requirement, the coal circulation regulatory system prioritised three things: the standardisation
of coal quality, restricting the use of bulk coal,
and the introduction of policies that support the
use of clean coal. Clean coal is a highly beneficial way to transform China’s coal production
and consumption and create new industry trends.
However, the clean coal regulatory regime is not
systematic enough in its approach and needs to
be aligned with China’s coal circulation system.
Restrictions and incentives are needed: (i) the
industrial heating sector needs to be reformed
and aligned with the use of clean coal; (ii) restrictive regulations are not strictly enforced,
giving some businesses and consumers opportunities to break them; and (iii) the incentives to
drive technical innovation in clean coal and
modernise industrial and public sector equipment
are not in place, nor are consumption subsidies.
It is difficult to reform state-owned coal
enterprises due to the large number of people
employed in the industry and the heavy debt
burden that many companies carry, both of
which restrict innovation and transformation.
The reform of China’s coal industry is strongly
related to the reform of state-owned coal companies, which play an important role in China’s
coal industry. The top 10 coal companies in
China, in terms of coal output, are all owned by
the state. They produced around 1 billion tonnes
of coal between January and September 2017,
accounting for more than 60% of raw coal output
by large national coal companies. Large
state-owned coal companies—characterised by
their large size, diverse business activities and
long history—have inefficient production capacity that they need to exit. For many companies,
inefficient capacity has become a serious problem, leading to surplus workers and a high
debt-to-asset ratio. These companies enter a
vicious cycle where the heavier the personnel
and debt burdens, the more difficult it is for them
to exit inefficient capacity. The recovery of the
Chinese economy in 2017 played an unusual role
by acting as a buffer, allowing state-owned coal
companies the time and space to transform and
innovate. A strong internal organisation is a
precondition for such transformation and innovation. Internal weaknesses need to be eliminated
first. Only then can business creativity be stimulated through institutional and mechanism
innovation within the larger reform of the coal
industry. The reform of state-owned coal companies poses many questions, such as: What will
happen to the workers? How can the company
repay its debts? Where will the money come
from? There is currently no answer to these
questions, which is slowing down the process of
industry-wide reform.
6.2.4 Evaluating China’s Coal Industry
Reform
The coal industry is a pioneer in market-oriented
reform. Reform started in the 1980s, and has
never stopped, but has had different characteristics during different periods. As the Chinese
economy moved from a high growth rate to the
new normal of lower growth, and environmental
governance became more intense, a supply
shortage of coal was replaced by oversupply. At
present, supply is tight because of the initiatives
on capacity and emissions reduction. Changes in
the market have accelerated the reform of the
coal industry. However, difficulties in business
operation and the pressure to prevent air pollution have pushed the government to strengthen
its macro-control.
The reform of China’s coal industry has
the following characteristics: it is an advanced
market, with better regulations and deepener
reform.
At first, the marketisation of the coal industry
made steady progress. Coal authorities abolished
various policies, including dual coal prices, the
coal production permit and the need for approval
to start a coal business. At the same time, coal
companies actively explored transitioning from
coal producer to energy supplier. The logistics,
information flow and capital services for the coal
market were improved. Driven by government
and businesses, the coal market became more and
more sophisticated.
482
S. Yaodong and A. Gillespie
of coal quality, restricting the use of bulk coal,
and the introduction of policies that support the
use of clean coal. Clean coal is a highly beneficial way to transform China’s coal production
and consumption and create new industry trends.
However, the clean coal regulatory regime is not
systematic enough in its approach and needs to
be aligned with China’s coal circulation system.
Restrictions and incentives are needed: (i) the
industrial heating sector needs to be reformed
and aligned with the use of clean coal; (ii) restrictive regulations are not strictly enforced,
giving some businesses and consumers opportunities to break them; and (iii) the incentives to
drive technical innovation in clean coal and
modernise industrial and public sector equipment
are not in place, nor are consumption subsidies.
It is difficult to reform state-owned coal
enterprises due to the large number of people
employed in the industry and the heavy debt
burden that many companies carry, both of
which restrict innovation and transformation.
The reform of China’s coal industry is strongly
related to the reform of state-owned coal companies, which play an important role in China’s
coal industry. The top 10 coal companies in
China, in terms of coal output, are all owned by
the state. They produced around 1 billion tonnes
of coal between January and September 2017,
accounting for more than 60% of raw coal output
by large national coal companies. Large
state-owned coal companies—characterised by
their large size, diverse business activities and
long history—have inefficient production capacity that they need to exit. For many companies,
inefficient capacity has become a serious problem, leading to surplus workers and a high
debt-to-asset ratio. These companies enter a
vicious cycle where the heavier the personnel
and debt burdens, the more difficult it is for them
to exit inefficient capacity. The recovery of the
Chinese economy in 2017 played an unusual role
by acting as a buffer, allowing state-owned coal
companies the time and space to transform and
innovate. A strong internal organisation is a
precondition for such transformation and innovation. Internal weaknesses need to be eliminated
first. Only then can business creativity be stimulated through institutional and mechanism
innovation within the larger reform of the coal
industry. The reform of state-owned coal companies poses many questions, such as: What will
happen to the workers? How can the company
repay its debts? Where will the money come
from? There is currently no answer to these
questions, which is slowing down the process of
industry-wide reform.
6.2.4 Evaluating China’s Coal Industry
Reform
The coal industry is a pioneer in market-oriented
reform. Reform started in the 1980s, and has
never stopped, but has had different characteristics during different periods. As the Chinese
economy moved from a high growth rate to the
new normal of lower growth, and environmental
governance became more intense, a supply
shortage of coal was replaced by oversupply. At
present, supply is tight because of the initiatives
on capacity and emissions reduction. Changes in
the market have accelerated the reform of the
coal industry. However, difficulties in business
operation and the pressure to prevent air pollution have pushed the government to strengthen
its macro-control.
The reform of China’s coal industry has
the following characteristics: it is an advanced
market, with better regulations and deepener
reform.
At first, the marketisation of the coal industry
made steady progress. Coal authorities abolished
various policies, including dual coal prices, the
coal production permit and the need for approval
to start a coal business. At the same time, coal
companies actively explored transitioning from
coal producer to energy supplier. The logistics,
information flow and capital services for the coal
market were improved. Driven by government
and businesses, the coal market became more and
more sophisticated.
482
S. Yaodong and A. Gillespie