Economic growth in the northern Chinese city of Taiyuan, Shanxi province, has crashed to zero from 12 percent in one year on coal bust

China City Crash-Lands to Zero Growth on Coal Bust

Economic growth in the northern Chinese city of Taiyuan, Shanxi province, has crashed to zero from 12 percent in one year. Yan Xiaofeng’s coal-equipment business has gone down with it.

Yan, 38, said last week that he’s recorded 1 million yuan ($160,000) in sales so far this year from supplying gear and parts to coal mines, down from more than 10 million yuan a year in the boom times of 2009. “The economy in Shanxi is very simple: It’s all about coal,” said Yan, who’s been in business in the region for 15 years. “When the coal industry is in decline, every other business follows.”

Taiyuan’s hard landing shows how China’s transition to slower growth from decades averaging 10 percent expansion will be messy in some places, especially Shanxi, which is suffering from anti-pollution policies aimed at curtailing coal use. The city’s situation highlights the challenge for policy makers in coming up with jobs and industries to replace manufacturing in regions dependent on commodities with diminishing demand.

“It’s always very hard to find a way to truly transform a local economy,” said Gao Shanwen, chief economist at Essence Securities Co. in Beijing, who previously worked at the People’s Bank of China. “If the ills in places like Taiyuan could be quickly cured, then hopes should be high for the Chinese economy. Unfortunately, the facts on the ground are harsh, and that’s an obvious reason why people are cautious about the economic outlook.”

Industrial Production

Taiyuan, with a population of 4.3 million, reported growth of 0.1 percent in the first quarter from a year earlier, compared with an 11.9 percent pace in the same period in 2013 and 8.1 percent for the full year. The city’s industrial production fell 9.3 percent in the January-March period, while fixed-asset investment rose 25.5 percent, a sign of efforts to revive expansion.

It’s not the only commodity-dependent region undergoing a hard landing. Heilongjiang province in the northeast reported a slump on a “very rare fall” in output from a major oilfield, according to the Heilongjiang Daily. The official newspaper said growth was 4.1 percent, while the National Bureau of Statistics later said 2.9 percent.

Hebei, which borders Beijing and is China’s biggest steelmaking region, grew 4.2 percent last quarter, compared with 8.2 percent in 2013.

Shanxi, China’s second-largest coal-producing province behind Inner Mongolia, accounted for about one-fourth of the nation’s output of the resource in 2012. Its first-quarter growth of 5.5 percent was third-slowest among China’s 31 provinces.

Debt Risks

The slowdown risks exacerbating debt dangers in the province, which Moody’s Investors Service said had 27 percent of its borrowing in trust products last year, the highest proportion in the nation. Shanxi’s fiscal revenue fell 0.8 percent in the first four months of 2014 from a year earlier, including a 19.8 percent plunge in April, according to the local statistics agency.

Local-government data suggest Taiyuan’s economic situation worsened in April, as the city’s decline in industrial production and coal output accelerated while fixed-asset investment growth slowed.

China’s government has intensified stimulus efforts in recent weeks, even as manufacturing surveys suggest the economy is stabilizing this quarter. Gross domestic product rose 7.4 percent in January-to-March from a year earlier, the slowest in six quarters and down from 7.7 percent in the previous three months. GDP is forecast by analysts to grow 7.3 percent this year, which would be the slowest pace since 1990.

More Sustainable

Pollution controls may affect economic growth in the short term and will help achieve more-sustainable development in the long term, Vice Minister of Environmental Protection Li Ganjie said yesterday at a briefing in Beijing, according to a government transcript.

Taiyuan’s coal bust is affecting other area businesses. Yan Lifang, a saleswoman for a group of condominium buildings called Royal View Grandeur Mansion, said demand is slowing as sentiment declines.

“You won’t want to get a better or bigger home when you aren’t confident about your salary or even your job,” said Yan, 27.

China, the world’s biggest carbon emitter, is trying to cut its dependence on coal to help clear smog that’s choked cities across the nation. The government accelerated to this year from 2017 a plan to get less than 65 percent of its energy from coal, down from more than 70 percent in 2010.

Coal Prices

The nation’s benchmark coal price has dropped 11 percent this year and is near the lowest level in more than five years, according to data from the China Coal Transport and Distribution Association.

China Coal Energy Co. (1898), the nation’s second-largest producer, in April forecast a drop in first-half profit, citing the decline in prices. Datong Coal Industry Co., the listed unit of Shanxi’s largest coal producer, reported a loss of 1.4 billion yuan in 2013, compared with profit of 62.6 million yuan in 2012.

While coal-equipment supplier Yan said his customers are delaying payment by at least a few months, he hasn’t noticed reports of strikes or protests that signal worker unrest. Infrastructure spending was visible last week, with a skyline dotted with construction cranes, a new railway station set to open in July to accommodate high-speed lines and the old station under renovation.

Shenzhen Lesson

Even so, the key to replacing lost jobs and industries may be less government intervention, not more, said Gao of Essence Securities. He cited the southern city of Shenzhen, which has blossomed around companies that have capitalized on the Internet, like Huawei Technologies Co. (002502) and Tencent Holdings Ltd., after an exodus of manufacturers last decade.

Prospects for places like Taiyuan depend on “whether the city has the ability to innovate,” said Justin Lin, former chief economist for the World Bank and now a professor at Peking University. “The government needs to play a kind of facilitation role to help them diversify into new industries.”

The drop in business in Taiyuan is enough to make coal-truck driver Zhang Junwen consider leaving home to be a migrant worker. He said his daily gross, once 2,000 yuan, has dropped to slightly more than 200 yuan.

“After deductions for fuel and repairs, I really make no money from this business,” Zhang, 33, said as he sat near his vehicle in Taiyuan, waiting outside a coal mine for work in afternoon heat reaching 96 degrees Fahrenheit (36 degrees Celsius). “My wife has begun to complain, and it’s time to think about going somewhere else.”

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at; Kevin Hamlin in Beijing at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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