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A STUDY OF THE COAL POLICIES IN CHINA
Liang Peng
ABSTRACT: Since China opened to the world and launched its
economy reforms in the early
1980s, the main source of energy in China has always been coal,
whether for electric power generation,
railway transport, an input to a vast array of industries, or as
the principal heating fuel in the
residential and commercial sectors. The evolution of the Coal
industry in China mirrors the countrys
economic development as a whole. Therefore, the coal policy in
China is critical not only to its energy
sector, but also to the development of Chinas economy and
society. From the international trade
perspective, as the biggest coal producer in the world, China
has considerable influence on the
international coal market. Yet, the government controls the coal
trade through state-owned trading
companies and export licenses. Thus, in the absence of free
trade with China, the international coal
market will remain heavily influenced by decisions made in
Beijing. In order to understand Chinas
coal policy, this paper briefly examines salient coal policies
in the thirty years of coal industry
evolution (1980-2010). It analyzes some influential factors in
coal policy-making through an empirical
approach, and then points out Chinas coal policies for the
future in conclusion.
The author is currently enrolled on the LLM in Mineral Law and
Policy at the University of Dundee
(CEPMLP), UK. Email: [email protected]
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TABLE OF CONTENTS
Abbreviations
...............................................................................................................................
iii
1. Introduction
...........................................................................................................................
2
2. Overview of Chinas coal policies in thirty years
................................................................
3
3. Evaluation of Chinas coal policies
.......................................................................................
7
4. Conclusion
............................................................................................................................
10
Bibliography
Appendix
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iii
Abbreviations
CMA Central Mining Administration
LSOM Local State-Owned Mine
MCI The Ministry of Coal Industry
KSOM Key State-Owned Mine
NDRC National Development and Reform Committee
SACI The State Administration for Coal Industries
TVCM Township and Village Coal Mine
TVE Township and Village Enterprise
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1. Introduction
In most countries, policies play an important role in energy
sector. The reason is simply that
energy is too important to be left to the markets. 1 Coal is a
kind of mineral within the
boundaries of the mining industry, but it is primarily an energy
product like petroleum and
natural gas.2 Since China opened to the world and launched its
economy reforms in early
1980s, the main source of energy in China has always been coal,
whether for electric power
generation, railway transport, an input to a vast array of
industries, or as the principal
heating fuel in the residential and commercial sectors. The
evolution of coal industry in
China mirrors the countrys economic development as a whole.3
Therefore, the coal policy
in China is critical not only to its energy sector, but also to
the development of Chinas
economy and society. From the international trade perspective,
as the biggest coal producer
in the world, China has considerable influence on the
international coal market. Yet, the
government controls the coal trade through state-owned trading
companies and export
licenses. Thus, in the absence of free trade with China, the
international coal market will
remain heavily influenced by decisions made in Beijing.4 In
order to understand Chinas
coal policy, this paper briefly examines salient coal policies
in the thirty years of coal
industry evolution (1980-2010). It reveals three different
stages of policy development
towards the coal industry, yet each stage had conflicting
direction to the coal development.
What caused the inconsistency of the coal policy in China, what
are the economic factors
for the policy-making? The paper analyzes some influential
factors in coal policy-making
through an economic and empirical approach, and then points out
Chinas coal policies for
the future in conclusion.
1 Professor Paul Stevens listed several dimensions for the
importance of energy. See The Economics of
Energy (U.K, Dundee University, 2009) 2 Phillip, Crowson, Mining
Unearth, (2008) p.11.
3 Elspeth, Thomson, The Chinese Coal industry: An Economic
History, (2003) p.2.
4 Brian, Ricketts, Coal in China from a Global Perspective, in
Shaping Chinas Energy Security The Inside
Perspective(Michal Meidan ed., 2007)
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2. Overview of Chinas coal policies in thirty years
The Great Leap Forward: 1980-mid 1990
Energy shortage is undoubtedly the foremost constrain of Chinas
economy development.
When Chinas leader Deng Xiaoping launched the reform to economy
development in the
ancient country, the first priority was to increase energy
supply to fuel the economic
activities. Coal industry was under pressure to satisfy thirsty
energy demand in 1980s. In
order to quickly increase coal supply, the central government
prescribed several measures to
promote coal production. In 1981, the Ministry of Coal
Industries formulated a policy for
small-scale coal mines5 which included higher levels of
subsidies, tax allowances,
investment in infrastructure and funds for the maintenance of
mines. For example, in
Shanxi Province, these mines received compensation from the
provincial government for
every tonne of coal they produced. These funds were to be used
for environmental
protection, safety and technology. The year 1983 and 1984 saw
two important measures
being introduced by the State Council. One was the introduction
of the term township and
village enterprise (TVE) to replace the old commune and brigade
enterprise as part of the
highly successful drive to stimulate economic activity at this
level. The other was a
document entitled Eight measures on accelerating the development
of small coal mines
which was supported by the Prime Minister, Zhao Ziyang. The
principal aim was to rise the
level of national coal output by whatever means were necessary,
and to encourage coal
production for local consumption and thus ease the pressure on
the railways and waterways.
The following year guidelines were issued to promote the
simultaneous development of
coal mines of different size and of different ownership. These
policy steps culminated in the
introduction of the first comprehensive Mineral Resources Law
under the communist
government, in 1986. As a result, from 1979 to 1996, Chinas coal
production peak year,
nationwide output increased 738.54 million tons or 116.2
percent. Annex 1 provides total
coal production figures with the annual increments and growth
rates from 1978. 6By this
time, the Township and Village Coal Mines (TVCM) produced 48
percent of the nations
5 Small mines has no unified definition, according to the latest
document issued by Chinese government, the
mines with annual output below 300,000 tons are small mines and
shall be closed. 6 Elspeth, Thomson, The Chinese Coal Industry: An
Economic History (2003) p.178.
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coal and had accounted for more than 70 percent of the
incremental coal output in the
previous fifteen years. 7The polices implemented during this
period successfully raised the
coal production to satisfy the roaring energy demand, and
created the biggest coal industry
in the world, but it ignored the severe damages to air, land,
water and natural resources
caused by massive small mines around the country.
Adjustment and Restructuring: Mid 19902000
By the mid 1990s, the number of TVCMs probably exceeded 80,000
and they employed
between 2 and 4 million people, many of them were illegal mines
with poor management
and working conditions. It was impossible to know the precise
number of such mines. The
drastic growth of local mines and their coal production
seriously disturbed the coal market
and damaged the healthy development of coal industry. The
industrys losses nationwide
had continued to mount during the late 1980s and peaked at 5.75
billion yuan in 1992. Late
that year, the Central Mining Administrations (CMA) had
difficulty meeting the basic
wages of the miners, let alone any extra wages for above-quota
production. A major
problem was the default of coal payment by large consumers
because the buyer has more
market power in an oversupply coal market. On the other hand,
during this period, the
accident rate, at the TVCMs in particular, had been alarmingly
high. 8The State Council
noticed the uncontrollable situation of coal industry, and
stepped in by restructuring the
industry. Several circulars were issued to regulate small mines,
such as the Circular of the
State Council on Regulating Private Coal Mining, and Opinions on
Stopping the
Indiscriminate Extraction of Small Coal Mines and on Ensuring
Safety in Coal Mining.9 In
all, some 13,000 illegal small mines were closed in 1993.10
In order to strengthen the
regulation on coal industry, the Ministry of Coal Industry (MCI)
which had been disbanded
in 1988 was re-established. In May 1993, the Mine Safety Law was
entered into force to
improve the safety at coal mines. Chinas first coal law, The
Coal Law of China came into
effect in December 1996, in an attempt to regulate coal
development and production,
7 Philip, Andrew Speed, Energy Policy and Regulation in the
Peoples Republic of China,(2003) p. 82.
8 Elspeth, Thomson, The Chinese Coal industry: An Economic
History, (2003) p.152.
9 Broadcast on Xinhua, 0205 GMT, 17Jan. 1993, in FBIS, 27 Jan.
1993, pp.21-2
10 China Statistic Bureau, China Coal Industry Yearbook (1995),
in Chinese.
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establish a rational relationship between the State and
individually licensed mines. It also
sought to ensure efficient use of coal resources, labour and
equipment. In addition, by late
1997, the government had been openly encouraging a reduction in
the role of coal, mainly
for environmental reasons. In June 1998, the coal production
target for the year was reduced
by 70 million tones, and in August it was announced that 22,000
mines without licenses
would be closed in 2000 so as to reduce output by the 200
millions tons necessary to bring
down supply closer to demand. By the end of 1999, a total of
31,000 small mines had been
closed. As the result of the above policies, since 1996, the
coal production had continually
decreased and reached the bottom in 2000, in which year the coal
production was only
880.10 million tons, almost the same level as that in 1985. But,
we should also consider the
impact of the Asia crisis, the radical economic reforms towards
becoming a socialist market
economy, and the increased consumption of oil and gas, which
increased its share in energy
sector from 17.5 percent in 1995 to 23.2 percent in
1999(Table2.1). At the end of 2000, the
adjustment and restructuring of coal industry gained some
achievements, the number of
mines was largely reduced with the closure of small, inefficient
and illegal mines, 25 large
scale State-owned coal mines reformed into modern mining
company, the overproduction
was restrained, and coal export peaked at 59 million tons. But,
some problems still existed.
Source: Philip Andrew Speed,, Energy Policy and Regulation in
the Peoples Republic of
China (Netherland, Hague: Kluwer Law International, 2003)
Great challenges: 2001-present
Since 2001, China economy has entered a fast track, economic
growth rate reached over 10
percent per annum until the Crisis of 2008. Pushed by the
increasing energy demand in
heavy industry sector and other high energy consuming sector
such as steel, aluminum,
construction material, the coal production has increased
dramatically. In 2005, the total coal
production reached over 2 billion tons. When we look to the coal
output by mine ownership,
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it can be seen that the share of TVCMs also increased quickly,
according to Statistics, from
2000-2006, the output by TVCMs increased by 232 percent, i.e
6,230million tons per year
while Key State-Owned Mines (KSOM) increased only by 109
percent. In 2006, output of
TVCMs made record high peaking at 8,920 million tons or 38
percent of total output in
China.
[Light blue: TVCM; Gray: LSOM; Blue: KSOM]
Source: IEA., Cleaner Coal in China,
(France, Paris, 2009)
While the central government tried to reform the coal industry
towards consolidation and
commercialization of mining enterprises into larger modern
conglomerates which owned
mines from different mining areas and different provinces like
Yanzhou Coal Group and
Shenhua Coal Group, the TVCMs owned by local governments or
individuals still play an
important role in Chinas intensely tight energy market. The
reforms to the coal industry
launched in 1998 though gained some progress, has not completed
yet. Despite the
structural reform, at the same time, the development of coal
industry faces other challenges.
Firstly, the environmental deterioration became a big concern.
No wonder, coal is a major
contributor to CO2 and sulphur emission. The indoor and outdoor
air pollution created from
the burning of coal has accumulated over many decades in China.
One western scholar
writhing in 1997 ventured to say, the smoke burden today in
major Chinese industrial
cities such as Chongqing is significantly worse than it was in
[the killer smog] in London in
195211. In the mid-1990s, China accounted for about 14 percent
of the worlds carbon
dioxide emissions, second highest after the US 22 percent12.
Thousands of coal mines also
11
Elspeth, Thomson, The Chinese Coal Industry: An Economic History
(2003) p.194. 12
See id., p.195.
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caused irreversible damages to land resources. A study on the
impact of coal mines in
Shanxi Province, which accounts for some 25 percent of Chinas
total coal output, revealed
the following:
13 percent of the total land area of the province is affected by
coal mining; that is some
20,000 square kilometers out of 156,000 square kilometers;
650 square kilometers of land is subject to subsidence;
More than 200 square kilometers of land is occupied by coal
refuse tips totaling more
than 270 million tones in weight;
Within a selected study area, more than 20,000 square kilometers
of land required
rehabilitation as a result of coal mining.13
Secondly, the death toll in coal mining accidents has increased
sharply. In 2002, the death
toll in coal accidents was 6579.14
In 2005, the State Council issued the Special Provision on
Prevention for Coal Mining Safety. But the coal mining accidents
has continually made the
headlines throughout these years. Most of them happened in
TVCMs. In September, 2005,
the State Council issued another circular on regulating and
consolidating mineral resources
development.
Thirdly, the sustainable coal development became urgent.
According to the eleventh five
year plan of coal industry issued by NDRC, the coal exploitation
will be more difficult due
to the shortage of water in coal rich areas in western China,
such as Shanxi, and the
deteriorating situation of land subsidence in central and
eastern China. Therefore, to make
the coal industry sustainable, the enterprises have to adopt new
technology to enhance the
efficiency of coal exploitation and recovery rate. However,
there are thousands of mines in
China, most of them can not afford to adopt advanced
technologies.
3. Evaluation of Chinas coal policies
From the economics perspective, Chinas coal policies during
1980s were wrong. At the 13
Philip, Andrew Speed, Energy Policy and Regulation in the
Peoples Republic of China, (2003) p. 189. 14
See http://www.ocn.com.cn/free/200801/nengyuandianli026.htm.
(Last visited on Jan 20, 2010), in
Chinese.
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beginning 1980, China had not enough technologies, knowledge and
funds to exploit coal
deposits as many as it wanted. The policies of encouraging local
mines contributed directly
to the damages to the coal deposits and local environment, which
incurred immeasurable
costs in the later decades to reclaim. The local miners in their
ignorance of proper
engineering methods often ruined huge coal deposits, and
thousands people lost their lives
in accidents. They removed the coal from the ground using
largely improvised equipment
and the efficiency of production was so low that the mines were
in fact net users.15
Recovery rate for TVCMs is estimated to lie in the range 10 to
20 percent, compared to
60-80 per cent for the large state-owned mines. 16
Local pollutants include suplhur dioxide,
nitrogen oxides and suspended particulates. The main source is
coal used by industry and
households, with vehicle emissions and natural dust being
subordinate
contributors.17
Estimates of the economic damage caused by pollution from
energy
production and use in China are highly variable, but 3-7 percent
of GDP would appear to be
reasonable.18
When the central government realized the negative side of the
policies and
launched closure programmes in the late 1990s, the coal industry
had been so
uncontrollable that even the government didnt know the exact
number of output of the
TVCMs.
Another deficient coal policy was the structure reform launched
in 1998 being part of the
economic reforms towards becoming a socialist market economy.
The central government
decided to decentralize and marketize most of the state-owned
mines in an attempt to
reduce the burden of government and improve the financial and
technical performance of
the coal industry. In August 1998, ninety four state-owned coal
mines assets were
transferred to provinces, the MCI was abolished and its
government functions were
assigned to the State Administration for Coal Industries (SACI),
which was later abolished
and its safety function was taken on by the newly-created Coal
Safety Supervision Bureau.
The reform of Administration may help to separate the functions
of government and
industry and establish the market oriental economy, but, the
loose administration caused by
15 Elspeth, Thomson, The Chinese Coal Industry: An Economic
History (2003) p.189. 16 Philip, Andrew Speed, Energy Policy and
Regulation in the Peoples Republic of China,(2003) p. 86. 17 See
id., p.28. 18 See id., p.29.
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such reforms came too early for Chinas coal industry. In absence
of the complete legal
regime, clear defined government responsibilities and efficient
administration at provincial
and local level, the central governments effort to build up a
consolidation and
market-oriental coal industry has been largely reversed by the
booming TVCMs with the
support of local authorities19
. The direct aftermath of the loose administration was the
rising
death toll in frequent coal mining accidents. Li Yizhong, the
director of the State Safety
Supervision Bureau pointed out that the weak administration was
the major reason for
mining accidents20
.
On the other hand, the benefits of the policies were also
obvious. The TVCMs were the
most visible symptom of the drive to produce more energy, and
they made a greater
contribution to Chinas enhanced energy supply than any other
sector of Chinas energy
industry. In the short-term, this was the cheapest and surest
way to boost the supply of
energy. Indeed, the short-term cost to the national government
was effectively zero.21
TVCMs also played an important role in addressing local energy
needs. In 1980s and early
1990s, transportation and infrastructure in China was deficient,
TVCMs was the foremost
energy provider for local consumers, especially for large remote
rural areas as well as some
population intensive cities in energy-scarce provinces of
eastern China. For local economy,
it was the coal mine that acted as the main source of local
revenue, supporting the local
development in education, infrastructure and employment. The
policies were also
acceptable taking into account that the first priority of China
at that time was to eliminate
poverty.
In the long term, we can see that Chinas coal policies were not
well developed in a
consistent and sustainable manner. The policies had deficiencies
in many aspects. Firstly,
the cost-benefit analysis was ignored. While the rapid
development of TVCMs satisfied the
immediate need for energy, the obvious and substantial potential
costs was ignored. It has
been proved that the resources can be a curse without
considering the costs of mining,
19
See id., p.94. 20
See http://politics.people.com.cn/GB/1027/4663750.html (Last
visited on Jan 08, 2010) 21
Philip, Andrew Speed, supra note p.86.
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including some externalities, like environmental damages, impact
on local communities and
so on. Its argued that whether Chinas long-term interests would
have been better served by
either allowing the economy to grow at a slower rate or by
diverting more state investment
into primary energy production or energy imports during the
1970s and 1980s. The first
possibility would have been quite unacceptable to Chinas
leaders, for economic growth
was their first priority. The second approach may have received
some consideration, but
falling levels of state revenue would have rendered this
unattractive.22
But, even it was the
only choice for China to develop TVCMs at that time, the outcome
would have been less
destructive if relevant administration and laws are well
implemented.
Unfortunately, the policies to closure of TVCMs had not been
effectively implemented at
local level due to the ineffectiveness of the laws and
institutions governing the sector. For
example, a number of Chinese commentators and officials reported
that local officials were
submitting false statistics during the closure campaign. Some
were deliberately falsified and
others were inaccurate because closed mines had subsequently
been re-opened. Large
numbers of mines were continuing to operate illegally even in
2001.23
At the heart of the
weaknesses in the institutional framework for regulating Chinas
TVCMs lie two
fundamental conflicts of interest: that within local government
and that between lower and
higher levels of government. The key driving force behind the
growth of the TVEs was the
need for township and village governments to generate funds for
local investment. Local
government leaders provided vital support to TVEs in the form of
preferential access to low
interest loans.24
3. Conclusion
Since 2001, coal production has increased rapidly year on year
driven by the rapidly
economic growth. In 2009, the total production reached 2.96
billion tons. The dominant role
22 Philip, Andrew Speed, supra note p.91. 23 See id., p.98. 24
See id., p.94.
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of coal in Chinas primary energy supply will not change in the
foreseeable future. But, the
government has learned enough lessons on the externalities of
the coal industry and
understands that market forces in themselves do not prevent or
curb severe environmental
problems.25
According to the Decision on Strengthening Environmental
Protection to
Implement Scientific Development Theory,26
, the environmental protection is a
fundamental policy, and governments and enterprises at all
levels shall observe this policy
and manage to develop the economy while protecting the
environment. In March 2008, the
Ministry of Environmental Protection of China was established,
replacing the former State
Bureau of Environmental Protection. This showed the governments
determination to
strengthen environmental protection. No wonder, the
environmental factor will play an
important role in coal policy making in future.
In addition, the coal industry speeds up the development of
clean coal technologies and use
of coal bed methane resources in order to realize sustainable
development. For example, In
Xinjiang Autonomous region, two coal-to-synthetic natural gas
(SNG) projects have started
construction in 2009. Each project is designed to be able to
produce 6 billion cubic meters
of SNG a year. 27
NDRC has approved the second coal-to-gas project on Dec. 23,
2009.The
RMB 8.87 billion ($1.30 billion) plant is designed to produce up
to of 1.6 billion cubic
meters of natural gas from coal a year. 28
However, the priority task for the central government is to
improve the legal and
administrative regimes of coal industry at various levels. Until
now, we cant see any
improved measures on the governing of coal industry. Without
effective governing system,
its quite possible that the re-opening of TVCMs will take place.
Therefore, its foreseen
that the structure reform towards consolidation will continue in
order to strengthen the
governance of the coal industry.
25
Elspeth, Thomson, The Chinese Coal Industry: An Economic History
(2003) p.189. 26
State Council,Guofa (2005)No.39,at
http://www.zhb.gov.cn/ztbd/jd/ (Last visited on Jan 08,2010) 27
China Energy Report Weekly, Volume VIII Issue 50, (2009). 28
China Energy Report Weekly, Volume VIII Issue 44, (2009).
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Bibliography
Primary Sources
The Coal Law of China, Decree No 75 of the President of the
Peoples Republic of China,
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18, 2010).
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Peoples Republic of China,
reprinted in NPC 1992(entered into force on 1 May
1993)http://www1.www.gov.cn/banshi/2005-08/05/content_20702.htm
(Last visited on Jan
18, 2010).
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China Energy Report Weekly., Volume VIII, Issue 44, (Interfax
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(Last visited on Jan
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Appendix