China’s coal industry boom draws interest

By Tim Huber, AP

CHARLESTON, West Virginia — As China’s appetite for coal is booming, American investors and businesses are cashing in.

American pension and mutual fund money is being invested in the Chinese coal industry, which is lucrative but has a poor record for pollution and worker safety.

Look no further than China Shenhua Energy Co., the Beijing giant that produces about 170 million tons of coal a year from 21 mines and builds power plants. While about 80 percent of the company’s stock is owned by Shenhua Group in Beijing, the rest of its shareholders reads like a who’s who of U.S. investors: Fidelity Investments, OppenheimerFunds, Merrill Lynch, even the Teachers Retirement System of Texas.

The performance of Shenhua’s Hong Kong-listed shares explains why U.S. investors love Chinese coal. Shenhua gained almost 65 percent from July through September, while American company Peabody — a favorite of analysts who follow U.S. coal companies — lost more than 3 percent over the same period. Shenhua’s initial public offering in Shanghai in September raised US$8.9 billion, a record for mainland China.

U.S. investment in the likes of Shenhua has gone largely unnoticed. Individual investors such as the retired Texas teachers probably don’t know their money is going into Chinese coal stocks, says corporate government expert Nell Minow.

But while such companies might come with concerns, investors find poor returns equally upsetting, she adds.

“You’re really on the horns of a dilemma,” she says. “You can’t afford not to be in China.”

A spokesman for the Texas pension fund declined to comment.

Even environmental groups that have criticized the U.S. coal industry for practices such as mountaintop-removal mining have been largely silent on investing in Chinese coal. The Rainforest Action Network, for instance, focused on the U.S. in its criticism of Citigroup Inc. and Bank of America Corp.’s involvement with the coal industry.

“We’ve predominantly been looking at the recent boom in coal-fired power plants domestically,” said Matt Leonard, a global finance campaigner for the group, who added that Chinese coal should be targeted as well. “We’re working to get the banks out of all coal development.”

Apart from investors, U.S. coal companies are also salivating over China because of the promise of things they haven’t seen much of lately: rising prices and the opportunity to increase exports.