China is considering a change in energy policy to encourage the wider use of ethanol in a bid to allievate the nation's worsening air pollution, the website of Financial Times reported on Monday.

The Chinese government policymakers may set a target by the end of this year for the share of ethanol in the nation's energy mix, Fabrizio Zichichi, head of ethanol at Noble Group, one of the world's largest commodities traders, was qouted as saying by the report.

Ethanol, a clean fuel made from agricultural products, not only could help the country wean itself off its dependence on oil and coal, but a large ethanol market in China could help spread wealth to the rural poor, as Brazil has shown, he said.

Zichichi also brushed off criticism that a programme to encourage farmers to sell their products to ethanol plants would cause food shortages.

"A higher profit margin could only encourage farmers to raise their yield," he said. "And the benefits in Brazil have shown that there is little to fear."

Beijing's move to look closely at ethanol could indicate crucial political support for investment in the production, import and distribution of the biofuel in China and could have an impact on world ethanol prices, according to Financial Times.

China is already the third-largest ethanol producer in the world behind the US and Brazil, using mainly corn, cassava and sweet potatoes. Currently, eight of its provinces have made E10, a 10 per cent ethanol and petroleum blend, mandatory at local petrol pumps.

China's central government has tried for years to popularise the use environment-friendly fuels, such as natural gas. However, its efforts have been curtailed by the difficulty of securing supplies and developing a substantial local market.

Analysts say it is easier to implement an ethanol policy in China by making E10 mandatory at petrol stations and by encouraging local production, Financial Times reported.

"There is talk of the National Development and Reform Commission introducing E10 in three key cities - Beijing, Shanghai and Tianjin," Christine Pu, a researcher at Deutsche Securities Asia was quoted as saying.

She added that there remained a number of barriers to the production of ethanol in China. Owing to pricing regulations, ethanol producers are dependent on government subsidies to avoid losses.