China’s energy profile provides a window into its economic soul. It tells us much about what China does, how fast it is doing it, and how efficiently. Energy is also a finite global commodity, demand and supply for which affects us all both in terms of the costs of running our nations, firms and households, and in terms of the environment that surrounds us.

So for financial analysts trying to gauge the effect of China’s rise on world prices, for policymaking realists formulating responses to China’s emergence, and for economists and political scientists seeking to understand the workings of China’s economy behind the veil of international cooperation departments in Beijing, a clear understanding of China’s energy sector dynamics is important.

The urgency to acquire that understanding is clear: In 2001 China accounted for 10 percent of global energy demand but met 96 percent of those needs with domestic energy supplies; today China’s share of global energy use has swelled to over 15 percent and the country has been forced to rely on international markets for more of the oil, gas, and coal it consumes.1 Between 1978 and 2000 the Chinese economy grew at 9 percent while energy demand grew at 4 percent.

After 2001, economic growth continued apace, but energy demand growth surged to 13 percent a year. It is this fundamental shift in the energy profile of China’s economic growth that has created shortages at home, market volatility abroad, and questions about the sustainability of China’s trajectory.

It is a fusion of plan and market forces, formal regulation and seat-of-the-pants fixes, central intentions, and local interests. And while retail consultants can trawl through supermarkets in Shanghai counting cereal boxes to measure trends, in energy many key metrics are obscured by national security considerations or habits of secrecy at state-owned enterprises.

The purpose of this policy analysis is to make visible the internal dynamics of the Chinese energy situation, which most observers glimpse only second hand as the impact of demand on world markets, the behavior of Chinese firms abroad and the effect of Chinese emissions on the global environment. Our hope in doing so is to facilitate energy policy cooperation between China and other countries, more rational conception of and reaction to China’s energy behavior by markets and governments, and more effective prioritization of the energy reform agenda in China, the United States, and elsewhere. ...

Download China Energy: A Guide for the Perplexed

PDF format, 2.68MB, 49Pages. Provided by iie.com.

Daniel H. Rosen
Visiting Fellow, Peterson Institute for International Economics,
China Strategic Advisory
Trevor Houser
Visiting Fellow, Colin Powell Center for Policy Studies
China Strategic Advisory

Peterson Institute for International Economics. May 2007.

China Balance Sheet
A Joint Project by the Center for Strategic and International Studies and the Peterson Institute for International Economics

Contents:

INTRODUCTION 4

1 WHAT’S DRIVING DEMAND 6
The Evolution of Energy Demand in China 6
The Current Demand Picture 7
Industry-Led Demand 8
Consumption-Driven Demand 14

2 CHINA’S ENERGY SUPPLY SYSTEM 17
Formal Energy Policy Institutions 17
Informal Channels of Influence 19
Oil and Gas 19
Coal and Power 22

3 GLOBAL IMPACTS 28
World Energy Markets 28
Energy Security and Overseas Investment 30
The Environment 33
Goods Trade and Industrial Competitiveness 35

4 CONCLUSION AND POLICY RECOMMENDATIONS 37
Assessing the Domestic Response 37
Prioritizing the International Policy Response 40
Energy Security 40
Industrial Competitiveness 43
Climate Change 44

REFERENCES 47

Daniel Rosen is a visiting fellow at the Peterson Institute for International Economics, where he was in residence from 1993 to 1998. This is his fifth Institute study on China-related subjects. Previous work included Behind the Open Door (1998) on foreign investment in China, The New Economy and APEC (2002, with Catherine Mann) on information technology and Asian productivity, Roots of Competitiveness (2004, with Scott Rozelle and Jikun Huang) on China’s agricultural sector, and Prospects for a US-Taiwan Free Trade Agreement (2004, with Nick Lardy). His first work on the intersection of China’s energy sector and environment was Powering China , written with Dan Esty in 1994–95 for the Rockefeller Brothers Foundation. In addition to his Institute scholarship, he is principal of China Strategic Advisory, a New York–based consultancy, and adjunct professor at Columbia University’s School of International and Public Affairs since 2001.

Trevor Houser is a visiting fellow at the Colin Powell Center for Policy Studies at the City College of New York and Director of China Strategic Advisory’s Energy Practice. His recent publications include Chávez-China Oil Deal May Produce Unsuspected Winners, published by YaleGlobal in September 2006; The China Energy Specter: Perceptions and Prospects, prepared for the Pudong Institute for the US Economy in May 2006; and Alternative Measures of Chinese Economic Development , developed for the Aspen Institute Italia’s publication Aspenia in February 2006.

The authors would like to thank the following who served as advisors to this study:

Renato Amorim, Companhia Vale do Rio Doce (CVRD)
David Blumental, Vinson & Elkins LLP
Daniel Esty, Yale Center for Environmental Law and Policy
George Gilboy, Woodside Petroleum
Michael Laske, AVL China
Jeff Logan, World Resource Institute
Liang Shipu, Shenhua Group
David Pumphrey, US Department of Energy
Scott Roberts, Massachusetts Institute of Technology
Gavin Thompson, WoodMackenzie
Xu Xiaohui, General Electric China
K. F. Yan, Cambridge Energy Research Associates (CERA)
Zhang Jianyu, Environmental Defense China

Special thanks go to Peter C. Evans of CERA and Erica Downs of the Brookings Institution for their extensive help in this endeavor.

This policy analysis is an abbreviated version of a book on China’s energy sector currently under preparation for the Peterson Institute for International Economics.

Comments (0)

Show/Hide comments

Name

Email

Website

Title

Comment

smaller | bigger

Add Comment