In the first half of 2009, output of raw coal in north China's Inner Mongolia Autonomous Region reached 286 million tons, up 27.48 percent or 61.6 million tons compared with the same period last year. The output overtook that of Shanxi Province, making Inner Mongolia China's biggest coal producing region, according to statistics given yesterday to the National Development and Reform Commission (NDRC) by the region's coal industry bureau.

An NDRC analysis attributes the reason to Shanxi intensifying its efforts to close and reform small and unofficial coal mines. Three out of four coal companies have been closed down in Shanxi Province in the recent period. Another reason is that Inner Mongolia's rail network system has been upgraded, enabling the regions to export 160 million tons of coal to other regions, an increase of 42.3 millions tons compared with the same period last year.

The NDRC predicts that over the full year Inner Mongolia will outstrip Shanxi to become the biggest coal production area in China.

Although rich in coal resources, Shanxi is the only province that recorded negative GDP growth of 4.4 percent in the first half. The coal, coke, iron and power industries are the four pillar industries in the province, accounting for 80 to 90 percent of total industrial output.

Shanxi's simple and narrowly-based economic structure made it particularly vulnerable in the financial crisis. Since the beginning of this year, Shanxi province has begun economic restructuring, and closed down, or suspended production in, many coal companies.

The province will reduce the number of coal mines from 1500 to 1000 by the end of 2010. Through mergers and acquisitions, the province will create four large coal enterprises with the capability to produce 50 million tons of coal a year, and three giant enterprises that can produce 100 million tons a year.

Coal industry expert Li Chaolin said that the policy is a clever maneuver by the local government to "limit production in order to protect value."

The profits made by the coal sector in the first five months reached 67.8 billion yuan (US$9.9 billion), up by 4.2 percent compared with the same period last year. Coal shares have risen by 170 percent overall this year. But some analysts predict that coal shares will lead a downward adjustment in the stock market.

But others, including China Merchants Securities, still favor Shanxi coal enterprises, saying factors like the current macro economy, increases in supply, and costs imposed by government policies, should not put downward pressure on coal shares. Instead, a rise in coal prices, integration of resources, injection of capital, and new listings of coal companies will continue to push up coal share prices.

(China.org.cn by Zhang Yunxing August 12, 2009)