China will set up 40,000-hectare farms in the southwest, growing plants that can be used to extract diesel fuel, as part of the search for alternative energies.

The farm will eventually be able to provide 60,000 tons of diesel fuel per year, according to the State Forestry Administration, which on Thursday signed the agreement with China National Petroleum Corporation, the country's largest oil and natural gas producer, to jointly develop the farm.

Jia Zhibang, director of the administration, said the cooperation is a key step for China to explore biological resources, and will help reduce the country's heavy reliance on coal and other fossil fuels.

The farm, to be planted this year, is located in the southwestern provinces of Yunnan and Sichuan, Jia said, adding that the provinces of Hainan and Guizhou are two other ideal locations for growing bio-fuel plants.

Biological diesel oil is not only a solution to fuel shortages, it is both efficient and environment-friendly, experts have said.

China consumed energy equivalent to 2.23 billion tons of coal in 2005, while the country's domestic energy output was only 2.06 billion tons. The government has said it will encourage the development of renewable energies such as wind power, solar energy and biological fuels during its 11th Five-Year (2006-2010) Plan period.