By Wan Zhihong (China Daily)
Updated: 2008-01-07 11:30

Compared with other industries, such as information technology and retailing, which have experienced significant merger and acquisition (M&A) activity in recent years, China's coal sector has been relatively quiet.

However, under a national coal industry policy published last year, the industry is set to experience increased consolidation.

China will build six to eight coal enterprises each with a capacity of 100 million tons, and eight to 10 coal enterprises with a capacity of 50 million tons, according to the National Development and Reform Commission (NDRC), the nation's top economic planning body.

These groups are expected to contribute more than half of China's coal output of 2.6 billion tons in 2010.

"More M&As will occur in the coal industry, in order to boost the competence of Chinese coal producers in the world," Liang Dunshi, vice-chairman of the China Coal Transport and Distribution Association, tells China Business Weekly.

China produced 2.4 billion tons of coal in 2006 but its 80,000 coal companies produced an average of just 30,000 tons.

The country has started a nationwide campaign to close small coal mines, which account for one-third of China's total production but two-thirds of the deaths resulting from colliery accidents.

With the average output remaining low, China's coal companies need to regroup to make better use of their resources, says Pu Hongjiu, vice-chairman of the China National Coal Association.

Large companies will have more resources if they acquire small ones, says Huang Qing, secretary to the board of directors of Shenhua Group, which produced 203 million tons of coal in 2006 to become China's first coal company to pass the 200-million-ton milestone.

The country's second largest coal producer, China National Coal Group, produced 90.6 million tons of coal in 2006. At present in China there are 10 coal enterprises, which have a capacity of over 30 million tons.

Large coal enterprises are encouraged to develop other business, such as power generation and railway and port transportation, according to the industry policy.

They are also encouraged to participate in other sectors such as the metallurgical, chemical, construction material and transportation industries.

"Like the nation's largest coal enterprise, Shenhua, which has diversified its business into coal, power and transportation, more Chinese coal producers will turn their eyes to other businesses," Liang says.

   1 2   

   1 2