Coal Production and Demand of Balance in China

China is a country which is rich in coal, lacking in oil and with scarce gas, it has been number one coal producer and consumer for decades in the world. The figure of coal reserves in 2006 was 1,034.5 billion tons, the third biggest in the world. Coal has always been China's core energy supply and important raw material. However, divided by a large population, China's coal reserves and hydro power resources per-capita is 50% of the world's average, while its oil and natural gas resources per capita is only about 7% of the world average. Although China has been one of the biggest energy import country in the world in recent years it remains as a coal net export country. Being affected by changes in tariffs, strong domestic demand and the appreciation of Yuan, China is importing more and exporting less coal and had almost certainly turned a net coal import country in 2007 for the first time in its history and will probably remain one in the near future.

In 2005 China produced 2.1 billion tons of coal , accounting for 40% of the global production. In 2006 the figure was 2.38 billion tons and in the first half of 2007 was 1.08 billion tons. In the first three quarters of 2007 the demand growth of the four major coal-consuming industries in China (power industry, steel-making industry, construction material industry and chemical industry) increased much faster than the growth of coal supply (11%). From January to September China's net coal import was 600,000 tons.

About 90% of China's coal resources lie in the west and the northwest but the energy resources are mainly consumed in its most developed southeast coastal areas. Each year China transports a huge amount of coal and oil from the north to the south and transmits a great deal of natural gas and electricity from the west to the east through long distance. Thus transportation has become the main barrier to the development of China's coal industry. The Chinese coal industry association estimates that in 2010 the total net coal import of China will reach from 150,000,000 to 230,000,000 tons, this figure is much higher than the former estimate¡ª70,000,000 tons. China's coal import has been increasing steadily: 2,000,000 tons in 1990, 2,120,000 tons in 2000, 35,000,000 tons in 2006, estimated 50,000,000 tons in 2007. Guangdong and Fujian provinces in south China are major coal importers. They import coal mainly from Australia, Indonesia and Vietnam. Due to China's vast territory, uneven distribution of coal reserves and cheap marine transportation, prices of import coal in these two provinces are equal to or even lower than those of domestic coal.

Due to the fast growth of global economy, high oil and gas prices and European countries using import coal instead of local production, the international coal price has risen significantly in recent years, but the coal price in China's domestic market grows much more slowly. Experts estimate China's coal price will rise 10% in next year. In September 2006 China disposed of its ten-year-long coal export subsidy. In October 2006 China imposed a temporary 5% export tariff on coal and lowered the coal import tariff from 3-6% to 1%. These new policies indicate that China is willing to use foreign coal to supply its coastal area. China is optimizing its coal sector now: it plans to merge and reorganize large coal mining companies and has already closed down thousands of medium- and small-sized coal mines. So in the short term China will import more coal and the domestic coal price will keep rising, however, China has not changed its long term energy self-sufficiency policy and is determined to increase its coal supply capacity.

For further reading:

Du Guodong, China's Energy Conditions and Policies, Xinhua