**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-QSB**






(Mark
      One)




x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
                1934




For
      the quarterly period ended June 30, 2007




o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
                ACT




For
      the transition period from    to


Commission
      file number: 333-126900




**CHINA
      CLEAN ENERGY INC.**




(Name
      of Small Business Issuer in Its Charter)


Delaware
            87-0700927(State
                or Other Jurisdiction of Incorporation
              or
                Organization)
            (I.R.S.
                Employer Identification No.)17
                Candlewood Drive
              West
                Windsor, New Jersey
            08550(Address
                of Principal Executive Offices)
            (Zip
                Code)




Issuer’s
      Telephone Number: (609) 799-8921




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.




Yes
                x
            Noo




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).




Yeso
            Nox




As
      of August 7, 2007, there were 21,512,269 shares of the issuer’s common
      equity outstanding.






Transitional
      Small Business Disclosure Format (Check one):




Yeso
            Nox




H-Q2
            2007
            Form 10-QSB(688167_5)




Table
      of Contents




**Page**Part
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                Statements (Unaudited)
            3Consolidated
                Balance Sheet - June 30, 2007 and December 31, 2006
            3Consolidated
                Statements of Operations and Comprehensive Income for the three-month
                periods ended June 30, 2007 and 2006
            4Consolidated
                Statements of Stockholders’ Equity for the three-month period ended
                June 30, 2007
            5Consolidated
                Statements of Cash Flows for the three-month periods ended June 30,
                2007 and 2006
            6Notes
                to Consolidated Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            13Item
                3.
            Controls
                and Procedures
            15Part
                II
            OTHER
                INFORMATION
            15Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            15Item
                6.
            Exhibits
            17




2




**PART
      I**


**FINANCIAL
      INFORMATION**




**Item
                1.**
            **Financial
                Statements.**




**CHINA
                    CLEAN ENERGY INC. AND SUBSIDIARIES****Consolidated
                    Balance Sheets****(Expressed
                    in US Dollars)**
 June
                    30,
                
                December
                    31,2007
                
                2006(Unaudited)
                
                (Audited)**ASSETS****Current
                    Assets**Cash
                    and cash equivalents
                
                $
                1,118,335
                
                $
                2,241,712Accounts
                    receivable, net of allowance for doubtful accounts of $299,943
                    and
                    $228,604, respectively
                
                
                2,627,684
                
                
                1,962,403Other
                    receivable - refundable value added taxes
                
                
                -
                
                
                24,904Inventories
                
                
                1,024,290
                
                
                941,933Prepaid
                    expenses
                
                
                332,851
                
                
                37,696**Total
                    Current Assets**
                
                
                5,103,160
                
                
                5,208,648**Property,
                    plant and equipment, net**
                
                
                4,634,295
                
                
                4,692,200**Intangible
                    assets, net**
                
                
                2,392,362
                
                
                2,430,504**Deposits
                    paid in connection with****contract
                    for purchase of land use rights**
                
                
                1,951,355
                
                
                95,033**Total
                    Assets**
                
                $
                14,081,172
                
                $
                12,426,385






**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable and accrued liabilities
              
              $
              493,958
              
              $
              386,719Current
                  portion of bank indebtedness
              
              
              1,174,409
              
              
              1,282,462Income
                  taxes payable
              
              
              -
              
              
              117,964Due
                  to related parties
              
              
              -
              
              
              6,419**Total
                  current liabilities**
              
              
              1,668,367
              
              
              1,793,564**Noncurrent
                  portion of bank indebtedness**
              
              
              328,971
              
              
              -**Total
                  Liabilities**
              
              
              1,997,338
              
              
              1,793,564**Commitments
                  and Contingencies**
              
              
              -
              
              
              -**Stockholders'
                  Equity**Common
                  stock par value $0.001 per share, authorized100,000,000
                  shares; issued and outstanding 21,512,269and
                  21,512,269 shares, respectively
              
              
              21,512
              
              
              21,512Additional
                  paid-in capital
              
              
              7,034,473
              
              
              7,034,473Retained
                  earnings
              
              
              4,355,563
              
              
              3,161,747Accumulated
                  other comprehensive income (loss)
              
              
              672,286
              
              
              415,089**Total
                  stockholders' equity**
              
              
              12,083,834
              
              
              10,632,821**Total
                  Liabilities and Stockholders' Equity**
              
              $
              14,081,172
              
              $
              12,426,385






3


**CHINA
                  CLEAN ENERGY INC. AND SUBSIDIARIES****Consolidated
                  Statements of Operations and Comprehensive
                  Income****(Expressed
                  in US Dollars)**
 Three
                  months ended June 30,
              
              
              
              Six
                  months ended June 30,2007
              
              
              
              2006
              
              
              
              2007
              
              
              
              2006(Unaudited)
              
              
              
              (Unaudited)
              
              
              
              (Unaudited)
              
              
              
              (Unaudited)**Revenue:**
              
              
              $
              
              
              
              $
              
              
              
              $
              
              
              
              $Net
                  sales of products
              
              
              
              
              
              5,255,040
              
              
              
              
              
              3,259,827
              
              
              
              
              
              9,393,406
              
              
              
              
              
              6,112,737Government
                  subsidy
              
              
              
              
              
              -
              
              
              
              
              
              1,202
              
              
              
              
              
              -
              
              
              
              
              
              7,167**Total
                  revenue**
              
              
              
              
              
              5,255,040
              
              
              
              
              
              3,261,029
              
              
              
              
              
              9,393,406
              
              
              
              
              
              6,119,904**Operating
                  Costs and Expenses**Cost
                  of goods sold
              
              
              
              
              
              3,824,722
              
              
              
              
              
              2,372,645
              
              
              
              
              
              6,814,671
              
              
              
              
              
              4,437,849Selling
                  and marketing
              
              
              
              
              
              224,048
              
              
              
              
              
              85,445
              
              
              
              
              
              437,291
              
              
              
              
              
              167,656General
                  and administrative
              
              
              
              
              
              315,813
              
              
              
              
              
              21,935
              
              
              
              
              
              765,377
              
              
              
              
              
              147,873Depreciation
                  of property, plant and equipment
              
              
              
              
              
              22,802
              
              
              
              
              
              8,192
              
              
              
              
              
              35,015
              
              
              
              
              
              16,422Amortization
                  of intangible assets
              
              
              
              
              
              49,139
              
              
              
              
              
              37,351
              
              
              
              
              
              98,387
              
              
              
              
              
              122,708Total
                  operating costs and expenses
              
              
              
              
              
              4,436,524
              
              
              
              
              
              2,525,568
              
              
              
              
              
              8,150,741
              
              
              
              
              
              4,892,508**Income
                  from Operations**
              
              
              
              
              
              818,516
              
              
              
              
              
              735,461
              
              
              
              
              
              1,242,665
              
              
              
              
              
              1,227,396**Other
                  Income (Expense)**Interest
                  income
              
              
              
              
              
              1,429
              
              
              
              
              
              2,125
              
              
              
              
              
              3,931
              
              
              
              
              
              4,318Interest
                  expense
              
              
              
              
              
              (26,835
              )
              
              
              
              
              (20,127
              )
              
              
              
              
              (52,780
              )
              
              
              
              
              (41,000
              )Total
                  Other Income (Expense)
              
              
              
              
              
              (25,406
              )
              
              
              
              
              (18,002
              )
              
              
              
              
              (48,849
              )
              
              
              
              
              (36,682
              )**Income
                  before Income Taxes**
              
              
              
              
              
              793,110
              
              
              
              
              
              717,459
              
              
              
              
              
              1,193,816
              
              
              
              
              
              1,190,714**Income
                  Taxes**
              
              
              
              
              
              -
              
              
              
              
              
              (221,306
              )
              
              
              
              
              -
              
              
              
              
              
              (417,946
              )**Net
                  Income**
              
              
              
              
              $
              793,110
              
              
              
              
              $
              496,153
              
              
              
              
              $
              1,193,816
              
              
              
              
              $
              772,768**Other
                  Comprehensive Income**Foreign
                  currency translation adjustment
              
              
              
              
              
              150,233
              
              
              
              
              
              30,193
              
              
              
              
              
              257,197
              
              
              
              
              
              191,693**Comprehensive
                  Income**
              
              
              
              
              $
              943,343
              
              
              
              
              $
              526,346
              
              
              
              
              $
              1,451,013
              
              
              
              
              $
              964,461**Earnings
                  per common share:**Basic
              
              
              
              
              $
              0.04
              
              
              
              
              $
              0.03
              
              
              
              
              $
              0.06
              
              
              
              
              $
              0.05Diluted
              
              
              
              
              $
              0.04
              
              
              
              
              $
              0.03
              
              
              
              
              $
              0.06
              
              
              
              
              $
              0.05**Weighted
                  average number of common shares:**Basic
              
              
              
              
              
              21,512,269
              
              
              
              
              
              15,995,000
              
              
              
              
              
              21,512,269
              
              
              
              
              
              15,995,000Diluted
              
              
              
              
              
              21,512,269
              
              
              
              
              
              15,995,000
              
              
              
              
              
              21,512,269
              
              
              
              
              
              15,995,000






4


**CHINA
                      CLEAN ENERGY INC. AND SUBSIDIARIES****Consolidated
                      Statements of Stockholders' Equity****(Expressed
                      in US Dollars)**
 Common
                    Stock
                
                AdditionalPaid-in
                
                Retained
                
                Accumulated
                        OtherComprehensiveShares
                
                Amount
                
                Capital
                
                Earnings
                
                Income
                
                TotalBalance
                    at December 31, 2006
                
                
                21,512,269
                
                $
                21,512
                
                $
                7,034,473
                
                $
                3,161,747
                
                $
                415,089
                
                $
                10,632,821Net
                    income for the three monthsended
                    March 31, 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                400,706
                
                
                -
                
                
                400,706Foreign
                    currency translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                .
                
                
                106,964
                
                
                106,964Balance
                    at March 31, 2007
                
                
                21,512,269
                
                $
                21,512
                
                $
                7,034,473
                
                $
                3,562,453
                
                $
                522,053
                
                $
                11,140,491Net
                    income for the three monthsended
                    June 30, 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                793,110
                
                
                -
                
                
                793,110Foreign
                    currency translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                .
                
                
                150,233
                
                
                106,964Balance
                    at June 30, 2007
                
                
                21,512,269
                
                $
                21,512
                
                $
                7,034,473
                
                $
                4,355,563
                
                $
                672,286
                
                $
                12,083,834
   5
  **CHINA
                    CLEAN ENERGY INC. AND SUBSIDIARIES****Consolidated
                    Statements of Cash Flows****(Expressed
                    in US Dollars)**
 Six
                    months ended June 30,2007
                
                
                
                2006(Unaudited)
                
                
                
                (Unaudited)**Cash
                    Flows from Operating Activities**Net
                    income
                
                $
                1,193,816
                
                
                
                
                $
                772,768Adjustments
                    to reconcile net income to net cashprovided
                    by (used in) operating activitiesDepreciation
                    of property, plant and equipment
                
                
                264,231
                
                
                
                
                
                168,164Amortization
                    of intangible assets
                
                
                98,387
                
                
                
                
                
                122,708Changes
                    in operating assets and liabilitiesAccounts
                    receivable, net
                
                
                (665,281
                )
                
                
                
                
                (248,036
                )Other
                    receivable
                
                
                24,904
                
                
                
                
                
                -Due
                    from related parties
                
                
                -
                
                
                
                
                
                (221,593
                )Inventories
                
                
                (82,357
                )
                
                
                
                
                213,758Prepaid
                    expenses
                
                
                (295,155
                )
                
                
                
                
                -Accounts
                    payable and accrued liabilities
                
                
                107,239
                
                
                
                
                
                144,265Income
                    taxes payable
                
                
                (117,964
                )
                
                
                
                
                (316,657
                )**Net
                    cash provided by (used in) operating activities**
                
                
                527,820
                
                
                
                
                
                635,377**Cash
                    Flows from Investing Activities**Property,
                    plant and equipment additions
                
                
                (89,805
                )
                
                
                
                
                (1,599,571
                )Intangible
                    asset additions
                
                
                -
                
                
                
                
                
                (541,100
                )Deposits
                    paid in connection with contract for purchase of land use
                    rights
                
                
                (1,856,322
                )
                
                
                
                
                -**Net
                    cash provided by (used in) investing activities**
                
                
                (1,946,127
                )
                
                
                
                
                (2,140,671
                )**Cash
                    Flows from Financing Activities**Increase
                    (decrease) in current portion of bank indebtedness
                
                
                (108,053
                )
                
                
                
                
                12,506Increase
                    (decrease) in noncurrent portion of bank
                    indebtedness
                
                
                328,971
                
                
                
                
                
                -Increase
                    (decrease) in due to related parties
                
                
                (6,419
                )
                
                
                
                
                -Capital
                    stock issued for cash
                
                
                -
                
                
                
                
                
                50,000Dividends
                    paid
                
                
                -
                
                
                
                
                
                (753,420
                )**Net
                    cash provided by (used in) financing activities**
                
                
                214,499
                
                
                
                
                
                (690,914
                )**Effect
                    of exchange rate changes on cash and cash
                    equivalents**
                
                
                80,431
                
                
                
                
                
                87,148**Increase
                    (decrease) in cash and cash equivalents**
                
                
                (1,123,377
                )
                
                
                
                
                (2,109,060
                )**Cash
                    and cash equivalents, beginning of period**
                
                
                2,241,712
                
                
                
                
                
                3,175,128**Cash
                    and cash equivalents, end of period**
                
                $
                1,118,335
                
                
                
                
                $
                1,066,068**Supplemental
                    disclosures of cash flow information:**Interest
                    paid
                
                $
                52,780
                
                
                
                
                $
                41,000Income
                    taxes paid
                
                $
                -
                
                
                
                
                $
                417,946
   6
  **NOTE
          1 - INTERIM FINANCIAL STATEMENTS**
  The
        unaudited financial statements as of June 30, 2007 and for the six months
        ended
        June 30, 2007 and 2006 have been prepared in accordance with accounting
        principles generally accepted in the United States for interim financial
        information and with instructions to Form 10-QSB. In the opinion of management,
        the unaudited financial statements have been prepared on the same basis as
        the
        annual financial statements and reflect all adjustments, which include only
        normal recurring adjustments, necessary to present fairly the financial position
        as of June 30, 2007 and the results of operations and cash flows for the
        periods
        ended June 30, 2007 and 2006. The financial data and other information disclosed
        in these notes to the interim financial statements related to these periods
        are
        unaudited. The results for the three month period ended June 30, 2007 is
        not
        necessarily indicative of the results to be expected for any subsequent quarter
        of the entire year ending December 31, 2007. The balance sheet at December
        31,
        2006 has been derived from the audited financial statements at that
        date.
 
 Certain
        information and footnote disclosures normally included in financial statements
        prepared in accordance with accounting principles generally accepted in the
        United States have been condensed or omitted pursuant to the Securities and
        Exchange Commission’s rules and regulations. These unaudited financial
        statements should be read in conjunction with our audited financial statements
        and notes thereto for the year ended December 31, 2006 as included in our
        report
        on Form 10-KSB.
  
 **NOTE
        2 - ORGANIZATION AND BUSINESS**
  China
        Clean Energy, Inc. (“CCE”) was incorporated in the State of Delaware on November
        12, 2004 under the name Hurley Exploration Inc. (“Hurley”). From inception to
        October 24, 2006, Hurley was an exploration stage company.
 
 On
        October 24, 2006, CCE acquired 100% of the issued and outstanding common
        shares
        of China Clean Energy Resources Limited (“CCER”) in exchange for 15,995,000
        newly issued shares of CCE common stock (the “Share Exchange”). In connection
        with the Share Exchange, CCE accepted subscriptions for a total of 1,300,000
        shares of common stock at a price of $1.00 per share and issued 1,605,000
        shares
        of common stock to certain consultants for financial consulting and advisory
        services (together with the Share Exchange, the “Transaction”).
  Prior
        to
        the Transaction, as adjusted for a 2.26187510124-for-1 reverse stock split
        and
        the cancellation of 8,842,222 post-split shares, CCE had 2,432,269 shares
        of
        common stock issued and outstanding. After the Transaction, CCE had 21,082,269
        shares of common stock outstanding and the former shareholders of CCER owned
        75.87% of the issued and outstanding shares. Accordingly, CCER is considered
        the
        acquirer for accounting purposes and the Share Exchange has been accounted
        for
        as a “reverse acquisition”.
  As
        a
        result of the Share Exchange, CCER became a wholly-owned subsidiary of CCE
        and
        CCE succeeded to the business of Fujian Zhongde Technology Co., Ltd. (“Fujian
        Zhongde”). Fujian Zhongde synthesizes and distributes renewable fuel products
        and specialty chemicals to customers in both the People’s Republic of China
        (“PRC”) and abroad.
  7
 CCER
        was
        formed on February 13, 2006 under the laws of the British Virgin Islands
        as a
        holding company to own Fujian Zhongde. Fujian Zhongde was incorporated in
        the
        province of Fujian, China, on July 10, 1995 under the name “Fuqing City Zhongde
        Chemical Industry, Ltd.”. On December 10, 2003, it changed its name to “Fujian
        Zhong De Technology Stock Co., Ltd”. On January 20, 2006, it changed its name to
“Fujian Zhongde Technology Co., Ltd.”
  The
        consolidated financial statements at June 30, 2007 include the accounts of
        CCE,
        CCER, and Fujian Zhongde (collectively the “Company”). All inter-company
        balances and transactions have been eliminated in consolidation.
 
 
 **NOTE
        3 - INVENTORIES**
 
 Inventories
        consist of:
  June
                    30,
                
                December
                    31,2007
                
                2006(Unaudited)
                
                (Audited)Raw
                    materials
                
                $
                574,723
                
                $
                430,392Work
                    in progress and packaging material
                
                
                108,592
                
                
                24,065Finished
                    goods
                
                
                340,975
                
                
                487,476Total
                    Inventories
                
                $
                1,024,290
                
                $
                941,933
  **NOTE
        4 - PROPERTY, PLANT AND EQUIPMENT**
  Property,
        plant and equipment, net consist of:
  June
                    30,
                
                December
                    31,2007
                
                2006(Unaudited)
                
                (Audited)Land
                    improvements
                
                $
                65,618
                
                $
                -Buildings
                
                
                2,202,407
                
                
                2,051,056Equipment
                    and machinery
                
                
                4,898,221
                
                
                4,419,551Automobiles
                
                
                37,465
                
                
                20,529Office
                    equipment
                
                
                17,893
                
                
                13,848Construction
                    in progress
                
                
                -
                
                
                449,346Total
                
                
                7,221,604
                
                
                6,954,330Less
                    accumulated depreciation
                
                
                (2,587,309
                )
                
                (2,262,130
                )Net
                
                $
                4,634,295
                
                $
                4,692,200
 
 8
  **NOTE
        5 - INTANGIBLE ASSETS**
 
 Intangible
        assets, net consist of:
  June
                    30,
                
                December
                    31,2007
                
                2006(Unaudited)
                
                (Audited)Land
                    use rights
                
                $
                1,998,406
                
                $
                1,949,015Patents
                    and licenses
                
                
                1,209,800
                
                
                1,179,900Total
                
                
                3,208,206
                
                
                3,128,915Less
                    accumulated amortization
                
                
                (815,844
                )
                
                (698,411
                )Net
                
                $
                2,392,362
                
                $
                2,430,504
  **NOTE
        6 - BANK INDEBTEDNESS**
 
 Bank
        indebtedness consists of:
  June
                    30,
                
                December
                    31,2007
                
                2006(Unaudited)
                
                (Audited)DBS
                    bank under revolving credit agreement,interest
                    at 115% of PRC prime rate,secured
                    by certain buildings and land use rights owned by Fujian
                    Zhongde
                
                $
                986,224
                
                $
                1,282,462DBS
                    bank, interest at 115% of PRC prime rate, due
                    in monthly installments of principaland
                      interest of $18,448 through January
                      2010, secured by certain buildingsand land use
                      rights
                
                
                517,156
                
                
                -Total
                
                
                1,503,380
                
                
                1,282,462Less
                    current portion
                
                
                (1,174,409
                )
                
                (1,282,462
                )Noncurrent
                    portion of bank indebtedness
                
                $
                328,971
                
                $
                -
  **NOTE
        7 - PENSION AND EMPLOYMENT LIABILITIES**
 
 At
        June
        30, 2007 and December 31, 2006, the Company had no liability for pension
        or past
        employment benefits. The Company does not have a pension or other retirement
        plan.
 
 9
  **NOTE
        8 - RESTRICTED NET ASSETS**
 
 Relevant
        PRC statutory laws and regulations permit payments of dividends by Fujian
        Zhongde only out of its retained earnings, if any, as determined in accordance
        with PRC accounting standards and regulations. In addition, PRC laws and
        regulations require that annual appropriations of after-tax income should
        be set
        aside prior to payments of dividends as a reserve fund. As a result of these
        PRC
        laws and regulations, Fujian Zhongde is restricted in its ability to transfer
        a
        portion of its net assets in the form of dividends, loans or advances, which
        restricted portion amounted to $294,580 and $291,692 at June 30, 2007 and
        December 31, 2006, respectively.
 
 **NOTE
        9 - INCOME TAXES**
  Income
        taxes consist of:
 Six
                    months ended June 30,2007
                
                2006(Unaudited)
                
                (Unaudited)Current:PRC
                
                $
                -
                
                $
                417,946United
                    States
                
                
                -
                
                
                -Total
                    current
                
                
                -
                
                
                417,946Deferred
                
                
                -
                
                
                -Total
                
                $
                -
                
                $
                417,946
 
 Fujian
        Zhongde has been subject to a PRC 33% standard enterprise income tax. In
        2006,
        Fujian Zhongde became a wholly-owned foreign enterprise (“WOFE”). PRC income tax
        laws provide that certain WOFEs may be exempt from income taxes for two years,
        commencing with their first profitable year of operations, after taking into
        account any losses brought forward from prior years, and thereafter 50% exempt
        for the next three years. In December 2006, Fujian Zhongde applied for PRC
        approval of these income tax exemptions. In March 2007, the PRC tax authorities
        approved a full income tax exemption for the year 2007 and a 12% income tax
        rate
        for years 2008, 2009 and 2010. Included in prepaid expenses at June 30, 2007
        is
        $141,460 in payments to the PRC tax authorities which can be used to satisfy
        PRC
        income tax liabilities for year 2008 and thereafter.
 
 As
        at
        June 30, 2007, CCE had an unrecognized deferred United States income tax
        liability relating to undistributed earnings of Fujian Zhongde. These earnings
        are considered to be permanently invested in operations outside the United
        States. Generally, such earnings become subject to United States income tax
        upon
        the remittance of dividends and under certain other circumstances. Determination
        of the amount of the unrecognized deferred United States income tax liability
        with respect to such earnings is not practicable because the amount of PRC
        foreign tax credits available to offset United States income taxes will depend
        on the timing of future remittances, if any, and such timing is not known
        or
        predictable.
  10
 The
        provision for income taxes differs from the amount computed by applying the
        statutory United States federal income tax rate to income before income taxes.
        A
        reconciliation follows:
 Six
                    months endedJune
                    30,2007
                
                2006(Unaudited)
                
                (Unaudited)Expected
                    tax at 35%
                $
                417,836
                
                $
                416,750Tax
                    effect of unutilizedlosses
                    of CCE and CCER
                
                146,477
                
                
                12Tax
                    effect of Fujian Zhongdeincome
                    taxed at lower rate
                
                (564,313
                )
                
                (23,814
                )Permanent
                    differences
                
                -
                
                
                24,998Actual
                    provision for income taxes
                $
                -
                
                $
                417,946
  **NOTE
        10 - RELATED PARTY TRANSACTIONS**
  Fujian
        Zhongde purchases raw materials from companies affiliated with the Company’s
        majority stockholder. In the six months ended June 30, 2007 and 2006, such
        purchases totaled $1,618,679 and $1,999,970, respectively. The Company believes
        that these purchases were transacted at terms no less favorable than those
        that
        could have been conducted with unaffiliated third parties. Included in prepaid
        expenses at June 30, 2007 is $160,252 in advances to one such company for
        the
        purchase of waste oil which will be delivered to the Company subsequent to
        June
        30, 2007.
  **NOTE
        11 - SEGMENT INFORMATION**
  The
        Company operates in one industry segment - the synthesization and distribution
        of renewable fuel products and specialty chemicals to customers in both the
        PRC
        and abroad. Substantially all of the Company’s identifiable assets at June 30,
        2007 were located in the PRC.
 
 Net
        sales
        consist of:
  Six
                    months ended June 30,2007
                
                2006Specialty
                    chemicals products
                $
                6,994,601
                
                $
                4,447,898Biodiesel
                    products
                
                2,398,805
                
                
                1,664,839Total
                $
                9,393,406
                
                $
                6,112,737
  In
        2007,
        two customers (for biodiesel products) accounted for 14.52% and 11.01%,
        respectively, of net sales.
  In
        2006,
        two customers (for biodiesel products) accounted for 13.77% and 13.32%,
        respectively, of net sales.
  11
 
 **NOTE
        12 - COMMITMENTS AND CONTINGENCIES**
  Contract
        for Purchase of Land Use Rights
 
 On
        December 25, 2006, CCER executed a contract with The Bureau of Jiangyin
        Industrial Zone in Fujian Province to acquire land use rights for 50 years
        for
        certain land located in the Fujian Province of the PRC for a total purchase
        price of 18,549,000 RMB ($2,439,194 translated at the June 30, 2007 exchange
        rate).
 
 The
        contract, which was originally expected to close in June 2007, contemplates
        a
        new affiliated company of CCER be formed to build a new biodiesel facility
        on
        the land costing approximately $15,000,000. The contract originally provided
        for
        payments of the purchase price in three periods: 50% (or 9,274,500 RMB) by
        January 4, 2007, another 30% (or 5,564,700 RMB) by March 25, 2007, and the
        last
        20% (or 3,709,800 RMB) by June 25, 2007. In June 2007, the parties agreed
        to
        extend the closing date and due date of the remaining 3,709,800 RMB ($487,839
        translated at the June 30, 2007 exchange rate) to December 2007. As of June
        30,
        2007, the Company has paid 14,839,200 RMB ($1,951,355 translated at the June
        30,
        2007 exchange rate) of the 18,549,000 RMB total purchase price.
 
 Registration
        Rights
 
 In
        October and November 2006, CCE accepted subscriptions for a total of 1,300,000
        shares of common stock at a price of $1.00 per share, or $1,300,000 total.
        The
        subscription agreements provided registration rights to the subscribers.
        If CCE
        fails to (1) file a Registration Statement with the SEC on or prior to 90
        days
        after the Closing, (2) obtain effectiveness of the Registration Statement
        by the
        SEC on or prior to 180 days after the Closing, or (3) maintain effectiveness
        of
        the Registration Statement for 12 months after the date of effectiveness,
        CCE is
        obligated to pay subscribers “Default Damages” equal to 1% of their
        subscriptions. Upon the expiration of each month thereafter that CCE has
        continued to fail to file, or to obtain or maintain the effectiveness of the
        Registration Statement, as the case may be, CCE is obligated to pay subscribers
        additional Default Damages equal to 1% of their subscriptions, provided that
        no
        Default Damages shall be payable by CCE for any defaults that occur following
        the one year anniversary of the Closing. If CCE fails to respond to the SEC,
        within 30 days after receipt, to any questions and comments from the SEC
        regarding the Registration Statement, CCE is obligated to pay subscribers
        Default Damages equal to 1% of their subscriptions. Upon the expiration of
        each
        month thereafter that CCE has continued to fail to respond to the SEC, CCE
        is
        obligated to pay subscribers additional Default Damages equal to 1% of their
        subscriptions, provided that no Default Damages shall be payable by CCE for
        any
        defaults that occur following the one year anniversary of the Closing.
 
 The
        Registration Statement was declared effective by the SEC on July 10, 2007.
        In
        the three months ended June 30, 2007, CCE recorded an expense accrual of
        $39,000
        (included in general and administrative expenses and accounts payable and
        accrued liabilities in the accompanying consolidated financial statements)
        for
        Default Damages due subscribers.
 
 12
  PRC
        Risks
 
 Substantially
        all of Fujian Zhongde’s business operations are conducted in the PRC and
        governed by PRC laws and regulations. Because these laws and regulations
        are
        relatively new, the interpretation and enforcement of these laws and regulations
        involve uncertainties.
 
 The
        PRC
        government imposes controls on the convertibility of RMB into foreign currencies
        and, in certain cases, the remittance of currency out of the PRC. Under existing
        PRC foreign exchange regulations, payment of current account items, including
        profit distributions, interest payments and expenditures from the transaction,
        can be made in foreign currencies without prior approval from the PRC State
        Administration of Foreign Exchange by complying with certain procedural
        requirements. However, approval from appropriate governmental authorities
        is
        required where RMB is to be converted into foreign currency and remitted
        out of
        the PRC to pay capital expenses, such as the repayment of bank loans denominated
        in foreign currencies. The PRC government may also at its discretion restrict
        access in the future to foreign currencies for current account
        transactions.


**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation**




*Revenues* .
      During
      the quarter ended June 30, 2007, we had net sales of $5,255,040, as compared
      to
      net sales of $3,259,827 during the quarter ended June 30, 2006, an increase
      of
      approximately 61.21%. This increase is attributable to our expanded production
      capacity, increases in both the biodiesel and specialty chemical product lines,
      increased sales volume (we sold 2,745 tons of biodiesel for the quarter ended
      June 30, 2007 compared to 1,636 tons for the quarter ended June 30, 2006 and
      3,856 tons of specialty chemicals for the quarter ended June 30, 2007 compared
      to 3,371 tons for the quarter ended June 30, 2006), increased selling price
      for
      our exported specialty chemical products (our average selling price for the
      quarter ended June 30, 2007 was $985/ton compared to an average selling price
      of
      $719/ton selling price for the quarter ended June 30, 2006, an increase of
      37%),
      and increased sales force.





*Gross
      Profit* .
      Cost of
      goods sold, which consists of direct labor, feedstock, direct materials,
      overhead and product costs, was $3,824,722 for the quarter ended June 30, 2007,
      as compared to cost of goods sold of $2,372,645 for the quarter ended June
      30,
      2006. We had a gross profit of $1,430,318 for the quarter ended June 30, 2007,
      as compared to gross profit of $887,182 for the quarter ended June 30, 2006,
      representing gross margins of approximately 27.22% and 27.22%, respectively.
      The
      increase in gross profits is attributable to increased product selling prices
      for our exported specialty chemical products and an increase in sales volume
      for
      both our specialty chemical products and biodiesel products. Additionally,
      our
      feedstock prices have been quite stable over the last two years. We have entered
      annual contracts with the top 10 feedstock suppliers. Our feedstock costs
      (including transportation costs) were $331-368/ton in the second quarter of
      2006
      and $316-368/ton in the second quarter of 2007.




*Selling
      Expenses* .
      Selling
      expenses, which consist of advertising and promotion expenses, freight charges,
      exporting expenses, and wages and salaries totaled $224,048 for the quarter
      ended June 30, 2007, as compared to $85,445 for the quarter ended June 30,
      2006,
      an increase of approximately 162.21%. This increase is primarily attributable
      to
      the increase in our specialty chemical product exports **(** 45.19%
      vs. 28.44% of out total sales in Q2 2007 and Q2 2006, respectively) and related
      export and freight charges, and our expanded sales team and activities that
      are
      in turn reflected in our increased sales. We believe that our selling expenses
      will continue to increase slightly as sales continue to grow and our specialty
      chemical export business continues to increase.




*General
      and Administrative and Other Operating Expenses* .
      General
      and administrative and other operating expenses totaled $387,754 for the quarter
      ended June 30, 2007, as compared to $67,478 for the quarter ended June 30,
      2006,
      an increase of approximately 474.64%. This increase is primarily attributable
      to
      the increase in auditing, legal, investor relations, and financial advisory
      fees, hiring of new talents, and SEC filings incurred as a public company,
      as
      compared to our limited expenditures in general and administrative as a private
      company back in the second quarter of 2006.




*Income
      Taxes* .
      Income
      taxes decreased $221,306 from $221,306 for the quarter ended June 30, 2006
      to $0
      in the same period in 2007. The decrease is attributable to our principal
      subsidiary’s receipt of approval of full income tax exemption in 2007 from the
      PRC tax authorities on March 9, 2007. This approval also provides us with a
      12% income tax rate in tax years 2008, 2009, and 2010 (compared to the PRC
      standard enterprise income tax rate of 33%).




*Net
      Income* .
      Net
      income increased $296,957 (59.85%) from $496,153 for the quarter ended June
      30,
      2006 to $793,110 for the quarter ended June 30, 2007. The increase is primarily
      attributable to the $543,136 increase in gross profit and the $221,306 decrease
      in income taxes, offset partially by increases in selling and marketing
      ($138,603) and general and administrative and other operating expenses
      ($320,276).




13




**Liquidity
      and Capital Resources**




As
      of
      June 30, 2007, and December 31, 2006, we had cash and cash equivalents of
      $1,118,335 and $2,241,712, respectively. The decrease in cash and cash
      equivalents was due primarily to the $1,856,322 used in investing activities
      for
      the deposit paid in connection with the contract for land use rights for our
      Jiangyin plant, offset partially by the $527,820 cash provided by operating
      activities.




The
      $1,856,322 deposit for purchasing the land use rights at Jiangyin Industrial
      Park, Fujian Province is associated with our plan to build a second biodiesel
      refinery with an annual capacity of 100,000 tons starting in 2007. China Clean
      Energy plans to take advantage of access to a deep water seaport, our feestock
      suppliers, and rail and highway transport connected to the national grid to
      build our second biodiesel refinery by importing palm oil leavings from
      Indonesia and Malaysia to expand our capacity and increase our
      sales.




The
      $527,820 net cash provided by operating activities in the six months ended
      June
      30, 2007 was primarily attributable to the $1,193,816 net income, and the
      $362,618 non-cash depreciation and amortization expenses, offset by the $665,281
      increase in accounts receivable, and the $295,155 increase in prepaid
      expenses.




The
      $214,499 net cash provided by financing activities in the first half of the
      year
      ended June 30, 2007 was primarily attributable to $328,971 increase in long
      term
      bank loans and offset by $114,472 decrease in short term bank
      loans.




We
      have
      historically met our liquidity and capital requirements from a variety of
      sources, including internally generated cash, short-term borrowings from both
      related parties and financial institutions, and sales of common
      stock.




On
      December 25, 2006, Fujian Zhongde executed a contract to acquire land use rights
      for 50 years for certain land located in the Fujian Province of the Peoples
      Republic of China for a total purchase price of approximately $2,400,000. 80%
      of
      the purchase price has been paid and 20% is due December 25, 2007. The contract
      also contemplates that a new affiliated company of Fujian Zhongde will build
      a
      new biodiesel facility on this land costing approximately $15,000,000. Financing
      of the land use rights and subsequent construction costs is expected to come
      from a future private placement of the Company’s common stock and/or debt
      financing. However, there is no assurance that the Company will be able to
      secure such financing.




14




**Item
      3. Controls and Procedures.**




We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our chief executive officer and chief financial
      officer, of the effectiveness of the design and operation of our disclosure
      controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure
      controls and procedures include, without limitation, controls and procedures
      designed to ensure that information required to be disclosed by an issuer in
      the
      reports that it files or submits under the Exchange Act is accumulated and
      communicated to the issuer’s management, including its principal executive and
      principal financial officers, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required disclosure. Based
      upon
      our evaluation, our chief executive officer and chief financial officer
      concluded that our disclosure controls and procedures are effective, as of
      the
      end of the period covered by this Report (June 30, 2007), in ensuring that
      material information that we are required to disclose in reports that we file
      or
      submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the Securities and Exchange Commission
      (“SEC”) rules and forms. There were no changes in our internal control over
      financial reporting during the three month period ended June 30, 2007 that
      have materially affected, or are reasonably likely to materially affect, our
      internal control over financial reporting.











**PART
      II**






**OTHER
      INFORMATION**






**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds**






During
      the period covered by this Report, we have not issued unregistered securities
      which have not been “previously reported” as defined in Rule 12b-2 of the
      Exchange Act, except for the following:






**Item
                6.**
            **Exhibits**




**Exhibit**
              **Number**
            **Description**31.1*
            Section
                302 Certification of Principal Executive Officer31.2*
            Section
                302 Certification of Principal Financial Officer32.1*
            Section
                906 Certification of Principal Executive Officer32.2*
            Section
                906 Certification of Principal Financial
                Officer







*
            Filed
                herewith.




15




**SIGNATURES**


In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Dated:
                August 7, 2007
            By:
            /s/
                Tai-ming OuTai-ming
                Ou
              Chief
                Executive Officer
              (Principal
                Executive Officer)Dated:
                August 7, 2007
            By:
            /s/
                Gary ZhaoGary
                Zhao
              Chief
                Financial Officer
              (Principal
                Financial Officer and Principal Accounting
                Officer)










16




**EXHIBIT
      INDEX**




**Exhibit**
              **Number**
            **Description**31.1*
            Section
                302 Certification of Principal Executive Officer31.2*
            Section
                302 Certification of Principal Financial Officer32.1*
            Section
                906 Certification of Principal Executive Officer32.2*
            Section
                906 Certification of Principal Financial
                Officer







*
            Filed
                herewith.




17