Rocketing global oil prices are eating away at the high-flying Chinese economy, provoking a slowdown that officials and analysts warn could lead to inflation, AFP reported.

"I have to admit that the rise in oil prices is having an impact on the Chinese economy," Zhu Zhixin, vice chairman of the National Development and Reform Commission, said at a business forum in Beijing last week.

Although Zhu did not give concrete estimates, analysts say that China's 2006 growth in gross domestic product will easily drop off by one percentage point.

They also estimate the consumer price index, its main measure of inflation, will jump two percentage points from around two percent now.

While China is not as vulnerable as other oil-reliant Asian economies, the prospect of high prices over a sustained period is a serious concern to economic planners in Beijing, analysts said.

Zhang Guobao, vice chairman of the National Development and Reform Commission, said on Saturday in Beijing that 94% of China' energy consumption was met with its own production in 2004, and it relied on imports for merely 6% of its energy consumption.

China is the second largest energy producer, and also the world's second biggest oil consumer, Zhang said. It relied on imports for about 3.7 million barrels per day, or 40 percent of its oil needs.

Demand in China is currently at 6.4 million barrels per day and though demand growth has slowed this year, consumption is expected to continue to expand, driven by strong economic development and the low domestic retail fuel prices.

Beijing fixes oil prices by using a basket of the previous month's global trading levels in London, New York and Singapore and then allows the price to fluctuate eight percent.

Even though the two-tiered system is meant to protect consumers the discrepancy between pricing and suppliers sparked shortages of fuel this summer in southern China, pressuring the government to liberalise prices.

Overhauling the system would act as a brake on the economy, analysts said.

Morgan Stanley has revised its 2006 GDP growth forecast down to 9.3 percent from 9.5 percent and to 6.7 percent for 2007 as a result of higher oil prices.

The Asian Development Bank and the International Monetary Fund estimate a loss of about one percentage point next year.

Carl Weinberg, of High Frequency Economics, said that the cost would be significantly higher -- and it would raise China's import bill by 47 billion dollars over one year.

"We view this as a gross transfer of income to foreign oil producers, money that otherwise would have been spent at home," he said.

It would trim 2.8 percent from GDP growth with 260,000 fewer urban jobs created, Weinberg estimated.

Some economists are even more pessimistic, estimating that every 10 percent rise in oil prices represents a GDP reduction of 0.3 percentage points and an increase in the consumer price index of 0.4 percentage points.

Deutsche Bank said China is about five times as energy-intensive as the US which means its takes five times as much energy to produce a dollar of GDP.

"High oil prices, if they were to be passed onto domestic users, would seem to impose a greater burden on China's economy," the Deutsche Bank report said.

High oil prices are becoming the norm and China's solution of forcing refiners to subsidize low petrol and diesel costs has to end, analysts say.

Angry refiners, which posted losses of 4.2 billion yuan (517 million dollars) in the first six months, have called on the government to loosen its price policies after fuel shortages paralyzed southern parts of the country due to production cutbacks by refiners.

The shortages in July and August were widely seen as artificial as refiners were reluctant to sell oil products at a loss.

It is unclear how Beijing will respond amid growing calls for reform as it struggles to keep CPI at around two percent.

"Can the government introduce price relaxations gradually enough so as to keep CPI at two-three percent a year?," asked Stephen Green, economist at Standard Chartered Bank.

"The big worry is that these energy prices hit the economy all at once and CPI rises too quickly."

Editor: Yan