The coking industry in Shanxi is facing a severe debt crisis, with a complex web of unpaid obligations among downstream users, coking enterprises, coal mines, and banks. This "four-corner debt" has escalated as the coke market continues to weaken, causing a chain reaction of financial distress across the supply chain. According to data from a mid-sized coking company in Jinzhong, the total amount of outstanding debts between coal mines, end-users, and financial institutions has surpassed 80 million yuan. Industry insiders estimate that the overall debt burden in the sector exceeds 10 billion yuan, signaling a deepening crisis.
Since the start of this year, the weakening demand for coke has led to more aggressive defaults by downstream users, with some even engaging in deliberate non-payment. In June, after the Shanxi Coke Association proposed production cuts and price protection measures, steel companies from other provinces invited Shanxi Coking Co., Ltd. to bid under strict payment terms. A survey of major coking companies in Linyi revealed that most have debts exceeding 40 million yuan, with one firm owing as much as 70 million yuan. The Shanxi Provincial Economic Committee's recent analysis highlighted that coking companies are struggling with high accounts receivable and inventory financing, leading to inflated book profits while actual cash flow remains tight.
Most coking projects rely heavily on bank loans, with monthly interest payments often reaching 2–3 million yuan. As liquidity dries up, both coking firms and banks face difficulties in meeting their obligations. According to a report from the Linyi Credit Union, many coking enterprises are unable to repay their loans. Some have resorted to refinancing, but financial institutions remain cautious due to the high risk, further worsening the situation. Data shows that the Shanxi Provincial Credit Union extended 20 billion yuan in loans to the coking industry between 2003 and 2004. With repayment deadlines approaching in 2006, the debt crisis is expected to intensify dramatically.
The debt between coking companies and coal mines began last year, as coal prices surged and coking coal became scarce. From last year until July this year, coal shortages forced coking companies to prepay for coal, sometimes in amounts ranging from several million to tens of millions of yuan. However, following repeated mining accidents in Shanxi, many coal mines were shut down or forced into temporary closures. As a result, coking companies found themselves stuck with large prepayments and no coal to show for it. One company in Jinzhong paid 10 million yuan upfront to a mine in Liulin, only for the mine to shut down, leaving the remaining funds unrecoverable. Similarly, another firm in Jinzhong owes 15 million yuan to a coal mine due to weak demand for certain coal types.
Industry insiders warn that the "four-corner debt" not only weighs heavily on coking companies but also poses significant systemic financial risks. The root cause lies in the declining coke market and rising losses within the sector. Current conditions suggest that these challenges will persist in the short term, requiring proactive measures from policymakers. Authorities must remain vigilant, plan ahead, and implement effective strategies to mitigate potential risks and stabilize the industry.
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