China's Challenging Fast Track

by Wei Zhihong

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Morning Traffic in Beijing

Far more energy will have to be produced -- and conserved -- to power the expanding economy and protect the environment

China's economy is on a fast track, with growth projected to quadruple in the first two decades of this century. A mix of clean and affordable energy sources will be needed to fuel and sustain development.

Since China opened to outside markets in the 1980s, the national economy has expanded steadily, with an average annual growth rate of 9.6% in gross domestic product (GDP) from 1980 to 2000. Development has stayed strong in this century, and GDP grew 9.1% in 2003, the highest rate in the past six years. For the first time, per capita GDP topped $1000, reaching $1090 last year.

How to best manage and sustain growth is driving energy decisions. Analyses show that China has entered a stage of manufacturing, chemical, and heavy industrial development that is energy intensive. At the same time, demands for energy at home and in businesses are growing among China's population of 1.3 billion people. As consumption grows, so do concerns about air, water, and land pollution in the context of sustainable energy development.

Shortages in Boom Times

China consumes more energy than any country except the United States. Entering this century, the country's energy consumption has grown from 924 million tonnes of oil equivalent (Mtoe) in 2001 to an estimated 1080 Mtoe in 2003.

Alongside energy growth stands energy shortages, especially in electricity generation. Electricity generation does not sufficiently meet the demand for industrial production and people's daily needs in more than 20 Chinese provinces, and demand exceeded supply in five of six regional electricity grids in 2003.

It is not surprising that serious power shortages have arisen, for a number of reasons. Firstly, over the past two years, demand for electric power has grown at a monthly rate of more than 15%. Meantime, new power generation capacity has lagged greatly, with annual growth rates falling from 6.8% in 2000 to 5.3% in 2002.

Secondly, production investment has increased rapidly, notably in energy-intensive sectors such as metallurgy, building materials, and chemical industries to support boom expansion of automobile and construction sectors. Today, the production output of steel (210 million tons in 2003), coal (1400 million tons in 2002), and cement has elevated China among the world's top producers.

Thirdly, the country has experienced water shortages in recent years, and especially in 2003. This, in turn, has reduced hydropower generation, which previously accounted for 16% to 20% of total electricity production.

Fourthly, China's coal trade has been reformed in a market- oriented economy, with the State no longer guiding coal prices. The price for coal has risen on average between 10- 15 yuan per ton in response to demand and transportation costs. On the other hand, the price of other thermal power sources is still guided by the State, rather than being market driven and responsive to coal price fluctuations. This situation hinders development of coal-fired power generation, which accounts for 80% to 90% of Chinese electric power production.

Energy & Economic Trends

China has a diverse energy base. The country has the world's highest level of exploitable hydropower resources, third highest level of proven coal reserves, and considerable oil and natural gas resources. Coal remains the main fuel, accounting in 2002 for two-thirds of total primary energy consumption. The consumption shares for oil, natural gas, hydropower and nuclear energy were 23.3%, 2.7%, 7.7% and 0.4%, respectively. Renewable sources, mainly wind, solar, and geothermal energy, together accounted for 0.3%.

In terms of energy projections, the electricity shortages of 2003 focused attention on the importance of forecasting supply and demand and steps to improve it. Energy facilities need quite a long time to be built before they can serve consumption centers and end users. Key forecasting factors include social and economic development, such as population, urbanization, GDP, national economic structure, and technological progress.

Because of China's large population pressures, there is no doubt that China will continue to implement its family planning policy over the longer term. It is expected that population will slowly increase from 1.26 billion in 2000 to about 1.475 billion people in 2020. More than half of the population, or 52%, is expected to live in or near cities by 2020, compared to 36% today.

Regarding economic development, an ambitious target was set in late 2002 to have China's GDP quadruple to the year 2020. To reach the target, an annual average growth rate of GDP would be about 7.2% a year. Achieving this target by 2020 would move China's world GDP ranking to third place, behind the USA and Japan, and increase per capita GDP to US $2945, nearly three times today's level.

In terms of technological progress, the aim is to reduce energy intensity, particularly in primary industries. The targets assume that energy intensity will go down continuously, and decrease by 40% to 50% by 2020.

Projections in energy demand foresee that coal's share will decrease from 66% in 2000 to 60% in 2010 to 54% in 2020. At the same time, cleaner energy and non-carbon energy - especially natural gas, nuclear energy and renewable energy - will see great development, as their combined share in total primary energy is projected to grow from 2.9% in 2000 to 15.6% in 2020.

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