China's energy policymakers have lately been thinking a lot about drivers like 24-year-old Cindy Chen, who chose a larger German Opel over smaller, more fuel-efficient models when she bought her first car in March.

Like many motorists of the single child generation -- kids of baby boomers born in the 1950s -- Cindy is showing early signs of an American-style auto affair, heedless of Beijing tax breaks meant to encourage sales of smaller cars, whose market share grew to over two-thirds of all new car sales in the first quarter.

Daddy bought it for me, so why not a big one?, said Cindy, a lawyer with a local government office in eastern Ningbo city.

But she will have fewer incentives to drive the way her American counterparts do after policymakers on Monday raised diesel and gasoline prices by 6 and 7 percent respectively, the second increase this year but the biggest since last June.

While some criticized it as a half-measure that barely matched half of the recent rise in global crude oil costs, the increase takes gasoline prices to near their peaks last June, in stark contrast to U.S. prices that are half last summer's highs and are now about 40 percent cheaper than Chinese pump rates.

Early anecdotal evidence suggests the shock of steadily rising prices this year may be causing car-owners to think twice before hitting the road after five years in which authorities sought to cushion the blow for consumers, adding to demand.

I never really thought about petrol cost before. My panic about oil prices started last summer... Now my pay has not increased but oil went up again. I will certainly start to plan for driving nowadays, like a car pool if driving long distance, said Zhang Yun, who drives a 2.7-liter Hyundai Tucsan.

At stake is nothing less than the outlook for global oil prices, which have rallied in part on hopes for a sustained recovery in demand from No. 2 consumer China, where gasoline use has led the pick-up in consumption seen in recent weeks.

And policymakers are quick to emphasize their progress.

The way China's car ownership expands is slightly different from that of America -- the use of new-energy cars, energy-saving cars is getting more and more popular in China, China's top energy official Zhang Guobao said on Monday.

SIGNS OF SUCCESS

While two months of record-high car sales in China may appear bullish at first glance, particularly as tax breaks helped April sales avoid the typical post-holiday seasonal downturn, a closer look at the figures shows efficiency incentives are taking hold.

Thanks to Beijing's tax cut on smaller-engine cars at the beginning of 2009, 71 percent of all cars sold in the first quarter had 1.6-liter or smaller engines, gaining 8 percentage points of market share, data from the Chinese Automobile Industry Association showed. Total sales of smaller cars rose 22 percent.

A year ago one may wonder if China was to become a second United States where everyone drives a big car. But after this shocking round of high oil prices, it seems smaller cars are becoming more popular, said Dr. Kang Wu, a veteran China energy expert with East-West Center, Hawaii.

Now the consensus seems to be that car ownership will not necessarily translate into fuel demand.

Starting with a tax hike on luxury cars last September, China is putting in a slew of policies this year -- from subsidies on energy-saving cars to pumping up state spending on railways and roads -- to help it avoid a repeat of the demand explosion in 2004 that set off oil's six-year rally to near

$150.

China has also raised the gasoline consumption tax five-fold and diesel eight-fold from January 1, and started to price pump rates over global crude costs, although Monday's move shows that it is not yet comfortable ceding total pricing control to the market.

And it has granted subsidies for private hybrid cars in the gas-rich region of southwest Chongqing, and pledged in February to subsidize purchases of clean-energy vehicles, including electric and fuel-cell, in public transport in 13 cities.

EFFICIENCY KICKS IN

The challenge the government faces is immense.

By the end of 2008 the number of cars on China's roads had risen by a quarter from 2007 to 24.38 million, with private autos up 28 percent to 19.47 million, Chinese media has said. Industry data shows monthly sales exceeding those in the United States.

The total number of vehicles is set to nearly double to 100 million in 2015 and triple to 150 million in 2020, but that level is only half the U.S. current total, according to EWC's Wu.

Implied demand for gasoline, the dominant fuel for passenger cars, jumped over 13 percent in April from the month before, far outpacing the overall 4 percent rise in oil use.

Wu expects gasoline consumption to rise by an average of 4.6 a year up to 2020, climbing to 2.5 million barrels per day -- still less than one-quarter the U.S. present total.

You can't stop peoples' desire to own a car, but you can make them drive less, said Xavier Chen, head of European Chamber of Commerce in China.

And while China set targets for improved fuel efficiency standards back in 2004 -- five years before U.S. President Obama's administration took action -- the main answer may lie in the railways and urban transport now being built, part of it thanks to a carefully targeted $585 billion stimulus spending.

When the city railway network, in Yangtze Delta, Pearl River Delta, materializes, it will cut significantly the car mileage, says Dai Yande, deputy head of Energy Research Institute, a government think-tank.

We are not worried about the number of cars on the road if we can really improve our public transportation.

(Editing by Jonathan Leff)

China