State-owned coal companies have started to
reform themselves in accordance with China’s
state-owned capital management system. Measures include reforming state-owned capital
investment corporations, introducing mixed
ownership, organisational restructuring and
developing market mechanisms. Centrally run
state-owned coal companies have made breakthroughs in vertical integration along the value
chain. Local state-owned coal companies are
exiting from inefficient mines, transforming
state-owned capital investment corporations and
restructuring.
After the economic downturn, China’s coal
companies developed expertise in energy industry trends and began to transform and optimise
their business structure in two aspects: (i) exiting
inefficient coal, coal-fired power generation, coal
chemicals and coal machinery, and reorganising
internal resources to allow them to exit those
fields; (ii) planning for new emerging business,
developing modern services and intelligent
manufacturing, and using R&D and other
resources to make the necessary breakthroughs.
The tax burden on the coal industry is still
heavy. After the business tax to VAT reform was
carried out, the taxes on some business areas of
coal companies decreased, such as in equipment
manufacturing. But for other business areas, the
tax burden increased because there were fewer
allowable deductions. Overall, businesses are
paying more taxes since the business tax to VAT
reform. After the coal resource tax was reformed,
the tax rate on price and resource-related charges
differed from region to region. It is not unusual to
find coal companies for whom tax liabilities have
increased under both reforms.
6.2.3 China’s Coal Industry Reform Still
Faces Many Difficulties
Market-oriented reform conflicts with administrative measures, as revealed in the following
four cases.
First, there is a conflict between the government’s regulatory function and business governance. Government regulates macro-aspects of
the economy and should not intervene at the
micro level of business operation and management. Government and business are on two different levels of administrative, social and
economic governance. They should cooperate.
The introduction of market-based reform requires
the boundary between government and the market to be defined. Only by keeping government
within bounds and allowing businesses to perform can the market’s decisive role be unleashed.
If the administrative process is not well controlled, the boundary between government regulation and business governance can become
blurred, with the government crossing the line
and intervening in business operations. This
could be seen during the drive to stabilise the
coal price and improve safety. Government
authorities were encouraging large coal companies to trade with key accounts at a contractual
price, which meddles in the coal companies’
business and works against the market-oriented
coal pricing mechanism. The process of
improving coal companies’ safety implicitly
regards them as targets for administrative management, which conflicts with their responsibilities as market players and hinders the reform of
the state-owned capital management system.
Second, there is a conflict between the target
to reduce production capacity in the medium to
long term and the current supply shortage. Coal
industry losses changed into industry-wide
profitability in 2017, making it more difficult to
make further capacity reductions. One cause of
the supply shortage is that the government’s
compulsory measures make it harder for the
market to meet demand. Capacity reduction
should therefore continue. However, improvements in the business environment and the universality of the government’s capacity reduction
policies still allow inefficient and uncompetitive
production capacity.
Third, there is a conflict between reducing and
exiting inefficient supply and increasing efficient
supply. Staff relocation and debt repayment are
the inevitable challenges of capacity reduction.
Local government and financial institutions have
introduced some protective measures to mitigate
social and financial risks. Despite being
480
S. Yaodong and A. Gillespie
reform themselves in accordance with China’s
state-owned capital management system. Measures include reforming state-owned capital
investment corporations, introducing mixed
ownership, organisational restructuring and
developing market mechanisms. Centrally run
state-owned coal companies have made breakthroughs in vertical integration along the value
chain. Local state-owned coal companies are
exiting from inefficient mines, transforming
state-owned capital investment corporations and
restructuring.
After the economic downturn, China’s coal
companies developed expertise in energy industry trends and began to transform and optimise
their business structure in two aspects: (i) exiting
inefficient coal, coal-fired power generation, coal
chemicals and coal machinery, and reorganising
internal resources to allow them to exit those
fields; (ii) planning for new emerging business,
developing modern services and intelligent
manufacturing, and using R&D and other
resources to make the necessary breakthroughs.
The tax burden on the coal industry is still
heavy. After the business tax to VAT reform was
carried out, the taxes on some business areas of
coal companies decreased, such as in equipment
manufacturing. But for other business areas, the
tax burden increased because there were fewer
allowable deductions. Overall, businesses are
paying more taxes since the business tax to VAT
reform. After the coal resource tax was reformed,
the tax rate on price and resource-related charges
differed from region to region. It is not unusual to
find coal companies for whom tax liabilities have
increased under both reforms.
6.2.3 China’s Coal Industry Reform Still
Faces Many Difficulties
Market-oriented reform conflicts with administrative measures, as revealed in the following
four cases.
First, there is a conflict between the government’s regulatory function and business governance. Government regulates macro-aspects of
the economy and should not intervene at the
micro level of business operation and management. Government and business are on two different levels of administrative, social and
economic governance. They should cooperate.
The introduction of market-based reform requires
the boundary between government and the market to be defined. Only by keeping government
within bounds and allowing businesses to perform can the market’s decisive role be unleashed.
If the administrative process is not well controlled, the boundary between government regulation and business governance can become
blurred, with the government crossing the line
and intervening in business operations. This
could be seen during the drive to stabilise the
coal price and improve safety. Government
authorities were encouraging large coal companies to trade with key accounts at a contractual
price, which meddles in the coal companies’
business and works against the market-oriented
coal pricing mechanism. The process of
improving coal companies’ safety implicitly
regards them as targets for administrative management, which conflicts with their responsibilities as market players and hinders the reform of
the state-owned capital management system.
Second, there is a conflict between the target
to reduce production capacity in the medium to
long term and the current supply shortage. Coal
industry losses changed into industry-wide
profitability in 2017, making it more difficult to
make further capacity reductions. One cause of
the supply shortage is that the government’s
compulsory measures make it harder for the
market to meet demand. Capacity reduction
should therefore continue. However, improvements in the business environment and the universality of the government’s capacity reduction
policies still allow inefficient and uncompetitive
production capacity.
Third, there is a conflict between reducing and
exiting inefficient supply and increasing efficient
supply. Staff relocation and debt repayment are
the inevitable challenges of capacity reduction.
Local government and financial institutions have
introduced some protective measures to mitigate
social and financial risks. Despite being
480
S. Yaodong and A. Gillespie