"Even though a price cut and a fuel tax will be launched at the same time soon, the tax will be introduced in an incremental manner and it will become higher in the future. In the long term, I think China's oil demand will get bigger and bigger. What the government wants to ensure is that it will not grow too fast."
The reforms, some 15 years in the making, stalled this decade as soaring crude oil prices made the overhaul tricky, frustrating policymakers desperate to steer China onto the path of more energy-conscious, environmentally friendly economic growth.
Unveiled last week, the plans call for scrapping the system of effectively setting state-set pump prices by the central government on an irregular basis for one of more regular adjustments based on international crude oil plus a four percent profit margin for refiners Sinopec and PetroChina.
At the same time various road fees will be scrapped in favour of much bigger taxes on refined oil products, strengthening the direct taxation of fuel use, as part of China's stated desire to cut back on "unreasonable fuel consumption".
The government has made a rare effort to pre-sell its reforms and has promised the cut in baseline fuel prices will be more substantial than the extra tax, leaving consumers paying less overall. It has offered a period of "consultation" until Friday, although that seems unlikely to alter the core of the plan.
China's insistence on keeping a lid on fuel prices during the boom years stopped inflation getting out of hand but also kept its economy hooked on oil.
Despite being the world's No.2 oil consumer, China was largely oblivious to the record spike in crude that it helped cause by keeping domestic gasoline and diesel prices in line with an oil price below $100.
For a graphic of prices, please click on: https://customers.reuters.com/d/graphics/CN_GSPRC1108.gif
China's refineries bore the burden, with help from state subsidies and a 20 percent increase in pump prices in June that aimed to guarantee smooth supplies over the Olympics.
That hike left China far below world prices but showed the first signs that more expensive fuel would hurt demand -- a nerve that the new reform plans aim to pinch harder.
CUSHIONED IMPACT
The government's reform plan would avoid repeating the past by having consumers share the pain. By basing the tax on volume rather than price, it will cushion the impact that motorists feel if prices rise while discouraging a fuel binge when prices fall.
But it has left many questions unanswered: for example, it has published new tax rates for diesel and unleaded gasoline, but not for other fuels such as leaded gasoline, fuel oil and kerosene, which face similar rises.
Nor has it said where pump prices will end up on Jan. 1, an urgent issue for many Chinese motorists, who are paying over 60 percent more than Americans, since China's state-set prices have not moved since June, while crude oil has plunged.
"Clearly, with the government aiming to stimulate economic growth, we see lots of room for China's domestic prices to fall in line with lower oil input costs," said Gordon Kwan, head of China energy research at CLSA in Hong Kong.
Analysts at Shenyin Wanguo Securities in Shanghai said refinery-gate gasoline prices could fall 9 percent.
The biggest unanswered question is about how to determine an "international crude price", which will serve as the basis for refinery accounting and thus translate into prices at the pump.
If the government lets refiners decide it, they are virtually guaranteed profits. But if the government calculates it and, crucially, chooses when to adjust it, they may still be forced to swallow painful losses when Chinese price moves lag crude oil.
Shares in the two top refiners Sinopec Corp and PetroChina moved in line with the broader market on Monday, suggesting no great excitement about the reform plan, which was released on Friday night.
Even if the refiners gain some power over prices, the reform makes clear that they will make only "reasonable profits" and the government will maintain a ceiling on retail prices and prevent any big swings. That effectively allows the government to cancel the price reforms and return to setting prices centrally.
The reforms may also shift power from regional governments, who currently levy road tolls and fees, towards the centre.
The one certainty is that the central government will retain overall control. One official source has told Reuters that when crude oil rises above $130 a barrel -- with a risk of stoking inflation as well as angering motorists -- the state will step in.