China's ambitious push to use biofuel in cars nationwide by 2020 is in doubt amid concerns about supplies of raw material such as corn, complicated by an escalating trade dispute with Washington, producers and analysts say.
In September last year, the government outlined radical plans to roll out the use of ethanol in gasoline nationally by 2020, in part to digest its huge corn stocks.
State-controlled producers, like China's State Development & Investment Corporation (SDIC), agribusiness COFCO and Jilin Fuel, rushed to draw up plans to invest billions of yuan to double output in the world's largest car market.
But since then, only one major project - SDIC's 300,000 tonnes per year plant in Liaoning province in China's northeast - has received the go-ahead to start construction.
Three big expansion plans by major producers are stalled because the companies haven't got approval from the government, three sources with direct knowledge of the situation say. They declined to be named as they are not authorised to speak to the media.
The government has not revised its timeline or commented publicly on a change in policy.
But executives at two producers, three policy experts and market analysts say the drawn out approval process and project delays suggest Beijing is quietly rethinking its initial plans.
The slowdown comes as a brewing trade dispute with the United States intensifies, raising the threat of further tariffs that could make imports of U.S. corn or ethanol to meet any shortfall in domestic supplies uneconomic.
"The plan was too ambitious and will have a huge impact on the whole industry chain. It was too big a step forward. There might be change to the policy," said Michael Mao, analyst with Zhuochuang, a consultancy based in Shandong province.
The Commerce Ministry, Ministry of Agriculture and Rural Affairs and the National Development & Reform Commission did not respond to requests for comment.
WHAT BUILDING BOOM?
Building enough capacity to meet the 2020 target was always going to be tough for the country's nascent ethanol industry.
In 2017, fuel ethanol capacity was 3.45 million tonnes, according to Zhuochuang, far short of the 15 million tonnes needed for a national roll-out of gasoline known as 'E10', containing 10 percent ethanol.
With just 18 months to go, there is little sign of the building boom the sector anticipated.
In the northeastern region of Heilongjiang, the local government said it would launch a bidding process to apply for approval to build new ethanol plants, but interested companies are still waiting to hear.
"I have been mainly doing some paperwork since I got here," said a manager in charge of the building of his company's new plants in the cornbelt province. "I meet with local government officials frequently, but there's no news about what's next."
An executive at another major producer said his company also wanted to expand output following the 2020 mandate, but could not get permits from the government.
COFCO has not started building new ethanol plants it had planned, waiting on further announcements on government policy, according to two people familiar with the matter.
TRADE DISPUTE DISRUPTION
The slowdown comes amid concerns that the world's most populous country may struggle to secure enough corn to produce biofuel without disrupting food supplies and prices of the grain.
Some 45 million tonnes of corn, almost a quarter of the country's current annual demand, would be needed to make enough ethanol for a national roll-out.
Domestic corn supplies have dwindled in recent years, leaving little cushion for the extra demand just as Beijing ratchets up pressure on Washington in their escalating trade dispute.
Beijing will hit corn imports from the United States, one of its top suppliers, with hefty extra tariffs from Friday.
China already imposes a 30 percent tariff on all ethanol imports, keeping arrivals to a trickle. In April, it slapped an extra 15 percent tariff on imports from the United States, the world's top producer, and is set to impose another 25 percent on Friday.
And after years of selling off its 200 million tonne corn stockpile, the state reserves, which were expected to help feed the new factories, will run out of corn by the end of next year, according to Reuters calculations.
The Chinese government expects the 2018/19 supply deficit from domestically grown corn to balloon to 20 million tonnes from 6.4 million in 2017/18 as the crop shrinks 2.5 percent and demand grows.
"Once we run out of stocks in the reserves, where can you get extra corn to make fuel ethanol?," said Meng Jinhui, analyst with Shengda Futures.
Reporting by Hallie Gu