Shanxi , the mainland's largest coal-producing region, has never seen better days economically than in the past five years, thanks to a fivefold jump in coal price and a doubling of national electricity demand. With a population of about 33.92 million, or 2.57 per cent of the national total, the province accounts for 22 per cent of the national coal output and a third of its reserves. Yet the economy's reliance on coal and coal-consuming heavy industries has caused severe pollution and water resource depletion problems. 'Our low coal price has not reflected the true environmental costs,' Governor Meng Xuenong said during March's National People's Congress. 'We have been subsidising the coastal economically developed regions and overseas buyers of their products. Mining operations have brought big ecological and environmental problems to our province.' The growth of 'dirty' industries is so strong that government efforts to steer the economy away from heavy industries by encouraging growth in the service sector will take many years to be bear fruit. The province's gross domestic product grew 14.2 per cent last year to 569.62 billion yuan (HK$647.1 billion), with growth in heavy industries - dominated by coal mining, coal coking, metal smelting and power generation - reaching 21.3 per cent. The coal mining industry's output led the economy with a growth of 32.9 per cent last year. It dwarfed the service sector's 10.5 per cent expansion, despite a concerted push by the government to develop the retail and tourism industries. The service sector's contribution to the economy has dwindled to 34.9 per cent from 44.5 per cent in 2001. This contrasted with an overall reduction to 39.4 per cent from 40.5 per cent of the nation's economy over the same period. Surging coal output and prices were largely responsible for a fourfold increase in the province's tax revenue to over 120 billion yuan from 29.2 billion yuan in 2002. But bulging government coffers have come at a price. Mr Meng said extensive mining had cut the water retention ability of the province's land, with 47 per cent of the area's 7,100km of rivers drying up and an annual reduction of 170 million kilograms in its agricultural harvest. The province's water shortage problem is one of the worst in the nation. As most mainland rivers originate in and flow out of the province, its people were allowed to use only one-third of its water resources. Insufficient investment in reservoirs and dams has only worsened the province's natural disadvantage. With worsening environmental and water problems, the provincial government has decided to restrain heavy industry growth, especially energy and resource-intensive activities that add little value, even at the expense of economic growth. It aims to shut outdated and inefficient pig iron, steel, coking coal, cement, metal alloy and power generation plants, whose total annual output is equivalent to one-fifth of the province's industrial output value.
