A Political/Economic Overview Of The Chinese Coal Industry With An Assessment Of Constraints To Production

I Introduction Coal fuels China. Roughly 70 percent of all commercial energy demand is supplied by domestic coal production and with the recent Chinese opening to the West, the Chinese Coal Industry may figure prominently in the export market as well. Because of the importance of China's coal industry to the future of China and the Pacific Rim energy balance, this paper reviews the industry and offers some cautious projections for its outlook. II Energy's Position in the Current Political and Economic Climate Traditionally, Chinese society has been dominated by the policies of its most important government leaders. Deng Xiaoping, Vice Chairman of the Communist Party is the current leader of China. Deng and his proteges are pragmatists. Although China's government structure is based on Marxist/Leninist tradition, Deng and his followers are promoting experiments with market economics and expanded relationships with Western Countries, which have encouraged foreign investment in China. Energy companies represent just one type of industry that is interested in helping the Chinese to develop their abundant natural resources. Although China's leadership is committed to a program of economic modernization, that program currently is experiencing what the Chinese government terms "readjustment". Readjustment cuts back in imports due to deficient foreign exchange and deemphasizes heavy industry, while it encourages agricultural and consumer goods output and, most imporant, energy production. Increased Chinese coal and oil production is essential both to fuel industry and, equally important, to provide foreign exchange. If sufficient energy production is not forthcoming, then economic growth will be severely retarded. China's 1979 per capita GNP of $260 is only slightly better than the weighted average achieved by low income countries of $230. (1) Delays in growth could lead to social unrest, threatening the position of the current leadership. Since there is no institutionalized mechanism for leadership succession and policy continuation, it is reasonable to assume that leadership changes could result in energy policy changes. III Energy Consumption Energy production is important to China's future economic health as highlighted by the World Bank. If China's economy grows rapidly, 5 percent to 6 percent during this decade, the Bank noted, a significant energy shortfall could occur as early as 1985. This state of affairs contrasts sharply with China's current position as a net hydrocarbon exporter. (2) To assure a healthy economic future, China's leadership is attempting to reduce its rate of increase in energy demand through conservation as well as to boost energy output. A massive conservation promotion program has been underway since 1979 and there is much room for improvement. China's industrial sector is only about half as energy efficient as is U.S. industry. (3) During the last two decades, each percent of increase in GNP has been accompanied by a 1.8 percent of increase in energy consumption. (4) This compares rather poorly with the United States where a less than one-to-one relationship exists. IV Energy Supply The short term prospects for oil production are uncertain. Production increases were rapid in the 1960's and early 1970's, averaging 20 percent annually, but most of this increase came from one field, Daquing. Now that Daquing's production has peaked and the offshore potential has yet to be developed, petroleum production has maintained a plateau of 2.1 million b/d, at least temporarily, of which approximately 15 percent is exported. (5) Output