How to fuel China’s growth

In a series of posts leading up to the World Economic Forum’s Energy for Economic Growth report launched on Wednesday 7th March 2012, Lin Boqiang, Director of China Center for Energy Economics Research, Xiamen University, China, shares his insight into ensuring access to affordable and sufficient energy as a prerequisite for future growth in China.

If China wants to sustain its economic development and growth it needs to make sure that it has access to affordable energy from diversified sources without letting the environmental burden outweigh the benefits. Against the backdrop of a large population and rapid urbanization that might require decisive and even painful government action.

China’s rapid growth is literally fuelled by the energy sector: since 1980 10% of China’s GDP growth were driven by 6% growth in primary energy consumption and close to 10% in electricity consumption. Jobs created directly and indirectly by the sector’s expansion as well as tax revenues contributed substantially.

However, the success of China’s economy has also generated more demand for energy. While China is already the largest consumer of energy in the world, continuing industrialization and urbanization are further driving the need for energy. In addition, energy efficiency has not kept pace with growth rates and pollution emissions have risen considerably. So far, government efforts to promote energy saving measures have not met overall success.

In order to ensure a path to sustainable economic growth China has to address challenges as diverse as energy security, energy scarcity, rising energy costs and negative environmental impact. China has, for example, moved from being a net exporter of coal towards a rising dependence of foreign fossil fuel, especially oil. In 2010, 55% of oil consumption were covered by imports. If business as usual continues, this number is expected to reach 70% by 2018. A similar development is becoming apparent in regards to natural gas.

China’s growing urban population will lead to incrementally rising energy demand. As many other developing and emerging countries, China has to ensure access to sufficient and cheap energy while balancing the environmental effects of high energy use and consumption.

In my opinion, the best way forward is for China to introduce a strategy for energy conservation. And that strategy has first and foremost to target Chinese cities.

Just look at the numbers: by 2020 China’s cities will experience a net addition of 300 million people, a figure roughly equal to the entire US population. The resulting need for large quantities of high-energy products as steel and cement will add considerable pressure on available energy sources.

Also, I believe, that the Chinese government needs to rethink subsidies. The effort to keep energy costs low might hinder attempts to introduce energy saving measures, raise electricity tariffs and develop clean energy alternatives.

Looking at the role the Chinese market plays on a global level the success of balancing the energy triangle will likely affect the international energy market.

Author: Lin Boqiang is Director for China Center for Energy Economic Research, Xiamen University, China

Pictured: Vehicles line up for diesel near a gas station in Kunming, Yunnan province, November 14, 2010. An unprecedented diesel shortage is sweeping through Chinese cities and markets. Some observers attribute the shortage to real demand, while the others reckon it is the forced power outages that is forcing numerous companies to have to resort to diesel fuel to generate electricity.REUTERS/China Daily