A shift in China's coal supply-demand balance, the rollout of a capacity-reserve regime, and policy adjustments at the national level are already changing the rhythm of domestic coal production. After several years of expansion, the country has started stabilizing and even cutting output.

Reducing supply becomes pivotal for corporate self-preservation and energy policy necessity.

In 2025, China's raw coal output hit a record 4.85 billion tonnes, but total profits in the coal mining and washing industry plunged by 41.8% year on year. This comes as supply kept rising while demand growth was restrained, dragging coal prices. In the main producing regions and among large operators, cutting output to support prices has become a consensus.

Disciplined cuts could improve the industry's overall health. Retiring obsolete capacity would reduce pollution and waste, pushing coal towards safer and more efficient production. A better supply-demand balance, in turn, could strengthen firms' resilience and create a more sustainable cycle of investment and risk management.

Capacity reduction is presented as a lever for upgrading and innovation. When weaker mines are eliminated, surviving companies face sharper competitive pressure, which can accelerate technological improvements and better management. This means raising mining efficiency, lowering unit costs, and expanding the application of cleaner technologies.

Coal output reductions are a signal and a spur for broader energy transition, forcing faster movement from traditional fossil fuels towards new and cleaner energy. By reducing dependence on coal, China can lower carbon emissions and advance its goals of peaking emissions and achieving carbon neutrality, aligning economic growth with environmental constraints.

Coal remains the main fuel for thermal power, so a sudden squeeze on supply can threaten short-term grid stability. But over the longer run, optimizing the energy mix and encouraging clean energy expansion could help build a diversified, complementary electricity system, securing the sustainability of basic energy supply.

Nevertheless, field research suggests coal mines are facing practical traps in production cut progress, said Jiang Yaodong, a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC).

Cutting output can mean immediate losses. At a mine with an annual capacity of over 10 million tonnes in Ordos, Inner Mongolia, a one-month shutdown would cause a direct loss of about 200 million yuan. Even when production stops, fixed costs of roughly 30 million yuan would still be needed to keep basic operations.

Meanwhile, the cost of adjustment is real, but compensation mechanisms are thin. Keeping a mine with a capacity of 10 Mtpa in a state ready to resume production at short notice requires around 80 million yuan a year, yet there is no mature mechanism to recover these costs, Jiang said.

Another problem is a lack of regional coordination. Provinces and localities often fail to align on appropriate production-cut schedules, capacity allocation, and policy enforcement.

Jiang noted that relevant authorities should ensure the interests of mines asked to scale back output. That requires shifting capacity adjustment away from administrative commands towards market-based mechanisms via institutional innovation.

He offered five proposals, including establishing a tradable capacity-rights system, creating a mechanism to financialize adjustment costs, building a regional rotation arrangement, improving coordination between coal power and new energy, and launching comprehensive pilot programs.