By Rainy Yao

SHANGHAI – China, the world’s biggest coal producer and consumer, is facing a poignant dilemma: whether to turn up its effort to tackle air pollution and curb carbon emissions or boost its flagging coal industry to prevent a sharp economic slowdown.

In 2013, China produced roughly 3.7 billion tons of coal and consumed 3.61 billion tons at a declining growth rate of 2.6 percent. Meanwhile, the country’s growth in coal imports hit a record of 13.4 percent with 327.1 million tons imported last year – more than twice the amount of coal imported in 2010, according to CapitalVue.

As a result, more than 70 percent of Chinese local miners are losing money and struggling to survive. Further, due to declining coal prices and rising costs of production, the economies of some coal-dependent provinces such as Inner Mongolia, Shanxi and Shaanxi have substantially slowed.

In order to sooth the country’s jittery coal market, the Chinese government has released a slew of policies to ban or limit coal imports in recent years. In the latest of these, on October 15, China rebooted its levy of import tariffs on coal after nearly a decade of suspension, and announced plans to ban the import of coal with high ash and sulfur content from 2015.

According to a Circular released by the State Council, import tariffs of between three and six percent will be levied on imported coal, including three percent on anthracite and coking coal and five percent on briquettes. This means foreign coal suppliers will have to bear higher costs, while their Chinese counterparts will see significant profit reductions.

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Australia, the largest exporter of coal to China, is set to be worst hit by the new policy. From January to August this year, China imported 40.28 million tons of thermal coal from Australia. Brendan Pearson, the Minerals Council of Australia’s (MCA), said that his organization is requesting the Australian government open urgent discussions with China to seek a reversal of the decision.

One possible solution, however unlikely, would be the inclusion of coal under the free trade agreement (FTA) in ongoing discussion between Australia and China. A precedent is to be found in the fact that Indonesia, China’s second-biggest coal supplier, will be exempt from the restarted tariffs based on the FTA signed between China and the Association of Southeast Asian Nations (ASEAN).

In another move to protect the domestic coal industry, China has determined to newly extend its sales value-based resource tax reform to the coal industry starting on December 1, 2014. The reform, ostensibly for the promotion of resource conservation, stipulates that natural resources such as coal and natural gas will be taxed based on the resource price rather than quantity.

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Under the reform, coal will be taxed based on its sale price at a rate ranging between two percent and 10 percent set by the provincial governments according to local socioeconomic conditions. For example, the rates in coal-dependent provinces such as Shanxi will be comparatively higher. Previously, the coal resource tax was set at between RMB 2 to RMB 8 per ton on the basis of production quantity.

Further still, the government has cancelled a majority of coal-related fees including the coal price regulation fund, ecological compensation fund for primary mineral products and local economic development charge, in an attempt to reduce the burden on local mining companies. However, it is believed that a large portion of the money thus saved may flow into the pockets of local government officials.

In 2010, China initiated a resource tax reform on crude oil and natural gas in northwestern Xinjiang and later extended this nationwide in 2011 after two delayed launches. In conjunction with the coal tax reform, the government has said that crude oil and natural gas will be taxed at a rate of six percent, instead of the previous five percent, from December of this year.



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