In 2001, a high-tech research project, the 863 Program, picked up the pace on coal-to-liquid fuel projects.

Shenhua Group took the lead in the process. In August 2004, it embarked on an ambitious direct coal liquefaction project, the first of its kind in the world, in Ordos of North China's Inner Mongolia Autonomous Region.

The project is designed to have an annual capacity of five million tons. Estimated to cost 24.5 billion yuan (3 billion U.S. dollars), the project will be undertaken in two phases. The first phase, designed to produce 3.2 million tons of oil products, is scheduled for production by 2007. The second phase is scheduled for production by 2010, with a designed annual production capacity of 2.8 million tons.

Other major coal producers followed suit. In February 2006, a coal liquefaction project with a designed initial annual capacity of 160,000 tons was kicked off by the Lu'an Group in Tunliu, Shanxi Province.

Two months later, Yankuang Group initiated a huge two-phase coal liquefaction project in Yulin of Northwest China's Shaanxi Province that will involve a total investment of 100 billion yuan. The project is expected to yield 10 million tons of oil products a year by 2020.

However, in addition to the three projects that have won approval from the NDRC, many other provinces and regions have blindly planned and built coal liquefaction projects in recent years. The businesses look forward to significant economic returns counting the high oil price and the current low cost of coal, despite of the bearing capacity of local resources and ecosystem. The result -- a rush plunge into the coal-to-oil project in the country.

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