They said the government would spend February to carry out the review.

"We have stated to the government the fact that Daqing crude exports at the current price level are economically not sound. But it is up to the government to decide whether and how to review the current situation as it is an agreement between two governments," said a CNPC official.

China has contracted to export annually six to eight million tonnes of Daqing crude between 1996 and 2000. The price formula used in the contract is normally reviewed each year.

Trade and industry sources in Beijing said on Monday that China was planning to skip Daqing crude supply to Japan in February.

They said they expected the result of the government's review of the Daqing contract to be completed by the end of February.

Daqing has beenChina's most prolific oil field since the early 1960s and in 1998 produced 55.7 million tonnes.

"We are now a pure and simple enterprise responsible for our own economic performance, not a semi-government organisation as we used to be," said another CNPC official.

The oil industry reshuffle in July 1998 organised CNPC and Sinopec as corporations and separated them from any governmental functions.

The Daqing deal with Japan was set up before assets at CNPC and Sinopec were reshuffled.

Now, CNPC was viewing the Daqing supply agreement purely in economic terms, the official said.

He said that CNPC's Daqing crude exports were currently priced one dollar below domestic market prices, making the domestic market more lucrative.

Daqing supply to Japan in December was priced at $9.78 per barrel, based on the current pricing formula.

Export price, which makes the business even more unprofitable, the official added.

Crude exports were proifitable before 1996 because domestic prices were kept belowinternational prices. But China last year started to link domestic crude prices to international prices, making home crude supply almost equally priced with imported crude, industry sources said.

The policy review requested by CNPC may also affect China's term supply to North Korea, which has been taking an annual volume of one million tonnes of Daqing crude, industry sources said.

North Korea's inability to make the due payments has added to CNPC's Financial burden, they said.

Some industry sources forecast that with domestic crude production hitting a plateau, and pressure to raise refinery production, pressure was building to cut China's crude exports.

China exported 15.6 million tonnes in 1998, the lowest level in nine years, Chinese customs figures showed.

Industry sources said they expected China to cut export to around 7.5 million tonnes in 1999.