The Dark Truths Inside China's Dying Coal Industry

The Dark Truths Inside China's Dying Coal Industry
AP Photo/Ng Han Guan, File

This article first appeared in Les Echos.

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    DATONG — "It's the end of a story," sighs Chen Yixian.

    The slender 56-year-old wears a permanent smile, but it can hardly conceal his despair as he watches bulldozers and trucks laboriously pushing their loads in the distance. In this huge open-pit mine at Sandu, 400 kilometers southwest of Beijing, all color seems to have disappeared. Coal is everywhere, the mountain excavated a little more each day. The intermittent palisades cannot prevent the thick black dust from invading the surrounding roads and villages. Mining activity in the province of Shanxi is visible for miles around: not only the pervasive dark dust, but also the smell of sulfur that permeates the atmosphere.

    On this spring day, the sky is blue and the sun is visible, a luxury in a region that is among the most polluted in China. It is also the result of a fall from grace of a once glorious industry.

    A few years ago, Chen Yixian was rubbing his hands together. He came to Shanxi as a miner before deciding to buy a mine with other investors in 2006. "At the time, you could buy a big mine for a few million yuan," he recalls. He witnessed the surge in the price of coking coal, boosted by the extraordinary demand of a Chinese economy with double-digit growth rates. "The inhabitants were even digging behind their houses!" he recalls. The wealthy owners of private mines made millions.

    "In 2008 it was the belle époque," he says, sinking into an old sofa at a construction site cabin overlooking his mine. "The golden age is over. Now, all I want is to finish this operation and turn the page. There is no future for small private mines." He's ready to start thinking about his reinvention "in logistics." Or why not even to realize a childhood dream: a television series for which he has already written the script: "A story of heroism, fighting the Japanese invaders in my village," he said.

    The story of Chinese coal started growing darker in 2014. After doubling in a decade and surpassing four billion tons annually, domestic consumption — more than half of the world's demand — began to decline. This resulted in a fall in prices and the profitability of mining companies. Several factors led to the upset. Growth fell gradually to its lowest level in a quarter of a century. The structure of the economy changed: Beijing began its difficult rebalancing toward service sectors (now more than half of the GDP), which are far less energy-intensive than heavy industry. The slowing down of infrastructure work through last year diminished the demand for steel and cement, two sectors that consume a lot of coal.

    Environmental constraints

    And that is not all. In a country where cities are suffocating under a fog of pollution and the population's exasperation is growing, Beijing is driven by environmental constraints. The world's leading emitter of CO2, China is gradually reducing the share of coal in its energy mix, down to 62% in 2016. Tim Buckley, director of studies at the Institute of Energy Economics and Financial Analysis in Australia, said China was continuing its energy diversification much faster than expected.

    Lauri Myllyvirta, who follows the coal industry at Greenpeace, said there has been a rapid growth in renewable energy production in China and that since 2013, all additional energy requirements have been covered by non-fossil sources.

    China is the world's biggest coal producer and is seeking to reduce its overcapacity, estimated at 1.5 billion tons, which is more than all the United States mines combined. Beijing has taken a series of measures since the end of 2015: a moratorium on the development of new mines or coal-fired power plants; closure of small mines; and the grouping of around 15 large coalfields, among others. The country has almost 10,000 mines, nearly 4,000 of which will be closed by 2020. The number of coal companies is expected to be reduced by half, to about 3,000, according to the latest mining plan. In February 2016, China also announced its intention to eliminate 500 million tons of overcapacity within three to five years.

    "Also, though it's a taboo subject in China, the government is announcing job cuts in the coal and steel sectors," says Sylvie Cornot-Gandolphe, an energy consultant at the French Institute of International Relations. Approximately 1.3 million jobs are being phased out in coal, or about 20% of jobs in the sector.

    "But the most radical reform was the one implemented as of April 2016," continues Cornot-Gandolphe. Beijing banned national mining companies from producing more than 276 days a year, instead of the usual 330. As a result, production plummeted and prices rose so sharply that China had to ease the ban ahead of the cold winter.

    In charge of 40% of the country's coal production, Shanxi, a province of 35 million, has been strongly affected by the decline in demand and is at the front line of Beijing's capacity-reduction program. Over the past three years, the province has had one of the lowest economic growth rates in the country. "We closed three mines and reduced our production capacity by 3.75 million tons last year," said Zhang Youxi, head of the Datong Coal Mine Group, the country's third-largest public mining group, with over 175,000 employees. "Our secretary general [President Xi Jinping] asked us to do the addition and substraction: eliminate the underdeveloped and old production sites and and grow the more modern and less polluting ones," he said.

    Datong, known as the "coal capital," where the public company is located, bears the signs of these changes. Time seems to have stopped on the windswept square in front of the entrance to the Tong Jia Liang mine at the gates of the city. Wooden panels cover shops in the vicinity and the few fruits and vegetable hawkers have plenty of free time to play with their cellphones. "There are only old people here," one of them laments. And for good reason: The mine closed its doors last fall.

    "Apart from coal, there is nothing"

    A few years ago, most miners left the surrounding buildings and were relocated by the company to an immense public housing estate closer to the center of Datong. Here, 38-year-old Zhang Hui [an assumed name] lives with his wife and two children. He was one of 4,000 miners from Tong Jia Liang. Helmet in hand, he prepares to begin his night shift in another mine where he has been reassigned. "The front-line miners have all recovered but other employees have to stay home," he said. “There is no future in coal, new mines need fewer employees, wages are falling, the cost of living is rising. But what if you are not very educated and have no connections or money? Here, apart from coal, there is nothing."

    Frightened by the slightest risk of social instability, the Chinese authorities insist that no miners will remain unemployed. The president of the Datong Coal Mine Group said more than 6,000 miners in his group were transferred to other mines and activities within the sector, such as services and coal-fired power plants, or that they got early retirement.

    But miners' wages have fallen and payment is often late. "Before, I could earn 7,000 yuan a month [about $1,030], now it does not exceed 5,000," said Zhang Hui. “I have to pay a portion of my salary to miners who have not found a job.” Another miner said he did not earn more than 4,000 yuan a month.

    "We've been abandoned," said a miner’s widow who joined the conversation at the foot of a building.

    A year ago, at the height of the crisis, thousands of miners went on strike in northern China, fearing for their jobs and demanding to be paid. In cities like Datong, the social impact has been considerable. Beijing set up a fund equivalent to nearly $15 billion to reclassify 1.8 million coal and steel workers who will lose their jobs. "This will probably not be enough," say analysts at Capital Economics.

    Without any skills, "some of the employees are hardly reclassifiable," observes Zhang Bo, a professor of economics at Shanxi University. “Some will return to agriculture or try to work in tourism."

    Even as China slows down and turns away from its heavy industries, investing massively in non-fossil energies, the page on coal remains unturned. The capacity of the power stations will increase by 20% by 2020; China does not need them, but will keep them running to support the local economy and preserve jobs. The restructuring of the Chinese coal industry has only just begun.

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