**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-QSB**

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

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

**China      Clean Energy Inc.**

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

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

| ________________________________________________________________________(Former                Name, Former Address and Former Fiscal Year, if Changed Since Last                Report) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table        of Contents

|                       |                                                                                                                                            |   | **Page** |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|
| **Part                I**  | **FINANCIAL                INFORMATION**                                                                                                        |   | 1        |
|                       |                                                                                                                                            |   |     |
| **Item                1.** | Financial                Statements (Unaudited)                                                                                                 |   | 1        |
|                       |                                                                                                                                            |   |     |
|                       | Consolidated                Balance Sheet as of September 30, 2007 and December 31,                2006                                         |   | 1        |
|                       |                                                                                                                                            |   |     |
|                       | Consolidated                Statements of Operations for the nine-month periods ended September                30,                2007 and 2006 |   | 2        |
|                       |                                                                                                                                            |   |     |
|                       | Statements                of Stockholders’ Equity for the nine-month period ended September 30,                2007                       |   | 3        |
|                       |                                                                                                                                            |   |     |
|                       | Condensed                Statements of Cash Flows for the nine-month periods ended September                30,                2007 and 2006    |   | 4        |
|                       |                                                                                                                                            |   |     |
|                       | Notes                to Condensed Financial Statements                                                                                          |   | 5        |
|                       |                                                                                                                                            |   |     |
| **Item                2.** | Management’s                Discussion and Analysis or Plan of Operation                                                                  |   | 12       |
|                       |                                                                                                                                            |   |     |
| **Item                3.** | Controls                and Procedures                                                                                                          |   | 14       |
|                       |                                                                                                                                            |   |     |
| **Part                II** | **OTHER                INFORMATION**                                                                                                            |   | 15       |
|                       |                                                                                                                                            |   |     |
| **Item                6.** | Exhibits                                                                                                                                        |   | 15       |

----

**PART      I**

**FINANCIAL      INFORMATION**

| **Item                1.** | **Financial                Statements.** |
|----------------------------|------------------------------------------|

| **CHINA                  CLEAN ENERGY INC. AND SUBSIDIARIES** |
|---------------------------------------------------------------|
| **Consolidated                  Balance Sheets**              |
| **(Expressed                  in US Dollars)**                |

|                                                                                                                                                        |   |   |   | September                  30, |   | December                  31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------------------------------|--------|-------------------------------|--------|
|                                                                                                                                                        |   |   |   | 2007                           |   | 2006                          |   |
|                                                                                                                                                        |   |   |   | (Unaudited)                    |   | (Audited)                     |   |
| **ASSETS**                                                                                                                                                  |   |        |   |                           |   |                          |   |
| **Current                  Assets**                                                                                                                         |   |   |   |                           |   |                          |   |
| Cash                  and cash equivalents                                                                                                             |   |   |   |                           | $      | 1,330,791                     |   | $ | 2,241,712 |   |
| Accounts                  receivable, net of allowance for doubtful accounts of $394,390                  and                  $228,604, respectively  |   |   |   |                           |   | 2,645,196                     |   |   | 1,768,262 |   |
| Other                  receivable - refundable value added taxes                                                                                       |   |   |   |                           |   | -                             |   |   | 24,904 |   |
| Other                  receivable - recoverable corporate income taxes                                                                                 |   |   |   |                           |   | 143,101                       |   |   | - |   |
| Inventories                                                                                                                                            |   |   |   |                           |   | 712,626                       |   |   | 941,933 |   |
| Advance                  payments to suppliers                                                                                                              |   |   |   |                           |   | 904,318                       |   |   | 194,141 |   |
| Prepaid                  expenses                                                                                                                      |   |   |   |                           |   | 41,317                        |   |   | 37,696 |   |
| **Total                  Current Assets**                                                                                                                   |   |   |   |                           |   | 5,777,349                     |   |   | 5,208,648 |   |
|                                                                                                                                                        |   |   |   |                           |   |                          |   |   |   |   |
| **Property                  , plant and equipment, net**                                                                                                    |   |   |   |                           |   | 5,056,649                     |   |   | 4,692,200 |   |
|                                                                                                                                                        |   |   |   |                           |   |                          |   |   |   |   |
| **Intangible                  assets, net**                                                                                                                 |   |   |   |                           |   | 2,383,772                     |   |   | 2,430,504 |   |
| **Deposits                  paid in connection with**                                                                                                       |   |   |   |                           |   |                          |   |   |   |   |
| **contract                  for purchase of land use rights and related                  costs**                                                       |   |   |   |                           |   | 1,951,355                     |   |   | 95,033 |   |
| **Total                  Assets**                                                                                                                           |   |   |   |                           | $      | 15,169,125                    |   | $ | 12,426,385 |   |
|                                                                                                                                                        |   |   |   |                           |   |                          |   |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                                                                   |   |   |   |                           |   |                          |   |   |   |   |
| **Current                  Liabilities**                                                                                                                    |   |   |   |                           |   |                          |   |   |   |   |
| Accounts                  payable and accrued liabilities                                                                                              |   |   |   |                           | $      | 648,060                       |   | $ | 386,719 |   |
| Current                  portion of bank indebtedness                                                                                                  |   |   |   |                           |   | 1,190,273                     |   |   | 1,282,462 |   |
| Income                  taxes payable                                                                                                                  |   |   |   |                           |   | -                             |   |   | 117,964 |   |
| Due                  to related parties                                                                                                                |   |   |   |                           |   | -                             |   |   | 6,419 |   |
| **Total                  current liabilities**                                                                                                              |   |   |   |                           |   | 1,838,333                     |   |   | 1,793,564 |   |
|                                                                                                                                                        |   |   |   |                           |   |                          |   |   |   |   |
| **Noncurrent                  portion of bank indebtedness**                                                                                                |   |   |   |                           |   | 284,770                       |   |   | - |   |
| **Due                  to related parties**                                                                                                                 |   |   |   |                           |   | -                             |   |   | - |   |
| **Total                  Liabilities**                                                                                                                      |   |   |   |                           |   | 2,123,103                     |   |   | 1,793,564 |   |
|                                                                                                                                                        |   |   |   |                           |   |                          |   |   |   |   |
| **Commitments                  and Contingencies**                                                                                                          |   |   |   |                           |   | -                             |   |   | - |   |
| **Stockholders'                  Equity**                                                                                                                   |   |   |   |                           |   |                          |   |   |   |   |
| Common                  stock, par value $0.001 per share, authorized                                                                                  |   |   |   |                           |   |                          |   |   |   |   |
| 100,000,000                  shares; issued and outstanding 21,512,269                                                                                      |   |   |   |                           |   |                          |   |   |   |   |
| and                  21,512,269 shares, respectively                                                                                                        |   |   |   |                           |   | 21,512                        |   |   | 21,512 |   |
| Additional                  paid-in capital                                                                                                            |   |   |   |                           |   | 7,034,473                     |   |   | 7,034,473 |   |
| Retained                  earnings                                                                                                                     |   |   |   |                           |   | 5,190,149                     |   |   | 3,161,747 |   |
| Accumulated                  other comprehensive income (loss)                                                                                         |   |   |   |                           |   | 799,888                       |   |   | 415,089 |   |
| **Total                  stockholders' equity**                                                                                                             |   |   |   |                           |   | 13,046,022                    |   |   | 10,632,821 |   |
| **Total                  Liabilities and Stockholders' Equity**                                                                                             |   |   |   |                           | $      | 15,169,125                    |   | $ | 12,426,385 |   |
|                                                                                                                                                        |   |   |   |                           |   |                          |   |   |   |   |

----

| **CHINA                    CLEAN ENERGY INC. AND SUBSIDIARIES**                                          |
|----------------------------------------------------------------------------------------------------------|
| **Consolidated                    Statements of Operations and Comprehensive                    Income** |
| **(Expressed                    in US Dollars)**                                                         |

|                                                                   |   | Three                    months ended September 30, |       | Nine                    months ended September 30,  |   |
|------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|----------------------------------------------------------|--------|
|                                                                   |   | 2007                                                |       | 2006                                                     |   | 2007 |   | 2006 |   |
|                                                                   |   | (Unaudited)                                         |       | (Unaudited)                                              |   | (Unaudited) |   | (Unaudited) |   |
|                                                                   |   |                                                |       |                                                     |   |   |   |   |   |
| **Revenue:**                                                           |   |                                                |       |                                                     |   |   |   |   |   |
| Net                    sales of products                          |   | $                                                   | 5,459,688  |                                                     | $      | 3,687,425 |   | $ | 14,853,094 |   | $ | 9,800,162 |   |
| Government                    subsidy                             |   |                                                | -          |                                                     |   | 645 |   |   | - |   |   | 7,812 |   |
|                                                                   |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| **Total                    revenue**                                   |   |                                                | 5,459,688  |                                                     |   | 3,688,070 |   |   | 14,853,094 |   |   | 9,807,974 |   |
|                                                                   |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| **Operating                    Costs and Expenses**                    |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| Cost                    of goods sold                             |   |                                                | 4,033,402  |                                                     |   | 2,644,263 |   |   | 10,848,073 |   |   | 7,082,112 |   |
| Selling                    and marketing                          |   |                                                | 164,642    |                                                     |   | 100,356 |   |   | 601,933 |   |   | 268,012 |   |
| General                    and administrative                     |   |                                                | 345,436    |                                                     |   | 103,172 |   |   | 1,110,813 |   |   | 251,045 |   |
| Depreciation                    of property, plant and equipment  |   |                                                | 18,928     |                                                     |   | 8,934 |   |   | 53,943 |   |   | 25,356 |   |
| Amortization                    of intangible assets              |   |                                                | 36,023     |                                                     |   | 40,816 |   |   | 134,410 |   |   | 163,524 |   |
| Total                    operating costs and expenses                  |   |                                                | 4,598,431  |                                                     |   | 2,897,541 |   |   | 12,749,172 |   |   | 7,790,049 |   |
| **Income                    from Operations**                          |   |                                                | 861,257    |                                                     |   | 790,529 |   |   | 2,103,922 |   |   | 2,017,925 |   |
|                                                                   |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| **Other                    Income (Expenses)**                         |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| Interest                    incomes                               |   |                                                | 1,983      |                                                     |   | 2,473 |   |   | 5,914 |   |   | 6,791 |   |
| Interest                    expenses                              |   |                                                | (28,654    | )                                                        |   | (26,287 | ) |   | (81,434 | ) |   | (67,287 | ) |
| Total                    Other Income (Expenses)                       |   |                                                | (26,671    | )                                                        |   | (23,814 | ) |   | (75,520 | ) |   | (60,496 | ) |
| **Income                    before Income Taxes**                      |   |                                                | 834,586    |                                                     |   | 766,715 |   |   | 2,028,402 |   |   | 1,957,429 |   |
| **Income                    Taxes**                                    |   |                                                | -          |                                                     |   | (266,017 | ) |   | - |   |   | (683,963 | ) |
| **Net                    Income**                                      |   | $                                                   | 834,586    |                                                     | $      | 500,698 |   | $ | 2,028,402 |   | $ | 1,273,466 |   |
| **Other                    Comprehensive Income**                      |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| Foreign                    currency translation adjustment        |   |                                                | 127,602    |                                                     |   | 100,658 |   |   | 384,799 |   |   | 292,351 |   |
| **Comprehensive                    Income**                            |   | $                                                   | 962,188    |                                                     | $      | 601,356 |   | $ | 2,413,201 |   | $ | 1,565,817 |   |
|                                                                   |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| **Earnings                    per common share:**                      |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| Basic                                                             |   | $                                                   | 0.04       |                                                     | $      | 0.03 |   | $ | 0.09 |   | $ | 0.08 |   |
| Diluted                                                           |   | $                                                   | 0.04       |                                                     | $      | 0.03 |   | $ | 0.09 |   | $ | 0.08 |   |
|                                                                   |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| **Weighted                    average number of common shares:**       |   |                                                |       |                                                     |   |   |   |   |   |   |   |   |   |
| Basic                                                             |   |                                                | 21,512,269 |                                                     |   | 15,995,000 |   |   | 21,512,269 |   |   | 15,995,000 |   |
| Diluted                                                           |   |                                                | 21,512,269 |                                                     |   | 15,995,000 |   |   | 21,512,269 |   |   | 15,995,000 |   |

----

| **CHINA                      CLEAN ENERGY INC. AND SUBSIDIARIES** |
|-------------------------------------------------------------------|
| **Statements                      of Stockholders' Equity**       |
| **(Expressed                      in US Dollars)**                |

|                                                                                                       |   |                                     |       |    |   | Additional |   |          |      | Accumulated                      Other |   |      |   |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|---------|--------|------------|--------|---------------|-----------|----------------------------------------|--------|-----------|--------|
|                                                                                                       |   | Common                        Stock |       | Paid-in |   | Retained   |   | Comprehensive |      |                                   |   |
|                                                                                                       |   | Shares                              |       | Amount  |   | Capital    |   | Earnings      |      | Income                                 |   | Total     |   |
|                                                                                                       |   |                                |       |    |   |       |   |          |      |                                   |   |      |   |
| Balance                      at December 31, 2006                                                          |   |                                | 21,512,269 |    | $      | 21,512     |   | $             | 7,034,473 |                                   | $      | 3,161,747 |   | $ | 415,089 |   | $ | 10,632,821 |   |
| Net                          income for the three months ended March 31,                          2007     |   |                                |       |    |   |       |   |          |      |                                   |   | 400,706   |   |   |   |   |   | 400,706 |   |
| Foreign                      currency translation adjustment                                               |   |                                |       |    |   |       |   |          |      |                                   |   |      |   |   | 106,964 |   |   | 106,964 |   |
| Balance                      at March 31, 2007                                                             |   |                                | 21,512,269 |    |   | 21,512     |   |          | 7,034,473 |                                   |   | 3,562,453 |   |   | 522,053 |   |   | 11,140,491 |   |
| Net                          income for the three months ended June 30,                          2007      |   |                                |       |    |   |       |   |          |      |                                   |   | 793,110   |   |   |   |   |   | 793,110 |   |
| Foreign                      currency translation adjustment                                               |   |                                |       |    |   |       |   |          |      |                                   |   |      |   |   | 150,233 |   |   | 150,233 |   |
| Balance                      at June 30, 2007                                                              |   |                                | 21,512,269 |    |   | 21,512     |   |          | 7,034,473 |                                   |   | 4,355,563 |   |   | 672,286 |   |   | 12,083,834 |   |
| Net                          income for the three months ended September 30,                          2007 |   |                                |       |    |   |       |   |          |      |                                   |   | 834,586   |   |   |   |   |   | 834,586 |   |
| Foreign                      currency translation adjustment                                               |   |                                |       |    |   |       |   |          |      |                                   |   |      |   |   | 127,602 |   |   | 127,602 |   |
| Balance                      at September 30, 2007                                                         |   |                                | 21,512,269 |    | $      | 21,512     |   | $             | 7,034,473 |                                   | $      | 5,190,149 |   | $ | 799,888 |   | $ | 13,046,022 |   |

----

| **CHINA                        CLEAN ENERGY INC. AND SUBSIDIARIES** |
|---------------------------------------------------------------------|
| **Consolidated                        Statements of Cash Flows**    |
| **(Expressed                        in US Dollars)**                |

|                                                                                                                          |   | Nine                        months ended September 30,  |       |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|------------|
|                                                                                                                          |   | 2007                                                         |       | 2006 |   |
|                                                                                                                          |   | (Unaudited)                                                  |       | (Unaudited) |   |
| **Cash                        Flows from Operating Activities**                                                               |   |                                                         |       |   |   |
| Net                        income                                                                                        |   | $                                                            | 2,028,402  |   | $ | 1,273,466 |   |
| Adjustmens                        to reconcile net income to net cash                                                    |   |                                                         |       |   |   |   |   |
| provided                        by (used for) operating activities                                                            |   |                                                         |       |   |   |   |   |
| Depreciation                        of proeprty, plant and equipment                                                          |   |                                                         | 398,604    |   |   | 282,226 |   |
| Amortization                        of intangible assets                                                                      |   |                                                         | 134,410    |   |   | 163,524 |   |
| Changes                        in operating assets and liabilities                                                       |   |                                                         |       |   |   |   |   |
| Accounts                        receivable, net                                                                               |   |                                                         | (876,934   | ) |   | (224,110 | ) |
| Other                        receivables                                                                                      |   |                                                         | (118,197   | ) |   | - |   |
| Due                        from related parties                                                                               |   |                                                         | (6,419     | ) |   | (269,141 | ) |
| Inventory                                                                                                                     |   |                                                         | 229,307    |   |   | 689,214 |   |
| Advance                        payments to suppliers                                                                          |   |                                                         | (710,177   | )  |   |  - |   |
| Prepaid                        expenses                                                                                       |   |                                                         | (3,621     | ) |   | - |   |
| Accounts                        payable and accrued liabilities                                                               |   |                                                         | 261,341    |   |   | (259,426 | ) |
| Income                        taxes payable                                                                                   |   |                                                         | (117,964   | ) |   | (245,329 | ) |
| **Net                        cash provided by (used for) operating activities**                                               |   |                                                         | 1,218,752  |   |   | 1,410,424 |   |
| **Cash                        Flows from Investing Activities**                                                               |   |                                                         |       |   |   |   |   |
| Property,                        plant and equipment additions                                                           |   |                                                         | (763,053   | ) |   | (1,701,617 | ) |
| Intangible                        assets additions                                                                       |   |                                                         | -          |   |   | (541,100 | ) |
| Deposits                        paid in connection with contract for purchase of land use                        rights  |   |                                                         | (1,856,322 | ) |   | - |   |
| **Net                        cash provided by (used for) investing activities**                                               |   |                                                         | (2,619,375 | ) |   | (2,242,717 | ) |
| **Cash                        Flows from Financing Activities**                                                               |   |                                                         |       |   |   |   |   |
| Capital                        stock issued for cash                                                                     |   |                                                         | -          |   |   | 50,000 |   |
| Increase                        (decrease) in current portion of bank indebtedness                                       |   |                                                         | (284,798   | ) |   | 26,725 |   |
| Increase                        (decrease) in noncurrent portion of bank                        indebtedness             |   |                                                         | 477,379    |   |   | - |   |
| Dividends                        paid                                                                                    |   |                                                         | -          |   |   | (753,420 | ) |
| **Net                        cash provided by (used for) financing activities**                                               |   |                                                         | 192,581    |   |   | (676,695 | ) |
|                                                                                                                          |   |                                                         |       |   |   |   |   |
| **Effect                        of exchange rate changes on cash and cash                        equivalents**                |   |                                                         | 297,121    |   |   | 160,117 |   |
| **Increase                        (decrease) in cash and cash equivalents**                                                   |   |                                                         | (910,921   | ) |   | (1,348,871 | ) |
|                                                                                                                          |   |                                                         |       |   |   |   |   |
| **Cash                        and cash equivalents, beginning of period**                                                     |   |                                                         | 2,241,712  |   |   | 3,175,128 |   |
|                                                                                                                          |   |                                                         |       |   |   |   |   |
| **Cash                        and cash equivalents, end of period**                                                           |   | $                                                            | 1,330,791  |   | $ | 1,826,257 |   |
|                                                                                                                          |   |                                                         |       |   |   |   |   |
| **Supplemental                        disclosures of cash flow information:**                                                 |   |                                                         |       |   |   |   |   |
| Interest                        paid                                                                                     |   | $                                                            | 81,434     |   | $ | 67,287 |   |
| Income                        taxes paid                                                                                 |   | $                                                            | -          |   | $ | 683,963 |   |
|                                                                                                                          |   |                                                         |       |   |   |   |   |

----

**CHINA        CLEAN ENERGY INC. AND SUBSIDIARIES**

**NOTE        1 - INTERIM FINANCIAL STATEMENTS**

**NOTE        2 - ORGANIZATION AND BUSINESS**

----

**CHINA          CLEAN ENERGY INC. AND SUBSIDIARIES**

**NOTE        3 - INVENTORIES**

|                                                       |   | September                    30, |    | December                    31, |   |
|------------------------------------------------------------|--------|----------------------------------|---------|---------------------------------|--------|
|                                                       |   | 2007                             |    | 2006                            |   |
|                                                       |   | (Unaudited)                      |    | (Audited)                       |   |
| Raw                    materials                           |   | $                                | 382,111 |                            | $      | 430,392 |   |
| Work                    in progress and packaging material |   |                             | 24,744  |                            |   | 24,065 |   |
| Finished                    goods                          |   |                             | 305,771 |                            |   | 487,476 |   |
| Total                    Inventories                       |   | $                                | 712,626 |                            | $      | 941,933 |   |

**NOTE        4 - PROPERTY, PLANT AND EQUIPMENT**

|                                             |   | September                    30, |       | December                    31, |   |
|--------------------------------------------------|--------|----------------------------------|------------|---------------------------------|--------|
|                                             |   | 2007                             |       | 2006                            |   |
|                                             |   | (Unaudited)                      |       | (Audited)                       |   |
| Land                    improvements             |   | $                                | 486,266    |                            | $      | - |   |
| Buildings                                        |   |                             | 2,227,928  |                            |   | 2,051,056 |   |
| Equipment                    and machinery       |   |                             | 4,959,403  |                            |   | 4,419,551 |   |
| Automobiles                                      |   |                             | 37,898     |                            |   | 20,529 |   |
| Office                    equipment              |   |                             | 18,100     |                            |   | 13,848 |   |
| Construction                    in progress      |   |                             | 80,163     |                            |   | 449,346 |   |
| Total                                            |   |                             | 7,809,758  |                            |   | 6,954,330 |   |
| Less                    accumulated depreciation |   |                             | (2,753,109 | )                               |   | (2,262,130 | ) |
| Net                                              |   | $                                | 5,056,649  |                            | $      | 4,692,200 |   |

----

**CHINA          CLEAN ENERGY INC. AND SUBSIDIARIES**

**NOTE        5 - INTANGIBLE ASSETS**

|                                             |   | September                    30, |      | December                    31, |   |
|--------------------------------------------------|--------|----------------------------------|-----------|---------------------------------|--------|
|                                             |   | 2007                             |      | 2006                            |   |
|                                             |   | (Unaudited)                      |      | (Audited)                       |   |
| Land                    use rights               |   | $                                | 1,998,406 |                            | $      | 1,949,015 |   |
| Patents                    and licenses          |   |                             | 1,209,800 |                            |   | 1,179,900 |   |
| Total                                            |   |                             | 3,208,206 |                            |   | 3,128,915 |   |
| Less                    accumulated amortization |   |                             | (824,434  | )                               |   | (698,411 | ) |
| Net                                              |   | $                                | 2,383,772 |                            | $      | 2,430,504 |   |

**NOTE        6 - BANK INDEBTEDNESS**

|                                                             |   | September                    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            |   | $                                | 997,664    |                            | $      | 1,282,462 |   |
| DBS                    bank, interest at 115% of PRC prime rate, |   |                             |       |                            |   |   |   |
| due                    in monthly installments of principal      |   |                             |       |                            |   |   |   |
| and                    interest of $18,834 through               |   |                             |       |                            |   |   |   |
| January                    2010, secured by certain buildings    |   |                             |       |                            |   |   |   |
| and                    land use rights                           |   |                             | 477,379    |                            |   | - |   |
|                                                             |   |                             |       |                            |   |   |   |
| Total                                                            |   |                             | 1,475,043  |                            |   | 1,282,462 |   |
| Less                    current portion                          |   |                             | (1,190,273 | )                               |   | (1,282,462 | ) |
|                                                             |   |                             |       |                            |   |   |   |
| Noncurrent                    portion of bank indebtedness       |   | $                                | 284,770    |                            | $      | - |   |

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**CHINA          CLEAN ENERGY INC. AND SUBSIDIARIES**

**NOTE        7 - PENSION AND EMPLOYMENT LIABILITIES**

**NOTE        8 - RESTRICTED NET ASSETS**

**NOTE        9 - INCOME TAXES**

|                             |   | Nine                    months ended September 30, |   |
|----------------------------------|--------|----------------------------------------------------|--------|
|                             |   | 2007                                               |   | 2006 |   |
|                             |   | (Unaudited)                                        |   | (Unaudited) |   |
| Current:                         |   |                                               |   |   |   |
| PRC                              |   | $                                                  | -      |   | $ | 683,963 |   |
| United                    States |   |                                               | -      |   |   | - |   |
| Total                    current |   |                                               | -      |   |   | 683,963 |   |
| Deferred                         |   |                                               | -      |   |   | - |   |
| Total                            |   | $                                                  | -      |   | $ | 683,963 |   |

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**CHINA          CLEAN ENERGY INC. AND SUBSIDIARIES**

|                                                 |   | Nine                    months ended |     |
|------------------------------------------------------|--------|--------------------------------------|----------|
|                                                 |   | September                    30,     |     |
|                                                 |   | 2007                                 |     | 2006 |   |
|                                                 |   | (Unaudited)                          |     | (Unaudited) |   |
| Expected                    tax at 35%               |   | $                                    | 709,941  |   | $ | 685,100 |   |
| Tax                    effect of unutilized          |   |                                 |     |   |   |   |   |
| losses                    of CCE and CCER            |   |                                 | 184,044  |   |   | 14,827 |   |
| Tax                    effect of Fujian Zhongde      |   |                                 |     |   |   |   |   |
| income                    taxed at lower rate        |   |                                 | (893,985 | ) |   | (39,996 | ) |
| Permanent                    differences             |   |                                 | -        |   |   | 24,032 |   |
| Actual                    provision for income taxes |   | $                                    | -        |   | $ | 683,963 |   |

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**CHINA          CLEAN ENERGY INC. AND SUBSIDIARIES**

**NOTE        10 - RELATED PARTY TRANSACTIONS**

**NOTE        11 - SEGMENT INFORMATION**

|                                            |   | Nine                    months ended September 30, |       |
|-------------------------------------------------|--------|----------------------------------------------------|------------|
|                                            |   | 2007                                               |       | 2006 |   |
|                                            |   | (Unaudited)                                        |       | (Unaudited) |   |
| Specialty                    chemicals products |   | $                                                  | 10,856,614 |   | $ | 7,260,080 |   |
| Biodiesel                    products           |   |                                               | 3,996,480  |   |   | 2,540,082 |   |
| Total                                           |   | $                                                  | 14,853,094 |   | $ | 9,800,162 |   |

**NOTE        12 - COMMITMENTS AND CONTINGENCIES**

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**CHINA          CLEAN ENERGY INC. AND SUBSIDIARIES**

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

**Quarter      Ended September 30, 2007 Compared to the Quarter Ended September 30, 2006.      **

*Revenues.*

*Gross      Profit.*

*Selling      Expenses.*

*General      and Administrative Expenses.*

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*Net      Income.*

**Liquidity      and Capital Resources**

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**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 (September 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      rules and forms. 

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**PART      II**

**OTHER      INFORMATION**

| **Item                6.** | **Exhibits** |
|----------------------------|--------------|

| **Exhibit****Number** |   | **Description**                                                                                                        |
|-----------------------|--------|------------------------------------------------------------------------------------------------------------------------|
|                  |   |                                                                                                                   |
| 31.1                  |   | Section                302 Certification of Principal Executive Officer                                                |
|                  |   |                                                                                                                   |
| 31.2                  |   | Section                302 Certification of Principal Financial Officer                                                |
|                  |   |                                                                                                                   |
| 32.1                  |   | Section                906 Certification of Principal Executive Officer and Principal Financial                Officer |

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**SIGNATURES**

|                                   |                                                             |                         |
|----------------------------------------|------------------------------------------------------------------|------------------------------|
|                                   | CHINA                CLEAN ENERGY INC.                           |
|                              |                                                        |                    |
| Dated:                November 7, 2007 | By:                                                    | /s/              Tai-ming Ou |
|                                   | Tai-ming                OuChief                Executive Officer |
|                                   |                                                                  |

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**EXHIBIT      INDEX**

| **Exhibit** **Number** |   | **Description**                                                                                                        |
|-----------------------------|--------|------------------------------------------------------------------------------------------------------------------------|
|                        |   |                                                                                                                   |
| 31.1                        |   | Section                302 Certification of Principal Executive Officer                                                |
|                        |   |                                                                                                                   |
| 31.2                        |   | Section                302 Certification of Principal Financial Officer                                                |
|                        |   |                                                                                                                   |
| 32.1                        |   | Section                906 Certification of Principal Executive Officer and Principal Financial                Officer |

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