Wu believes that the government wants to encourage coal imports and bring domestic coal prices in line with international prices.

Jing Tianliang, General Manager of the China National Coal Group Corp., the country's largest coal exporter, said that China would not become a pure coal importer in the traditional sense. He remarked that on the one hand, China has seen no big gap between coal export and import volumes and that coal imports are still a feature of border trade and common trade. Over 300 enterprises in China were engaged in csoal imports in 2006, of which less than 10 saw their annual imports exceed 1 million tons. There are more than 100 importers with less than 10,000 tons of imports. About a quarter of the total coal imports last year came through port cities in the Guangxi Zhuang Autonomous Region. On the other hand, China's coal resources are distributed unevenly on its extensive territory, and it is reasonable that the southeast region short of coal resources imports coal from the neighboring countries for convenience.

Ripple effect

Changes in China's coal export-import situation have had a ripple effect on coal exports to China. Indonesia, Australia and Viet Nam are expanding coal production and increasing coal exports, while countries like India and South Korea, which used to import coal from China, are seeking new sources.

Indonesia is quite frank in its ambition to be the largest coal exporter to China. Chanin Vongkusolkit, CEO of the Banpu Public Co. Ltd., Indonesia's major coal producer, said Indonesia ranks next to Australia in terms of coking coal and steam coal exports to China, and will soon replace Australia as China's largest coal supplier.

Vongkusolkit said that they calculate exports in dollars and enjoy price advantages of $3 cheaper per ton as the yuan keeps appreciating against the dollar. In order to attain its export goal, Indonesia increased its coal production to 44 million tons last year and plans to raise its annual coal output to 300 million tons by 2020. The country exported 5.17 million tons of coal to China last year, a year-on-year increase of 11 percent.

Australia annulled its coal export quotas this year, and coal producers dispatched more ships to Newcastle Port in the hope of increasing exports, resulting in a shortage of berths there.

The Australian Bureau of Agricultural and Resource Economics predicted that the country would have an annual steam coal production capacity of 219 million tons by 2012, of which 148 million tons would be slated for export, mainly to China, India and South Korea.

The reduction in coal exports from China has affected India and South Korea, which are turning to South Africa for more coal. It is believed that South Africa will soon reclaim the status as the largest coal exporter to South Korea.

Along with these changes, many multinationals are beginning to invest in China's coal mines. Indonesia's Banpu Public Co. Ltd. has already invested in three Chinese coal mines with their annual out exceeding 1 million tons, and the Brazil-based mining giant Companhia Vale do Rio Doce has invested in two Chinese coal mines. The U.S.-based Asian American Gas, Inc. started a joint venture in Jingcheng, Shanxi Province, with an annual production capacity of 4 million tons and launched another coal joint venture in Lu'an in the same province.

"We will invest 3 billion yuan to build a coal mine with an annual output of 6 million tons in Lu'an, and put it into production in 2009," said Stephen Zou, CEO of Asian American Gas, Inc.

Little domestic impact

Coal importers have enjoyed obvious price advantages over exporters since the tariff adjustment was pushed through. Statistics with China Customs show that the average price inclusive of tax for blind coal in seven major coal production cities was 361 yuan per ton while the average price exclusive of tax for blind coal imported from Viet Nam was 322 yuan per ton this March.

In addition, domestically produced coal only enjoys little advantage over imported coal in terms of transportation cost. Coal is produced mainly in Shanxi, Shannxi and west Inner Mongolia and has to be transported to coal ports in the east by rail. Since each train is capable only of carrying several thousand tons of ore, freightage and cost on loading and unloading are fairly high. Imported coal is usually transported by freighters with carrying capacities between 20,000-100,000 tons.

Given these advantages, imported coal is the choice for power plants in south China. Zhang Yong, Deputy Director of the Policy Research Department of the China Coal Industry Association, said the tariff on imported coal has been reduced from 5 percent to zero, which has stimulated energy-intensive industries in Guangdong and Fujian to import coal from Indonesia, Viet Nam and Australia.

China's dramatic increase in coal imports doesn't equate to the shrinkage of the domestic coal industry, however. Yanzhou Coal Mining Co. Ltd. under Shangdong Yankuang Group, China's only coal producer listed simultaneously on the Shanghai, Hong Kong and New York stock markets till now, for example, produced 9.07 million tons of raw coal in the first quarter this year, a year-on-year increase of 0.7 percent. During the same period, the listed coal producer sold 8.36 million tons of coal, a 16.1-percent increase from last year. It sold 6.64 million tons of coal on the domestic market last year, an increase of 17.1 percent over the previous year, while exporting 1.04 million tons overseas, a drop of 32 percent year on year. The company also reaped a net profit of 700 million yuan from sales, a year-on-year increase of 20.3 percent.