BEIJING - China said Friday it was considering taxing polluting businesses in a bid to improve the environment in the nation, one of the world's largest emitters of greenhouse gases.

"Collecting environmental taxes from (polluting) companies is one of the directions of China's tax system reform," Zhang Lijun, deputy head of the Environmental Protection Ministry, told reporters.

"Several departments are currently working together to develop research on this issue, and when the conditions are right we will launch an environmental taxation system for polluting companies."

China is one of the world's largest emitters of greenhouse gases along with the United States.

It is the biggest producer and consumer of high-polluting coal globally and its appetite for the cheap fuel is growing as its economy expands.

In 2006, the World Bank said that 16 out of 20 of the world's worst polluted cities were in China.

And a recent report by the state Xinhua news agency, citing a survey conducted in November last year in 320 cities, said the average air quality in two out of five Chinese cities ranged from "polluted" to "hazardous".

Zhang said that 210 billion yuan (S$44.24 billion) had been set aside for environmental protection in the four-trillion-yuan stimulus package allocated by the government to fight the global financial crisis.

He added that in the first quarter of 2009, China's emissions of sulfur dioxide, a liquid or gas produced in many industrial processes including the combustion of coal, dropped nearly five percent year-on-year.

But Zhang admitted the environmental situation in China was still grim.

"Surface water pollution is still serious, the quality of coastal waters suffers from light pollution, some cities' air pollution is still strong, and rural environmental problems are increasing," he said.