China vowed yesterday to downsize some of its outmoded oil refining, steel and metal production plants, as oversupply raised challenges while demand for fuel and industrial products weakened due to its slowing economy.

But analysts said the policy, which targets some four per cent each of China's crude steel making and aluminium smelting capacity, and oil plants under 20,000 barrels per day, could prove toothless as industries strive towards profits.

China aims to get rid of oil processing plants that are smaller than 20,000 bpd by 2011 and take measures to encourage the closure, merger or transformation of refining units with capacities of 20,000-40,000 bpd ones, the National Development and Reform Commission said on its website (www.ndrc.gov.cn).

The plan, tough to implement as most of the small plants are key earners for local governments, will allow plants larger than 20,000 bpd to operate legitimately. These larger plants make up the majority of independent fuel producers that together supply nearly 20 per cent of the world's No. 2 oil user.

"The policy could be a blessing in disguise for the small plants by forcing them to upgrade and legalise the league of above 20,000-bpd for now," said a Beijing-based oil trader who deals with these small plants, most of which are located in eastern Shandong and southern provinces.

"The government has been trying to eliminate low-efficient small refineries for a long time. These firms contribute to creating jobs and enhance local economic growth," Jiang Xinmin, an analysts at Energy Research Institute of NDRC. The government will also ban new refining projects that are built to process bitumen or heavy oil, a move that will curb in the longer run China's imports of fuel oil, a main feedstock of existing small plants.