China on Wednesday launches a new pricing system for fuel which sets up a price floor and ceiling. [Photo: Chinanews.com]

China has launched a new pricing system for fuel which sets up a price floor and ceiling.

Under the system, the price floor is at 40 U.S. dollars a barrel and the price ceiling at 130 dollars.

This means that when the global price tumbles below 40 dollars a barrel, as it has, the domestic price will not be reduced accordingly. The price ceiling works the same way.

However, Zhong Jian, chief analyst with 315i.com, a Chinese oil information website, say gas stations are unlikely to base prices of the price-per-barrel of oil.

"Actually, gas stations have already started to compete for customers. Since the beginning of December, most of gas stations nationwide have reduced their retail prices. They are now still competing to sell cheaper gas."

Meanwhile, the National Development and Reform Commission is set to establish a reserve fund to cut emissions and increase the quality of fuel with the surplus money coming from the price floor.

In addition, the NDRC has decided to reduce prices for gas and diesel by around 0.1 yuan per liter, starting from Thursday.