The Emperors King Coal, part 4 – Resistance to Reform

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Part 4 out of 6, in this “King Coal” series by Juha Tuominen. Juha is a foreigner living in Beijing since 2008. Having worked several years in central government-controlled industries such as energy, this series of articles also reflects the writer’s own experiences and observations on how things work or do not work in China.

Resistance to Reform

Coal in China is not only an energy question but an economical as well as a socio-economic question. Provinces such as Shanxi and its population of almost 40 million rely heavily on coal and the industry around it. In 2016 the coal and steel industry was estimated to employ around 12 million people, mining alone over five million in the whole country. In comparison, green power and oil&gas employed 3,5 million and 2,6 million, respectively.

These are not small numbers even for China and become more significant on the local levels. In international media predictions of China’s economic slowdown go forward, and even current numbers are questioned as to being manipulated. Be that as it may, from the central government’s perspective employment rates are far more important to maintain social stability in the country. And that is also what coal is much about.

Although China is more or less a socialist country, it does not mean that there is no resistance to reforms, no matter what the ideas behind them are. In 2016, followed by the second year of decline in coal energy and the announcement of new reforms for coal, there were 37 reported mass protests against the reforms in January alone!

Be that as it may, from the central government’s perspective employment rates are far more important to maintain social stability in the country

Failed Plans

Not all reforms turn out with a result they aimed for. In 2014 the central government implemented a reform that took the final approval of new coal plants as well as their monitoring to local governments. Prior all plants were approved in the capital. The reasoning behind this reform was the belief that local authorities would know local demand and circumstances the best and would thus be able to make faster and better decisions. But local investors saw an opportunity to make quick returns before the foreseeable crackdown on coal.

Top-down purchase quotas were still in place, and state-controlled electricity pricing made a coal power plant a lucrative investment in the short term. So even Beijing overlooked the other interests affecting local decision-making. In 2016 China announced a plan to close some 4300 out of a total of 11 000 mines nationwide during the following three years which lead to another outburst. Implementing such a plan would have required a reallocation of roughly one million employees, and the announcement brought more economical stress to the already stretched-out coal industry. The central government was forced to withdraw the policy only seven months after announcing it.

Further Issues

From an administrative perspective, China is not that unified a country. The capital constantly struggles to get local governments to implement new reforms while every province tends to put their own needs ahead of the capital. Take Shanxi as an example; in 2015, production of coal and coke, metallurgical industry and electricity generation provided 74 percent of industrial added value in the province.

Especially mass closing of mines or coal production plants would have such a drastic effect on the provincial economy, that not only would the local government face an impossible task of creating a huge amount of new jobs, but also the local leaders would do terribly in their personal assessment resulting in career development slumps.

In these circumstances, it is rather understandable that provinces tend to improvise instead of staying in line. The central government has been forced to accept this from time to time. In order to maintain local jobs and tax income, China has allowed the creation of overcapacity in the coal sector. But Beijing has been able to enforce capacity utilization caps, and currently, it is forcing all coal power plans to run at a rate of 47,7 percent.

Feel free to leave a comment, and make sure to check out part 5 and the rest of this extensive 6 part series coming out in the following days. Don’t forget to read our other interviews and articles on our homepage, or continue the discussion on our Facebook and Twitter pages.

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