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Proper Handling of Seven Relationships in Achieving Chinese Coal De-Capacity Targets

Document Cited in Related
Vincent
Published date01 February 2020
DOI10.3366/gels.2020.0009
Pages107-113
Date01 February 2020

In February 2016, a document entitled ‘The Opinions of the State Council on Reducing Overcapacity in the Coal Industry to Achieve Development by Solving the Difficulties’ (G.F. [2016] No. 7) was published (hereinafter referred to as The Opinions). The Opinions highlighted the task of reducing overcapacity in the coal industry, with specific goals including 1) tightening control of the launch of new coal-mining projects, and refraining the expansion of coal production capacity; 2) eliminating outdated coal production facilities; and, 3) scheduling systematic withdrawals of the relevant collieries. According to China's energy consumption records, coal contributed to 62% of the country's total primary energy consumption in 2016, and the ratio was down to 60.4% in 2017. In 2018, China consumed 2.74 billion tons (bts) of coal, accounting for 59% of its total primary energy consumption, and the figure is estimated to be decreased further to 58% by 2020.

At the present, a few problems have emerged in China's coal industry, amongst which is the prominent issue of excess production capacity. From 2019 to 2020, the coal industry has an overcapacity of around 1.8 million tons (mts). In retrospect, many political and administrative factors have played a part leading to the excess capacity of coal production, including the inordinate state interference, precipitate policy enforcement style, the arbitrary decision-making process, the lack of smooth policy coordination, and the absence of comprehensive policy evaluation etc. These problems have invoked criticism in public opinion.

In view of this context, I believe the state ought to reaffirm the priority of de-capacity – the removal of excess capacity of coal production1 – in its future energy blueprint. Moreover, a proper balance of several ‘relationships’ in the process of de-capacity is in need to warrant a more effective policy implementation.

THE RELATIONSHIP BETWEEN ADMINISTRATIVE POWER AND MARKET POWER

In retrospect, the Chinese state has over-emphasized on the significance of administrative power, and neglected the potential of the market power. Therefore, the central government has relied on two administrative measures to refrain the coal production capacity: by signing contracts with the local governments to specify the targets to be achieved, and by projects evaluation and approval power to keep things under control. According to the No 2 Notice of 2019 by China's National Energy Administration, issued on the 15th of March 2019,2 by December 2018, there were 3373 collieries who had full licenses and qualifications, which was a 5.7% increase compared with 2017; but the collective annual coal production capacity was 3.53bts, 13.7% lower than the year before. However, according to a different national statistics report, at the end of 2018, there were around 5,800 collieries in China, with an average annual production capacity at 920,000 tons, which brought China's total coal production capacity to more than 5.3bts. The significant divergence of the two statistics has indicated the existence of a huge illegal production capacity in China's coal industry.

In my view, it is certainly inappropriate to over-depend on the administrative power, but it is equally insensible to romanticize the potential of the free market. A fair solution should be to combine the visible hand (the state power) and the invisible hand (The market power) together, to play a joint role in adjusting the over capacity of coal production. In other words, both the market power and...

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