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Ministry of Land and Resources, State Environmental Protection Administration, People’s Bank of China, development and reform commissions and economic and trade commissions of all provinces, autonomous regions, municipalities directly under the Central Government, and cities with separate planning status: China is short of oil and natural gas resources, while it has relatively abundant coal resources. Developing the coal chemical industry helps advance the implementation of oil substitution strategies and meet the needs of economic and social development. To ensure coordinated planning, rational layout, scientific guidance, and standardized development of the coal chemical industry, the relevant matters are hereby notified as follows: 1. Several key issues that need to be addressed in the current development of the coal chemical industry. The coal chemical industry includes products such as coal coking, coal gasification, coal liquefaction, and calcium carbide. Through decades of effort, China’s coal chemical industry has achieved significant progress. In 2005, China produced 232.82 million tons of coke, 8.95 million tons of calcium carbide, approximately 25 million tons of coal-based fertilizers (in pure form), and about 3.5 million tons of coal-based methanol – all of which placed China among the leaders in the world. The development of the coal chemical industry has played an important role in alleviating the supply and demand imbalance of high-quality energy sources such as oil and natural gas in our country, as well as in promoting the growth of the steel, chemical, light industry, and agricultural sectors. Therefore, it is necessary to accelerate the development of the coal chemical industry. The development of the coal chemical industry places high demands on coal resources, water resources, the ecosystem, the environment, technology, capital, and various social supporting conditions. Recently, as the coal chemical industry has been developing rapidly, it has also encountered concerning problems. In some areas, despite the carrying capacity of resources, ecology, and the environment, there are signs of blind planning and competition to build coal chemical projects, which could have a potential negative impact on the sustainable, healthy, and steady development of the economy and society. (1) There is a severe overcapacity in the production of traditional coal chemical products such as calcium carbide and coke. Since 2004, through enhanced macro-control measures, the unchecked expansion of energy-intensive industries such as calcium carbide and coke has been initially curbed, but the trend of capacity growth has not been fully halted. By the end of 2005, China’s calcium carbide production capacity was twice its annual output. The coking production capacity exceeds domestic market demand by more than 70 million tons. From January to May this year, the production of calcium carbide and coke still increased by 33.9% and 24.2% respectively on a year-on-year basis. Coke prices have fallen significantly. Based on the status of ongoing and planned projects in various regions sowie forecasts for future market demand, the production capacity of calcium carbide and coke in 2010 will still be **higher than market demand. At the same time, many of the existing calcium carbide and coke production capacities are those that do not meet environmental standards – small-scale calcium carbide and coke plants without by-product recovery systems, causing severe pollution. (II) Driven by the continuous rise and high levels of oil prices, a trend of uncontrolled development of oil substitutes such as coal-based methanol and dimethyl ether is gradually emerging. In 2005, China’s methanol production was 5.36 million tons. According to incomplete statistics, the current capacity under construction for methanol is approaching 9 million tons, with additional capacities of over 10 million tons planned or in the planning stage. If all these projects are put into effect, any delay in the development of methanol downstream processing technologies and application markets will inevitably lead to a massive overcapacity. Coal-based oil products and olefins are still in the stage of industrial testing and demonstration, and there are risks associated with technical and engineering scale-up. In some areas, projects for producing oil products and olefins from coal have been planned and constructed regardless of objective conditions. At present, most of the coal-to-oil and coal-to-olefins plants with a capacity of over 100,000 tons that are under construction do not reach an economically viable scale, and their technologies are not yet mature enough. Once built, they will be similar to small refineries and small ethylene plants and fall under the category of facilities that should be phased out. Moreover, such installations require huge investments, often in the order of several billion, posing significant investment risks. (III) Unilaterally pursuing industrial development speed at the expense of resources. In some areas, in an effort to accelerate local economic development, resources are used as a means to attract investment on a large scale, resulting in unreasonable allocation and utilization of those resources. Some enterprises, under the pretext of building coal chemical projects, actually engage in seizing and exploiting resources, plundering coal resources on a large scale. In some areas, where the coal chemical industry is just beginning to develop, the existing coal resources have already been exhausted. The aforementioned problems have had an adverse impact on the coal chemical industry, as well as on the sustainable, stable, and healthy development of the economy and society. Specifically: (1) The continuously increasing excess capacity in calcium carbide and coke not only results in a large amount of idle social capital and volatile development of the industry, but also leads to fierce competition among enterprises, causing sharp drops in product prices and a significant increase in operational risks. At the beginning of this year, China’s coke export prices were only half of those in 2004, resulting in significant economic losses. (II) Water resources are an important constraint on the development of the coal chemical industry, and they are also one of the constraints on China’s economic and social development. Our country’s water resources are far below the world average. The per capita water resources and water resources per unit area of land in the main coal-producing areas are only 1/10 of the national average. Large coal chemical projects typically consume tens of millions of cubic meters of water per year, with water usage per ton of product exceeding 10 tons – an amount equivalent to the water resources available to a population of hundreds of thousands in some areas, or to the water resources found in an area of over 100 square kilometers. In some areas, large-scale and premature planning for coal chemical projects may lead to overcapacity on one hand, and disrupt the already fragile water balance in those regions on the other, directly affecting the stable economic and social development as well as environmental protection in those areas. At the same time, coal-to-oil and olefin projects that were rushed into implementation without achieving large-scale industrialization not only carry high investment risks but also pose threats to the healthy development of the industry. (III) China has relatively abundant coal resources, but there is a relative shortage of high-quality, clean, and coking coal resources. The coal industry plays a vital role in supporting economic and social development. The short-term, high-intensity, large-scale utilization of coal resources to develop the coal chemical industry not only affects the steady development of industries such as electricity generation but also accelerates the consumption of coal resources, which is detrimental to the sustainable development of the coal industry. In light of the above circumstances, all regions and departments, particularly the major coal-producing provinces, must attach great importance to the development of the coal chemical industry, fully recognize the dangers of blind expansion, understand the current situation, and accurately determine the direction for industry development. Guided by the scientific development concept, the overall development of industries should be coordinated by taking into account various factors, conducting thorough scientific evaluations, seeking input from all relevant parties, and properly balancing the relationship between the speed and scale of industrial development and the carrying capacity of resources as well as the ecological environment. Decisions regarding the construction of coal chemical projects should be made carefully, with the aim of achieving harmonious economic and social development. Land and resources departments, environmental protection agencies, and banks must also enforce strict entry requirements to prevent loan risks. II. Development directions of the coal chemical industry during the 11th Five-Year Plan period The coal chemical industry is a technology- and capital-intensive sector with a wide range of applications; its project construction is complex, making it difficult to implement. The coal chemical industry is also an emerging industry, and there are still many uncertainties and risks in its development. “During the 11th Five-Year Plan period, the coal chemical industry should aim to implement the scientific outlook on development and build a harmonious society ； Starting from the need to ensure **oil supply security and meet domestic market demands, planning should be carried out in a scientific manner with a rational layout ； Take into account both the economic development of resource-producing areas and environmental capacity. In areas with the appropriate conditions, accelerate the development of the coal chemical industry, with a focus on petroleum substitute products ； Following the concept of integrated development along the upstream and downstream chains, large-scale coal chemical industry bases will be established ； Establish the concept of a circular economy, optimize the allocation of production factors, and strive to achieve coordinated development of the economy and society, as well as of the ecological environment and resources. Adhering to the principles of controlling the total production capacity, phasing out outdated manufacturing processes, making rational use of resources, reducing environmental pollution, and promoting consolidation and restructuring, efforts should be accelerated to adjust the structure of the coke and calcium carbide industries. Actively adopt advanced gasification technologies to transform the fertilizer industry, which relies primarily on batch gasification, in order to reduce environmental pollution and promote industrial development and technological upgrading. Guided by the civil fuel and oil products market, support regions that meet the requirements in adopting advanced gasification technologies and two-step dimethyl ether synthesis techniques to establish large-scale methanol and dimethyl ether production bases, and carry out thorough testing and demonstration of new types of civil fuels and vehicle fuels. Advance the construction of industrialization trials and demonstration projects steadily, accelerate the industrialization of coal-based oil products and olefins, and initiate the construction of large-scale coal-based oil product and olefin projects at an appropriate time. III. Further strengthen the management of industrial development Developing the coal chemical industry is of great significance for implementing the oil substitution strategy. All regions and departments should, from a holistic and long-term perspective, strengthen the management of industrial development, strive to create a harmonious environment for development, and focus on carrying out the following tasks: (1) Industrial planning. The coal chemical industry involves many sectors of the national economy. **A development plan for the coal chemical industry will be formulated. Each region should, in light of local conditions and in accordance with the requirements of the scientific development concept, earnestly carry out the formulation of regional development plans for the coal chemical industry, thereby strengthening guidance for its development. Suspension of the approval or registration of coal chemical projects until the planning is completed and approved by the **development and reform department. Regarding coal liquefaction projects, **before the development plan for coal liquefaction is finalized, investment authorities at all levels should suspend the approval of such projects. (II) Industrial layout. China’s coal resources are relatively concentrated, while its consumption markets are spread out over a wide area. To promote balance between coal production and consumption areas, encourage the development of the coal chemical industry in regions with ongoing coal resources, appropriately plan the construction of coal chemical projects in coal-supplying areas, and restrict the development of such industries in areas that receive coal imports (with the exception of projects that use locally available high-sulfur coal or low-quality coal as raw materials, as well as projects involving secondary processing). (III) Key areas of development. Based on the development of the national economy and market supply and demand conditions, in order to meet the needs of agricultural production, alleviate the imbalance in oil supply and demand, and reverse the situation of oversupply of energy-intensive products, the development of products such as coal-based fertilizers is encouraged ； Steadily develop petroleum alternatives such as coal-based oil products, methanol, dimethyl ether, and olefins; coal liquefaction is still in the demonstration phase and should be promoted only after success is achieved ； Regulate the development of high-energy-consuming products such as calcium carbide and coke. In accordance with the requirements of Document No. 11 issued by the State Council, provinces, autonomous regions, and municipalities directly under the Central Government that have not completed the rectification and consolidation of the coke and calcium carbide industries shall suspend the approval or registration of new coke and calcium carbide projects. (IV) Coal use. The coal chemical industry is an industry for the deep processing of coal. The development of the coal chemical industry must take into account both the sustainable development of the coal industry and the demand for coal from related industries. **Implement policies for the classified use and optimized allocation of coal resources. Coking coal (including gas coal, fat coal, coking coal, and lean coal) is primarily used in the coal coking industry, while lignite and bituminous coal with a lower degree of coalification are mainly used in the coal liquefaction industry. High-quality and clean coal resources are used preferentially as fuel for power generation as well as in domestic and industrial furnaces, whereas low-quality coals such as high-sulfur coal are mainly utilized in the coal gasification industry. Smokeless lump coal is primarily used in the fertilizer industry. (5) Water resource balance. Except for regions such as Yunnan and Guizhou, coal resources and water resources in China are distributed in an inverse pattern. Most coal chemical products require a large amount of water. The development of the coal chemical industry should be carried out in a measured manner; it is strictly prohibited to use water intended for domestic use and agriculture to develop this industry. Strictly control the construction of gasification and coal liquefaction projects in water-scarce areas. Restrict the use of water-intensive processes and equipment, encourage the adoption of water-saving processes, and strongly promote coal chemical technologies such as the reuse of wastewater, recycled water, and mine water. (VI) Transport safety. China’s coal resources are mainly concentrated in the central and western regions, while coal chemical products are primarily consumed in the eastern coastal areas, resulting in a separation between production and consumption areas. Most liquid or gaseous coal chemical products are toxic or flammable and explosive. Coal chemical projects must have high-level safeguards for the safe transportation of their products. Coal chemical projects that do not meet the transportation requirements should not be approved or registered. (7) Environmental protection. China’s coal resources are mainly distributed in areas with relatively fragile ecological environments. The coal chemical industry has a significant impact on the ecological environment, as its production process generates considerable amounts of waste residues, wastewater, and exhaust gases. In line with the requirements of developing a circular economy and building a harmonious society, coal chemical projects must meet the standards for waste reduction, resource utilization, and harmlessness. Coal chemical projects that are unable to achieve comprehensive utilization and harmless treatment of waste should not be approved or registered. (8) Technology policy. All regions should intensify structural adjustments to promote the optimization and upgrading of industries. Strictly enforce industrial policies such as the entry requirements for the coke and calcium carbide industries. The approval or registration of coke projects and calcium carbide projects that do not meet the industry entry requirements, as well as coal gasification projects that use fixed-bed batch gasification and direct-current cooling technologies, is prohibited. All consumption indicators for coal chemical projects must meet the **(industry) standards or mandatory regulatory requirements. Enterprises are encouraged to adopt advanced technologies with independent intellectual property rights. In general, coal-to-oil projects with an annual production capacity of less than 3 million tons, methanol and dimethyl ether projects with a capacity of less than 1 million tons, and coal-to-olefins projects with a capacity of less than 600,000 tons should not be approved. (IX) Project management. Strengthen project construction management and conduct strict reviews of coal chemical projects. In line with the spirit of the \"Decision on Reforming the Investment System of the State Council,\" projects related to coal-to-oil conversion, coal-to-olefins production, and coal chemical projects funded by foreign investors are subject to a strict approval system in accordance with relevant regulations ； It is strictly prohibited to break tasks into smaller parts, to approve them in violation of regulations, or to delegate approval authority at various levels. For coal chemical projects that are subject to registration, various regions must enforce strict project review procedures in accordance with the implementation measures established by the provincial people’s governments. (10) Risk prevention. The coal chemical industry is characterized by scale, large-scale operation, integration, and establishment of specialized bases ； High technical content and large investment requirements ； High requirements are placed on the strength of the project owner and its social support infrastructure. China’s coal resources are mainly distributed in the central and western regions, where the level of economic and social development is relatively low, and the supporting conditions are somewhat inadequate. To develop the coal chemical industry, it is not only necessary to have a strong awareness of risk prevention, but also to possess effective capabilities for such prevention. Coal chemical projects with weaker owners should be approved and registered with caution. Development and reform departments at all levels should, in accordance with the spirit of the notice, earnestly carry out work related to the development of the coal chemical industry and the review of projects. At the same time, they should conduct a review of projects that are planned to be built or are already under construction, and take prompt action to make necessary corrections. Departments such as those responsible for land and resources, environmental protection, and financial lending can use this to carry out project reviews. National Development and Reform Commission of the People’s Republic of China July 7, 2006