The origin and prospect of billion-ton coal production capacity in China

•Analyzing coal production capacity from the perspectives of market and quantifying government regulation.•A simultaneous equation model (SEM) is built to explore the formation mechanism of China's coal production capacity.•Effect of production capacity policy is inconsistent between two levels of government.•By 2020, coal supply is projected to be at least 109 million tons greater than coal demand.

This study thoroughly explored the origin of coal production capacity using simultaneous equation model (SEM) with 2006-2014 data sample. Scenario analysis, including market regulation scenario (MRS), central policy strengthening scenario (CPE), and two-level government policy strengthening scenario (TPE), was also conducted to determine the degree of influence on resolving overcapacity considering construction industry development, policy control, forecasted coal production capacity, and future supply and demand changes. Results show that (1) construction industry development plays a significant and sustained role in the advancement of four major coal-consuming industries. (2) Construction industry development, coal prices, industrial policy, and natural resources positively affect capacity investments in coal production. (3) The policies put forward by the central government inhibiting capacity investments exert greater effect than those promoting capacity investments. (4) The central and local governments make production policies based on their independent interests has minimal success. And the effect of refinement policies by local governments is generally better than that of those by the central government. (5) Under MRS, CPE, and TPE, the coal production capacity (CPC) will reach 5.399, 5.044, and 4.952 billion tons, respectively, by 2020; the coal supply will reach 4.304, 4.174, and 4.139 billion tons, respectively, by 2020. The coal demand will reach 4.03 billion tons by 2020. By 2020, coal supply is projected to be at least 109 million tons greater than coal demand. From industrial restructuring and upgrading to refining and implementing capacity policies are suggested along with the market-oriented reform of the supply side of coal industry.