Next, the government strengthened its
macro-control. The government’s plans to reduce
production capacity achieved remarkable results
in a short time. It not only reduced overcapacity
but improved the business environment of the
coal industry as well. The government also, by
combining capacity reduction with emissions
reduction and focusing on restricting new
capacity and even exiting coal, promoted
supply-side reform. To suppress the recovery of
the coal price, the government took other measures as well, such as encouraging coal companies to agree low-price contracts with key
accounts.
Finally, the reform of state-owned enterprises
deepened. To help state-owned enterprises
escape the conflicts and issues that urgently
needed to be addressed, the government eliminated deep-rooted institutional and mechanism
problems. The papers regarding reform of
state-owned enterprises were adopted after 2015,
gradually forming the 1+N policy. The
State-Owned Enterprise Reform Leading Group
of the State Council carried out the Ten Pilot
Reform Programmes in 2016, which summarise
the present round of state-owned enterprise
reform. The reform of state-owned coal companies has focused on state-owned capital investment corporations, introducing mixed ownership,
divesting coal operations from centrally administered state-owned enterprises whose core business is not coal, and on restructuring and
merging companies. The reform of centrally
administered coal companies is now making
rapid progress, whereas that of local state-owned
coal companies is slower.
The coal market experienced a significant
downturn after 2010 and was faced with
unprecedented environmental pressure. On the
one hand, a supply shortage turned into oversupply, which benefitted market-oriented reform.
Dual coal prices were abolished. On the other
hand, the downturn resulted in financial losses
for the industry. Stabilising growth and mitigating risk were especially urgent. Given market
and environmental pressure, administrative regulation became essential. As a result, the reform
of China’s coal industry after 2010 progressed in
marketisation and government administration.
Administration played a more important role
after 2016, not only in reducing production
capacity and improving environmental protection, but also in stabilising the coal price once
supply and demand had been optimised. The
government achieved remarkable results in the
short term.
The coal industry regained profitability in
2016. However, the drawbacks of administrative
regulation reform were becoming increasingly
evident. Coal supply and demand depends on
several factors. Reducing production capacity
tends to lead to a supply shortage in some
regions and in certain types of coal, and exiting
mines affects people’s livelihoods, even though it
helps reduce emissions. Trading with key
accounts at a contractual price should be
encouraged. Once the price difference between
contractual price and market price reaches a
certain threshold, a dual price system could
reappear. The goal of reform is to build a
sophisticated coal market, rather than reduce
capacity and stabilise prices. The government’s
reform measures were indispensable, but an
administrative mechanism cannot replace the
market mechanism or prevent it from fulfilling its
basic functions of optimising the system and
determining price. The administrative mechanism should be combined organically with the
market mechanism. Therefore, in the long term,
China needs to build a coal market system that is
aligned with the long-term objectives of marketisation and that manages the relationship
between the market and government.
6.3 Guidelines and Pathways
for Future Reform
6.3.1 Guidelines
The revolution in the coal industry needs to
resolve the principal contradictions constraining
its further development. Reform is the most
important path. The journey begins by gaining a
clear understanding of the coal industry’s role in
China’s economic and social development, and
of how China is striving to achieve its long-term
Special Report 4: China’s Energy System Revolution
483
macro-control. The government’s plans to reduce
production capacity achieved remarkable results
in a short time. It not only reduced overcapacity
but improved the business environment of the
coal industry as well. The government also, by
combining capacity reduction with emissions
reduction and focusing on restricting new
capacity and even exiting coal, promoted
supply-side reform. To suppress the recovery of
the coal price, the government took other measures as well, such as encouraging coal companies to agree low-price contracts with key
accounts.
Finally, the reform of state-owned enterprises
deepened. To help state-owned enterprises
escape the conflicts and issues that urgently
needed to be addressed, the government eliminated deep-rooted institutional and mechanism
problems. The papers regarding reform of
state-owned enterprises were adopted after 2015,
gradually forming the 1+N policy. The
State-Owned Enterprise Reform Leading Group
of the State Council carried out the Ten Pilot
Reform Programmes in 2016, which summarise
the present round of state-owned enterprise
reform. The reform of state-owned coal companies has focused on state-owned capital investment corporations, introducing mixed ownership,
divesting coal operations from centrally administered state-owned enterprises whose core business is not coal, and on restructuring and
merging companies. The reform of centrally
administered coal companies is now making
rapid progress, whereas that of local state-owned
coal companies is slower.
The coal market experienced a significant
downturn after 2010 and was faced with
unprecedented environmental pressure. On the
one hand, a supply shortage turned into oversupply, which benefitted market-oriented reform.
Dual coal prices were abolished. On the other
hand, the downturn resulted in financial losses
for the industry. Stabilising growth and mitigating risk were especially urgent. Given market
and environmental pressure, administrative regulation became essential. As a result, the reform
of China’s coal industry after 2010 progressed in
marketisation and government administration.
Administration played a more important role
after 2016, not only in reducing production
capacity and improving environmental protection, but also in stabilising the coal price once
supply and demand had been optimised. The
government achieved remarkable results in the
short term.
The coal industry regained profitability in
2016. However, the drawbacks of administrative
regulation reform were becoming increasingly
evident. Coal supply and demand depends on
several factors. Reducing production capacity
tends to lead to a supply shortage in some
regions and in certain types of coal, and exiting
mines affects people’s livelihoods, even though it
helps reduce emissions. Trading with key
accounts at a contractual price should be
encouraged. Once the price difference between
contractual price and market price reaches a
certain threshold, a dual price system could
reappear. The goal of reform is to build a
sophisticated coal market, rather than reduce
capacity and stabilise prices. The government’s
reform measures were indispensable, but an
administrative mechanism cannot replace the
market mechanism or prevent it from fulfilling its
basic functions of optimising the system and
determining price. The administrative mechanism should be combined organically with the
market mechanism. Therefore, in the long term,
China needs to build a coal market system that is
aligned with the long-term objectives of marketisation and that manages the relationship
between the market and government.
6.3 Guidelines and Pathways
for Future Reform
6.3.1 Guidelines
The revolution in the coal industry needs to
resolve the principal contradictions constraining
its further development. Reform is the most
important path. The journey begins by gaining a
clear understanding of the coal industry’s role in
China’s economic and social development, and
of how China is striving to achieve its long-term
Special Report 4: China’s Energy System Revolution
483