David Murphy is a doctoral candidate at the Australian Centre on China in the World, ANU. His research on corporate political activity in China focusses on the influence exerted by major Chinese corporations and industry bodies on trade policy. He has worked in both Australia and China in consulting and advisory firms specialising in trade policy analysis and advocacy, including China Policy. He is an alumnus of the University of Melbourne and the Inter-University Program of Tsinghua University. — The Editors
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Hua Wei.
Renewed hope for a global deal to reduce greenhouse gas emissions has gathered pace over the past year. Last November, presidents Xi Jinping and Barack Obama announced in Beijing an understanding that many hope will resolve the impasse between developed and developing countries heading into UN climate talks later this year. This June, G7 leaders committed to phasing out fossil fuels by the end of the century. In this global debate, most people recognise that meaningful reductions in greenhouse gas emissions hinge on how China, as the leading developing nation, manages its energy mix in the coming decades.
It has also been a year since Hua Wei 华炜, a deputy in China’s National People’s Congress and Shaanxi coal baron par excellence, stepped down as the chairman and Communist Party Secretary of Shaanxi Coal and Chemical Industry Group. True to the brashly unapologetic style that he has used to champion Chinese coal through a beleaguered decade, Hua emerged from retirement to pour cold water on the notion that coal might surrender its dominance in China’s energy supply any time soon.
In an interview with Modern Coal Chemical Processing, an industry journal, Hua laid out the case for a coal hegemony stretching beyond mid-century.[1] Before discussing the virtues of coal, he dismisses the prospects of renewable energy dominating China’s energy consumption in the decades ahead. He sees even the ‘underwhelming’ official target of nineteen percent of projected energy consumption by 2050 for hydro, nuclear, biofuels, wind and solar as being overly optimistic, pointing to the slow progress in clean energy development in the world’s most advanced economies.
Hua is then asked about how a high-carbon fuel like coal could remain dominant for the next thirty years given the worsening tension between China’s development and its environment. He answers that the simplest way is to promote the use of highly efficient clean coal, which centres around chemical processing to convert coal into liquid and gas fuels.
Perhaps anticipating scepticism, Hua is at pains to acknowledge the shortcomings in the existing technology. But he depicts these as failures of dedication rather than science, pointing to the need for financial and policy support through a ‘high-level strategy’ to resolve matters. This, he argues, will prevent problems such as those that have troubled the application of coal-to-oil conversion, where individual enterprises have taken on huge risks to invest in new technologies and pilot projects, only to have their successes rewarded with an oil-refining tax.
Hua’s arguments are far from watertight. It is noticeable, for instance, that he does not attribute his sources for the projections of renewable energy capacity out to 2050, especially since his own proposals for coal depend on large-scale state investment and policy support which might equally change the equation for renewables. It’s also telling that Hua blames the failings of pilot projects on a lack of political support. His complete faith in technology is bracing.
This sort of bravado is characteristic of Hua’s caste — the narrow cohort of statesmen-CEOs that lead China’s largest corporations and who also, as legislators, play a formal role in shaping policy that affects their industries. His stewardship of Shaanxi Coal and Chemical Group spanned a tumultuous decade for Chinese coal, one which certainly called for high levels of gumption in its industry leaders.
When Hua took up this post in 2004, global prices for coal were high, largely due to the explosive demand coming from China, which was still in a phase of high, energy-intensive growth. To ease pressure on power generators, who were struggling to secure supply from Chinese coal companies that were taking advantage of scarcity of supply to chase galloping spot prices and neglect contract obligations, the government accelerated tariff reform. Stimulus money lavished on large state-owned corporations then buoyed already strong investment in coal capacity. By this time, however, in the midst of the global financial crisis, global coal prices had collapsed and China had become a net importer. The domestic industry, now saddled with gross overcapacity, found itself facing collapsing prices and a shrinking market continually undermined by cheap imports. Fighting on several fronts at once, Hua took on the role of protecting the domestic industry against imports with alacrity.
Hua’s ability to conflate the narrow interests of his company and the general interests of the nation — core skills for an effective lobbyist — was on display at the March 2014 session of the National People’s Congress. There he presented a series of reforms on coal import and export levies since the 1990s that caused China to ‘lose its traditional position as a coal exporter and become a net importer’. This, according to Hua, resulted in the rapid increase of imports of ‘low-grade coals like lignite and others with high ash and other harmful elements’, with negative impacts not only on the coal market, but also on structural overproduction and the environment.
Among his recommendations was to ‘introduce coal import tariffs, abolish export tariffs or bring imports and exports onto level footing and for the purposes of innovation and providing an environment of fair competition to fully realise the decisive role of the market in distribution of resources’. Invoking the ‘decisive role of the market’ — probably the most parsed phrase of the Third Plenum — would have rankled the power generation industry and their allies, who would clearly suffer from any kind of restriction on coal imports. However, it is also typical of the perennial battle between the electricity and coal industries, commonly referred to as the ‘electricity-coal contest’ 电煤博弈 which often plays out as competition for favourable policy treatment.
This structural conflict between the two industries has deepened in recent years as market pressures, particularly on coal, have intensified. In 2013, Hua first brought his campaign against low-grade imports to the maelstrom of policy discussion which swirls around the March sessions of the National People’s Congress and National People’s Political Consultative Assembly. The National Energy Administration, a government policy development agency, responded a few months later with draft regulations suggesting the effective banning of low-grade coal imports. Power generators successfully resisted these draft measures being translated into real policy. They were not successful, however, in preventing the State Council from reimposing coal tariffs in September last year (albeit with significant loopholes) and the perhaps more alarming public summoning of power companies, at which the government prevailed upon them to accept import quotas.
Hua’s effectiveness might rest in part on his ability to take abstractions formulated by the leadership tiers above him — that is, the Politburo and party-state leader Xi Jinping — and translate them into concrete examples that favour his agenda. For example, as he told Politburo Standing Committee member Wang Qishan:
‘The China Dream’ is linked with all of us ordinary people. As for SOE Shaanxi Coal and Chemical, as for the managers of state-owned enterprises, we persist, and the more difficult it gets the more we must embody the social responsibilities of state industry. For my company, 2013 was the worst year since we were established a decade ago. The price of a tonne of coal was 167 yuan less than 2011 levels, affecting sales to the tune of RMB20 billion. Under these circumstances we have not reduced workers’ incomes. We have continued to strengthen our workforce. Our efforts have gone into meticulous management, reducing costs, increasing efficiency and upgrading. Over the year our sales were RMB150 billion, an increase of twenty percent, and we contributed RMB 11 billion in taxes — the best in our history.[3]
Cloaking the evolving interests of one’s corporation with the grand strategy of the state is, however, bound to encounter obstacles that require some chutzpah to overcome. Power generators have been especially aggrieved by the coal industry’s stance that lower-grade coal should be banned outright. They argue that it is the pollution output that should be regulated, rather than the polluting capacity of the input that is circumscribed. They object to being denied the opportunity to develop and use various technologies to burn whatever fuel they deem suitable and be judged on the final outcome.[4] It must be galling for them that Hua’s argument for coal chemical processing is exactly that.
None of this is to doubt Hua’s sincerity and conviction in promoting coal chemical processing technology. The head of any company must fight immediate threats while at the same time nurturing a long-term strategy for survival and expansion. Talking to Shaanxi NPC delegates last year, Hua combined the aggressive pitch of a CEO with a carefully argued case for the future of green development using high-carbon energy sources. Hua doesn’t evade the technicalities or the policy frameworks needed to support them. Nor does he let this complexity muddle his message. This particular speech was peppered with bold assertions. An observer reported that one announcement — that high-quality powdered coal used as a fuel could surpass natural gas in its environmental benevolence — elicited some surprise:
This somewhat unorthodox prediction aroused other delegates. Everyone wanted to get their word in, approving of or querying him, so that the atmosphere in the hall became rather lively. After listening to all this discussion, the provincial party secretary Zhao Zhengyong turned to Hua Wei and, with a wry smile, asked: ‘According to what you say, how should we then be responding the problem of smog?’ Hua blurted in response: ‘There’ll be no problem if you use my coal.’ The room exploded in laughter. Everyone had been won over by Hua Wei’s originality and candour.[5]
No one disputes the fact that China needs to shift to lower carbon-emitting and lower environmentally-damaging energy production: the debate has moved on to the issue of the means for achieving this. It is likely that the question of whether global investment and policy support will break in favour of renewable and nuclear energy or cleaner ways of using fossil fuels will be answered within the next few years. Current coal share prices reflect a growing sense that the demise in coal demand is structural rather cyclical. Though the outlook remains far from certain, one thing that can be expected is that the Chinese fossil fuel industry and the coal barons that champion it are unlikely to fade away without a fight.
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Notes
[1] ‘Could Modern Coal Chemical Processing Kill Four Birds with One Stone?’ 现代煤化工意在“一石四鸟”？, Modern Coal Chemical Processing《现代煤化工》, 25 May 2015, online at: http://blog.sina.com.cn/s/blog_52f526870102vqof.html
[2] Li Hua 李华 , ‘Delegate Hua Wei: Reform coal import and export taxes to control low-grade imports’ 人大代表华炜：调整煤炭进出口关税 控制劣质煤进口, Phoenix Shaanxi《凤凰网陕西》, 8 March 2014, online at: http://sn.ifeng.com/zhuanti/detail_2014_03/08/1950178_0.shtml
[3] Huang Yan 晃彦, ‘Delegate Hua Reporting to Sectretary Wang Qishan: Shaanxi Coal and Chemical will be in the global top 500 next year’ 华炜代表向王岐山书记报告：陕煤化明年争进世界500强, Dagong Wang《大公网》, 10 March 2014, online at: http://news.takungpao.com/2014lh/article/2014-03/2340069.html
[4] See, for example, Yi Shunlong艾顺龙, ‘Coal Import Tariffs and Taxing Because You Can Does Not Benefit the Coal Industry’ 煤炭进口关税不是说征就能征不利煤企做强, China Electric Power News《中国电力新闻网》, 13 May 2014, online at: http://www.cpnn.com.cn/zdyw/201305/t20130514_575520.html
[5] ‘NPC Delegate Hua Wei: There’ll be no problem if you use my coal’ 全国人大代表华炜：都用我的煤 一切没问题 (组图), People’s Daily《人民网》, 10 March 2014, online at: http://energy.people.com.cn/n/2014/0310/c71661-24591936.html
