China Can Have Cheap Coal or Common Prosperity. Not Both
(Bloomberg Opinion) -- Less than three months into a coal output surge ordered by Beijing to paper over the cracks in China’s electricity grid, the signs of strain are starting to show.
Emergency rescue services were rushed to an illegal coal pit in Shanxi province Wednesday night after 22 miners were trapped underground by flooding, one of the country’s worst mine accidents in months. The same province, the heart of China’s coal belt, has ordered mines operated by Jinneng Holding Power Group Co. to halt production after 54 of them were found to be operating in excess of their agreed capacity, CCTV News reported on Monday.
Shortages of solid fuel in September drove coal prices to 1,982 yuan ($311) a metric ton, causing power cuts across the country as utilities refused to sell electricity at a loss. In response, Beijing ordered a drastic ramp-up of output to replenish depleted stockpiles and bring costs down.
Coal output would increase by about 220 million metric tons a year, a mine safety official told a briefing in October — not much less than the roughly 270 million tons produced annually by the whole of Africa. That thick cloud of carbon cast an early pall over the COP26 climate meeting the following month.
Still, it was inevitable from the start that this production drive would run into problems. Mine output isn’t a treadmill that can easily be dialed up and down. Instead it’s more like a production line. You can make it run faster to cope with a surge in demand, but you’ll inevitably run into problems from working your machinery too hard. In coal mining, those issues can easily turn fatal.
Take Shanxi. In contrast to neighboring Inner Mongolia, which mostly digs fuel from open pits, its mines tend to be underground, chasing narrow seams of carbon deep into the earth. For all that Communist parties through history have made popular heroes out of workers like Alexey Stakhanov and Wang Jinxi, who’ve seemed to boost mineral output through sheer willpower, mines are ultimately at the mercy of their geology. Operating 24 hours a day, the only way they can increase output in a hurry is to skimp on maintenance time and run their equipment above its capacity.
That can lead to all manner of problems. One of the key risks at coal mining sites is emanations of highly flammable methane and coal dust. A spark from an improperly serviced conveyor belt, or extractor fans running too slowly for the space being opened up, can easily lead to an explosion that will cause pits to collapse and trap workers below the surface. The same goes for flooding as a result of dewatering pumps that aren’t correctly maintained or monitored.
A push to increase production at all costs may even cause mine planners to start developing so-called gassy deposits, which can be productive but emit too much methane to operate safely in normal times. Five of the Jinneng mines found to be operating above their stated capacity were gassy pits, according to CCTV.
This isn’t a problem unique to China. When commodity prices rise suddenly, health and safety deteriorates and worker injuries rise, as mine operators focus on increasing output, according to a 2019 U.S. study. (Low prices can also cause problems, as operators no longer have the cashflow to invest in maintaining and upgrading their equipment.)
Still, its implications go well beyond safety inspections. A central plank of President Xi Jinping’s agenda to promote “common prosperity” is closing the yawning wealth and income gaps between China’s coastal provinces and the more hardscrabble areas of the interior. Increasing rural incomes and standards of living is seen as an essential step toward lifting the whole country from poverty and easing the internal migration pressure on the biggest cities.
Over the past decade, that’s not what’s happened in the coal belt. Gross domestic product per capita in Shanxi has gone from 108% of the median province in 2008 to 86% in 2018. Inner Mongolia, once one of the richest areas of the country outside its big cities, is looking distinctly closer to the average these days. Among the big coal producing provinces, only the similarly named Shaanxi has been rising relative to the rest of the country, thanks in part to its burgeoning aerospace and high-tech industry.
If you want coal miners to earn more and lead healthier, less hazardous lives, you’re ultimately going to increase the cost of the solid fuel on which so much of China’s economy still depends. Until the country beats its carbon addiction and increases its renewables output, the conflicts between a national economy hungry for cheap energy and rural areas desperate for advancement will only increase.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
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