As coal prices have plunged since the end of 2014, the coal industry in North China's Shanxi Province has been plagued by both slumping demand and growing overcapacity. Major coal companies have reported massive losses. Some local coal mines have shut down. To see the economic and social impact of the coal industry's decline, the Global Times recently visited several villages and counties in the province that have largely depended on the coal industry for decades. Because the central government has pledged to slash coal production over the next five years to reduce overcapacity, massive layoffs have become a major issue, which will also hinder the local economic growth.

Located in Zuoyun county, North China's Shanxi Province, the Shuimowan coal mine suspended operations five years ago, but kept its employees, which illustrates how the province's coal industry has struggled in recent years. Photo: Chen Qingqing/GT

Song Yingzhu, a coal miner in Zuoyun county in North China's Shanxi Province, took a walk on a recent afternoon at the Shuimowan coal mine, which suspended operations more than five years ago as part of a restructuring of the industry.

Neither the 49-year-old miner nor his co-workers has been paid for the last 15 months. Still, he remains an employee of the mine.

"I can't leave because the mine owner has not terminated my contract and I have no idea where I can find him," Song told the Global Times on January 26.

The Shuimowan coal mine was taken over by Shanxi Coal Transportation and Sales Group Co in 2009 in a massive restructuring of the coal mining industry in Shanxi, one of the country's major coal-producing regions.

At the time, the local government was trying to reduce the number of coal mines in the province by closing down small, unsafe mines or mines that didn't produce much coal.

Since then, almost all of the small coal mines in the province have been taken over by State-owned conglomerates such as Shanxi Coal Coking Group, Shanxi Coal Transportation and Sales Group and Datong Coal Mining Group.

However, the closures and suspensions at these small mines brought deep economic and social consequences for the local communities.

Zuoyun county is located near the city of Datong, a major coal production center in the province. The county has a population of about 149,000 people, according to the local government's website. Many got trained as coal miners when they were young and stayed in the industry because there were few other viable job opportunities.

However, as Shanxi's coal industry declined, so did the fortunes of places like Zuoyun county. Now, piles of coal can be seen between broken-down houses in half-deserted villages.

"Many coal companies have fled in recent years because they got into trouble," a local resident who refused to be named told the Global Times  on January 26.

Goodbye to a 'golden age'

As commodity prices in 2015 have fallen to their lowest since the global financial crisis, coal prices hit their 12-year lows, as demand from China has slumped amid the economic slowdown, according to media reports.

Senior executives from major coal companies in Shanxi said that they have had a rough time since the end of 2014.

"The coal industry's golden age has ended," said Guan Linkui, deputy general manager at Sanyun Coal Co, a subsidiary of Taiyuan-based Jinneng Group.

"The prices of both raw coal and of clean coal have fallen sharply since 2014," Guan told the Global Times on January 27. "Some products have recorded a slump of more than 50 percent in their prices."

Due to declining coal prices, Shanxi's industrial output has contracted for 14 straight months through November 2015. As for the province's coal companies, they lost an estimated 9.43 billion yuan ($1.43 billion) in 2015, according to media reports.

"More than 70 percent of coal companies reported losses last year, which made a positive economic growth unlikely," a senior research fellow with the Shanxi Provincial Development and Reform Commission told the Global Times on Friday. The research fellow preferred not to be named.

Saddled with a struggling coal industry, Shanxi's economy in 2015 grew by 3.1 percent, the lowest growth rate of almost any of China's provinces, municipalities and autonomous regions.

'Fight to survive'

Following Shanxi's restructuring of the coal industry in response to environmental and safety concerns about small mining operations, the province's coal reserves ended up in the hands of a few large SOEs.

Those small mines, to some extent, "became a burden to some SOEs," said a senior executive familiar with the matter who preferred not to be named because of the sensitivity of the issue.

He noted that some mines need investment to upgrade coal technologies and improve safety standards, but the small, private mines had been struggling with complex debt issues for years. 

"They were shutting down mines temporarily, because coal companies have to 'fight to survive' in this difficult time," he told the Global Times on Wednesday, noting that once the coal market turns around, coal companies will reopen some of their mines.

Before the shutdown, the Shuimowan coal mine had 180 workers and an annual production capacity of 200,000 tons.

"The mine was shut down because one of the mining machines was broken and no one came to fix it," Song, the miner told the Global Times on January 26.

Local authorities have since halted the construction of new mines, and coal companies in the province will further trim production targets in 2016 to reduce overcapacity, Zhang Zhibin, Shanghai-based industry analyst at Concord Fortune Group, told the Global Times on Monday.

The province aims to limit annual coal production to less than 1 billion tons over the next five years, domestic media reported on Thursday. And coal production in the province decreased to 944 million tons in 2015 from 976 million tons in 2014.

"Coal communities will continue to suffer in 2016," Zhang said, noting coal miners' future is bleak because the provincial government is trying to reduce its economic dependence on coal.

Besides unpaid coal miners, some coal companies laid off workers in 2015 to cut costs.

"We laid off about 50 workers in charge of delivering food to coal miners underground last year, and there was also a reduction in salaries and benefits," a spokesman who preferred not to be named at one of the coal mines under Shanxi Coal Coking Group, told the Global Times on January 25. 

At another coal mine affiliated with Jinneng Group, several employees told the Global Times on January 27 that their salaries were cut by about 50 percent in 2015.

"I don't expect any year-end bonus," said an employee surnamed Wang.

"For the moment, it's quite common for coal industry workers not to be paid well, and some of them have even lost their jobs," Zhang said, noting that it is crucial to figure out proper settlement for those miners, especially in villages and towns where coal mining is the only industry.

Song said like several of his coworkers, he still goes to the mine area every day. Their duties are to pump water and look after the coal mine, even without payment.

"We hope this coal mine will reopen soon, but we can't do anything other than wait," he said.
Newspaper headline: Coal bust