More expensive fuel oil has also depressed car sales, as many potential buyers have been discouraged by higher petrol prices, a major reason for the drop in the growth of sales of passenger cars in the first half of this year to 11 per cent from 18 per cent for the whole of last year. On Friday, there was bad news again for the car sector, as the government raised the price of diesel oil by 6 per cent.

Another victim is refiners, whose margins have been squeezed by higher crude prices. The government does not allow them to pass on the increase to consumers as it holds down the retail price of diesel and petrol.

The high cost of fuel is helping to push up the cost of electricity and exacerbate power cuts, of up to six days a month in Dongguan, Guangdong province.

So far, high oil prices have not sparked inflation, thanks to the falling prices of non-oil commodities and services. Consumer price inflation in the first six months rose an annual 2.3 per cent, with the June figure at 1.6 per cent, down from 1.8 per cent in May.

But economists warn that inflation will rise later, when producer prices finally catch up with those of crude oil after the usual time lag of one year.

China is paying a record amount for oil imports. This year, it is expected to spend US$50 billion on the import of crude and oil products, up from US$43.16 billion last year, according to official estimates.

These high prices could cut growth in what should be another banner year for the Chinese economy.

Earlier this year, Goldman Sachs forecast that oil prices at US$60 a barrel would reduce China's GDP by 1.2 percentage points this year.

Faced with this crisis, the government is taking several steps.

One is to construct a system of strategic reserves. Construction of tanks is under way in four locations - Dalian in the northeast, Qingdao in Shandong province and two sites in Zhejiang, in Ningbo, and the Zhoushan islands. The first to be filled will be in Ningbo at the end of this year. But, even when all these are finished, China will have by 2010 only 101.9 million barrels of oil reserves, equivalent to consumption for 20 days, compared to the 158, 161 and 127 days of reserves held respectively by the United States, Japan and Germany.

The government says it will fill these reserves with domestic supplies but demand is so strong that it is unlikely to do that. In any event, it is wiser not to tell the world oil market that you are about to buy 100 million barrels.

The second part of the strategy is to acquire overseas fields. This year China will import from foreign fields it owns about 35 million tonnes of crude, up from 27 million last year, in countries as diverse as Sudan, Kazakhstan, Uzbekistan, Indonesia, Venezuela, Algeria and Egypt.

But the difficulties of this strategy were underlined last week by the possible failure of CNOOC's bid for Unocal, whose board recommended acceptance of a lower offer from Chevron.

To secure large supplies of oil, Chinese firms will have to acquire western companies like Unocal that have large assets as well as make deals in countries that are politically more favourable.

No one in China had anticipated the degree of public and political hostility in the United States aroused by the CNOOC bid. Next time, it will have to do a better job of preparation, with a strategy aimed at the public, the media and politicians as well as the company to be acquired.

The third measure is to try to reduce China's shockingly inefficient use of energy. In 2003, Japan consumed 250 million tonnes of crude oil, compared to China's 270 million, but produced a GDP four times as large and ran three times as many vehicles.

Chinese companies use twice as much energy as the world average to manufacture the same product and cars are becoming larger and larger, even when the crisis calls for small, fuel-efficient vehicles. Such a mode of production may have to change as higher fuel prices bite.