The Chinese government has just issued a circular on regulating the coal-chemical industry, urging local governments to tighten control of new projects.

The government will not approve coal Liquefaction projects with an annual production capacity under three million tons, methanol or dimethyl ether projects under one million tons and coal-to-alkene projects under 600,000 tons, said a circular released by the National Development and Reform Commission (NDRC) on Friday.

Experts said the move aims to contain possible overheating in the coal-chemical industry.

According to the NDRC, constantly rising oil prices on the world market have prompted the development of the coal-chemical industry in trying to find alternatives for petroleum in China.

China's methanol production capacity reached 5.36 million tons by the end of 2005. According to incomplete statistics, current methanol production capacity under construction is nearly nine million tons, with over 10 million tons under planning.

As the market has not been fully developed, when all the projects go into production, a surplus capacity is inevitable, said NDRC.

According to the NDRC, as the technology is still in experimental phase, coal liquefaction projects should not be approved until a national development program for the industry is completed.

Coal-chemical projects must meet environmental requirements and those that fail to meet the safety requirements in transportation should not be allowed, said the NDRC.

In the five-year period from 2006 to 2010, China will encourage the development of coal-based chemical fertilizer. The industries of coal liquefaction and coal-made alternatives for petroleum should be developed steadily while the traditional coal-chemical industries that have seen overproduction such as calcium carbide and coke should be kept under control.

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