Coal is transfered onto a ship at the port in Qinhuangdao, China. Photo by Imaginechina: AP

Last month, Chinese media outlets reported that over 3 million tons of coal had been piled up in the port at Guangzhou, while some 6 million tons of coal sat at the port of Qinhuangdao in the north east.

Coal is piling up in the ports and coal exports have dropped because of the global economic crisis. However, China’s five biggest power generators -- Huaneng Group, Guodian Corp., China Datang Corp., China Huadian Corp. and China Power Investment Corp. -- have been importing coal to feed their power plants. The China Power network reported that between January and April 2009 the net import of coal was 22.7 million tons, and in April alone 9.16 million tons of coal was imported. In May another 9.4 million tons of coal was imported.

Despite all this coal, power plants in Shanxi, the province that produces 70 percent of China’s coal, is short of fuel. Currently more than half of the power plants in Shanxi only have enough coal to last a week or so and some power plants are in danger of being shut down due to lack of fuel.

So what gives here? Why do Chinese power plants shop for coal around the world instead of using the local coal? And why are power plants built on top of coal mines short of coal?

The struggle between coal supply and power generation is a much-repeated dysfunction in China, the latest manifestation of the ongoing constant struggle between socialism and capitalism. The price of coal in China has been allowed to be adjusted by the market; but the end product, electricity, has always been controlled by the government as part of the planned economy. It would be quite dangerous for the government to test almost certain public unrest if electricity prices were to be allowed to escalate. This creates what is officially called Marketed Coal, Planned Electricity. These two different price systems have caused a great deal of conflict.

Coal enterprises such as Shenhua Corp insisted that the coal price should be increased by 10 percent over last year’s prices to cover increased taxes that included the value-added tax. But the big electricity generators are complaining that they incurred big losses last year and cannot pay the prices being asked by the coal industry. They requested that the coal price be reduced by 50 yuan (about $7.30) per ton from last year’s price. The results have been that the power industry rejected the high priced local coal, and turned to cheaper imported coal from the international market.

The government may try to temporarily interfere with the coal price for power generation. The National Development and Reform Commission (NDRC) may propose to keep the coal price at the same level as that of last year to neutralize the divergence. But since the market-priced coal still has a market, along with the decreased supply due to the closure of small coal mines, the coal industry can ignore the government’s attempt at coordination.

At the end of 2008, China power generation capacity was 792,530 megawatts (MW), of which 601,320 MW was from coal-fired power plants (76 percent). Although the conflict between coal and the power industry has existed for a long time, the clash has been getting worse since the beginning of this year under the influence of the global financial crisis. The NDRC has been trying to break the deadlock. In July 2008, the NDRC increased the electricity price for industry utilization a few times with a total increase of 4.7 percent. But the power plants still lost 70 billion yuan (about $10 billion) in 2008 and are still losing money. If the contradiction between coal supply and electricity industry is not resolved, more loss will be guaranteed for the power industry.

NDRC has considered that the coal and electricity price systems have to be reformed, that coal and electricity have to take market risks together. The best way to solve the problem probably is marketing electricity, said Wang Yonggan, the secretary of the power industry union. However, such certain unpopular reform may not happen any time soon. It appears that China once again needs a new Deng Xiaoping to provide a new definition of socialism.