China is all but certain to raise retail gasoline and diesel prices for a third time this year, but will not jack up rates by the more than 15 percent that would be necessary to close the gap with rallying crude costs.

Anxiety over the impact to the economy and backlash from the rural poor and vocal taxi drivers will prevent a repeat of May's shock 10-11 percent increase, analysts say, likely leaving loss-making refiners like Sinopec crying for more.

It's inevitable that China will raise prices in the fourth quarter, but not by a big margin, said Wang Jian, director of China Society of Macroeconomics, a think tank under the National Development and Reform Commission (NDRC), China's powerful economic planning body and main energy policy maker.

A survey of nationwide distribution and production firms released by the Ministry of Commerce on Tuesday showed that 72 percent expect another rise in domestic prices.

For reasons not entirely clear, Beijing has demonstrated an apparent reluctance to raise prices during the final four months of the year: of 15 changes in administered prices since 2003, it has only done so only once, in December 2003.

It is poised to break that trend this year, driven by a need to give more relief to its partly private refiners who are losing nearly $1 on every barrel they sell locally, as well as a renewed drive to restrain demand, which is surging once again.

Beijing has so far raised pump prices twice this year by a total of 15 percent, but Chinese motorists are paying half the rates of their Indian and Singapore counterparts for petrol, and 20-30 percent less for diesel.

Wholesale diesel in the booming east are already 5 percent above the retail price ceiling at 5,750 yuan ($721.6) a tonne, reflecting the belief that further increases are in store.

FIRMER RESOLVE

Taxi drivers in Beijing staged an unofficial strike on July 1, the 85th birthday of the Communist Party, to protest against employers' plan to remove fuel subsidies.

But analysts say Beijing has strengthened its resolve to combat runaway energy use in its roaring economy, which expanded at its fastest rate in a decade in the second quarter.

Prices are sure to rise... It's part of the energy price reform as low prices fuel unreasonably high consumption, said Yan Kefeng of Cambridge Energy Research Associates.

Even a modest increase would move Beijing nearer its goal of raising energy efficiency by 4 percent this year, a daunting task after the index rose 0.8 percent in the first half.

Analysts argue that a long-term solution to boost efficiency would require the world's second-biggest oil consumer to reform prices of the whole energy complex that covers coal, natural gas and electricity, prices of which remain well below global norms.

Benchmark U.S. crude futures have climbed $5 or 7 percent since Beijing's last retail rise on May 23 to stand at $76.80 a barrel on Tuesday. Since 2003, oil prices have soared nearly 150 percent, while China's pump rates are up 60 percent.

China, contributing 30 percent of global oil demand growth, is keen to shake off its image as a key driver behind the record oil. For that goal, Beijing has been weighing between a long-debated, drastic fuel tax and micro managing pump prices.

Implied oil demand - domestic output plus net imports - neared the heady rates in 2004 through the second quarter with double-digit growth, rebounding from a tepid 3 percent last year.

KEEPING UP SUPPLIES

Beijing's increase will also be geared to giving refiners higher margins, encouraging them to keep domestic markets fully supplied and averting a potential shortage of diesel around October when thousands of tractors burn the fuel for harvest.

Export curbs this year have so far averted a repeat of the gasoline shortage that hit part of southern China last August after refiners curbed sales to protest low prices, and relatively healthy domestic supplies now may make Beijing less inclined to raise prices significantly.

Beijing's baby-step approach to price rises is also likely to remain the norm until it can broker agreement between feuding ministries of sharing revenue from a new fuel tax, possibly a 20-to-25 percent increase, now not expected before next year.

In the absence of a fuel tax, China is likely to continue using the mechanism to follow international oil markets, said Wang, with the NDRC think tank.

China