From the dilemma of the National Development and Reform Commission--on the "coal oil" project
September 30 10:07:07, 2025
A source who worked at the National Development and Reform Commission (NDRC) shared with the author that the "coal-to-oil" projects have become a widespread trend among domestic companies. With numerous applications flooding in from different regions, NDRC officials feel overwhelmed, caught between pressure to approve and the risk of making costly mistakes.
Approving these projects is risky. First, the construction capacity is already too large. According to data from research institutions, by 2020, China's coal-to-oil capacity was expected to exceed 39 million tons, with investments surpassing 100 billion yuan. This production level is nearly equivalent to the current national gasoline output, and many existing refineries have already shut down, leading to overcapacity and inefficiency. Second, there's the risk of international crude oil price fluctuations. The oil market is highly volatile, influenced by geopolitical tensions, supply disruptions, and economic shifts. A coal-to-oil project typically takes around five years to reach full production. Who can predict where oil prices will be in five years? If they drop below $20 per barrel, the entire project could become unprofitable. Additionally, domestic coal prices are also unpredictable. Over the past few years, coal prices have risen sharply—some areas saw prices increase five or six times from less than 100 yuan per ton to over 500 yuan. Many of the submitted proposals still rely on outdated assumptions about coal costs, creating a mismatch between projections and reality.
On the other hand, not approving these projects would also lead to problems. Many coal-to-oil projects in provinces like Inner Mongolia, Yunnan, Heilongjiang, Shaanxi, Shanxi, Shandong, Ningxia, Gansu, Guizhou, Anhui, Henan, and Xinjiang have already invested heavily, mostly through state banks. If they are not approved, these projects will be halted, resulting in a significant waste of public funds.
This situation is not new for the NDRC. In recent years, the commission has faced similar dilemmas with various energy and chemical projects, such as methanol, ethylene, and oil refining. These projects often require central approval, but many local governments and enterprises push forward without waiting for official green lights, hoping to create a "fait accompli" to force approval. This practice, known in the industry as "forcing Gong," has become a common tactic.
The NDRC’s dilemma raises important questions: Why do so many projects proceed with large investments before national approval, creating irreversible situations? The reasons are largely twofold. First, the resources and funds involved are often state-owned, meaning there's little accountability for waste. Even if projects fail, no individual is held responsible. Second, project leaders can gain recognition, promotions, or political credit simply by completing construction. As a result, many are not afraid of waste—on the contrary, it may even enhance their reputations.
In short, the problem lies not just with the projects themselves, but with the systemic incentives that encourage reckless investment. Without meaningful reforms to the financial system and performance evaluation mechanisms, this cycle of wasteful spending will continue.