The central government is taking further action to control the growth in grain-based ethanol processing.

The move follows an increase in general food prices with grain increasingly being used as a raw material in biofuel processing.

An official paper was issued by the National Development and Reform Commission (NDRC), to cool down what it called "the overheated and blind" development of ethanol processing.

China produced 1 million tons of ethanol last year, ranking after Brazil and the United States, as one of the world's major producers.

More than 10 million tons has been produced since the beginning of this year.

The demand for ethanol has led to a rise in grain prices which has reversely trigged price rises for other food items.

The NDRC pledged to rein in the runaway ethanol industry by centralizing the approval procedure for all new projects, grain-based or not.

One "fundamental principle" in China's biofuel development, the NDRC said, is to support production by relying on non-food vegetation, rather than on such grain items as corn.

Items of non-food vegetation, as defined by the NDRC, primarily consist of cassava (a plant with starchy roots), sweet sorghum, and other plants with high fibre content.

The NDRC paper will remain the official guideline for the ethanol industry as the central government evaluates the nation's pilot programs, and the ethanol development strategy for China's 11th Five-Year Plan (2006-2010).

Nine provinces benefit from fuel mixed with 10 per cent ethanol in their gas stations Heilongjiang, Jilin, Liaoning, Jiangsu, Shandong, Henan, Anhui, Hubei and Hebei.

The Chinese-language press said corn contributes about three-fourths of the raw materials used for ethanol making.

Last year, ethanol production used 16 million tons of corn, a growth of 84 percent from 2001, while the nation's corn output only grew by 21.9 percent over the same period. China is also expected to produce about 15 million tons of ethanol a year by 2020.

However should the bulk of this be obtained from corn, the industrial demand will threaten the nation's annual supply. Corn production was only about 128 million tons last year.

According to the China National Grain and Oil Information Centre, corn prices in Dalian increased a further 30 yuan (US$3.75) per ton this week, after rising from 1,330 yuan (US$166) to 1,530 yuan (US$191) from late October to earlier November.

However, due to the government's attempt to cool down the market, "the investment craze will soon be over," said Han Xiaoping, CEO of online energy information website www.china5e.com.

Zhou Dadi, former director of the NDRC's Energy Research Institute, said new investments are likely to begin in ethanol-producing plants and do not compete with grain supplies and arable land.

(China Daily December 21, 2006)