Vijay Jayaraj: China and India are growing their coal ambitions

Contrary to the perception of the mainstream media, China and India are increasing their coal capacity, and not moving away from it

On multiple occasions in 2020, soldiers from China and India engaged in border skirmishes resulting in casualties on both sides and months of trade uncertainty. 

The Indo-China border tension appears to have eased now, but did the heightened tension between the Asian energy giants impact the trade and growth of the Fossil fuel sector? 

China banned from India’s coal mining auctions

India undertook a series of measures to apply diplomatic and economic pressure on China. India banned a number of Chinese smartphone apps from the country, including the globally popular apps Tik Tok and PUBG. Further, the COVID-19 economic slowdown in India resulted in a 11% decrease in trade (year-on-year) between China and India.  India imports from China fell by 17.7%. 

In the energy sector, India banned Chinese firms from the commerical coal mining auctions which ended this week.  The coal mining auctions, which has attracted considerable attention from a large number of domestic and international investors and energy firms, is expected to privatize the country’s coal mining sector which has largely been under the control of Indian government. 

By banning Chinese investment, India has sent a clear message that such blockades for Chinese firms in the energy sector could be expected in future if there is no improvement in diplomatic relations.

However, it remains to be seen how long this stand-off will last. Even in the midst of this, the Indo-China trade of mineral resources performed exceedingly better in 2020 than last year. There was a 20-fold increase in aluminium export from India to China. 

Little to no impact on India’s coal momentum

Despite the ban on Chinese investors and the economic slowdown from COVID-19, the Indian coal sector remained unaffected. 

Coal Production between April and October was 282.9 million tonnes registering a 2.5 million tonne increase from the previous year.  The rapid increase in demand and production from August onwards offset the slowdown in the first half of the year. 

There was a 21% growth in the coal sector during September compared to the previous year. It is also to be noted that more than 500 coal plants under construction in the country.

There was a 43% increase in coal volumes booked in the spot e-auctions held between April and September this year (41.4 million tonnes compared to 25.1 million tonnes in the previous year). 

Coal India Limited stated that there has been a double digit growth increase in the power sector and that there will be an increase in coal production and sales, as indicated by the record production output growth rates in September and October this year.  Coal India Limited, the largest miner in the country,  aims to produce 1 Billion tonnes of coal by 2023-24. 

A minor hurdle in China’s coal marathon 

For China too, the border tussle with India was not significant enough to dent its coal ambitions. 

Coal accounted for almost 58% of China’s energy consumption in 2019 and the country is aiding dozens of other countries in increasing their coal consumption. 

To meet the growing demand for reliable and inexpensive power, the country is expanding its coal fleet. 

A 4 GW coal power project worth $1.9 billion has reentered the construction phase in the country’s northwestern region, after it was put on hold in 2016. As of July 2020, there were around 3000 coal power generators operating in the country.

There are around 250 GW of coal-fired plants, amounting to around 2200 coal plants, currently under development in the country. In the first six months of this year alone, China added 1.4 GW of coal-fired capacity. 

China also imports higher quality coking coal from Australia. Australia accounted for 40% and 57% of coking coal and thermal coal imports respectively in 2019. Despite the COVID-19 related economic impact in 2020, the country’s imports continued to increase and were higher than 2019 in the first three quarters of 2020. 

Using its Belt and Road initiative China is directly aiding the production of fossil fuels and construction of coal plants in more than 50 countries. Some estimate that China is building or planning more than 300 coal plants across Asia and Africa. 

Fossil fuels: Here to stay

China and India together lead the world in Solar and Wind installations, but they also remain the undisputed leaders of coal consumption, production, and account for more than half of all the coal plants currently under construction globally. 

The Covid-19 induced reversal of GDP growth in India meant that the country will not risk a compromise in its energy sector and will rely heavily on the fossil fuel sector to meet the growing demand as the economy enters the recovery phase. 

Likewise, China too recognizes the importance of Fossil fuels and is also helping other developing economies with the fossil fuel production and construction of coal plants. 

Contrary to the perception of the mainstream media, China and India are moving more towards fossil fuels and not away from them.