China’s coal cushion: why its factories weathered the energy shock better

The buffer started with fuel security

The first layer of resilience was fuel. China is still a net importer of fossil fuels, and it imported about 7% of its coal supply in 2022. But it is also the world’s largest coal producer, producing nearly five times as much as India, the second-largest producer.

That domestic base separates China from economies whose power costs are more tightly linked to imported natural gas. The IEA’s Electricity Market Report 2023 describes how the post-pandemic recovery ran into record energy prices, with soaring natural-gas and coal prices sharply raising power-generation costs and adding to inflation. In that setting, a power system anchored in domestic coal could blunt part of the direct pass-through from international gas prices to industrial electricity costs.

This is not the same as saying coal power was always cheap. It means the main shock channel was different. For many Chinese factories, the vulnerability was less about European-style gas-linked electricity prices and more about whether coal supply, grid dispatch and local power management could keep production running.

Dispatchable power mattered as much as price

Coal’s second advantage was dispatchability: plants can be called on when hydropower is weak, demand peaks or the grid is under stress. In 2023, droughts in India and China reduced hydropower output, and coal-fired generation rose, more than offsetting coal-power declines in the United States and the European Union, according to the IEA.

For manufacturers, energy resilience is not just a line item on a utility bill. It is the ability to keep shifts running, meet delivery windows and avoid interruptions in production. China’s industrial sector accounts for about two-thirds of the country’s total energy consumption; in 2019, manufacturing alone accounted for about 55% of national energy use, and 59.6% of manufacturing energy came from coal.

That is why the coal-power base mattered to the factory floor. It gave China a large source of controllable electricity at moments when weather, fuel markets and demand spikes were all testing power systems.

Europe shows the contrast

Europe’s pain point during the crisis was the much more direct transmission of gas prices into power prices and industrial costs. An EU report on energy prices and costs says the 2021–2022 energy crisis widely disrupted global and European energy markets, and that higher gas prices drove up EU wholesale electricity prices.

Prices later eased, but not back to the old normal. In 2023, the European Power Benchmark averaged €95/MWh, 57% below the record highs of 2022. Yet another EU report says the fall in wholesale prices had not fully reached retail customers, leaving household and business energy prices above pre-2021 levels; industrial gas and electricity prices, though below the crisis peak, were still 2–4 times higher than in the EU’s main trading partners.

That helps explain the nature of China’s relative advantage. It was less a blanket guarantee that every Chinese industrial product was cheaper, and more a reduction in extreme energy-cost volatility and supply uncertainty. The Jacques Delors Centre similarly notes that the gap in electricity costs for large industrial companies between EU countries and the United States and China widened significantly in 2023, even after European price-support mechanisms were taken into account.

Japan and South Korea: a more careful comparison

The comparison with Japan and South Korea needs more caution. The available evidence does not prove that China’s industrial electricity prices were lower in every period or for every sector. What is clearer is that China has a domestic coal base that Japan and South Korea cannot easily replicate.

Japan was exposed to the fuel-import shock. In 2022, Japan’s CIF (cost, insurance and freight) coal spot price averaged $225 per tonne, up 45% from 2021. South Korea, meanwhile, has been managing the policy trade-off between coal transition and reliable, affordable power. An OECD report says South Korean coal-fired generation fell from 240 TWh in 2018 to 200 TWh in 2021, with coal’s share of the power mix dropping from 42% to 34%.

So China’s resilience relative to Japan and South Korea is best understood as a thicker fuel-security margin, not as proof of universally lower power prices. When imported fuel markets are volatile, a large domestic coal-to-power system can slow and soften part of the shock that reaches manufacturers.

The cushion came with real costs

The coal buffer was never free.

First, China itself was not immune to coal-supply stress. In 2021, coal production failed to keep pace with demand; supply-chain problems and adverse weather contributed to power outages and idled factories. Global coal prices also surged during the crisis: in 2022, European coal prices averaged $294 per tonne and Japan’s CIF coal price averaged $225 per tonne, up 145% and 45% respectively from 2021.

Second, coal’s carbon burden is a long-term competitiveness risk. The IEA says global coal demand still grew in 2023, with the largest increase in China, and that rising coal use, mainly for power, has accounted for nearly all of the increase in global CO₂ emissions since 2019. Climate Action Tracker also identifies China’s dependence on fossil fuels, especially coal, as a major factor in global emissions.

Third, coal solves a short- to medium-term stability problem. It does not settle the future of industrial competitiveness. China’s low-carbon power is growing quickly: Ember data show that 38% of China’s electricity came from low-carbon sources in 2024, wind and solar together supplied 18%, and China contributed more than half of the global increase in both wind and solar generation.

The bottom line

China’s coal-heavy power system helped its manufacturing sector absorb part of the 2021–2023 energy shock. It worked as both a cost buffer and a form of supply insurance: large domestic coal production and dispatchable coal plants reduced direct exposure to international gas-price spikes and Europe-style electricity volatility.

Compared with Europe, the advantage was mainly less exposure to high gas prices feeding into electricity costs. Compared with Japan and South Korea, it was mainly a deeper domestic fuel-security cushion. But the same system carries risks: coal-price swings, power-management failures and high emissions all weaken the advantage. Coal helped Chinese manufacturing weather one crisis. The next test is whether low-carbon power, stronger grids and storage can reproduce coal’s reliability without locking in its carbon costs.