(Xinhua)
Updated: 2007-09-21 19:56

China's top economic planner has raised the threshold for the establishment of corn-based biofuel production companies in an attempt to ensure food grain supply.

"Corn processing firms should have relatively strong economic strength and risk resistance capacity as well as a strong sense of social responsibility," Friday's Shanghai Securities News quoted guiding principles released by the National Development and Reform Commission (NDRC) as saying.

Net assets of corn processors should at least double the capital of their projects and total assets should be at least 2.5 times the project investments, said the principles.

Companies should also have a minimum credit rating of "AA" with provincial financial institutions.

"Such requirements virtually exclude small and medium-sized enterprises and help encourage corn processing by large companies, " said Chen Baomin, an expert on farm products.

China has capped the proportion of corn for industrial use at 26 percent until 2010, according to the NDRC.

The government will not approve new corn processing projects in principle and will strengthen scrutiny on the expansion of the ongoing projects.

"The policy means the government will not expand corn-made ethanol capacity or approve more such projects," said Li Shizhong, vice director of Institute of New Energy Technological Research of Tsinghua University.

"In other words, ethanol projects are only allowed in the four existing designated enterprises with limited production, including China National Cereals, Oils,  Foodstuffs Import, Export Corporation, the country's leading grain, oils and foodstuffs import and export group," said Li.

Huge profits have lured investors and local governments to launch 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.

China started to develop fuel ethanol as an alternative energy in 2000 and has approved four pilot ethanol projects.

From 2001 to 2005, the amount of corn used for biofuel surged 14 percent every year while annual production of corn rose only 4.2 percent.

"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.