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Ways for Addressing Coal Industry Overcapacity Rest on Structure Optimization(No.39, 2016)


By Zhou Jianqi, Enterprise Research Institute, DRC

Research Report No.39, 2016 (Total 4922)2016-03-30

Abstract: China’s coal industry faces overcapacity, prominent structural problems and a large number of enterprises with low-efficiency capacity including low-end, backward and “zombie” capacities. The focus on addressing coal industry overcapacity lies in structure optimization, and the difficulty is how to eliminate low-efficiency capacity. It is true that low-end capacity can be cut through market mechanism, but there remain institutional problems in eliminating backward and “zombie” capacities. Yet it will help smooth the market-based channels through implementing the measures of “reducing low-efficiency capacity, adopting double guarantees and one mechanism”. By “reducing low-efficiency capacity”, we mean to clarify three categories of reduction targets for all low-efficiency capacity. By “adopting double guarantees”, we mean to implement relevant policies relating to the resettlement of dismissed employees and debt management. And by “one mechanism”, we mean to establish a long-term mechanism for the elimination of low-efficiency coal capacity. Relevant policy options are as follows: the goal of capacity elimination is to optimize the supply-side structure instead of aggregate control; the long-term target of this plan is to formulate a market-based exit mechanism; the authorities should possess strong capability in coordinating management; the guarantee funds for dismissed employees should be supported through multiple channels; the pilot project in Shanxi province should quickly start the program of low-efficiency coal capacity elimination.

Key words: optimization of coal mix, low-efficiency capacity, plan for elimination of overcapacity, policy options