11 July 2012 Last updated at 00:54 ET

China cuts retail fuel price by 5% as oil demand falls

Fuel prices are lowered in China

China, the world's second biggest consumer of fuel, has cut retail oil prices by about 5% with immediate effect.

This is the third cut in two months, and some analysts say could be an attempt to increase fuel consumption.

Demand for oil fell for the first time in three years in April.

Domestic and global factors have weighed on the Chinese economy in recent months, which has shown signs of slowing.

Gasoline retail prices will be reduced by 420 yuan ($65.90; £42.50) a tonne and diesel prices by 400 yuan, the National Development and Reform Commission said.

It added that the move was made in response to lower international crude prices and changes in the "conditions of domestic and international economies, as well as the domestic refined oil market".

China introduced an oil pricing system in 2009 to reflect fluctuations in the price of crude oil on international markets.

The system kicks in when prices change by more than 4% within 22 working days, according to Xinhua news agency.

However, some analysts said that if there are further cuts, it could squeeze the profits of state-owned and private refineries.

Lower retail prices are also likely to further ease inflation which cooled in June to the lowest level in more than two years.

Consumer prices rose 2.2% from last year, data showed.