$Unique_ID{COW00837} $Pretitle{260} $Title{China Chapter 7C. Heavy Industries} $Subtitle{} $Author{Michael L. Waddle} $Affiliation{HQ, Department of the Army} $Subject{china power oil percent china's enterprises coal development industry large} $Date{1989} $Log{} Country: China Book: China, A Country Study Author: Michael L. Waddle Affiliation: HQ, Department of the Army Date: 1989 Chapter 7C. Heavy Industries Mining Coal In the first half of the twentieth century, coal mining was more developed than most industries. Such major mines as Fushun, Datong, and Kailuan produced substantial quantities of coal for railroads, shipping, and industry. Expansion of coal mining was a major goal of the First Five-Year Plan. The state invested heavily in modern mining equipment and in the development of large, mechanized mines. The "longwall" mining technique was adopted widely, and output reached 130 million tons in 1957. During the 1960s and 1970s, investment in large mines and modern equipment lagged, and production fell behind the industry's growth. Much of the output growth during this period came from small local mines. A temporary but serious production setback followed the July 1976 Tangshan earthquake, which severely damaged China's most important coal center, the Kailuan mines. It took two years for production at Kailuan to return to the 1975 level. In 1987 coal was the country's most important source of primary energy, meeting over 70 percent of total energy demand. The 1984 production level was 789 million tons. More than two-thirds of deposits were bituminous, and a large part of the remainder was anthracite. Approximately 80 percent of the known coal deposits were in the north and northwest, but most of the mines were located in Heilongjiang Province and east China because of their proximity to the regions of highest demand (see fig. 14). Although China had one of the world's largest coal supplies, there still were shortages in areas of high demand, mainly because of an inadequate transportation infrastructure. The inability to transport domestic coal forced the Chinese to import Australian coal to south China in 1985. The industry also lacked modern equipment and technological expertise. Only 50 percent of tunneling, extracting, loading, and conveying activities were mechanized, compared with the 95-percent mechanization level found in European nations. Iron Ore China had iron-ore reserves totaling approximately 44 billion tons in 1980. In the mid-1980s, however, China relied on imports because of domestic transportation and production problems. Sizable iron-ore beds are distributed widely in about two-thirds of China's provinces and autonomous regions. The largest quantities are found in Liaoning Province, followed by Sichuan, Hebei, Shanxi, Anhui, Hubei, Gansu, Shandong, and Yunnan provinces and Nei Monggol Autonomous Region. In the mid-1980s mines lacked modern excavation, transportation, and ore-beneficiation equipment. Most of the ore mined had a low iron content and required substantial refining or beneficiation before use in blast furnaces. Most mines lacked modern plants for converting low- grade iron ore into concentrated pellets. Other Minerals and Metals After 1949 geological exploration discovered deposits of more than 130 useful minerals. China is among the world leaders in proven deposits of tungsten, antimony, rare earth metals, molybdenum, vanadium, titanium, pyrite, gypsum, barite, copper, tin, lead, zinc, aluminum, mercury, manganese, nickel, phosphorus, asbestos, fluorite, magnesite, and borax. Of these, China exported antimony, tin, and tungsten in significant quantities. In general, mineral extraction was inadequate for industrialization because of transportation bottlenecks and shortages of modern equipment for mining, smelting, and refining. A number of important mineral products were imported despite large domestic deposits, including aluminum, copper, and zinc. Among the rare earth metals and ferroalloys, beryllium, tungsten, molybdenum, barium, manganese, mercury, niobium, zirconium, and titanium were present in large reserves and were extracted in adequate quantities. Deficiencies existed in chromium, platinum, and gold. China produced sufficient quantities of most nonmetallic minerals to meet domestic needs. Barite, fluorite, salt, and talc were available in massive reserves and were exported in large quantities. Graphite, magnesite, phosphates, and pyrite were less abundant but generally satisfied domestic demand. Sulfur deposits were large, but quality was low and imports were necessary. China is rich in uranium and has favorable geological conditions for the formation of uranium deposits. The ore is easy to mine and dress because of its relatively simple physical composition. Energy Oil and Natural Gas Before 1949 China imported most of its oil. During the First Five-Year Plan it invested heavily in exploration and development of wells. In 1959 vast reserves were discovered in the Songhua Jiang (Sungari River)-Liaohe Basin in northeast China. The Daqing oil field in Heilongjiang Province became operational in 1960. Daqing was producing about 2.3 million tons of oil by 1963, and it continued to lead the industry through the 1970s. Further important discoveries, including the major oil fields of Shengli (in Shandong Province), and Dagang (in Tianjin special municipality) enabled China to meet domestic needs and eliminate nearly all imports by the mid-1960s (see fig. 15). In 1973, despite a steadily growing internal demand for petroleum products, output was large enough to export 1 million tons of crude oil to Japan. Exports increased to 6.6 million tons in 1974 and reached 13.5 millions tons in 1978. In 1985 exports of crude oil amounted to approximately 20 million tons, roughly 16 percent of total production. The majority of 1985 exports were to Japan, but the government also had released increasing quantities on the spot market and sent some to Singapore for refining. Although the government temporarily abandoned its drive to broaden its oil export base in 1986, 130.7 million tons of crude oil still were produced, an increase of 5.8 million tons over 1985. Oil reserves are large and widely dispersed. In general, development is concentrated on deposits readily accessible from major industrial and population centers. Deposits in remote areas such as the Tarim, Junggar, and Qaidam basins remain largely unexplored. The quality of oil from the major deposits varies considerably. A few deposits, like the Shengli field, produce low-quality oil suitable mainly as fuel. Most of the oil produced in China from the big fields in the north and northeast is heavy, is low in sulfur, and has a very high paraffin content, making it difficult and expensive to extract and to refine. Offshore exploration and drilling were first undertaken in the early 1970s and became more widespread and advanced as the decade progressed. Chinese and foreign oil experts believed that offshore deposits were extensive and could equal onshore reserves. Offshore operations relied heavily on foreign technology. In 1982 thirty-three foreign oil companies submitted bids for offshore drilling rights; twenty- seven eventually signed contracts. By the mid-1980s, when offshore exploration results were disappointing and only a handful of wells were actually producing oil, China began to emphasize onshore development. To continue offshore exploration, China established the China National Offshore Oil Corporation to assist foreign oil companies in exploring, developing, extracting, and marketing China's oil. Offshore exploration and drilling were concentrated in areas in the South China Sea, Gulf of Tonkin, and Zhu Jiang (Pearl River) Delta in the south, and the Bo Hai Gulf in the north. Disputes between China and several neighboring countries complicated the future of oil development in several promising offshore locations (see Physical Environment, ch. 2). Natural gas was a relatively minor source of energy. Output grew rapidly in the 1960s and 1970s. By 1985 production was approximately 12 billion cubic meters-about 3 percent of China's primary energy supply. The following year, output increased by 13 billion cubic meters. Sichuan Province possesses about half of China's natural gas reserves and annual production. Most of the remaining natural gas is produced at the Daqing and Shengli oil fields in the northeast. Other gas-producing areas include the coastal plain in Shanghai and in Jiangsu and Zhejiang provinces; the Huabei complex in Hebei Province; and the Liaohe oil field in Liaoning Province. The exact size of China's natural gas reserves was unknown. Estimates ranged from 129 billion to 24.4 trillion cubic meters. The Chinese hoped for a major discovery in the Zhongyuan Basin, a 5,180-square-kilometer area along the border of Henan and Shandong provinces. Major offshore reserves have been discovered. If successfully tapped, these could increase gas output by 50 percent. The largest unexploited natural gas potential is believed to be in Qinghai Province and Xinjiang-Uighur Autonomous Region. A rudimentary petroleum-refining industry was established with Soviet aid in the 1950s. In the 1960s and 1970s, this base was modernized and expanded, partially with European and Japanese equipment. In 1986 Chinese refineries were capable of processing about 2.1 million barrels per day. By 1990 China plans to reach 2.5 million barrels per day. In the 1970s China constructed oil pipelines and improved ports handling oil tankers. The first oil pipeline was laid from Daqing to the port of Qinhuangdao; 1,150 kilometers long, it became operational in 1974. The following year the pipeline was extended to Beijing; a second line connected Daqing to the port of Luda and branched off to the Democratic People's Republic of Korea. A pipeline from Linyi in Shandong Province to Nanjing was completed in 1978, linking the oil fields of Shengli and Huabei to ports and refineries of the lower Chang Jiang region. In 1986 plans had been made to construct a 105-kilometer pipeline linking an offshore well with the Chinese mainland via Hainan Island. Electric and Nuclear Power From 1949 to the mid-1980s, China pursued an inconsistent policy on the development of electric power. Significant underinvestment in the readjustment period, starting in 1979, caused serious power shortages into the mid-1980s. Although China's hydroelectric power potential was the world's largest and the power capacity was the sixth largest, 1985 estimates showed that demand exceeded supply by about 40 billion kilowatt-hours per year. Because of power shortages, factories and mines routinely operated at 70- to 80-percent capacity, and in some cases factories only ran for 3 or 4 days a week. Whole sections of cities were frequently blacked out for hours. China's leaders began to acknowledge the seriousness of the power shortage in 1979. The government took no positive steps until the mid- 1980s, when it announced import of 10,000 megawatts of thermal power-plant capacity to serve the east's large population centers. It also launched a nationwide campaign to create an additional 5,000 megawatts of electric-power capacity. Under the Seventh Five-Year Plan, China planned to add 30,000 to 35,000 megawatts of capacity, a 55- to-80- percent increase over previous five-year plans. The leadership decided to build thermal power plants to meet the country's electricity needs, because such plants were relatively inexpensive and required construction lead times of only three to six years. In 1985 approximately 68 percent of generating capacity was derived from thermal power, mostly coal fired, and observers estimated that by 1990 its share would increase to 72 percent. The use of oil- fired plants peaked in the late 1970s, and by the mid-1980s most facilities had been converted back to coal. Only a few thermal plants were fueled by natural gas. Hydroelectric power accounted for only about 30 percent of generating capacity. Observers expected that during the Seventh Five-Year Plan, China would continue to emphasize the development of thermal power over hydroelectric power because of the need to expand the power supply quickly to keep pace with industrial growth. However, in the long term, hydroelectric power gradually was to be given priority over thermal power. In 1986 China's total generating capacity was 76,000 megawatts: 52,000 from thermal plants and 24,000 from hydroelectric power sources. China planned to construct large generators having capacities of 100 to 300 megawatts to increase thermal power capacity. The new, larger generators would be much more efficient than generators having capacities of only fifty megawatts or less. With the larger generators, China would only have to increase coal consumption by 40 percent to achieve a 54-percent increase in generating capacity by 1990. Foreign observers believed that as China increased its grid network, it could construct power plants close to coal mines, then run power lines to the cities. This method would eliminate the costly and difficult transportation of coal to smaller urban plants, which had already created a significant pollution problem. From 1949 to 1986, China built at least 25 large, 130 medium, and about 90,000 small-sized hydroelectric power stations. According to the Ministry of Water Resources and Electric Power, China's 1983 annual power output was 351.4 billion kilowatt-hours, of which 86 billion kilowatt-hours were generated by hydroelectric power. While construction of thermal plants was designed as a quick remedy for alleviating China's power shortages, the development of hydroelectric power resources was considered a long-term solution. The primary areas for the construction of hydroelectric power plants were the upper Huang He (Yellow River), the upper and middle stream tributaries and trunk of the Chang Jiang, and the Hongshui He in the upper region of the Zhu Jiang Basin. The construction of new hydroelectric power plants was expected to be a costly and lengthy process, undertaken with assistance from the United States, Canada, Kuwait, Austria, Norway, France, and Japan. To augment its thermal and hydroelectric power capacity, China was developing a nuclear energy capability. China's nuclear industry began in the 1950s with Soviet assistance. Until the early 1970s, it had primarily military applications. In August 1972, however, reportedly by directive of Premier Zhou Enlai, China began developing a reactor for civilian energy needs. After Mao Zedong's death in 1976, support for the development of nuclear power increased significantly. Contracts were signed to import two French-built plants, but economic retrenchment and the Three Mile Island incident in the United States abruptly halted the nuclear program. Following three years of "investigation and demonstration," the leadership decided to proceed with nuclear power development. By 1990 China intended to commit between 60 and 70 percent of its nuclear industry to the civilian sector. By 2000 China planned to have a nuclear generating capacity of 10,000 megawatts, accounting for approximately 5 percent of the country's total generating capacity. In 1986 a 300-megawatt domestically designed nuclear power plant was under construction at Qinshan, Zhejiang Province, with completion planned for 1989. Although most of the equipment in the plant was domestic, a number of key components were imported. The Seventh Five- Year Plan called for constructing 2 additional 600-megawatt reactors at Qinshan. Another plant, with two 900 megawatt reactors, was under construction at Daya Bay in Guangdong Province. The Daya Bay project was a joint venture with Hong Kong, with considerable foreign loans and expertise. Rural Industry From 1980 to 1986, the number of rural town and township enterprises rose from 1.4 million to more than 12.2 million. There were five kinds of town and township enterprises: township enterprises, village enterprises, cooperative enterprises, enterprises jointly run by several households, and household enterprises. In 1986 the assets of the enterprises at the township and village levels totaled -Y134 billion. Their total output value for 1985 was -Y272.8 billion, 17 percent of the gross national output and 44 percent of the gross agricultural output. Rural enterprises absorbed a large portion of the surplus agricultural labor displaced by the agricultural responsibility system and the breakdown of the people's commune system (see Post-Mao Policies, ch. 6). This absorption helped the state greatly by eliminating state support of millions of displaced workers. In 1986 rural enterprises employed approximately 76 million people, or 20 percent of China's total work force. The town and township enterprises made a significant contribution to overall economic growth. In 1985 an estimated 28 percent of coal, 53 percent of construction materials, 30 percent of paper, 20 percent of textile goods, 33 percent of garments, and 75 percent of leather products came from rural enterprises. The enterprises also made extensive progress in the export market, with 8,000 export-oriented factories, of which 870 were Chinese-foreign joint ventures. In 1985 town and township enterprises earned about -Y4 billion in foreign currency. Despite the rapid growth and success of town and township enterprises, continued expansion faced obstacles in 1987. The government was trying to limit production because of economic and environmental concerns. Moreover, financial mismanagement, poor market analysis, rising energy and raw-material cost, substandard equipment, and constant interference from local government authorities hampered production and expansion. In certain areas, such as Zhejiang Province, efforts were made to solve some of the problems facing the rural enterprises. Local governments allowed the enterprises to keep 70 percent of profits, and of the remaining 30 percent remitted to the county government, 70 percent was invested in existing enterprises or used to establish new ones. Defense Industry China's defense industrial complex produced weapons and equipment based predominantly on Soviet designs of the 1950s and 1960s. Because of a lack of foreign exchange, a low short-term threat perception, and an emphasis on the three other of the Four Modernizations (agriculture, industry, and science and technology), China had decided to develop its defense industries gradually. It would rely primarily on domestic production, importing foreign technology only in areas of critical need. The defense industries produced a wide range of military materiel. Large quantities of small arms and tanks were produced, and many were exported to Third World countries such as Iran. China had upgraded Soviet aircraft and was developing nuclear-powered ballistic-missile submarines, intercontinental ballistic missiles, and tanks equipped with infrared night-vision gear and laser range finders (see Military Modernization, ch. 14). Because defense was assigned the lowest priority in the Four Modernizations in the 1970s, China's large defense sector has devoted an increasing amount of its resources to civilian production. For example, in the mid-1980s approximately one-third of the ordnance industry's output was allocated to civilian production, and the share was expected to rise to two-thirds by 1990. The defense sector produced a wide variety of products, ranging from furniture to telescopes, cameras to heavy machinery. Despite the military's contribution to the industrial sector, in 1987 Chinese industry lagged far behind that of the industrialized nations. Much of industrial technology was seriously outdated. Severe energy shortages, transportation bottlenecks, and bureaucratic interference also hindered modernization. Although output was high in a number of industries, quality was often poor. However, China's industrial sector has made considerable progress since 1949. Output of most products has increased dramatically since the 1950s, and China now produces computers, satellites, and other high-technology items. The reform program introduced in the late 1970s brought an era of more rational economic planning and laid the groundwork for more balanced and sustained industrial growth. As of 1987 China's leaders were aware of the need for greater industrial efficiency and productivity and were striving to achieve these goals. * * * Industrial growth before 1949 is outlined by John K. Chang in Industrial Development in Pre-Communist China. Thomas G. Rawski describes the development of the producer goods industries, both before and after the founding of the People's Republic, in China's Transition to Industrialism. A wealth of material on Chinese industry is found in the United States Congress Joint Economic Committee's China's Economy Looks Toward the Year 2000, which includes an overview article, as well as specific articles relating to the structure, management, ownership and control, and finance and planning of industry. It also describes and analyzes the energy sector in detail. The second volume of China: Socialist Economic Development in the World Bank Country Study series, contains information on industrial organization, policy, strengths and weaknesses, and issues and challenges. Another World Bank Country Study, China: Long-Term Development Issues and Options, looks at some of the major development issues facing China to the year 2000. Two Rand studies, Industrial Innovation in China with Special Reference to the Metallurgical Industry and Chinese Electronics Industry in Transition, are excellent case studies, documenting China's attempt to modernize its outdated industrial sector. The annual Statistical Yearbook of China provides figures on a wide range of industrial categories. The semimonthly China Business Review provides well-researched articles on many topics related to industry, and the Country Report: China, North Korea, (formerly Quarterly Economic Review of China, North Korea) outlines economic events on a quarterly basis and provides annual summaries. (For further information and complete citations, see Bibliography.)