China coal protests highlight overcapacity tensions

BEIJING — Thousands of Chinese coal miners have taken to the streets in a city near the Siberian border to protest unpaid wages, in the first direct challenge to Beijing’s plan for orderly downsizing and layoffs in the state-owned coal sector.

Beijing has said it would lay aside 100 billion yuan (S$21 billion) to “resettle” laid-off coal and steel workers as part of a plan to cut unproductive capacity in both sectors, but local governments and the companies themselves are supposed to bear a portion of the costs.

Slowing Chinese growth and the end of the commodities super-cycle have turned overcapacity into a pressing economic issue for Beijing. Data published this weekend showed that in the first two months of this year, Chinese production of thermal coal and steel both fell by 6 per cent while output of metallurgical, or coking, coal — the steel ingredient produced by the protesting miners — dropped 10 per cent.

Miners at state-owned Shuangyashan Mine, one of four mines that make up troubled Longmay Coal, began a third day of protests holding banners that read “We want to eat, we want our wages” and “Lu Hao lies with his eyes open” after Mr Lu, the Provincial Governor of Heilongjiang province.

Last week Mr Lu said that Longmay had met all its salary obligations and criticised Longmay, which is rapidly becoming the poster child for loss-making state-owned coal firms, for its lack of productivity.

“He said during the National People’s Congress that Heilongjiang had not delayed payments to its 80,000 coal miners. Well, at the time he said that, we had not gotten our salaries for four months. That’s the key,” one protesting miner in Shuangyashan told the Financial Times. He did not give his name as Chinese authorities regularly imprison workers who lead protests or speak to foreign media.

Mr Lu then said he had been “misinformed” about Longmay’s wage arrears problem. He is the youngest member of the Communist Party’s standing committee and was considered a rising star among China’s younger leaders during the previous administration of Mr Hu Jintao.

Chinese authorities had been loath to allow loss-making state-owned firms to go bankrupt in part because of the possibility of mass unrest of the type that paralysed the rust-belt north-east during the previous round of restructuring in the late 1990s.

“Those of us who lived through the 1990s know that it was very different, in part because China’s economy was much smaller than it is today,” Mr Xiao Yaqing, the head of the State Assets Supervision and Administration Commission, told reporters on Saturday. “More mergers mean less bankruptcies and can help us peacefully resolve any disputes. I don’t think we will see any return to the 1990s.”

Beijing’s current plan involves trimming excess capacity across the board while allowing the companies themselves to survive or merge into even larger entities. However, the result can be large but weak state-owned companies such as Longmay, which was formed by merging four state-owned coal mines about a decade ago.

The Chinese coal sector is split between privately or locally owned smaller miners and enormous state-owned mines, many first developed before the Communist victory in the Chinese civil war.

Many of the state-owned mines are loss-making in part because they are contractually obliged to provide coal at below-market prices to the state-owned power and steel sectors, while maintaining bloated workforces and social services as a legacy of their importance to the planned economy.

FINANCIAL TIMES