CHINA'S industrial experts are advising the government to halt projects making ethanol bio-fuel with corn, as the projects are pushing up corn prices and sparking food security concerns.

Zhao Youshan, director of the Commercial Petroleum Flow Committee under the China General Chamber of Commerce, a national industrial organization, yesterday said he has informed the State Council, China's Cabinet, of his views.

Zhao said livestock breeders in China are facing feed shortages as ethanol fuel makers - prompted by government subsidies of about 1,900 yuan (US$279) per ton of ethanol they can produce - have rushed to buy corn.

Makers of ethanol fuel also enjoy tax exemptions according to a policy approved by the government in 2004 designed to boost the bio-fuel industry's development, Zhao said.

The subsidies and preferential policies give companies the incentive to buy corn, leading to price hikes and shortages of supply, he said.

Higher corn prices at home also lead to more imports of the raw material.

Zhang Jianbo, a CGCC analyst, said China became a net importer of corn for the first time in the first half of this year. He said corn imports outweighed exports by 78 million tons.

"Average corn price in July in northeast China rose 15.7 percent year on year to 1,845 yuan per ton," Zhang said, adding that livestock breeders cannot afford the high prices.

"These projects pose a great risk for grain supply in China," he added.

Zhao said China's annual 10 million tons of ethanol fuel production could potentially consume 30 million tons of corn per year.

In an interview with the Shanghai Securities News in July, Zhao said production costs for 1 ton of ethanol range between 8,000 yuan and 9,000 yuan, adding that the same amount of money could buy 2 tons of refined oil. He suggested using other materials, such as cassava and wheat straw, to produce ethanol.

Zhao said in a telephone interview yesterday that the proposal was presented to the State Council in June and is at present being reviewed by the National Development and Reform Commission, China's top economic planner.