NS4960 Spring Term 2017 China: Shift Away from Coal Oxford Analytica China Coal Trends Signal Deep Economic Shifts, April 2016

Overview Last several years have seen a decline in China's domestic coal production and consumption and a sharp reduction in coal imports The country's coal sector has reached a turning point Among major economies China is unique in the extent of its dependence on coal as an energy source This has magnified the environmental costs of almost four decades of rapid growth driven largely by infrastructure construction and industrialization

Coal Trends I According to official estimates coal consumption in China has increased almost seven-fold since 1978 What figures don't show is that from 1978 Coal's share of primary energy use rose from 70.2% to a peak of 76.2% in 1990. In 2009 the corresponding figure was 71.6% Since then it has steadily declined to a record low of 64.0% in 2015. In 2015 for the first time since 1978 coal consumption (and production) declined.

Coal Trends II

Coal Trends III However in November 2015 a revelation that since the early 2000s coal consumption has been higher and increasing more rapidly than previous official figures suggested In 2013 (most recent year for which revised data available) coal consumption was 12.5% higher than the original figure Still does not materially change conclusion that China's coal sector is at a tipping point and that the coming years will see a steady decline in coal consumption IEA suggests that by 2020 China's coal consumption will have fallen by almost 10% compared with that of 2013

Coal Characteristics Much of China's mined coal is of inferior quality Its efficient use requires careful treatment to remove impurities As part of its efforts to combat pollution government in 2014 banned use of low-grade coal Still burning of inferior coal remains widespread in rural areas Coal reserves and production are concentrated in a small number of northern and north-west regions of China Separation of mining activities from centers of industrial manufacturing in eastern and north-eastern China has placed increasingly costly burden on rail transport

Coal Imports I Transport costs have been a driver of the significant price gap between domestic and foreign coal supplies Despite a high import tax Overseas coal has been attractive, especially to central land southern coastal provinces. Between 2005 and 2009 gross coal imports increased almost fivefold to 126 million tons and By 2013 they had reached 327 million tons

Coal Imports II However Have reduced imports sharply Falling demand The introduction of import restrictions and A narrowing price differential between domestic and foreign coal Have reduced imports sharply In 2014 imports fell by almost 11% and in 2015 by a further 30% Imports have now peaked and will continue to decline India is poised to overtake China (if it has not done so already) as the world's largest coal importer

Coal Imports III

Scaling Back Despite existing coal-fired plants operating below capacity new ones are also coming on stream In 2015 some 155 were approved However, in late 2015 government announced that as of 2016 approval of new mines would be suspended Goal is to reduce coal's share in energy consumption to 62.6% by 2017 Doing so will be a major challenge, since coal plants offer the simplest and fastest means of meeting provincial energy needs as well as generating tax revenue for provincial governments.

Employment Impact Government has announced that 1.3 million jobs will be lost as a result of efforts to reduce coal usage Potential fallout from job losses is significant Some 15 billion dollars have been allocated to help compensate and retrain displaced workers Protests against unpaid wages by thousands of workers at one state-owned mine in March 2016 highlight the need to defuse what could become a major source of social instability

Conclusion Continued slowdown in GDP growth rate seems assured Will lead to a further steady decline in coal consumption The increasing importance of the service sector within the economy and the government's strong commitment to reducing carbon emissions will reinforce this declining trend However coal is so integrated into the fabric of China's economy that it will play a significant role for years to come Coal exporters such as Indonesia and Australia will suffer as China's demand weakens Global coal prices will remain under pressure despite rapidly rising demand from India and Indonesia