Fabrizio Zichichi, head of ethanol at Noble Group, one of the world's largest commodities traders, said he had been told by government policymakers on a recent trip to China that Beijing could set a target by the end of this year for the share of ethanol in the nation¡¯s energy mix.

Such a move would 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, which experts say will soon peak on current consumption patterns.

"It makes sense for Beijing to look closely at ethanol. Not only will it 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.

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.

Mr Zichichi 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."

China¡¯s central government, however, has had limited success in driving the use of more environmentally-friendly fuels. For years, it has tried to popularise the use of natural gas but its efforts have been curtailed by the difficulty of securing supplies and developing a substantial local market.

But analysts say it is easier to implement an ethanol policy in China by making E10 mandatory at petrol stations and by encouraging local production.

¡°There is talk of the National Development and Reform Commission introducing E10 in three key cities ¨C Beijing, Shanghai and Tianjin,¡± said Christine Pu, a researcher at Deutsche Securities Asia.

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.