Its gamble that China's oil demand will bounce back in the near future as the economy rebounds may pay off. The expansion plans also could help prevent delays of major projects and bring long-term benefits to China's oil giants -- China Petroleum & Chemical Corp., or Sinopec, and PetroChina Co. -- as it squeezes out competition from smaller, less-efficient refineries, known as teapots.

Nevertheless, some observers express concern that expansion heading into a downturn could have a negative impact that lasts several years. China's stimulus plan comes as its oil demand is stagnating. Diesel trucks carrying goods for export are staying off the roads and heavy industry is cutting back output.

The plan could add as much as 2.19 million barrels a day to China's refining capacity, though it isn't clear when the government aims to bring all these projects online.

In addition, China's National Energy Administration aims to build nine large refining bases as part of a plan to increase the country's overall refining capacity to 440 million metric tons, or around 8.84 million barrels a day, over three years.

The broad stimulus plan for the refining and petrochemicals sector was approved by the State Council, China's cabinet, last week. A more detailed plan may be unveiled in about a month.

As a result of the measures, competition from smaller refineries will likely diminish, said Wang Aochao, research director with UOB KayHian. But he said the stimulus plan will weigh on the balance sheets of Sinopec and PetroChina at a time when China's chief fuel and petrochemical suppliers aren't flush with cash.

Beijing has a history of making state-owned companies shoulder social responsibilities; while Sinopec and PetroChina might hesitate to proceed with some projects, they might feel obligated to maintain the investments to please their political masters.

"Capacity expansion in refining will possibly bring the Chinese oil companies benefits only in the midterm, say in three to five years," Mr. Wang said. "But it's still difficult to forecast returns on the investment as there are just too many uncertainties," such as oil pricing.

The nine new refineries are likely to take several years to come online, allowing some time for economic recovery to take hold. Still, the timing doesn't seem ideal for ambitious capacity expansion to some observers.

The International Energy Agency trimmed China's 2009 oil demand forecast to 7.92 million barrels per day, a mere 0.7% higher than last year, in its latest monthly report on the oil market.

"China's fuel market will be exposed to a bigger risk of oversupply" by the stimulus plan, Mr. Wang said.

Analysts say a ramping up of diesel exports in recent months -- exemplified by a sevenfold on-year increase in December to 200,000 tons and a fivefold increase in January to 130,000 tons -- indicates high domestic fuel stocks, although the government doesn't provide official data on inventory levels.

For Beijing, whose No. 1 priority is preserving social stability, the plan may have wider benefits in the short term. "Pushing those projects forward will help support demand for basic materials, keep people employed, and ensure fuel and petrochemical production capacity is ready when the economy takes off again," said Jiang Xinmin, assistant director of the Energy Research Institute under the National Development and Reform Commission.