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Following 2003 and 2004, the term “coal shortage” has once again* swept through China. As a basic energy source, the dynamics of coal supply have a profound impact on overall situations. Data from the Electricity Regulatory Commission shows that a total of 17 provincial power grids across the country have implemented power cuts as a measure to limit electricity supply ； As of January 25, national coal reserves for power generation amounted to about 21.42 million tons, less than half of the normal level, and were declining at a rate of nearly 300,000 tons per day. There are 89 power plants across the country whose coal reserves last less than 3 days, with a generating capacity of 77.95 million kilowatts, accounting for more than one-tenth of the country’s total installed capacity. A situation where supply falls short of demand is one that all market participants in a seller’s position welcome. The current shortage of coal is also interpreted by most industry analysts as a huge boon for the coal industry. “\"Strong economic performance,\" \"overweighting coal stocks,\" and \"opportunities for increasing holdings\" are the most common evaluations and investment recommendations among analysts. However, some cautious analysts believe it is unreasonable to consider this “coal shortage” as a positive factor for the industry. An industry analyst who wished to remain anonymous said that coal is like masks during the SARS outbreak; a short-term supply shortage does not indicate sustained prosperity for the industry. Overall, the supply and demand of coal in the country are currently basically balanced. According to **statistics bureau data, China’s coal production in 2007 reached 2.29 billion tons, an increase of 197 million tons compared to 2006, representing a growth rate of 9.4%. An analysis report on the national coal supply and demand situation in 2008, released recently by the China Coal Industry Association, states that under the pressure of the severe challenges related to energy conservation and emission reduction, **greater efforts will be made to exercise control in order to prevent a rebound in fixed-asset investment, with particular attention being paid to stopping any increase in investment in heavy-industry sectors such as steel, building materials, and non-ferrous metals. The coal consumption rates in key coal-intensive industries such as electricity generation, steel production, and building materials are on a rapid decline path, and it is expected that the growth rate of coal demand in 2008 will fall to 6%. The recent “coal shortage” is not caused by a lack of coal resources, but rather by an insufficient effective supply resulting from a combination of various factors, among which accidental factors play a significant role. A combination of factors such as strict oversight of road transport capacity in Shanxi, transportation disruptions caused by severe weather conditions, an emphasis on shutting down coal mines rather than making improvements in their safety measures, and the peak demand for coal during winter all occurred at the same time, resulting in a shortage of coal supply in some provinces. For coal companies, a situation where demand exceeds supply is certainly pleasing, but this does not mean that the coal industry can raise prices arbitrarily; especially for large state-owned coal enterprises, fulfilling social responsibilities is an essential requirement. **Zhu Hongren, deputy director of the Economic Operations Bureau under the National Development and Reform Commission, said at a press conference on January 28 that coal prices reflect market supply and demand conditions, and prices should be determined and maintained by these two factors. However, if prices rise too much and too quickly, resulting in significant fluctuations in overall prices, the price regulation authorities must take corresponding measures in accordance with relevant regulations. The deterioration of transportation conditions, which prevents the sale of coal, is also a troublesome issue for coal companies. Although the proportion of contract coal in total sales has shown a downward trend in recent years, most coal companies still rely primarily on the sale of contract coal. The recent shortage of coal supply has also posed a problem for coal companies, as they are unable to guarantee the volume of contracts. Furthermore, the rising costs in the coal industry are also an unavoidable fact. Since 2006, due to increases in environmental costs such as land subsidence fees and sustainable development funds, resource costs including mineral resource compensation fees, as well as production costs such as labor expenses, the production cost per ton of coal in Shanxi region has risen by about 70 yuan compared to the level at the beginning of 2006. Recently, in light of the coal market conditions in 2007 and the collection status of the Coal Sustainable Development Fund, the Finance Department of Shanxi Province adjusted the standards for collecting this fund from coal production enterprises in the province for 2008. With the exception of a slight reduction in the rates for certain types of thermal coal, the overall collection standards were increased. The investment value of an industry is based on long-term sustainable development. If the market supply and demand, which are subject to many random factors in the short term, are used as a \"gimmick\" for speculation, thereby depleting the industry’s growth prospects in the secondary market ahead of time, this will be detrimental to both companies and investors.