Government efforts to curb coal production capacity in China have backfired, according to analysts, driving up prices, encouraging production and increasing the risk of mining accidents in the rush to produce more of the fuel.
A rise in electricity production last month, mainly produced by coal-fuelled power stations, is also contributing to the smog smothering much of the north.
The government wants to reduce the amount of coal produced as part of attempts to reduce the economy’s previous reliance on heavy industry and cheap manufacturing in favour of the service and high-technology sectors. The curbs in coal production, however, have led to shortages of the fuel and a rally in prices, encouraging higher production.
Beijing’s failure to keep a lid on coal prices and the wide swings in the market reflect the inherent contradiction between state planning and a market economy, analysts said. The government has taken control of the industry to a level rivalled only by the days of the command economy decades ago.
China’s economic planning agency directly decides how many days large coal mines can operate, but the government often finds itself behind the curve, forced to encourage output when oversupply is great and squeeze supply when demand picks up.
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