China Petroleum & Chemical Corp – better known as Sinopec – has signed a $3.5 billion contract with Saudi Aramco and Exxon Mobil for a refinery in southern China‘s Fujian province.

The refinery in Quanzhou will have a crude refining capacity of 240,000 barrels a day and is expected to be operational in early 2009.

China is badly in need of new refineries, with many of its existing plants operating at more than 90 percent capacity to meet growing demand for oil products such as gasoline and diesel.

Investment in new Chinese refining capacity has been constrained by government caps on retail prices of oil products, which has left the refining businesses of Sinopec and PetroChina operating at a loss in recent years. However, the government has repeatedly signaled that it intends to bring its domestic oil products prices more in line with the international market.