The Dynamics of China's Bio-Fuel Industry and Its Policy Options

Yiyang Zhao

The Dynamics of China's Bio-Fuel Industry and Its Policy Options
Zhao, Yiyang
Thesis Advisor(s):
Wei, Shang-Jin
M.A., Columbia University
East Asian Regional Studies
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The economic development of China following the changes in 1978-79 has transformed the country from a poor nation to being the second largest economy in the world. The change came about as China focused on manufacturing industry as a driver of economic growth. This has led to an increasing demand for energy and thus to a greater reliance on fossil fuels. Concerns for greenhouse gas (GHG) emissions and global warming have also created a huge pressure from the world for China to reduce emissions that accompany extensive use of fossil fuels. The sustainability of the growth and the economic stability of the country faces a severe threat as available reserves of crude oil and coal in China and in the world are limited, making it highly unlikely that the country can continue to depend on these resources for its future energy needs. Because China imports more than half of its oil requirement, it needs to find viable alternatives to decrease its trust on continuing import. Biofuels appear as one such alternative and China has invested in setting up manufacturing facilities for producing bio-ethanol from cereals and cassava. However, the existing production has helped substitute only about 8% of oil requirement and 0.45% of its overall energy needs. On the other hand, diversion of grain, sugarcane, soybeans etc for biofuel production creates shortage in the supply of food leading into high prices and need to import food, sugar, and oil that will affect its trade balance negatively. This report investigates the different aspects of the crises of energy and food security that China faces, which will only become more severe in the very near future. The aim of the analysis is to make some recommendations that can help reduce the negative effects of these issues. Analysis shows that China needs to diversify its risks and take major initiatives to increase production of biofuels for this will simultaneously reduce its dependence on oil and reduce GHG emissions. In order to do so, China needs to shift focus from a manufacturing intensive economy toward horizontal and vertical growth of the agriculture sector. While this happens, it will have to use its vast positive balance of payments to import food.
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Suggested Citation:
Yiyang Zhao, , The Dynamics of China's Bio-Fuel Industry and Its Policy Options, Columbia University Academic Commons, .

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