6.3.3 The Government’s Regulatory
Function Needs to Be
Defined Clearly
Coal will remain China’s main energy source for
a long time to come, although its share of energy
consumption will decline. Forecasting of future
consumption trends suggests that the coal
industry’s role in the Chinese economy will
change. Its function of supporting energy supply,
the economy and society will remain, but its
status as a pillar industry will weaken. Coal,
which is abundant in China, is a low-cost energy
that will continue to account for a high proportion of the country’s energy consumption. The
coal industry has many workers and assets and
high levels of debt. What happens in the coal
industry has a strong chain effect on midstream
and downstream industrial enterprises and the
service sectors. Stability in the coal industry is
important.
As China’s main energy source, coal stabilises
and supports the economy and society. The
government therefore needs to impose macroregulation on short- and medium-term fluctuations
in the coal market to minimise economic, social
and safety risks. The two functions are related. If
the coal price is stable, economic and social risks
are low. However, even if the price is steady, coal
mine closures, unemployment, insolvency and
other economic and social risks still exist. In
addition, safety should be prioritised.
6.3.4 Controlling Administrative
Regulation by Market
and Legal Means
Administrative regulation focuses on short- and
medium-term problem-solving and tends to pursue short-term performance at the cost of
long-term objectives. The root cause of this is
that administrative regulation is not well controlled. Government directly intervenes in the
production and operation of coal companies,
crossing the line between government and the
market. But the status of the coal industry has
changed. It has opened up. Government regulation of the coal market should also change in
alignment with ongoing coal industry reform,
replacing administrative regulation with market
and law-based regulation.
To control administrative regulation successfully requires a sophisticated coal industry system to be in place. Only with complete standards
and laws can the government’s use of market and
legal regulation be fully developed. So, to make
the most of market and law-based regulation, the
coal market system must be improved
continuously.
6.3.5 The Coal Market System Should
Be Developed at Carefully
Defined Points
China’s coal market made great progress after
2010. Once dual coal prices were abolished, the
pricing mechanism became more marketoriented. Some regional and local coal markets
are becoming increasingly mature. Coal transport, trading, finance and information services
are becoming more and more professional. The
shortage of rail capacity has improved radically.
But the coal market system still has some
shortcomings, such as incomplete inventory
standards, noncompliant inventory management,
multiple information systems and inaccurate
delivery of finished products. These are problems
related to coal circulation, which clearly indicate
that China’s coal circulation system is unsophisticated and that the necessary means to regulate circulation are not in place. A sophisticated
coal market system is the precondition for government macro-regulation using market and legal
means. So, the coal market system needs to be
further improved to lay a foundation for institutional reform of the coal industry. The key is to
select accurate breakthrough points. Inventory
standards, inventory management, unified information systems (the key) and accurate delivery of
finished products are four areas to be improved.
Coal market information, as an important enabler
of government regulation of coal circulation,
includes coal trading, inventory, flow and
demand, and could engage the other three areas
to improve the current coal market system.
Special Report 4: China’s Energy System Revolution
485
Function Needs to Be
Defined Clearly
Coal will remain China’s main energy source for
a long time to come, although its share of energy
consumption will decline. Forecasting of future
consumption trends suggests that the coal
industry’s role in the Chinese economy will
change. Its function of supporting energy supply,
the economy and society will remain, but its
status as a pillar industry will weaken. Coal,
which is abundant in China, is a low-cost energy
that will continue to account for a high proportion of the country’s energy consumption. The
coal industry has many workers and assets and
high levels of debt. What happens in the coal
industry has a strong chain effect on midstream
and downstream industrial enterprises and the
service sectors. Stability in the coal industry is
important.
As China’s main energy source, coal stabilises
and supports the economy and society. The
government therefore needs to impose macroregulation on short- and medium-term fluctuations
in the coal market to minimise economic, social
and safety risks. The two functions are related. If
the coal price is stable, economic and social risks
are low. However, even if the price is steady, coal
mine closures, unemployment, insolvency and
other economic and social risks still exist. In
addition, safety should be prioritised.
6.3.4 Controlling Administrative
Regulation by Market
and Legal Means
Administrative regulation focuses on short- and
medium-term problem-solving and tends to pursue short-term performance at the cost of
long-term objectives. The root cause of this is
that administrative regulation is not well controlled. Government directly intervenes in the
production and operation of coal companies,
crossing the line between government and the
market. But the status of the coal industry has
changed. It has opened up. Government regulation of the coal market should also change in
alignment with ongoing coal industry reform,
replacing administrative regulation with market
and law-based regulation.
To control administrative regulation successfully requires a sophisticated coal industry system to be in place. Only with complete standards
and laws can the government’s use of market and
legal regulation be fully developed. So, to make
the most of market and law-based regulation, the
coal market system must be improved
continuously.
6.3.5 The Coal Market System Should
Be Developed at Carefully
Defined Points
China’s coal market made great progress after
2010. Once dual coal prices were abolished, the
pricing mechanism became more marketoriented. Some regional and local coal markets
are becoming increasingly mature. Coal transport, trading, finance and information services
are becoming more and more professional. The
shortage of rail capacity has improved radically.
But the coal market system still has some
shortcomings, such as incomplete inventory
standards, noncompliant inventory management,
multiple information systems and inaccurate
delivery of finished products. These are problems
related to coal circulation, which clearly indicate
that China’s coal circulation system is unsophisticated and that the necessary means to regulate circulation are not in place. A sophisticated
coal market system is the precondition for government macro-regulation using market and legal
means. So, the coal market system needs to be
further improved to lay a foundation for institutional reform of the coal industry. The key is to
select accurate breakthrough points. Inventory
standards, inventory management, unified information systems (the key) and accurate delivery of
finished products are four areas to be improved.
Coal market information, as an important enabler
of government regulation of coal circulation,
includes coal trading, inventory, flow and
demand, and could engage the other three areas
to improve the current coal market system.
Special Report 4: China’s Energy System Revolution
485