SINGAPORE, Sept 20 (Reuters) - China's Shandong Yulong

Petrochemical on Friday began starting up one of two new 200,000

barrel per day (bpd) crude units in eastern China, sources said,

marking the official launch of the country's newest refinery

after four years of construction.

The 400,000-bpd refinery is the only major refinery to come

onstream this year in China and also one of the last greenfield

plants being built in the country, as Beijing broadly caps crude

oil refining capacity amid peaking Chinese fuel demand.

Situated on a man-made island in Longkou county of the city

of Yantai, Shandong province, Yulong is expected to keep the

crude unit running through at least the end of this year, said

one Shandong-based refinery source briefed on the matter.

The launch of the Yulong unit, in line with an earlier

Reuters report, came as Chinese refinery crude throughput fell

year-on-year for the fifth month in August to levels near

two-year lows as demand for diesel declines and gasoline

consumption is eroded by massive electric vehicle penetration.

"Yulong started up the refinery at the request of the

provincial government, although the company itself was concerned

with very weak margins in the current market environment," said

the source.

Yulong Petrochemical did not immediately respond to a

request for comment.

The $20 billion project, comprising a 400,000-bpd crude

refinery, a 3 million ton-per-year (tpy) ethylene complex and a

3 million tpy paraxylene facility, is a cornerstone project that

will help upgrade the fragmented refining sector in Shandong,

home to scores of smaller independent refiners, known as

teapots.

The project is 51% owned by private aluminium smelter

Nanshan Group, 46.1% by provincial government-backed Shandong

Energy Group and the remainder by two local firms.