China will invest more than 1 trillion yuan (US$128 billion) in the development of the nation's coal chemical industry by 2020, according to the National Development and Reform Commission (NDRC).

The nation will focus on the production of liquefied coal, dimethyl ether (DME), coal-to-olefin (CTO) and coal methanol, according to a draft of the medium- and long-term plan for the development of China's coal chemical industry.

China plans to build seven coal chemical bases by 2020, according to the draft.

The seven bases are the middle and lower reaches of the Yellow River, the eastern Inner Mongolia Autonomous Region, eastern Heilongjiang Province, Jiangsu, Shandong, Henan and Anhui provinces, central China, Yunnan, Guizhou and the Xinjiang Uygur Autonomous Region.

According to the draft China plans to produce 30 million tons of liquefied coal and 20 million tons of DME by 2020.

The nation also aims to produce 8 million tons of CTO and 66 million tons of coal methanol by that year.

In addition, production of traditional coal chemical industries such as calcium carbide and coke that have witnessed overcapacity will be kept under control.

"The big investment in the coal chemical industry will help to satisfy the country's ever-increasing energy demand," said Han Wenke, director of Energy Research Institute of the NDRC.

In July the government has issued regulations on the coal chemical industry, urging local governments to tighten control over new projects.

The government will not approve coal liquefaction projects with an annual production capacity under 3 million tons, coal methanol, or DME projects under 1 million tons and CTO projects under 600,000 tons, said the regulation.

China's top coal companies have quickened their pace in coal chemical sector. The nation's biggest coal producer, Shenhua Group, plans to convert coal into 30 million tons of oil by 2020, according to Zhang Yuzhuo, the head of Shenhua's coal liquefaction business.

The company will build eight coal chemical plants in Shaanxi Province and the Inner Mongolia, Xinjiang Uygur and Ningxia Hui autonomous regions by then.

The first three of the eight projects are expected to be completed by 2010, with a combined annual capacity of 4 million tons, said Zhang.

The company has co-operated with oil giant Royal Dutch Shell to build a coal liquefaction plant. The plant, in the Ningxia Hui Autonomous Region, involves a total investment of US$5-US$6 million.

Another of Shenhua's coal liquefaction projects, in co-operation with South African company Sasol, involves almost the same amount of investment.

Another coal giant, China National Coal Group Corp, plans to invest over 10 billion yuan (US$1.28 billion) in a coal chemical project in Northeast China's Heilongjiang Province . It is also building another project in the Inner Mongolia Autonomous Region.