In response to rising domestic food and meat prices, as well as growing inflationary pressures last year, China implemented policies aimed at curbing the production of grain-based ethanol. This move has introduced significant uncertainty for companies that have already invested in this sector. During the "Two Sessions," Ning Gaoning, a member of the National Committee of the Chinese People's Political Consultative Conference and chairman of the China National Grains Corporation, voiced his concerns about the policy. He pointed out that the increase in food prices is not unique to China but is a global trend. The core issue lies in the imbalance between rising consumption and limited supply. According to Ning, China should take a broader, more global perspective when addressing such challenges.
As reported by the "First Financial Daily," Ning criticized the common belief that corn ethanol production is driving up grain prices. He argued that the impact of corn ethanol on the market is minimal. In 2001, the State Council conducted trials in four provinces—Heilongjiang, Jilin, Anhui, and Henan—producing a total of 1 million tons of ethanol, which accounted for just 1.4% of overall grain output. Since then, the industry has not expanded significantly. Instead, the real driver behind current price increases is the U.S., which uses around 30% of its corn for ethanol production. This global dynamic has a far greater influence than domestic ethanol activities.
Premier Wen Jiabao emphasized in his government work report on March 5 that the country must strictly regulate the use of grain for industrial purposes and prevent the unchecked expansion of corn processing capacity. Projects that violate regulations must be halted immediately. His comments signal a clear stance: with inflation control being a top priority, the government is unlikely to ease restrictions on corn ethanol production anytime soon.
Chen Xiwen, director of the Central Rural Work Leading Group Office, also weighed in, suggesting that the way to manage non-agricultural use of corn is not through subsidies for new projects. He noted that without subsidies, such projects would not be profitable. This statement highlights a key policy direction: future measures to limit or reduce grain ethanol production may involve removing financial support. As a result, the industry faces an uncertain future under the current regulatory framework.
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