In July the government has issued regulations on the coal chemical industry, urging local governments to tighten control over new projects.

The government will not approve coal liquefaction projects with an annual production capacity under 3 million tons, coal methanol, or DME projects under 1 million tons and CTO projects under 600,000 tons, said the regulation.

China's top coal companies have quickened their pace in coal chemical sector. The nation's biggest coal producer, Shenhua Group, plans to convert coal into 30 million tons of oil by 2020, according to Zhang Yuzhuo, the head of Shenhua's coal liquefaction business.

The company will build eight coal chemical plants in Shaanxi Province and the Inner Mongolia, Xinjiang Uygur and Ningxia Hui autonomous regions by then.

The first three of the eight projects are expected to be completed by 2010, with a combined annual capacity of 4 million tons, said Zhang.

The company has co-operated with oil giant Royal Dutch Shell to build a coal liquefaction plant. The plant, in the Ningxia Hui Autonomous Region, involves a total investment of US$5-US$6 million.

Another of Shenhua's coal liquefaction projects, in co-operation with South African company Sasol, involves almost the same amount of investment.

Another coal giant, China National Coal Group Corp, plans to invest over 10 billion yuan (US$1.28 billion) in a coal chemical project in Northeast China's Heilongjiang Province . It is also building another project in the Inner Mongolia Autonomous Region.

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