China issued a guideline on Tuesday to let the market decide thermal coal prices instead of implementing prices set by the government starting next year.

The State Council, China's cabinet, said in a guideline on deepening market reforms for thermal coal that coal miners and power companies can negotiate thermal coal prices on their own beginning 2013.

Compulsory thermal coal supply contracts, which require coal miners to provide thermal coal to power plants at preferential prices set by the government, will also come to an end next year, according to the guideline.

The country will step up the construction of both regional and national coal trading marketplaces, the guideline said.

Since the 1990s, China has implemented government-guided prices for thermal coal in an effort to ensure steady power supplies, resulting in unfair competition and conflicts between coal miners and power plants.

The market-oriented reform of the sector will set an example for similar reforms in the energy industry, as coal accounts for about 70 percent of China's primary energy production and consumption, analysts said.