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Reforms derailed by small miners

Zhu Rongji
Mark O'Neill

Overproduction and weak demand has pushed the mainland's coal industry back into the red after its first profits for seven years last year.

Analysts said the only way out was to close thousands of illegal and dangerous small-scale mines.

In the first quarter, the mainland's top state-run mines had losses of 1.5 billion yuan (about HK$1.4 billion) and the money owed to them was close to a record high, the Economic Information Daily reported yesterday.

The results had caused despair among managers and workers, who had worked hard to bring the industry into the black last year.

This turnaround was possible because of a restructuring ordered at the end of 1992 by Prime Minister Zhu Rongji who was then vice-premier.

Mr Zhu said the big mines were hopelessly inefficient and needed to cut 2.66 million of their 3.66 million workforce.

In a reduction comparable in scale only to that of the textile industry, by the end of last June these mines had laid off 883,000 workers and increased annual output per worker to 2.01 tonnes from 1.33 tonnes in 1992.

These improvements had been more than offset by overproduction, especially by the 75,000 small mines owned by collectives and individuals, which accounted for 43.6 per cent of national output.

Of these mines, 25,000 were illegal and they had a coal recovery rate of 15 per cent, against 70 per cent for big state mines.

The small mines had a fatality rate seven times higher than their larger counterparts with 5,000 casualties last year, accounting for 80 per cent of miners who died at their work.

Because of low safety standards, the production costs of these mines were lower than the big ones, enabling them to accept lower prices.

The newspaper said the way to bring the industry back to profitability was to close thousands of unsafe and illegal mines and bring supply closer to market demand.

One big obstacle was their operators largely ignored the law and many were protected by local governments, which received substantial income from the mines in their area.

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