The Chinese government has issued a package of policies, including risk reserves, subsidies and tax breaks, to encourage the development of the bio-energy and bio-chemical industries, the National Development and Reform Commission (NDRC) said Thursday.

Under the new policies, enterprises should set up risk reserves, which will be used to offset their losses when the oil price is low.

When the oil price is low for a sustained period, a government subsidy regime will be triggered to cover the losses of enterprises.

The new policies were jointly issued by the NDRC, the ministries of finance and agriculture, the State Administration of Taxation, the State Forestry Administration.

The government will also provide subsidies to developers of raw material supply bases for the bio-energy and bio-chemical industries, particularly those using non-arable land.

Subsidies will also be available to model projects with significant technical innovations.

The bio-energy industry was important for environmental protection, rural development, in addition to being a new source of growth for the economy, an NDRC official said.

After years of trials in selected provinces, the government has begun pouring huge investment into the bio-energy sector.

The country produced 1.02 million tons of bio-ethanol from corn and other raw materials in 2005. The ethanol is added to petrol at a ratio of 1:10 for use in automobiles.

The government estimates that by 2010, ethanol-mix petrol will account for half of China's petrol consumption.

Large firms, such as the China National Petroleum Corporation (CNPC) and the China National Cereals, Oils and Foodstuffs Corp (COFCO), have announced ambitious plans for bio-energy investments.

CNPC has signed an agreement with the government of Sichuan Province in southwest China to develop facilities to produce 600,000 tons of automotive-grade ethanol from sweet potatoes each year and 100,000 tons bio-diesel made from the seeds of the jatropha curcas tree.

COFCO said in October it would invest one billion yuan (US$126 million) to build a major ethanol plant in Guangxi region, also in southwest China.

The plant, with a capacity of 400,000 tons, will lift 1.1 million farmers out of poverty by growing cassava as the raw material for the plant, said Yue Guojun, head of COFCO's bio-chemical and bio-energy division.

(Xinhua News Agency December 1, 2006)