Singapore, Feb 11, 2009: According to Frost & Sullivan's China Consultant for Chemicals, Material & Food Practice Mr Frank Xie, the global financial crisis has major impacts on the Chinese bio-fuel industry in the short term. Ecological, energy, and economic concerns is urging China to push the bio-fuel industry forward.

"Growth slowdown of downstream industries has resulted in the sharp decrease in bio-fuel demand. China's logistics industry experienced a great slump in 2008. Economic uncertainties also brought about stagnated growth in the Chinese passenger vehicle market in the fourth quarter of 2008. The sharp decline in crude oil price also lowers the price of bio-ethanol and bio-diesel products making the situation tougher in China," Mr Frank Xie said.

The Chinese bio-fuel industry is divided into two sub-segments, the bio-ethanol sector and the bio-diesel sector. In terms of market size, China has the third largest bio-fuel market around the globe, only after the US and Brazil. China was estimated to produce more than 360 kt of bio-diesel and 1,620 kt of bio-ethanol in 2008. During the past eight years, China has primarily established a legal and administrative system for bio-fuel, especially for the bio-ethanol industry.

Mr Xie says, "For 2009 and 2010, the shortage of feedstock remains the top challenge for the Chinese bio-fuel industry. However, most of these shortages can be resolved as more entrepreneurs join the market in the forecasted period. For bio-ethanol, with feedstock transitions from corn and wheat to non-food celluloses and potatoes, all major bio-ethanol manufacturers are forced to utilize alternative feedstock. For bio-diesel, the unstable supply of waste cooking oil may threaten the continuity of bio-diesel production. Only some leading bio-diesel producers have effectively managed the supply chain to ensure the stable supply of feedstock."

According to Mr Xie, government support is vital for the healthy development of the Chinese bio-fuel industry. Subsidies, tax exemptions, or allowances help increase the competitiveness of producers as well as ensure their continuous development.

"During 2007 and 2008, the Chinese bio-fuel market maintained a CAGR of 15.5 percent in terms of volume. Under the impact of the global financial crisis, growth has declined; but from a medium-to-long term perspective, the bio-fuel market is likely to maintain moderate growth," said Mr Xie.

In terms of industry specifics, Mr Xie expects that the exploitation of new feedstock will enhance the future of Chinese bio-fuel market. "New feedstock, including sweet potato and sugar cane for bio-ethanol and Jatropha for bio-diesel, feature low carbon dioxide emission, good weather endurance, and easiness of plantation. This new feedstock is believed to only be available in great quantities from 2010 to 2012 with leading industry producers, like Gushan Environmental Technologies, encouraging the research and development of Jatropha seeds. Similar pilot studies are also being carried out for sweet potatoes in China.”

According to Mr Xie, the Chinese bio-fuel industry is entering an adjustment period in 2009 with declining prices. “However, given China's increasing demand for energies, the bio-fuel market is expected to recover gradually from the current recession in late 2010 to early 2011. The growth rate of the Chinese bio-fuel market is expected to be around nine percent in 2009,"

During the forecasted period, China is to complete and improve its current bio-fuel laws and regulations system. According to Xie, in addition to the national standard on bio-ethanol, China issued the standard for B100 (without blend of mineral diesel) bio-diesel in May, 2007 and is currently working on the B5 and B10. The effectiveness of new bio-fuel standards is believed to improve the industry and social environment.