While ethanol and biodiesel production increased last year, the report indicates biofuel production accounts for less than 1 percent of China’s liquid fuel production. Biofuel production is also at levels below those included in the country’s 12th Five Year Plan, which calls for China to produce 5 million metric tons (mmt) of liquid biofuels per year by 2015, including 4 mmt of fuel ethanol and 1 mmt of biodiesel.

According to the report, China has 53 biodiesel plants, with total capacity estimated to be 4 billion liters. The lack of capacity utilization is attributed, in part, to a lack of large-scale collection of waste cooking oil. Biodiesel production increased by approximately 18 percent from 2013 to 2014. That growth is attributed to a government crackdown on the illegal use of recycled cooking oil for human consumption. The lower 5 percent rate of grow from 2013 to 2014 is attributed to a rise in biodiesel imports that lowered the profit margin for domestic producers, leading to slower production growth.

The report notes that China has no official mandate for biodiesel use, and the fuel currently cannot be sold to state-owned gas stations. According to the report, most biodiesel for road transportation is sold at private gas stations in small cities or the countryside. Approximately 30 percent of biodiesel is used as transportation fuel, with 50 percent used by the industrial sector and 20 percent used for agricultural machinery and fishing boats.   

The GAIN report estimates 76 percent of ethanol in China is produced from corn, with 14 percent produced from wheat, 8 percent produced from cassava, 1 percent produced from sweet sorghum, and 1 percent produced from corn cobs. The country currently has seven plants licensed to produce fuel ethanol production, including one cassava plant with a capacity of 200,000 tons, and one sweet sorghum plant in Inner Mongolia with a capacity of 50,000 tons that began operations in June 2014.

Cellulosic ethanol production reached an estimated 42 million liters last year, up 3 percent from 2013. China has one cellulosic ethanol plant that takes in corn cobs as feedstock. That facility, which has an estimated capacity of 63.4 MMly, is located in the Shandong province and began operations in October 2012. Several other demonstration-scale cellulosic ethanol plants using a variety of feedstocks are expected to be developed, but the report provides no estimated completion date for those projects.

China’s fuel ethanol plants produced an estimated 1.65 million metric tons of distillers dried grains with solubles (DDGS) last year, up from 1.61 million tons in 2013. This year, production is expected to increase to 1.75 million tons. Corn oil production reached 100,000 metric tons last year, up from 95,000 tons in 2013. Corn oil production is expected to increase to 105,000 tons this year.

While China implemented fuel ethanol programs in the early 2000s in response to abundant grains supplies, the report explains increased grain prices in 2008 triggered concerns over possible shortages. Since that time, government policy has dictated that biofuel development not compete with food and feed crops.

The report also explains that the Chinese government tightly controls grain ethanol production and has reduced financial support. According to information contained in the GAIN report, the country’s Ministry of Finance has announced that it will remove the value added tax rebate of 17 percent this year and impose a 5 percent consumption tax for grain ethanol production. While the mandatory blend rate for gasoline in designated markets is 10 percent, ethanol cannot be blended into fuel outside those designated markets. As of last year, the blend mandate program covered six provinces and 30 cities in another five provinces.

Regarding imports, the report notes that current government regulations and policies control the production, sale and distribution of ethanol in China. Those regulations and policies also prevent the use of imported ethanol. However, the country imported a 10,500 ton shipment of ethanol last year as a trial to study the economics of importing ethanol. According to the report, the trial proved that imports are feasible and economically viable, however, government regulations currently prevent the use of imported ethanol in transportation fuels.

While only seven facilities in China are licensed to produce fuel ethanol, the country has an estimated 160 ethanol plants. Most of those facilities produce ethanol for non-fuel uses, such as beverages and liquor and industrial chemicals.

A full copy of the report can be downloaded from the USDA FAS GAIN website.