uncompetitive, some inefficient mines have been
operating for a long time. In addition, the government’s administrative regulatory system has
played an important role in capacity reduction
since 2016, though its inflexibility has restricted
the development of efficient capacity to some
extent.
Fourth, there is a conflict between
market-oriented regulations and government
administration. The government has emphasised
the market’s decisive role and deepened reform
along the lines of “administrative streamlining
and decentralisation, the combination of deregulation and regulation, and service optimisation”.
However, macro-control of the coal market is
still dominated by administrative processes. To
achieve their environmental and safety objectives, some local governments were inflexible in
their administrative guidance, which was not
based on law and resulted in unnecessary financial losses for compliant enterprises. There are
also problems with the coal contract price
encouraged by government. The government
abolished dual coal prices with the aim of
deregulating coal pricing and forming a
market-oriented coal pricing mechanism. Trading
coal with key accounts at a contractual price
lower than the market price is consistent with the
laws of economics. However, if the contractual
price does not follow the price trend, or differs
greatly from the market price, it could be concluded that the contractual price has been affected by the government’s macro-control, rather
than being determined by supply and demand. If
the contractual price is similar to the old planned
price, then clearly the government has not created an effective market-oriented mechanism for
coal pricing.
China’s coal circulation regulatory system
under the new normal of slower economic
growth faces new challenges. The market is now
the vector for transactions, which has a profound
influence on the coal industry.
First, a modern coal circulation regulatory
system is not yet in place. The parties engaged in
coal circulation are numerous, decentralised and
small. These factors make government regulation
more difficult. The current regulatory system
cannot cover all parties for the following reasons:
(i) policy constraint is not effective for each party
involved in circulation. Regulations on trading
and coal quality cannot fully supervise and
restrain complex markets; (ii) coal circulation
regulations are not clearly distributed between
central and local government, making the regulatory system messier and more complicated; and
(iii) development of the auxiliary coal market has
lagged behind. This dates back to the start of the
reform regime and is characterised by poor
contractual performance, scattered market information, an unsound credit rating mechanism and
the absence of financial regulation.
Second, there is no market-based carrier
optimising supply and demand through the coal
circulation regulatory system. Coal circulation
regulation needs to allow an existing
market-oriented coal pricing mechanism to play
its role and stabilise market price fluctuations.
However, there is currently no effective carrier.
The way to stabilise price fluctuations is by
improving supply and demand in a market-based
way, rather than intervening in businesses’ production and operations, which disturbs the market pricing mechanism. The current coal
circulation regulatory system enables regulators
to keep track of coal market dynamics but does
not allow them to optimise supply and demand.
Third, the regulatory regime transforms coal
circulation. Supply-side optimisation has a profound impact on coal circulation. Future coal
circulation will not be limited to coal trading and
the transport of coal from one place to another
but will expand into higher levels of circulation.
For instance, the value added to raw coal during
circulation will increase, logistics will be modernised and capital and information flow services
improved. A coal circulation regulatory regime
should not only standardise and manage circulation, it should guide the transformation of circulation. However, the current coal circulation
regime does not cover higher levels of circulation
services. Such a regime has not yet been
designed.
Fourth, China needs a coal circulation regulatory system that meets the demand for green
and low-carbon energy. To meet this new
Special Report 4: China’s Energy System Revolution
481
operating for a long time. In addition, the government’s administrative regulatory system has
played an important role in capacity reduction
since 2016, though its inflexibility has restricted
the development of efficient capacity to some
extent.
Fourth, there is a conflict between
market-oriented regulations and government
administration. The government has emphasised
the market’s decisive role and deepened reform
along the lines of “administrative streamlining
and decentralisation, the combination of deregulation and regulation, and service optimisation”.
However, macro-control of the coal market is
still dominated by administrative processes. To
achieve their environmental and safety objectives, some local governments were inflexible in
their administrative guidance, which was not
based on law and resulted in unnecessary financial losses for compliant enterprises. There are
also problems with the coal contract price
encouraged by government. The government
abolished dual coal prices with the aim of
deregulating coal pricing and forming a
market-oriented coal pricing mechanism. Trading
coal with key accounts at a contractual price
lower than the market price is consistent with the
laws of economics. However, if the contractual
price does not follow the price trend, or differs
greatly from the market price, it could be concluded that the contractual price has been affected by the government’s macro-control, rather
than being determined by supply and demand. If
the contractual price is similar to the old planned
price, then clearly the government has not created an effective market-oriented mechanism for
coal pricing.
China’s coal circulation regulatory system
under the new normal of slower economic
growth faces new challenges. The market is now
the vector for transactions, which has a profound
influence on the coal industry.
First, a modern coal circulation regulatory
system is not yet in place. The parties engaged in
coal circulation are numerous, decentralised and
small. These factors make government regulation
more difficult. The current regulatory system
cannot cover all parties for the following reasons:
(i) policy constraint is not effective for each party
involved in circulation. Regulations on trading
and coal quality cannot fully supervise and
restrain complex markets; (ii) coal circulation
regulations are not clearly distributed between
central and local government, making the regulatory system messier and more complicated; and
(iii) development of the auxiliary coal market has
lagged behind. This dates back to the start of the
reform regime and is characterised by poor
contractual performance, scattered market information, an unsound credit rating mechanism and
the absence of financial regulation.
Second, there is no market-based carrier
optimising supply and demand through the coal
circulation regulatory system. Coal circulation
regulation needs to allow an existing
market-oriented coal pricing mechanism to play
its role and stabilise market price fluctuations.
However, there is currently no effective carrier.
The way to stabilise price fluctuations is by
improving supply and demand in a market-based
way, rather than intervening in businesses’ production and operations, which disturbs the market pricing mechanism. The current coal
circulation regulatory system enables regulators
to keep track of coal market dynamics but does
not allow them to optimise supply and demand.
Third, the regulatory regime transforms coal
circulation. Supply-side optimisation has a profound impact on coal circulation. Future coal
circulation will not be limited to coal trading and
the transport of coal from one place to another
but will expand into higher levels of circulation.
For instance, the value added to raw coal during
circulation will increase, logistics will be modernised and capital and information flow services
improved. A coal circulation regulatory regime
should not only standardise and manage circulation, it should guide the transformation of circulation. However, the current coal circulation
regime does not cover higher levels of circulation
services. Such a regime has not yet been
designed.
Fourth, China needs a coal circulation regulatory system that meets the demand for green
and low-carbon energy. To meet this new
Special Report 4: China’s Energy System Revolution
481