Beijing juggles between cutting inefficient coal mining capacity and bad debt control
China’s policymakers in a bind as measures coincide with steep rise in demand for commodity and surge in manufacturing activities
Beijing has a tough balancing act to perform as it seeks to eradicate redundant coal mining capacity and stave off bankruptcies of uneconomic mines through its planned economy-style output control and price management.
Rather than allow market forces to eliminate inefficient producers, Beijing’s plan to aggressively monitor supply and prices has resulted in unintended consequences like volatile coal prices and delayed permanent closure of some inefficient mines, analysts said.
“Cutting off uneconomic mines reduces excess capacity, a key goal of the supply side reform,” Jefferies energy sector analyst Laban Yu said in a report.
“Indiscriminately reducing operating days for the industry is an example of production restriction, which is the opposite of supply side reform [as it] indiscriminately handicaps all producers to provide support for zombie mines.”
During the first seven months of this year, the coal industry achieved only 38 per cent of its targeted goal of cutting output capacity target by 250 million tonnes. The National Development and Reform Commission, China’s top economic planner, had also called for deeper cuts in the subsequent months.
The NDRC move is part of President Xi Jinping’s supply side structural reform, whereby industries are urged to change their focus from blind pursuit of scale expansion to flexible production with innovation that meets the actual demands of customers.