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US companies may build slurry lines; China steps up drive for more coal

China's coal industry is digging in. After a string of poor production years, output rose by a healthy 7.1 percent last year. Buoyed by this success, yet mindful of past pitfalls, China's latest business plan calls for a doubling of coal output by the end of the century. It is a more modest plan than the 1978 goal of doubling production by 1987.

Much of the increase in output will come through the construction of new mines. And several United States companies are poised to play a substantial part in achieving the ambitious production target.

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China, which derives 70 percent of its energy from coal, has the world's largest coal deposits, exceeding 600 billion tons, by some estimates. China now produces about the same amount of coal as the US, around 16 percent of world output. But its coal-mining industry is inefficient and in urgent need of modernization. And China has transportation problems.

Most of its coal is carried by train, but the country's railways are heavily congested and unable to cope with the growing burden from all sectors of the economy. The congestion has led to huge stockpiles totaling 35 million tons, according to some estimates.

At least two American companies would like to alleviate this problem through slurry pipelines that could each carry 30 million tons of coal annually. Bechtel International and the Fluor Corporation have signed preliminary agreements to build pipelines from coal-mining regions to the sea.

Bechtel signed an agreement in March to perform a feasibility study on constructing a coal slurry pipeline from Inner Mongolia to Qinhuangdao, China's biggest coal port, on the north coast. Experts put the cost of the 430-mile pipeline at around $2 billion. Fluor signed a similar, nonbinding agreement in April to build a 600-mile pipeline from Shanxi Province, which produces more than 20 percent of China's coal, to Nantong, near Shanghai.

Such pipelines use highly advanced technology and are still experimental in the US. But experts expect them to become much more widespread once legal wrangles with local US railroads are settled. A further problem in parched north China is that the pipelines rely on huge quantities of water to dissolve the slurry.

Occidental Petroleum, headed by Armand Hammer, has also jumped into the Chinese modernization program. Mr. Hammer has plans to build the world's largest open-cut coal mine in the Pingshuo coalfield, 300 miles west of Peking. He expects to invest $230 million in what would be the largest joint venture with a foreign company in China.

Although Hammer signed an interim agreement with the Chinese authorities in March, the deal is reported to be in trouble because of Occidental's alleged plans to sell off its subsidiary, Island Creek Coal Company, which is slated to develop the Pingshuo mine. Occidental has been selling off subsidiaries to pay for the purchase last year of another large energy group, Cities Service.

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China hopes to pay for the Pingshuo project through coal exports, mainly to energy-poor Japan. It has plans to triple exports, to about 20 million tons, by 1985 but admits it has been withholding stocks because of a weak world market.

Chinese officials have mentioned plans to attract $8 billion in foreign investment to exploit the largely untapped coalfields of the southwest and a further $5 billion to develop the coalfields of north China.

Some Western bankers are skeptical that China can come up with the money for its coal projects. It already needs around $20 billion to finance offshore oil projects until 1990, and it has been reluctant to take out large-scale loans at commercial rates. ''It sounds like wishful thinking to me,'' a banker commented. But experts do believe Chinese imports of coal-mining equipment will be substantial. They note that Peking has already bought $1 billion worth in the last few years.

There are indications China may go to Eastern Europe to buy such goods, perhaps more cheaply than from the West. The Chinese are mending their fences with the Soviet bloc and trade is rising fast with those countries. A Chinese coal delegation recently returned from Poland with an agreement of intent to purchase a range of items including coal-washing equipment and to co-produce tunneling machinery.

The most ambitious aspect of China's coal modernization program is its plan to develop the southwestern provinces of Guizhou and Yunnan. Guizhou now produces only 7 million tons a year, while Yunnan is a negligible producer, but officials believe each province could eventually produce more than 30 million tons annually.

The project to develop these provinces is the brainchild of Shaul Eisenberg, a mysterious entrepreneur with joint Austrian-Israeli citizenship, who shuns the press and is said to be a millionaire many times over. Mr. Eisenberg, owner of a little-known trading company called United Development Inc., was apparently behind the formation of a Chinese state corporation, the China Southwest Energy Resources United Development Company, which is in charge of the development plans.

This company oversees all aspects of developing the southwest provinces, including mines, railways, and ports. Western businessmen believe the company could be highly effective in cutting bureaucracy if and when foreign enterprises get into the southwest.

A recurring complaint of foreign businessmen in China is the tortuous bureaucracy, which often reflects infighting among various ministries and departments. Thus, mining is the responsibility of the Coal Ministry, railways of the Railways Ministry, and ports of the Communications Ministry, and there is often little communication among the various departments, even when there is not outright hostility.

Although China Southwest could be the answer to such problems, officials admit its plans exist mainly on paper, even though domestic enterprises are starting to open up the region.

Development of coalfields in south China is of great importance, as at present almost all the country's coal is produced in the north, causing enormous transportation problems for southern cities such as Shanghai and Canton.

Only 40 percent of national output comes from fully or partly mechanized mines, and 96 percent comes from underground operations rather than open-pit mines, which tend to be more economical to run.

But experts say modernization of coal mines must receive top priority if China is to meet its goal of quadrupling the value of its industrial and agricultural production to $1.4 billion by the year 2000.

The experts are encouraged by repeated official statements that energy-related equipment is not included in a general ban on large-scale imports of heavy industrial equipment, and by increasingly strong signals that the country is planning to boost its purchases of necessary technology from abroad.

Kong Xun, chairman of the China National Coal Development Corporation, told a recent coal investment conference that to attain the target of doubling production by 2000, local mines were expected to produce 500 million tons annually, while ministry-run and newly built mines are each aiming for 400 million tons.

He said this plan would be carried out in two stages. In the first eight years, an annual growth rate of 2.6 percent will be maintained. In the second 10 years a rate of 4.1 percent is expected.

As last year's growth was well above this figure, experts here say the ambitious target of doubling output is attainable, but they stress the need for modern equipment and greatly improved transportation.

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