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China Economy

Five-year hiring freeze ordered at Chinese province state coal firms

Move in nation’s main coal producing area, Shanxi, part of bid to massively reduce scale of the industry, amid over a million layoffs

PUBLISHED : Monday, 13 February, 2017, 2:44pm
UPDATED : Monday, 13 February, 2017, 10:26pm

State-owned coal mines in China’s Shanxi province, the nation’s main production base for the fuel, have been told to stop hiring new miners over the next five years as part of moves to downsize inefficient pits, the state-run Xinhua news agency reported.

Coal mines in the province are at the forefront of China’s efforts to shut down excess plants and mines. The government has set a target of cutting nationwide coal capacity by 500 million tonnes by 2020. Beijing budgeted 100 billion yuan (US$14.5 billion) in special funds a year ago to help deal with the layoff of 1.3 million workers in state-owned coal mines.

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Beijing’s efforts to close pits have, however, met resistance at a local level, especially when coal prices started to rebound in China late last year.

The hiring freeze came after a provincial official said the reform of state-owned companies in Shanxi, particularly in the coal sector, has fallen way behind schedule. The regional economy only grew 4.5 per cent last year, far from its target of six per cent, posting the slowest growth rate among all provinces across China.

Given no new hires for miners over the next five years, the firms will have to select and shed miners among the current workforce, gradually cut back on excess managerial staff and use third-party labour to cut costs if necessary, Xinhua reported.

Wang Yixin, Shanxi’s deputy governor, said during a speech last week that coal occupied an unfairly large share, 36 per cent, of state-owned assets in the province and state-owned firms lacked innovation, modern management and diverse ownership.

State-owned coal companies in Shanxi are run on a model of high investment and debt to boost production. Over the first half of 2016, the seven biggest state-owned coal groups in the province owed a total debt of about 1.19 trillion yuan. These firms are hit hard when coal prices fall and one of method to cut costs is to delay paying workers.

State-owned firms owe their employees 5.46 billion yuan in wages and 11.8 billion yuan in social welfare contributions, according to Wang.

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Wang suggested the firms should pay back all the cash and benefits owed by May 1 and establish a strict hiring policy that connects appointments to the companies’ performance and industrial development.

“If we still live on such a low-end production mode as excavating and selling coal and wait for the coal market to improve, then we are truly in danger,” Wang said.

Wang also suggested taking advantage of the capital market to reform the “zombie” state-owned companies, which could either list on the stock market or be included in listed companies assets. If both don’t work out, they should consider exiting the market, according to his speech.

“Starting from this year, 18 state-owned listed companies have to do something in the capital market. Not using the precious platform as listed companies is a neglect of duty,” Wang said.