China’s dependence on other nations’ coal exports is growing. In 2009, China imported 126 million tons (Mt) of coal and became a net coal importer. In 2011, China sourced 182 Mt of coal from overseas suppliers, and overtook Japan as the world’s top coal importer. Moreover, as the world’s top coal consumer, China’s imports could rise again significantly by 2015 (Reuters, January 26; May 30, 2011; National Bureau of Statistics, China’s Statistical Yearbook, 2008–2011). According to the Ministry of Land and Resources, China’s proven coal reserves amount to 19 percent of the global total, making China home to the world’s second largest proven coal reserves after the United States . Given the enormous size of its domestic reserves, why is China moving to import coal from abroad instead of producing all of its needs domestically? Might this phenomenon be as superfluous and foolhardy as carrying coal to Newcastle, England’s major exporter of coal in the fifteenth century? Newcastle, after all, had more coal than anywhere else.
Several factors could be contributing to China’s sudden and massive entrance into the coal import market, including transportation bottlenecks, market factors, environmental and safety considerations and concerns about depleting coking coal reserves. Exploring these factors will contribute to a more thorough understanding of how China is shaping international coal markets. This understanding is essential for managing the energy policy challenges associated with China’s burgeoning coal imports.
The majority of China’s coal resources are found in the western and northern inland provinces. In contrast, major coal-consuming centers are concentrated along China’s heavily populated eastern and southern coastline. Consequently, domestic coal output must be transported long distances via railways, roads or waterways from the west to the east and from the north to the south. Integrated railway and coastal marine shipping is the most important mode of coal transport in China. Because China lacks dedicated southbound rail lines, coal from the northern and western provinces destined for consumption in the south must first be moved eastward to seaports around Bohai Bay in northern China. From there it is shipped to major coal ports of discharge along China’s southeastern coastline.
Since 1980, national coal production in China has grown at an annual rate of 5.7 percent, reaching 3,235 Mt in 2010. During the same period, the growth in the total amount of coal transported by rail corresponded to an annual increase of 4.6 percent. In contrast, after a period of stagnation in the 1980s and early 1990s, coal throughput (both incoming and outgoing) handled by major Chinese coastal ports increased at an average annual growth rate of 19 percent (National Bureau of Statistics, China Statistical Yearbook 2011).
Measured as a percentage of national coal output, coal transported by rail has declined from 69 percent in 1980 to less than 50 percent in recent years, while coal throughput handled by major coastal ports has increased from 0 percent in 1980 to 36 percent (National Bureau of Statistics, China Statistical Yearbook 2011). As coal transportation infrastructure in China usually is operating near or at full capacity, these developments imply that the capacity of coastal ports in China has increased faster than the capacity of railway infrastructure, enabling ports to handle higher percentages of national coal output as well as a sizable amount of coal imports.
The capacity expansion of major coal ports of discharge in the southeastern provinces allows consumers there to choose between domestic coal from northern ports and overseas coal from the international market. Given the capacity constraints of the railroad infrastructure and the resulting likelihood of delays in coal shipments, Chinese consumers along the southeastern coastline may prefer coal imports over domestic supplies for the purpose of supply stability. In addition, Beijing may encourage rising coal imports as a way to ease transportation bottlenecks out of the inland provinces without costly investments in dedicated coal rail lines.
Historically, contract steam coal prices for utility use were tightly regulated in China and set far below retail prices. In 2006, Beijing finally allowed prices of steam coal for utility use to be fully subject to the market. Since then, contract coal prices for utilities have increased rapidly. The central government however still tightly regulates retail electricity prices to control inflation. As a result, Chinese utilities cannot pass the increased costs of coal on to consumers and, therefore, are forced to look for ways to lower their generation costs in order to avoid losses.
Not surprisingly, utilities in China’s coastal provinces turned to international markets, as overseas coal became cost competitive with domestic supply after the worldwide economic slowdown in 2008. In 2009, China’s coal imports accounted for 15 percent of global coal trade volume (International Energy Agency, Coal Information, 2011). On the other hand, in early 2011, when international coal prices rose above domestic prices, Chinese buyers significantly cut their coal imports.
Based on Chinese buyers’ behavior in the past, domestic and international prices probably will be a significant factor for future coal imports. Squeezed by regulated electricity prices and looking to minimize costs, many Chinese buyers may import heavily when international prices are relatively low, but use domestic coal when international prices become unfavorable.
To the extent that coal imports relieve the push to keep small and inefficient mines operating or to site new large-scale mines, they could prevent new mining activities and the associated environmental damage to China’s coal-rich regions, and assist efforts by the central government to close small and often especially harmful mines. From a Chinese perspective, coal imports therefore could serve local environmental goals. Still, no matter where coal is mined, the process always has some detrimental environmental effects on the host country (“China’s Botched Coal Statistics,” China Brief, October 25, 2006).
On matters of air pollution and greenhouse gas emissions, the effects of China’s coal have shifted from the local to the global level. In 2006, China overtook the United States as the world’s leading carbon emitter and, since 2009, carbon dioxide emissions from Chinese coal combustion alone have exceeded national carbon emissions in the United States, leading to more international pressure on China to reduce the carbon footprint of across its coal value chain—from mining to burning. China could view importing coal rather than mining it domestically as one possible strategy for reducing its coal-related carbon footprint—at least as a way for local officials to claim credit for environmental improvements. In a larger sense, this merely shifts the burden of coal production–related carbon emissions to other nations whose coal China imports without any effect on rising global greenhouse gas emissions. Furthermore, this strategy would not address carbon emissions from coal combustion at Chinese factories and power plants.
Coal Mining Safety
Most of China’s key state-owned enterprises, including Shenhua Group and China Coal Energy Company, run state-of-the-art mining operations and have very low fatality rates. For instance, Shenhua’s fatality rate of 0.025 deaths/Mt of coal in 2010 was not only significantly lower than China’s national average at 0.749 deaths/Mt of coal but also lower than the U.S. level at 0.049 deaths/Mt of coal in the same year .
By contrast, many smaller mines, run by township and village enterprises, regularly ignore safety regulations and do not provide miners with modern equipment. In the past decade, these mines accounted for about one-third of national coal production but often nearly three-quarters of the annual fatalities. The fatality rate of township and village mines peaked at an astonishing 14.81 deaths/Mt of coal in 2001 .
While the central government has tried repeatedly to shut down many of these mines, its efforts have been only partially successful. China’s huge demand for coal makes it difficult to forego the output provided by these mines, and vested interests in local governments try to keep the mines operating for the purposes of local revenue and personal gain (“China’s Botched Coal Statistics,” China Brief, October 25, 2006; “The Strategic Vulnerability of China’s Reliance on Coal,” China Brief, April 12, 2006). Insofar as they help ease supply and demand constraints, rising coal imports could make it easier for China to continue to close or consolidate small and unsafe mines. Beijing may view overseas coal imports as an alternative strategy to improve coal mining safety and assert its control over the industry.
Preserving Coking Coal as a Constraint
China is rich in coal, but not all types. Coking coal—compared to steam coal—is a relatively scarce resource as it only represents about one-quarter of China’s total coal reserves. According to the National Administration of Coal Mine Safety, China’s total coking coal reserves account for 13 percent of the global total .
Coking coal is a vital input for iron and steel manufacturing, and China’s high-speed industrialization and rapid growth of iron and steel production capacity is quickly depleting its coking coal reserves. To alleviate shortfalls in coking coal supplies, China became a net coking coal importer in 2004. In 2010, China produced 51 percent of global coking coal production, but still imported 19 percent of the global total in order to meet domestic demand (International Energy Agency, Coal Information, 2011; National Bureau of Statistics, China’s Statistical Yearbook 2011) .
The sharp contrast between the share of Chinese coking coal reserves in the world and its output ratio in the international context indicates China is depleting its reserves at a very fast rate. Given the importance of coking coal in iron and steel production, Beijing is planning to categorize coking coal as a “strategic resource” and might prefer importing coking coal to buttress supplies and protect domestic coking coal reserves from depletion (Platts, April 15, 2011).
Next Steps for Managing China’s Coal Imports
Coal is expected to be China’s most dominant energy source in the foreseeable future. At issue is where China’s coal will come from—state-of-the-art domestic production, average Chinese mines with mediocre efficiency performance, small Chinese mines with terrible environmental and safety records, imports from other coal-producing countries with questionable mining practices or imports from advanced coal mining economies with stringent environmental regulations. Each of these supply options has its own set of trade-offs, and understanding them is crucial for the international community to manage economic, geopolitical and environmental impacts from China’s effect on import markets and prevent unintended consequences in emerging global coal trade patterns.
Far-reaching reforms of the governance structure of China’s energy sector are necessary, whether China shifts toward importing greater amounts of coal or not. Coal imports may serve a multitude of purposes, though a preferred strategy is to enact regulations that improve the accountability and transparency of the Chinese coal mining industry. In addition, more efficiency throughout the coal value chain—from mining to transport and end use—could bring environmental, social, economic and safety benefits nationally.
China’s recent swing from being a net coal exporter to a net coal importer portends significant changes on the global stage, especially in terms of climate change, because China will be exporting some of its carbon footprint, thereby shifting responsibility—at least from Beijing’s perspective. Understanding China’s rising coal imports is crucial for managing their far reaching policy implications and global environmental impact. More specifically, how to balance national interests of individual countries, economic benefits and global environmental integrity is an open question that certainly deserves further investigation.
China’s proven coal reserves at 170 billion tons are from the Ministry of Land and Resources. Data for the rest of the world are based on BP Statistical Review of World Energy 2011.
See Shenhua Group’s corporate website, www.shenhuagroup.com.cn/zjsh/shgk/index.shtml; National Administration of Coal Mine Safety in China, https://coal.nengyuan.net/2011/0117/73180.html; and U.S. Mine Safety and Health Administration, “Coal Fatalities for 1900 Through 2010,” www.msha.gov/stats/centurystats/coalstats.asp.
Kevin Jianjun Tu, “Coal Mining Safety: China’s Achilles’ Heel,” China Security, Vol. 3, No. 2, 2007, pp. 36‒53; China Coal Information Institute, China Coal Industry Development Report (various years).
See the National Administration of Coal Mine Safety, www.sxcoal.com/business/1837/bookshow.html; China Coal Information Institute, China Coal Industry Development Report.