|Shanxi province 山西省|
King Coal’s misrule 煤炭王的暴政
The rise and fall of a corrupt coal-fuelled economy
1 IT TAKES half an hour to walk down 1,400 rickety wooden steps from a pithead of Jinhuagong mine to the coal face, 400 metres below. At the top, grimy miners tramp home. At the bottom stand a theodolite, a flame-proof telephone and a double-drum electrical traction shearer—a behemoth of a machine designed to chew up the coal face and excrete its fragments onto a conveyor belt.
2 But the pithead, in the northern province of Shanxi near its coal capital, Datong, is not operational. It was closed in 2012 and converted into a tourist attraction (with a theme: “the glory of Datong coal”). Perhaps put off by the trek, on most days visitors are rare. The mine’s state-owned operator, Datong Coal Mining Group, is trying to revive its fortunes by diversifying into tourism. It is not proving easy. Its fumbled attempts to reinvent itself symbolise the problems Shanxi as a whole is facing.
3 As China slows, many economists pin their hopes for continued growth on poorer inland provinces. By taking advantage of cheap labour and land, the theory goes, these places should be able to grow more quickly than richer coastal areas. Shanxi, 250 miles (400km) east of Beijing, would seem a good candidate for catch-up growth. It is relatively poor, with a GDP per person of 35,000 yuan ($5,500), or 75% of the national average. It has a population of 36m people, about the same as Canada’s, as well as respected universities and good transport links with the coast. It ought to be steaming ahead. Instead, last year, it had the slowest growth of any province: just 4.9%. In the first nine months of 2015, this slowed to only 2.8% compared with the same period a year earlier. Only Liaoning province in the north-eastern rustbelt fared worse.
4 Three factors explain Shanxi’s failings: coal, corruption and construction. The province is the historic centre of China’s coal industry. Though its output was overtaken by that of neighbouring Inner Mongolia in 2009, Shanxi still produces a quarter of the country’s coal. About 60% of provincial GDP is tied to the black stuff.
5 The business boomed in the 2000s thanks to soaring energy demand (see chart) and the freeing of coal prices, which had been kept artificially low. But the boom was short-lived. Worried by pollution, the central government began trying to reduce China’s coal use. Shanxi has been taking the hit. Capital investment in the province’s coal industry fell last year by 6%. The local government says it will not approve construction of new mines for the next five years. But shrugging off coal dependence is hard. Ignoring its own pledge, Shanxi approved 24 new coal projects in the first nine months of this year, more than any other province.
6 And now prices are falling as China’s economy slows and the drivers of growth change to less-coal-consuming ones, such as services. China’s benchmark coal price was 374 yuan a tonne at the end of October, a 27% decline so far this year. Local prices for unwashed, low-quality coal have fallen further still. Because so many of Shanxi’s mines are old they are relatively expensive to run. Most are losing money.
7 The response has been a wave of consolidation. In 2008 the province had 2,600 coal mines. Many of these were small privately owned collieries, at which safety standards were usually atrocious. Most of the private ones have been closed or taken over by state-owned enterprises (SOEs). The number of mines has fallen by almost two-thirds. Safety standards have improved considerably.
8 But three-quarters of provincial output now comes from SOEs—with predictable results. Gone is the entrepreneurial vigour that the private sector once gave the industry, say locals involved in the business. State firms are reverting to type: keeping everyone they can on the payroll, squeezing wages, and hoping the provincial government will bail them out.
9 It won’t. This is because Shanxi, as well as being the capital of coal, is the centre of President Xi Jinping’s anti-corruption campaign. Since 2013, seven of the 13 members of Shanxi’s Communist Party committee (the province’s leaders, basically) have been arrested or charged with “infractions of party discipline”, a term that usually means taking bribes. In all, 50 high-ranking officials have been placed under investigation for graft. For its size, the province has had more leaders arrested or jailed than anywhere else.
10 Corruption, coal and politics have long been inextricably linked in Shanxi. In 2014 Caixin, a magazine in Beijing, investigated Luliang county in the west of the province. It found that coal bosses there were spending $150,000 a year on bribes; one county-government job had changed hands for $650,000.
11 Though corruption was bad, the campaign against it is also taking a toll. Wang Rulin, Shanxi’s party chief, complains that he cannot fill about 300 local-government posts because people are too scared to apply—or they think that party jobs are not worth having now they have to be clean. One executive in the coal industry complains that officials “used to take money and help us; now they don’t take money and don’t help either.”
12 The hangover from cosy relations between coal and politics is visible in the form of half-constructed residential blocks, which loom over the outskirts of even the smallest town. During the boom of the 2000s, coal bosses and local officials got together to pour money into house-building. Investment in property in Shanxi rose from 66 billion yuan in 2008 to 248 billion in 2013. The area under construction for residential use more than doubled to 179m square metres in the same period. Even by Chinese standards, this was extraordinary. The area under construction in Beijing expanded by only 40%. Such development can keep economic activity going for a while. But a housing boom on this scale is always risky. To judge by the empty space, Shanxi has built far too much.
13 The government’s hope that inland provinces will become new engines of growth rests on a belief that cheap labour and land are vital ingredients of it. But Shanxi shows that these advantages do not necessarily help as much as having a diversified, service-oriented economy. The problem is not that the province has failed to attract new businesses. It has two smartphone factories owned by Foxconn, a Taiwanese consumer-electronics company, which are its main source of foreign-currency earnings. But the losses of the coal sector offset gains made elsewhere.
14 Shanxi is unusual among China’s provinces in being so dependent on coal. But some of its problems beset the whole country: corruption, unproductive investment and over-mighty SOEs. The country’s inadequate provision of pensions and unemployment benefits results in workers preferring to stay with SOEs which promise to look after them rather than strike out on their own. Leaders in Beijing sometimes make it sound as if the economy’s transition from manufacturing-led to services-led growth is going smoothly. In Shanxi the path is very bumpy. As at the Jinhuagong mine-cum-theme-park, it takes even longer to trudge back up to the surface than it does to walk down.
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