Liu runs a company, Hunan Rivers Bioengineering Co Ltd, that set up a bio-diesel plant with an annual capacity of 20,000 tons, one of several such small plants in China. There is no reliable figure for the nation's bio-diesel output, but there are believed to be fewer than 10 plants, all small-scale.

Chinese officials have said that the country would increase bio-diesel output to 200,000 tons by 2010 and 2 million tons by 2020.

In 2006, China's four ethanol projects produced about 1.3 million tons of fuel, which was blended with gasoline in some provinces, including Shandong.

All four projects mainly produce corn-based ethanol. However, earlier this year, China banned the further use of grain for ethanol production, to ensure that grain was available for food.

China has set a target of an annual production capacity of 2 million tons of ethanol by 2010 and 10 million tons by 2020.

The energy-thirsty country has also sought to use its abundant coal reserves to produce synthetic fuel, with the goal of reducing reliance on imported petroleum. But support policies for such projects are still being debated, because there are concerns over the environmental impact of coal-based synfuels, Zeng said.

The production of coal-derived fuels, such as methanol and dimethyl ether (DME), is usually accompanied by abundant carbon dioxide emissions, contrary to the country's efforts to cut emissions.

"We are still doing research and will publish specific support policies for such projects as soon as possible," Zeng said.