Sinopec Engineering Group said it has entered into a deal to build a $3.1 billion plant in northern China to turn coal into petrochemicals, as China seeks to reduce its reliance on petrochemical imports.

Sinopec Engineering will be responsible for engineering, procurement and construction of the 18.67 billion-yuan project in Inner Mongolia, which it said would be the largest of its kind in the world.

The plant will produce 3.6 million tonnes a year of olefins – mostly ethyelene which is a building block for petrochemicals that are widely used in construction, textiles and automobiles.

China, the world's biggest net importer of oil, is a leading buyer of petrochemicals, and imports about 45 per cent of its ethylene. Sinopec Engineering, a newly listed unit of state-run Sinopec Group, said it would deploy a self-developed technology to make olefins from methanol, which can be extracted from coal.

The coal-based process is cost competitive versus China's conventional way of making petrochemicals from more costly naphtha, a refinery product processed from crude oil. "Sinopec has long realised that it needs to diversify feedstocks for making ethylene," said Yan Kefeng, an analyst with consultancy IHS Cera.

The plant, at Uxin county of Inner Mongolia's Ordos city, is owned by Zhong Tian He Chuang Co. Ltd, a joint venture which has Sinopec Corp and China Coal Energy Company among its main investors.