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China Moves to Open Up Coal Industry to Foreign Investors

Posted on: Saturday, 29 October 2005, 06:00 CDT

Text of report in English by official Chinese news agency Xinhua (New China News Agency)

Taiyuan, 29 October: Another foreign firm has been granted cooperation with three coal mines in north China's Shanxi Province, a provincial commerce official has said, indicating China's substantial effort to open up its coal industry to foreign investors.

Although the joint venture programme is yet to get official approval by the Chinese Ministry of Commerce, foreign investors will no longer find policy barriers to enter the country's coal industry, said Zhang Jitang, director of the Foreign Investment Department with the Shanxi Provincial Department of Commerce.

"China has eased the control over foreign investment in its coal industry," he said, acknowledging that current policies allow foreign businesses to invest in all coal sectors except those of rare coals.

"China particularly inspires those foreign firms with advanced technologies to invest in such sectors as coal mine exploration and intensive processing of coal," he added.

Shanxi is China's major coal producer. Statistics show that its proven reserves of coal amount to 272.5bn tons [tonnes], accounting for one third of the country's total.

From 2000 to 2004, Shanxi's annual coal output has maintained an average growth of 30m tons year-on-year. Last year, it coal output reached 493m tons, a quarter of China's total. Meanwhile, the province's coal export reported 43.97m tons in 2004, taking up 52 per cent of the country's total.

"The surging prices of oil and gas on the world market and the rapid growth of China's energy-driven sectors like the power industry have jointly stimulated the domestic demand for coal, therefore, the coal sector has become increasingly heated," said Dong Jibin, vice president of the Shanxi Provincial Academy of Social Sciences.

"Due to huge profits in coal sector, the industry has not only allured domestic but also foreign investors," he said.

As early as in 2000, the Asian American Coal Inc., a US-based business, joined hands with a Shanxi's coal producer to build China's first coal cooperative business with foreign investors. This August, the joint cooperative coal business started operation with an annual coal output capacity of 4m tons.

However, since then, Shanxi has not approved any other coal cooperation programme with foreign investors until recently.

"Investment from overseas can bring advanced expertise and technology in coal production and management, which will help boost Shanxi's coal sector and benefit China's coal industry in the long run," said Xia Bing, a research fellow with the Shanxi Provincial Academy of Social Sciences.

According to commerce official Zhang, Shanxi is thinking of drafting a special regulation on foreign investment in the coal sector.

Actually, overseas businesses did not just confine their attention to this northern province, but also showed a keen interest in other major coal provinces.

In 2004, Brazilian coal giant CVRD Group inked an agreement with Yongmei Group in central China's Henan province and Shanghai Bao Steel Group, in a bid to build a large joint-stock coal company.

Companies from Australia, the Republic of Korea and Japan have also come to China to seek business opportunities in coal bases of north China's Shanxi Province and Inner Mongolia Autonomous Region.

Peabody Energy Corp., the world's biggest private coal firm, opened its Beijing office in September this year. Elect Gregory Boyce, the firm's chief executive officer, said China's fast- growing economy and huge demand for coal provided foreign investors with "great opportunities."

However, as foreign investors have come to China's coal industry, concern also arose about whether China's coal sector will be dominated by foreign capital.

In response, Zhu Deren, vice chairman of the Chinese Coal Association, noted that such concern is unnecessary as the state- owned enterprises exert overwhelming control over China's coal resources.

"What China really needs now is to perfect existing relevant laws and regulations and improve the environment for investment so as to better guide overseas investors to help upgrade its coal industry," Zhu said.

Source: BBC Monitoring Asia Pacific

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