China's 'coal city' an example for economic transition

Xuzhou, an east China metropolis with a population of more than 9.7 million, was once known as the "coal city." Following an economic transformation, however, Xuzhou has become a "garden city" with a greener economic base.

With China set to slash steel and cement capacity and eliminate tens of thousands of coal-fired furnaces, according to a work report delivered by Premier Li Keqiang at the ongoing legislative session, other cities will have to follow in Xuzhou's path of economic reinvention.

ECONOMIC TRANSITION

Located in the north of Jiangsu Province, Xuzhou saw the dawn of its coal mining industry as early as one century ago. However, the coal mining boom led to a set of environmental challenges, with local forest coverage declining to only 1 percent before the People's Republic of China was founded in 1949.

Xuzhou began to face economic troubles in the 1990s due to gradual depletion of coal resources. The city had to shift its economic base to a range of non-coal industries to hire workers formerly employed in coal mining companies, and the city has managed to make a Pittsburgh-style economic transformation.

Xuzhou Coal Mining Group Corporation (XMC), the local coal mining titan, survived the industry downturn and has thrived in recent years by diversifying its business scope.

XMC had to close more than 60 percent of its coal mines in 2001 because coal resources had been exhausted. At the time, coal mine workers couldn't even make 10,000 yuan (about 1,630 U.S. dollars) per year.

Today, business revenue from non-coal sectors, including real estate, logistics, coal mining equipment, and healthcare, accounts for the lion's share of the company's total revenue, and workers are able to make more than 61,000 yuan on average per year.

Agricultural product processing, logistics, tourism and construction machinery have emerged as new pillars of the local economy, and the gross domestic product (GDP) of Xuzhou rose by 12 percent in 2013 from the previous year to about 450 billion yuan. The growth rate significantly outpaced the nation's average of 7.7 percent.

Xuzhou has also become a comfortable city to live in, with forest coverage increasing to around 30 percent, the highest among all 13 cities in Jiangsu. The city attracted an influx of new businesses and its population grew by more than 400,000 between 2006 and 2013.

GREENER ECONOMY

After rapid economic growth over the past three decades in China, many resource-depleted and smog-plagued cities are trying to make economic transitions like Xuzhou's. Chinese policymakers have also stressed fostering greener economic growth and pushing forward similar urban transitions.

China will cut outdated steel production capacity by a total of 27 million tonnes this year, slash cement production by 42 million tonnes and also shut down 50,000 small coal-fired furnaces across the country, according to the government work report delivered by Premier Li Keqiang last week.

"We will strengthen energy conservation and emissions reduction and impose a ceiling on total energy consumption. This year, we aim to cut energy intensity by more than 3.9 percent," Li said.

Li's latest statement pointed to the urgency of reducing outdated production capacity and supporting industrial upgrades to help Chinese companies climb up the global value chain, said Zhuo Yongliang, head of the Development and Reform Research Institute of Zhejiang Province, a think tank in Jiangsu's neighboring province of Zhejiang.

In Xuzhou, the former energy base for economically prosperous Jiangsu, at least 318 paper mills and 99 cement factories were forced to close between 2007 and 2012, and more than 20 proposals for new steel, chemical and coking plant projects were rejected by the city's planners.

MARKET ROLE

Other experts, including Nicholas Borst, China program manager of the Washington-based Peterson Institute for International Economics, support giving the market a bigger role in China's economic transition.

"China has rightly focused on reducing excess capacity in many industrial sectors, including cement, steel and glass. However, the approach of the government to achieve consolidation through administrative measures has seen minimal progress," Borst told Xinhua.

"A better strategy would be to embrace the decisive role of the market and allow unprofitable firms to go bankrupt. This type of consolidation would help ensure that the least productive firms are required to exit the industry," he said.

Borst's view is echoed by Sun Tao, a senior economist with the Washington-based International Monetary Fund, who suggested unleashing the vigor of the market and private-sector companies.

If the Chinese government can allow the market to play the decisive role in allocating resources and provide all kinds of companies with fair and highly efficient financing channels, there will be a new industrial structure in line with the market demand, Sun said.