Shanxi province's seven largest state-owned coal companies reported lower losses in 2016. Above, workers labor in a coal transportation tunnel in Yuncheng, Shanxi province, on Jan. 1. Photo: IC

(Beijing) — The seven largest state-owned coal companies in Shanxi province, the center of coal production in China, narrowed their losses in 2016 as they slashed overcapacity, but they remained burdened by a growing debt load.





Datong Coal Mine Group Co. Ltd., a major supplier of thermal coal, said in a statement that its progress toward profitability resulted in part from efforts to cut excess capacity. In 2016, the central government began an initiative to reduce industrial overcapacity, especially in the coal and steel industries.

That year, Chinese coal companies reduced production capacity by 290 million tons, which helped bolster coal prices. The Bohai-Rim Steam-Coal Price Index, a key indicator of thermal coal prices, jumped 60% to 593 yuan ($87.80) per ton last year.

But the increase in coal prices hasn’t stopped the industry’s debts from mounting. The seven coal companies had a combined 1.26 trillion yuan in debt in 2016, and their combined debt-to-assets ratio rose 0.42 percentage point to 82.62%.

In other industries in China, the debt-to-assets ratio is far lower, analysts said. And the coal industry has other problems. It has an army of workers, but the state-owned enterprises can’t lay off employees without risking social instability.

In an attempt to solve the problem, China established a fund in 2016 to subsidize and retrain workers.

But the subsidies have mainly been spent on covering coal workers’ back pay rather than provide training, said Wu Lixin, deputy director of the Coal Strategic Planning Research Institute at the China Coal Research Institute.

As the drive to slash industrial overcapacity continues this year, China’s coal giants have begun transform. Datong Coal, for example, announced that it will accelerate development of businesses in new industries such as finance and tourism.

Contact reporter Coco Feng (renkefeng@caixin.com)