Chinese corn processors are betting on bio-fuel production despite government curbs on expansion of the industry.
Earlier December, worries of grain supply shortages prompted the government to halt approval of new projects that process corn into ethanol, which is mixed with gasoline at a ratio of 1:10 as fuel for automobiles.
However, huge profits have lured investors and local governments to continue preparing new projects, with an annual output of more than 10 million tons of fuel ethanol planned, almost ten times the current 1.02 million tons.
The government estimates that ethanol-mix gasoline will account for half of domestic gasoline consumption by 2010, 2.5 times the current percentage.
Meanwhile, some processors dodge policy restrictions by claiming to make alcohol, which can be conveniently turned into fuel ethanol once the government eases limits.
China's corn processors are expanding their production capacity of alcohol by an estimated 1.6 million tons per year, according to China National Grain and Oils Information Center.
Other corn processors are turning to producing profitable downstream petrochemical products, such as glycol.
The government has urged development of bio-fuels with non-grain crops, like sorghum and cassava, amid concerns of grain supply and price stability.
However, enterprises, especially in corn-rich northeast China, still favor corn processing for easier access to raw materials, low costs and mature technologies, while local governments tend to approve new projects to draw investment.
China started to develop fuel ethanol as an alternative energy in 2000 and has approved four pilot ethanol projects.
Oil price hikes and government subsidies boosted fuel ethanol production from 30,000 tons in 2002 to 1.02 million tons in 2005, an increase of more than 30 times.
More than 23 million tons of corn were processed into ethanol and other products of industrial use last year, an increase of 84 percent from 2001, while the output of corn only grew by 21.9 percent.
China will become a net corn importer in the next two years, according to research by the Dalian Commodity Exchange and the National Grain and Oils Information Center.
"Our land has already been worn out to feed 1.3 billion people, " said Zhai Huqu, president of the Chinese Academy of Agricultural Sciences, warning that reliance on the mass consumption of corn for energy would lead to environmental problems.
Expanding industrial demand, along with increasing need for corn by livestock and the reluctance of corn growers to sell in expectation of higher prices, contributed to a 6.8 percent rise in the price of corn in 2006.