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China’s Energy Strategy and Policy

Mar 12,2004

Chen Qingtai

With the further deepening of economic development and opening-up, the development and changes in the political,economic and social spheres have become a focus of international attention. Since 1990s, China’s energy reform and development, especially the issues of China’s sustainable energy supply and its possible influences on world energy situation, have remained controversial issues throughout the world, especially among some developed countries. For a time, they seemed to become the major supporting evidences of "China Threat". A widely-held view is: the issue of energy supply will become an insurmountable barrier in China’s efforts to develop its economy further and improve the living standards of the Chinese people, and China’s energy problems will greatly affect the world energy security. In China, the energy reform and development have aroused more and more concern at home and people have put forward different views and measures on this regard. What on earth is China’s energy situation like? How serious is it? What kind of strategy and measures should China take to ensure the sustainable economic and social development and the overall realization of a comparatively well-off society in China? All these questions have become so imperative that it is necessary for us to draw on the experiences and advices both from home and abroad.

I. The Major Conclusions of China’s Energy Issue in the First Two Decades of This Century

In the past two decades, significant achievements have been made in China’s energy development. These achievements mainly manifest themselves in the following three aspects: 1. The GDP has been quadrupled with only doubled consumption of energy. During the period between 1980 and 2000, the annual average growth rate was as high as 9.7% while the corresponding annual average growth rate of energy consumption was only 4.6%, which was far lower than the economic growth rate at the same period. 2. Energy efficiency has been remarkably improved. On the one hand, the energy consumption per unit of GDP has been decreasing and on the other hand, the energy consumption per unit of product of the major high-energy consumption sectors has been significantly decreasing and the gap between the level of energy consumption of major energy-consumption product in China and the internationally advanced level has been notably narrowed. 3. Impressive environment results have been achieved. All these achievements have contributed a great deal to the sustainable development of China’s economy and society.

But we should be aware of the serious energy problems we will face in the next two decades. The next two decades is a period of important strategic opportunities for China’s economic and societal development, and at the same time, it is a period in which China will face many important changes and challenges for the first time. According to the goal of constructing a comparatively well-off society put forward in the 16th National Congress of the Communist Party of China, China’s economy will be quadrupled by 2020. Converted according to purchasing power parity (PPP), China’s per capita GDP will succeed $10,000 by 2020. According to international experience, this kind of period is the key period to realize industrialization. It is also a period during which economic structure, the level of urbanization, the citizen’s consumption structure will significantly change. In the energy field, most developed countries also underwent a process in which per capita energy consumption grew rapidly and the energy mix changed in a rapid pace, especially the rapid increase of the percentage of oil in energy demand. In addition, the unique situation of China, and the international background characterized by economic globalization and increasingly popular environmental protection movement will make China’s situation more complicated than most developed countries had experienced before.

In the process of China’s constructing a comparatively well-off society, how much energy is needed to support the economic and societal development goal, and which kind of challenges and pressures China will face will depend both on the objective law of economic and societal development and which kind of economy, energy, and environment policies China will adopt. The research team on "China’s Comprehensive Energy Strategy and Policy" has made some forecasts about China’s energy demand from 2000 to 2020 in different scenarios. Some important research findings are as follows:

1. If correct energy strategy and relevant policies and measures are taken,China’s energy demand in the next two decades will be possibly kept growing at a comparatively low rate. By 2020, China’s unrenewable energy demand will be at 2.5-3.3 billion tce, with an average of 2.9 billion tce which is two times than the number of demand in 2000. This means that it is possible for China to support the lasting and rapid economic growth by managing a comparatively small energy investment, and it is possible for China to improve the living standard of its people with the per capital energy consumption far lower than that in developed countries at present.

2. Under the premise of maintaining the same economic growth target, if different polices and measures were taken, there would be differences between the energy mix and energy efficiency improvement which will result in the possible enormous difference of 0.8 billion tce in terms of unrenewable energy demand. In other words, if a different energy development strategy were adopted, the economic development target could be met but it would have a totally different impact on energy supply, energy security and environmental protection and so on.

3. With the improvement of people’s living standards and upgrading of the consumption, the energy demand mix will greatly change, especially in thetransportation sector and construction sector and the growth rate of energy demand will be much higher than that of the whole society and industry in the same period. The percentage of the energy consumption in these two sectors in the total newly expanded energy consumption in the same year will increase to 57-75% in 2020 from the present number of 35%, which gradually becomes the major factor of energy demand expansion. So, we should attach great importance to the energy supply and energy efficiency improvement of these energy intensive sectors whose energy consumption will increase rapidly, and the oil security and environmental protection as well.

On the whole, our conclusion is that it is definitely true that China’s energy development faces a very serious situation and great challenges. In particular, in order to realize the goal of quadrupling China’s economy by 2020, the energy supply situation is under great strain. But if we view this from the international and domestic energy situation and the great potential of the system innovation and technological innovation in China’s energy field, and a series of policies on the part of Chinese government which aims at promoting the sustainable development of energy, we can get the conclusion that it is possible for China to realize the goal of maintaining a long-term sustainable energy supply in the future. The key lies in the fact that China sticks to a sustainable energy development strategy with energy conservation and energy efficiency improvement as the core.

II. The Goal of China’s Energy Strategy in the First Two Decades of This Century

In order to realize the goal of an all-sided comparatively well-off society and deal with the serious challenges of the long-term energy development, it is crucial for China to adopt a correct energy strategy. China will learn from the successful experience of developed countries in the West and, according to the specific situation in China, establish a mid- and long-term sustainable energy strategy with Chinese characteristics which aims at improving energy efficiency and protecting the environment

1. To realize the change of development model

In the two decades of this century, China’s energy strategy will realize the change of developmental model with a view on long-term objectives. The change will mainly cover the following three aspects: (1) The objective of energy supply should change from simply meeting the basic requirements of economic development to attaching more importance to the environment results on the basis of meeting the requirements, thus realizing the coordinated development of economy, society and environment. (2) The development model of energy enterprises will change from government plan and administrative control to a market-based mechanism under the guidance of the government. (3) China’s energy development, against the background of economic globalization and China’s WTO entry, should change from the "self-balance" model dependant on domestic resources to an international strategy model which makes full use of domestic and overseas resources and domestic and international markets.

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