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China's fuel oil imports skyrocketed 115.5 percent in December 2008 compared to the same month last year as refiners and traders rushed to import the fuel ahead of a tax increase on January 1st.

According to data released by the General Administration of Customs, fuel oil imports last month were also 90 percent higher than in November at 2.64 million tonnes.

On January 1st China raised the consumption tax on a number of oil products to many times their current levels as part of the government's policy to promote energy efficiency and bring local fuel prices more in line with international price changes.

Market sources claimed that a higher consumption tax on fuel oil would benefit the state-owned oil companies as it could potentially lead to local "teapot" refineries being squeezed out of the market.

These refineries, mainly located in the southern province of Guangdong, China's manufacturing hub, and in the eastern Shandong province, use fuel oil as feedstock as they have limited access to crude oil. The use of cheaper feedstock enables them to compete with the state-owned refineries when producing products for the domestic market.

Market sources claim that teapot refineries and power plants using fuel oil are both on the central government's shortlist for elimination as they are less environmentally-friendly and energy efficient.

Since the decision was announced, fuel oil traders and power plants have compained to the central government through their industry associations that the proposed tax hike is too high.

They have argued that prices of fuel oil in China, unlike gasoline and diesel, are largely market-based, and so a substantial tax increase is therefore unfair in their opinion.