They are not banning CTL because it's impractical.
They are banning only smaller CTL projects being undertaken by individual provinces because it's too profitable, and Beijing wants all those profits, and the control, for itself.
A key excerpt:
"CTL is a profitable investment because of high petroleum prices compared to cheaper coal although the process wastes vast amounts of water and releases more carbon dioxide.
(As we've noted extensively, those "wastes" can be put to good, profitable use - via several processes - as raw material for more fuel or valuable chemicals. - JtM)
Coal is converted from a solid to a gaseous form through catalysis. The resulting product can then be used as fuel for electricity or as raw material for chemical products.
“Many investors divide their big CTL projects into smaller ones, so that they can be approved by local governments eager to get tax revenues from the profitable projects,” said Han Jun, a coal analyst for the chemical industry website Chemistry World.
In China, local governments are authorized to clear projects costing under RMB100 million yuan."
Remember, China has 88 CTL plants on the books in the current 5-year plan.