China's bio-fuel industry to see moderate growth

Ecological, energy, and economic concerns urge China to push the bio-fuel industry forward. The Chinese bio-fuel industry is divided into two sub-segments, the bio-ethanol sector and the bio-diesel sector. In terms of market size, China has the third largest bio-fuel market around the globe, only after the U.S. and Brazil.

China was estimated to produce more than 360 kt of bio-diesel and 1,620 kt of bio-ethanol in 2008. During the past eight years, China has primarily established a legal and administrative system for bio-fuel, especially for the bio-ethanol industry.

According to  Frank Xie, Frost & Sullivan's China Consultant for Chemicals, Material & Food Practice, the global financial crisis has major impacts on the Chinese bio-fuel industry in the short term.

"Growth slowdown of downstream industries has resulted in the sharp decrease in bio-fuel demand. China's logistics industry experienced a great slump in 2008. Economic uncertainties also brought about stagnated growth in the Chinese passenger vehicle market in the fourth quarter of 2008. The sharp decline in crude oil price also lowers the price of bio-ethanol and bio-diesel products making the situation tougher in China," he said.

Xie says, "For 2009 and 2010, the shortage of feedstock remains the top challenge for the Chinese bio-fuel industry. However, most of these shortages can be resolved as more entrepreneurs join the market in the forecasted period. For bio-ethanol, with feedstock transitions from corn and wheat to non-food celluloses and potatoes, all major bio-ethanol manufacturers are forced to utilize alternative feedstock. For bio-diesel, the unstable supply of waste cooking oil may threaten the continuity of bio-diesel production. Only some leading bio-diesel producers have effectively managed the supply chain to ensure the stable supply of feedstock."

According to Xie, government support is vital for the healthy development of the Chinese bio-fuel industry. Subsidies, tax exemptions, or allowances help increase the competitiveness of producers as well as ensure their continuous development.