China is fast becoming a price setter for thermal coal after overtaking Japan as the world’s biggest importer of the fuel last year.

So a change in how China prices the black rocks is set to create waves in countries like Australia and Indonesia, which together supplied more than half of its 150 million tons of coal imports in the first eight months of the year.

Read between the lines of the proposed reform, analysts say, and the message is clear: China expects thermal coal prices to fall further from near three-year lows around $90 a ton.

Despite big strides in expanding renewable output through building wind farms and solar projects, thermal coal still provides over two-thirds of China’s power needs. That helps explain why China has taken a slower approach to reforming coal prices than other energy, notably gasoline for cars run by the country’s rapidly expanding middle class.

China’s leaders have long maintained a regime of requiring coal miners and electricity generators to agree volumes at prices fixed below the market rate. Just last year, the government ordered miners to refrain from asking for higher prices in a bid to curb inflation.

Now, local media say China’s cabinet is considering a proposal from the National Development and Reform Commission, or NDRC, that will allow state-owned miners more freedom to negotiate coal supply and prices with power generators like Huaneng Group and China Resources Power. “We believe the timing is quite telling,” said Joseph Fong, a Hong Kong-based analyst with Jefferies.

“The NDRC is choosing to reform the coal price now as it expects the coal price to continue to decline, allowing it to be successful. Otherwise, if the coal price was to rebound, the NDRC could again be forced to intervene with price caps.”

Lessons can be learned from China’s move toward greater liberalization in pump prices for gasoline and diesel. After much flip-flopping on the issue, China finally grasped the nettle in late 2008 when global oil prices plummeted from $147 a barrel to around $40 within a few months as the financial crisis accelerated.

By instigating reform when prices were so low, China avoided passing costs on to industry and car users that they wouldn’t previously have been able to shoulder.

Fong’s analysis is intriguing as many investors in Australian resources companies have been betting that recent moves by China to stimulate its economy – such as by speeding up approvals for around 800 billion yuan (US$127 billion) of infrastructure projects – herald greater demand for commodities like coal and therefore higher prices.

China is the world’s biggest coal producer, targeting domestic production of 3.65 billion tons this year. But the country’s mines have struggled to keep pace with power demand in recent years, forcing it to rely more heavily on overseas coal suppliers to fill the gap.

Even though China’s economic growth has slipped to its slowest rate since 2009, coal imports in the first eight months this year are up a hefty 44% on the corresponding period of 2011. Shipments from Australia more than doubled as mines returned to full operational capacity following the heavy rains in Queensland and New South Wales states that restricted production last year.

In a report earlier this year, consultancy Wood Mackenzie said China’s domestic coal production will lose competitiveness against imports by 2015–just as many of Australia’s big port expansions are completed.

This shift could prompt Chinese companies, including its state-owned power generators, to invest more aggressively in overseas coal mines through M&A as well as spur strong growth in Australian coal exports to China, Woodmac said.