Sinopec officials said the new business would be better positioned to take advantage of well recognized brand names. Some observers expressed skepticism about the companys ability to maintain market share.

PetroChina has already done the same thing, Lithcon Petroleum Manager Joe Rousmaniere said, referring to Chinas other nationally-owned oil giant. Both of them are scared because the foreign brands have better reputations for providing quality lubricants. So they try to improve their image by making big pronouncements like this. But its like standing against the tide.

Sinopec is made up of a variety of formerly separate oil companies, and the new company will combine their lubricants operations, including Changcheng Lube Oil Co., Yiping Lube Oil Co., Chongqing and the lubes activities of Gaoqiao Co., Maoming Co., Jinan Co. and Jingmen Co.

Officials said Sinopec Lube Oil will work to strengthen domestically well-known lubricant brands, such as Great Wall, Hai Pai and Nanhai, and build a strong export business, too.

A great deal is at stake just in the domestic market. China consumes 3.8 million tons of lubes annually, according to Fuchs Petrolub AG, making it the worlds second-largest country market, far behind the United States, at 8.7 million tons, but well ahead of third-ranked Japan, which consumes 2.2 million tons. Moreover, themarket has large growth potential asthe Chinese populaceconsumes only 2.5 kilgrams per year on a per capita basis. Annual per capita consumption in the United States and Canada is 31.6 kg., in Western Europe 13 kg. Sinopec has projected that total lubricant consumption in China will grow 3.6 percent per year through 2005.

Sinopec currently claims 30 percent of the domestic lubricant market, second to PetroChinas 50 percent. International companies have been in the market for years but have generally constrained themselves to its high end, leaving the two national firms to soak up sales of low-quality products that dominate the market.

Lube marketers expect competition to become tougher, however, in the wake of Chinas admission late last year to the World Trade Organization.Tariffs on lube imports will drop from 9 percent to 6 percent. According to AsiaPort, Sinopec Chairman Li Yizhong said at a May 29 news conference that the new lubricant business has a goal of increasing its domestic market share to 35 percent.

They will try but they dont quite know what to do, Rousmaniere said. The basic problem is that people in China dont want local lubricants because they think that foreign brands are superior. No amount of reorganization is going to fix that quickly.