Fuel ethanol should make up more than 5 percent of the country's gasoline consumption, compared with less then 2 percent now, the division chief from NDRC said at the conference organised by BBI International from the United States.

Liu said the government would continue providing financial support for the industry, such as tax breaks or subsidies.

China now has four government-sponsored fuel ethanol plants with total annual capacity of 1.02 million tonnes.

Beijing provides subsidies of about 1,300 yuan (US$163.6) per tonne of ethanol to the four plants this year. They are also exempted from a 5.0 percent consumption tax and 17 percent value-added tax.

The plants use corn or wheat as feedstocks for fuel ethanol, blended into gasoline in nine provinces, such as Jilin, Henan, Anhui and Heilongjiang.

Liu said Beijing would expand the ethanol-blending areas to the central and western parts of the country.

NON-GRAIN FEEDSTOCKS

Some industry officials have said China was already producing about 5 million tonnes of ethanol, including fuel ethanol, this year, as record-high crude oil prices and a US deficit in the biofuel have triggered an investment boom in the sector.

Liu said in future Beijing would encourage the use of non-food raw materials, such as cassava, sweet sorghum and agriculture residues, as feedstocks.

"The government will continue to support the industry. But it should not take away the land from grains production," he said.

"We will only support converting part of our grains into ethanol as long as it does not threaten the grain supply."

Liu said the southern region of Guangxi, the country's largest cassava grower, would build fuel ethanol facilities for 1.0 million tonnes in the coming five years.

NDRC will permit state-owned grain trader COFCO to build a 200,000 tonnes per year (tpy) cassava ethanol plant in the region, Liu said.

COFCO's Vice President Yu Xubo told the conference it was seeking opportunities to set up non-grain ethanol plants in five provinces, including the one in Guangxi.

"The biofuel industry will boost the sales of farm products and increase incomes of farmers, which make up 80 percent of the country's population," Yu said.

Tianguan Group, one of the four government-sponsored fuel ethanol producers, said it would start building one of its five new ethanol plants this year. The 100,000-tpy plant in central Hubei province will use early rice as feedstock. (US$1=7.944 Yuan)