A five-year plan report from the State Economic and Trade Commission said China is expected to "establish one or two coal companies with annual production of over 100 million tons each, and five or six with production capacity exceeding 50 million tons each by encouraging mergers or acquisition among coal companies."

At present, the production of the largest domestic coal companies lingers around 30-40 million tons.

"Meanwhile, medium and small-sized State coal mines could be merged, rented or sold," said the report, which is among 15 reports recently released by the commission to spell out the blueprints of 15 industries over the next five years.

An official from the commission, one of the drafters, said the move is expected to collect the assets of 340,000 small coal companies to raise the industry's production efficiency, and to handle challenges after China's entry into the World Trade Organization (WTO).

But an official from the China Coal Industry Association said it was very difficult to promote mergers among coal companies in different provinces and regions because of local interests.

"Most of the coal mines are controlled by local governments. They are not willing to give up their assets, considering the employment and income they can provide for locals," said the official.

The commission argues that big groups are the only way for China's sluggish coal industry to survive.

At present, the average annual production of a coal mine is around 30,000 tons. The production of China' top four coal firms only accounts for 9 percent of the national total.

Inefficient production has put two-thirds of domestic coal enterprises in the red.

The report said the establishment of major coal companies should see the top eight coal producers in China grabbing more than 35 percent of the nation's total output by 2005, up from its current 13 percent.

The official from the commission said mergers would mainly be decided by market forces, not the government.

If it proves difficult to promote mergers between different regions, the central government will wipe out the debts of coal companies and help to relieve "social burdens," such as schools and hospitals, from companies.

But the official from the association said that without the central government's "administrative force" to push it through, local governments would be reluctant to take on debts and unemployment.

"Anyway, if the central government has resolved to shake up the industry, it does have certain ways of proceeding," said the official.

Big coal companies are urged to restructure themselves by getting listed on stock markets or establishing joint ventures with foreign companies.

"Big companies with sound management and development potential are expected to get preferential policies from the government in listing, banking and technology research and development," the official said.

The official said big coal companies such as the Yanzhou Coal Mining Company, China Coal Import and Export Company and Shenhua Group may benefit from government support to become super powers.

China, the world's largest coal producer, accounts for one- third of the world's total coal production. Its exports make up 11 percent of the world total.

Coal accounts for about two-thirds of China's energy consumption mix.

To ease overproduction in the domestic market, some 430,000 small coal mines, with annual production around 10,000 tons each, have been closed down since 1998, diminishing coal production to 950 million tons from the peak of 1.3 billion tons in 1997.

Over the past five years, the coal industry absorbed foreign investment worth US$1.1 billion.

Five coal companies have been listed on stock markets at home and abroad.

Over 60 percent of Chinese coal companies are State-owned enterprises.

(China Daily 07/05/2001)