Coal sector reform and its implications for the power sector in China

Coal is the major primary energy which fuels the economic growth in China. The Soviet-style institution of the coal sector was adopted after the People’s Republic was founded in 1949. But since the end of 1970s there have been major changes: the market mechanism was introduced to the coal sector and the Major State Coal mines were transferred from central to local governments. This paper explains these market-oriented and decentralized reforms and explores their implications for the power sector, now the largest single consumer of coal. The argument of this paper is that the market-oriented and decentralized reforms in the coal sector were influenced by the changes in state energy investment priority as well as the relationship between the central and local governments in the context of broader reforms within China’s economy. However, these market-oriented and decentralized reforms have not equally influenced the power sector. Even though initial coal sector reform spurred power generation, the subsequent fragmented reforms raise concern about electricity shortages.