There is money to be made in oil products, where domestic prices are still regulated and also helped by a so far successful war on oil smugglers.

But crude, deregulated by Beijing earlier this year, is so weak that some fields are producing at below the cost of production.

"According to present operating circumstances, profits will not be as good as last year. The impact of lower crude oil prices is very great and it will halve our profits," a senior official at China National Petroleum (Group) Corp (CNPC) said.

China's oil industry underwent a massive revamp in the middle of this year, spawning two integrated companies -- CNPC and China Petrochemical (Group) Corp (Sinopec).

CNPC and Sinopec -- previously China's state oil producer and refiner respectively -- are now integrated giants fashioned after western oil majors with interestsspanning from upstream production to marketing of petrochemical products.

Both companies made combined profits of 20 billion yuan(US$2.4 billion) in 1997, but for 1998 Beijing has given them a combined profit target of 10 billion yuan.

"This target could be reached but even so, it's õ0 percent off (1997 profits)," the Beijing-based CNPC official said.

Chinese crude oil prices, deregulated on June 1, have taken a free fall in recent months due to the plunge in international prices. China's main Daqing crude is valued at less than $13.00 per barrel, down from around US$17 per barrel in February.

The gloom has hammered the stock price of CNPC's listed vehicle in Hong Kong, CNPC (Hong Kong) Ltd <0135.HK>. Trading at a peak of HK$6.10 at end August 1997, its share price now languishes at around HK$0.62, a plunge of almost 90 percent.

An oil and gas analyst in Hong Kong, who declined to benamed, said the freeing of Chinese crude prices and their subsequent fall was a horrifying spectre for CNPC andSinopec.

"Prices came down from about US$18 per barrel to where global prices are now, US$12 to US$13 per barrel. This is very, very bad news indeed for the main producing companies in China."

"Actually it's much cheaper in many cases for China to import crude than to produce it itself. Sometimes production costs are higher than the price of importing oil," he said.

A Singapore-based oil trader with close business links with mainland China said while CNPC and Sinopec would suffer from the crash in crude prices, they could be able to make up for it in sales of refined products, where prices were regulated.

"Domestic gas oil is selling at around US$30 per barrel in southern China, twice what imported gas oil costs to land (in China)," the trader said on condition of anonymity. "Such artificially set prices would allow refineries to make money."

Furthermore, a firm crackdown on oil smuggling since the middle of this year, which has the backing of President Jiang Zemin and premier Zhu Rongji, hasseverely curtailed the amount of cheap smuggled oil which previously left marketers of domestically produced oil products high and dry.

Last month China formed a National anti-smuggling police in a bid to further tighten its smuggling crackdown. The latest move also is targeting the People's Liberation Army.

"The crackdown would help sales of domestically produced products," the Hong Kong-based analyst said.