BEIJING - China has agreed to lower the tariff on imports of ethanol to 5 percent from the previous 30 percent, which traders said could open the door for imports of fuel ethanol from countries like Brazil.

The Finance Ministry announced this week that import tax for alcohol and other spirits denatured of any strength would be 5 percent from January 1, 2010, and traders said the tax applied to imports of ethanol for fuel use as well.

The low tariff appears to make imports (of fuel ethanol) viable. But we are studying if there are other restrictions, said one trader with an international house.

He said the industry was talking about an additional 5 percent of consumption tax on top of the tariff. Finance ministry officials could not be reached for comment.

Brazil, the world's largest ethanol exporter, has been pushing China to import Brazilian-made fuel ethanol as a complement to China's own production.

China does not allow grain-based ethanol production on food security concerns, and expansion of the biofuel using feedstocks other than grains is restricted due to limited farmland and water resources.

The government aims to blend 2 million tonnes of ethanol in gasoline by 2010 and 10 million tonnes by 2020 to reduce greenhouse gas emissions.

But industry officials doubt the target can be fulfilled as current facilities can only produce about 1.35 million tonnes.

Chinese companies are working to use cellulosic materials, but commercial production will still take years.

(Reporting by Niu Shuping and Tom Miles; Editing by Jonathan Hopfner)

China Energy