Prepared by Dr. Xuefeng Cui

Biofuel Industry in China

China’s economy has experienced remarkable growth since economic reforms initiated in 1978. Annual average growth rate of gross domestic product (GDP) reached nearly 10% in the last three decades. The rapid growth of China’s economy also led to a rapid rise in demand for energy that also gave rise to mounting concerns in the country about its national energy security. Despite the rapid growth of domestic energy production, demand has grown even faster. China has shifted from being a net energy exporter to being an importer since the late 1990s and is becoming one of the largest importers in the world in recent years (Qiu, Huang et al. 2010). Despite rapid development of energy demand, many Chinese rural households still depend heavily on traditional biomass energy for heating and cooking (Démurger and Fournier 2011). China is facing increasing energy pressure. Given the energy security concerns, the search for alternative sources of energy has become a top policy priority of the Government of China (Qiu, Huang et al. 2010).

Renewable energy and energy efficiency (REEE) policies become a national priority for the Chinese government, particularly since 2005 in six sectors: electricity, industry, transportation, buildings, and local government. Fortunately, unlike many other national governments, the Chinese central government is blessed with a sound financial position, which allows significant investment in REEE. In 2012, spending on energy conservation and environmental protection totaled 200 billion RMB (Lo 2014). S&T program funds and investment in energy related areas make it possible for Chinese researchers to cooperate with their international partners in various ways. The MOST and NDRC also cooperate to promote the development of energy. The National Development and Reform Commission (NDRC) NDRC and MOST Ministry of Science and Technology (MOST) of China co-fund several international cooperation energy projects. In 2007, the “Renewable and New Energy International Cooperation Program” was launched by the NDRC and MOST together. It focuses on large capacity wind farms, biomass power plants, and transfer technology from biomass to liquid fuel. In 2007, MOST and the Italian Environment Protection Foundation initiated the “Demonstration and Industrialization Project of Producing Biodiesel from Jatropha curcas L. in Sichuan” and has established several pilot plantations of Jatropha curcas L. in the Sichuan province (Lo 2014).

China’s biofuel industry has expanded rapidly since early 2000s. Bioethanol production reached 1.35 million tons in 2007. Four large-scale state-owned bioethanol plants in Heilongjiang, Jilin, Henan, and Anhui provinces were constructed in 2001. The total annual bioethanol production capacity of these four plants, which mainly use maize as feedstock, is approximately 1.5 million tons. In 2007, China set up another bioethanol plant based on cassava in Guangxi Province, which started operation in early 2008. The annual production capacity of this plant in the initial stage is 0.2 million tons. Chinese government has established the medium and long-term development plan, at the end of 2020 (Liu, Liu et al. 2013).

By the end of 2007, there were about 10 biodiesel plants operating in China. Most of them use industrial waste oil and waste cooking oil as feedstock. The total annual production capacity for all of these plants is less than 0.2 million tons. Biodiesel production needs a stable supply of lipid or vegetable oil as feedstock, but China is short of those feedstocks. These two policy documents specified the following major support policies during the implementation of the pilot testing program:

  • First, the 5% consumption tax on all bioethanols under the E10 program was waived for all bioethanol plants;
  • Second, the value-added tax (normally 17%) on bioethanol production was refunded at the end of each year;
  • Third, all bioethanol plants received subsidized ‘‘old grain” (grains reserved in national stocks that are not suitable for human consumption) for feedstock. 1 This subsidy is jointly provided by the central and local governments;
  • Fourth, a subsidy was offered by the central government to ensure a minimum profit for each of bioethanol plants.

That is, if despite all three support mechanisms described above, any bioethanol plant were to record a loss in the production and marketing of bioethanol, it would receive a subsidy from the Government that equals the gap between marketing revenues and production costs plus a reasonable profit that the firm could have obtained from an alternative investment. This subsidy is estimated for each plant at the end of each year. Besides these four support policies, the Government of China also ensured markets for the bioethanols produced by these state-owned plants. Bioethanol produced by private plants was not allowed to enter the market.

China is now the third largest bioethanol producer in the world after the United State and Brazil. While there are several potential feedstock crops available for bioethanol production, lack of land for feedstock production is one of major constraints in China’s bioethanol expansion.


Démurger, S. and M. Fournier (2011). “Poverty and firewood consumption: A case study of rural households in northern China.” China economic review 22(4): 512-523.

Liu, L.-q., C.-x. Liu and J.-s. Wang (2013). “Deliberating on renewable and sustainable energy policies in China.” Renewable and Sustainable Energy Reviews 17(0): 191-198.

Lo, K. (2014). “A critical review of China’s rapidly developing renewable energy and energy efficiency policies.” Renewable and Sustainable Energy Reviews 29(C): 508-516.

Qiu, H., J. Huang, J. Yang, S. Rozelle, Y. Zhang, Y. Zhang and Y. Zhang (2010). “Bioethanol development in China and the potential impacts on its agricultural economy.” Applied Energy 87(1): 76-83.