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Resource Strategy and Countermeasures for11th Five-Year Plan and towards 2020 *

Jun 01,2005

Zhou Hongchun, Research Department of Social Development of DRC Research Report No. 049, 2005

China is now facing a tight supply of water, arable land, petroleum, iron ores and timber; the prospects for the 11th Five-Year Plan and a longer period of time should not be optimistic. To realize the great goal of building a well-off society in an all-round way, we must pay more attention to the security in the supply of natural resources, and the efficiency and recovery rate and recycling rate of resources. On the basis of an analysis of the country’s current resource supply situation and mid- and long-term supply and demand balance, this article proposes the relevant countermeasures as reference for departments concerned.

I. The Current Supply and Demand Situation aboutMajor Resources

1. The tight supply of resources is restricting the socio-economic development

Water resources have become the most important factor that hampers the economic development and the improvement of the people’s livelihood. Of the more than 600 cities in China, more than 400 are short of water, and 110 faces serious water shortage. Pollution has worsened the situation. The contradiction between the protection of arable land and fast increase of the land occupation by urban construction has become prominent. From 1996 to 2003, the 100 million mu of good-quality farmland has been turned to land for construction, of which, 17 million mu of farmland are fine land equipped with irrigation facilities. Of the land occupied by the development zones and other industrial and mining areas, 80% is farmland while 70% of the farmland is arable land, and two-thirds of the arable land is good-quality farmland with irrigation equipment. Of the newly increased farmland, 57% is the arid land without good farming conditions. In Beijing, Tianjin, Shanghai, Zhejiang, Fujian and Guangdong, the per capita farmland is less than 0.8 mu, lower than the world’s warning level. The coal, electricity, oil and transportation have all been in short supply, affecting the people’s production and livelihood. Resource restriction is not necessarily a bad thing. It signals a warning: China’s limited resources cannot back up the extensive mode of economic growth; we should stress frugality and quicken the construction of a resource-frugal national economic system and society.

2. The resources are not used efficiently and waste of resources is a serious problem

China’s resource consumption for per unit GDP is much higher than that of the developed countries, and even higher than that of some developing countries such as India. The low utility efficiency can be seen in mining, processing, recovery and recycling. Calculated with the current exchange rate, the resource productivity of China in 2003 was only one-tenth of the United States, one-twentieth of Japan and one-sixth of Germany. The country’s per capita water resource ownership is about one-fourth of the world’s average, and waste is very serious. For instance, the country’s coefficient of utilization of irrigation water is 0.4, about half of the international advanced level; water consumption per 10,000 output value is 100 cubic meters, which is 10 times higher than the international advanced level. The mining recovery rate is very low. Much of the utilizable resources are wasted. The per-ton-km fuel consumption of trucks is 123% higher than the international advanced level. The heat consumption per unit construction space is nearly two to three times as much as that in the developed countries with similar weather conditions. Although there exist some incomparable factors such as exchange rate and industrial structure in the above comparisons, we cannot ignore the fact that in China the resources are used extensively and inefficiently

3. The capacity of domestic resource supply decreases, and the newly added demand is met mainly by imports

In recent years, the growth of the country’s discovered reserve of main minerals is very much behind the growth of mineral extraction, which has not grown as fast as consumption. The mines that were built after the 1950s are becoming "old", and yielding fewer products. The mines by which some resources-based cities have been located are facing resource scarcity. On the other hand, the demand for petroleum, iron and steel, copper and aluminum is increasing in the form of exponential curve (See Chart 1). Squeezed by the rapid consumption growth and lower guarantee degree, the external reliance has been raised year by year. In 2003, about 50% of the iron ore and aluminum, 60% of copper, 34% of crude oil depended on imports. The imported timber products were equivalent to 123 million cubic meters of timber, which accounted for 44% of total consumption and were worth 12.375 billion US dollars. It has become the third largest foreign exchange consuming item after petroleum and plastics.

What makes the problem worse is the fact that when "China exports a product, its price will decline, and when China imports a product, its price will rise" – this is because the trading of mineral products is based on spot goods, and the country does not have relatively stable long-term contracts or overseas production bases. When the country’s advantageous mineral export is out of control, the prices will go down, the advantages in resources cannot be transferred to economic advantages. The hasty pursuit for profits in some areas has quickened the running-out of advantageous minerals. On the other hand, the rise of raw material prices has also increased the costs of China’s economic development. In 2003, the prices of the iron ores and aluminum imported by China rose about 150%, and the transport cost of iron ores grew by 150-180%. China paid about an additional 10 billion US dollars for the import of raw materials.

The factors leading to the short supply of important resources in China are as follows:

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*This report is one of the seriesof research papers on "Guiding Principles for the 11th Five-Year Plan and the Long-Term Goals by 2020".