China cut gasoline and diesel prices, an expected move designed to boost the country's flagging oil demand.

Diesel prices will decline by 18% and gasoline prices will drop 14%, effective Friday, China's economic planning agency said. Kerosene prices will be cut 32%.

These will be the first cuts in pump prices for motorists and other consumers since oil prices began their steep fall from nearly $150 a barrel in mid-July. Oil prices fell to 4½-year lows Thursday in electronic trading on the New York Mercantile Exchange. The January contract sank as low as $39.19 a barrel.

Lower prices could unleash pent-up demand in China, and provide a fillip for the nation's auto makers, who are reeling from a drop in sales. In November, commercial and passenger vehicles sales from 15% from the same month in 2007.

An executive at PetroChina Co. said Thursday the price cuts would strengthen buying interest and help lower refineries' record stockpiles of oil products ahead of the increase in the fuel consumption tax.

The announcement also forms part of a wide-ranging reform of China's oil pricing system. Government officials had flagged the need for pump price cuts after proposing increases in the fuel consumption tax levied on gasoline and diesel Dec. 5. Under the new pricing system, effective Jan. 1, China will raise its gasoline consumption tax fivefold to one yuan per liter from 20 fen per liter. It will also raise the diesel consumption tax to 80 fen per liter from 10 fen per liter.

The International Energy Agency last week cut its forecast for China's oil demand to 3.5% in 2009, while other analysts are even more bearish given the slew of weak economic data from the country.

Industrial output in November grew at its slowest pace since February 2002, and China's exports last month fell for the first time in more than seven years. About 43% of China's oil demand is industrial, Credit Suisse said Thursday.