China Cites Big Gain in Energy Efficiency But Doubts Remain Over Data, Economy

An analysis by Michael Lelyveld
2014-10-06
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Men sit outside an apartment below electricity pylons in Beijing, July 17, 2014.
Men sit outside an apartment below electricity pylons in Beijing, July 17, 2014.
AFP

As China's economic growth sags, the government is reporting greater success in cutting energy waste, lifting hopes that the country can meet its environmental goals.

In recent years, China has missed its official conservation targets that measure energy consumption per unit of economic output, or gross domestic product (GDP).

Under its current Five-Year Plan, the government has aimed to lower its "energy intensity" in 2015 by 16 percent from the level of 2010, although reductions have fallen short of annual benchmarks so far.

In the past, analysts have blamed China's focus on economic growth for poor performance on environmental concerns, forcing energy efficiency to take a back seat.

According to one efficiency measure used by the World Bank, China's economic output per unit of energy in 2011 was 31 percent lower than that of the United States, 48 percent lower than Japan's and nearly 55 percent less than Germany's.

But this year, Premier Li Keqiang has claimed major progress, announcing on Sept. 10 that energy efficiency rose 4.2 percent in the first half from the comparable period in 2013.

The improvement from an efficiency gain of 3.7 percent last year could put China on track to meet its five-year goal.

Li reported the first-half result and a similar drop in carbon intensity of "about 5 percent" at last month's Summer Davos Forum in Tianjin, the official Xinhua news agency said.

The rates are critical to China's longer-range goal of achieving a 40 to 45-percent reduction in carbon dioxide (CO2) emissions per unit of GDP by 2020 compared with 2005.

China first set the target at the United Nations summit on climate change in 2009 and reaffirmed it at the latest summit in New York on Sept. 23.

Speaking at the summit, Vice Premier Zhang Gaoli said China's carbon intensity dropped 28.5 percent from 2005 levels last year, suggesting the country is well on the way toward its 2020 goal.

In announcing the figures for the first half of this year, Li credited the new government's drive for "structural adjustment to improve growth quality," Xinhua said.

Stimulus package

While slower economic growth has raised expectations of another big stimulus plan, the better efficiency numbers may be seen as a benefit of the government's resistance to pump-priming that relies on wasteful building projects and infrastructure investment.

"In the first half of the year, the growth of investment and production of industries with high energy consumption noticeably slowed down," Li said.

Much of the earlier trouble with meeting the five-year target stemmed from after-effects of the previous government's massive 4-trillion yuan (U.S. $651-billion) stimulus package that spurred GDP growth in 2009.

In 2011, total energy use jumped 7 percent thanks largely to the building boom, causing the government to undershoot its annual 3.5-percent target for efficiency improvement with a gain of just 2.01 percent.

While the latest results are far better, the per-unit numbers may mask the real prospects for reducing smog-causing emissions because GDP in the first half still rose 7.4 percent. Even with greater efficiency factored in, total energy consumption increased by some 3 percent.

The prevalence of both smog and global warming may paint a darker picture than China's progress toward its targets suggest, highlighting the problem with relying on per-unit measures.

While carbon emissions have fallen 28.5 percent on a per-unit basis since 2005, China's GDP has risen by 91 percent over the same period, according to one measure used by the International Monetary Fund. The result is huge total growth in emissions, despite per-unit-GDP gains.

In his U.N. speech, Zhang raised expectations that China would adopt absolute targets in the future to replace per-unit indexes, but it was not clear when.

"We will also try to bring about the peaking of total CO2 emissions as soon as possible," he said, according to Britain's The Guardian.

Reporting discrepancies

Doubts about China's GDP figures raise questions about the extent of the efficiency gain and the energy intensity ratio.

China's leaders have been trying to improve the accuracy the National Bureau of Statistics (NBS) estimates for at least 12 years.

But last month, state-controlled China Youth Daily reported that the sum of first-half GDP reports from the country's 31 provincial-level governments exceeded the NBS national total by 12.6 percent, marking the tenth year of such discrepancies in a row.

The NBS has used an unexplained adjustment factor to compensate for exaggerations by GDP-obsessed local officials, and more recently, a direct reporting system for enterprises to discourage fraud. But data fabrication problems persist.

The 3.4-trillion yuan (U.S. $553-billion) size of the gap between provincial and national GDP totals suggests it is more than a rounding error or overlap between governments.

Uncertainty over the GDP figures makes it hard to tell whether energy efficiency on a per-unit basis has really improved or not, said David Fridley, a staff scientist with the China Energy Group at the U.S. Department of Energy's Lawrence Berkeley National Laboratory in California.

"It's really unsatisfactory to have to use a financial metric because, one, it's very sensitive and, two, it can be gamed," Fridley said.

Fridley's group has charted China's energy intensity since the 1980s, collaborating with the country's conservation efforts on a broad range of projects.

But the latest changes in China's economy and concerns about GDP data have made it hard to say whether the government's new policies are producing better results or not.

"This is all too recent to be able to reflect back with confidence about what's going on," said Fridley.

'Two conclusions'

One concern is the widening spread between GDP estimates and power consumption, which is frequently seen as an indicator of real economic growth.

In 2013, electricity use rose 7.5 percent, nearly as fast as official GDP growth of 7.7 percent. But in this year's first half, power consumption increased only 5.3 percent, far less than GDP growth rate of 7.4 percent.

The difference could mean either that China has suddenly achieved a major gain in energy efficiency, or that GDP figures have been greatly overstated.

"Those are the two conclusions you would come to," Fridley said, but the choice is still too hard to make.

On the one hand, it may be argued that the government has made strides in its campaign to cut industrial overcapacity by shutting down outmoded plants that waste energy and contribute little to GDP.

On the other, the lower growth in power use suggests more serious economic weakness.

"I think the truth is somewhere in between," Fridley said.

More recent reports on power consumption only add to the mystery.

In August, electricity use fell for the first time this year, declining 1.5 percent from a year-earlier, the National Energy Administration (NEA) reported. Xinhua cited the figure as "another sign of slow growth."

The August result followed a rise of 3 percent in July and 5.9 percent in June. In the first eight months of the year, growth in power consumption slipped to 4 percent, suggesting third-quarter GDP has been slow.

First-half figures on emissions of major pollutants reported by the Ministry of Environmental Protection give reason for optimism.

Nitrogen oxide emissions, for example, fell 5.82 percent from the year-earlier period, the agency said.

But whether the drop was due to an industry cleanup or a far slower-than-reported economy remained unclear.

'Targeted' policies

There are also questions about how much the new government's "targeted" policies have differed from old-fashioned stimulus as growth pressures mount.

On Sept. 30, the People's Bank of China (PBOC) and the China Banking Regulatory Commission (CBRC) lifted limits on second home purchases to slow the slump in the housing industry.

In August, Premier Li also promoted investment in the railway sector to "kill multiple birds with one stone," citing its role in "stabilizing economic growth, enhancing social harmony and aiding urbanization," Xinhua reported.

The approach could be seen as a sign of a conventional stimulus dressed up in new clothes.

In early September, China Railway Corp. (CRC) said fixed-asset investment in the sector jumped 20 percent in the first eight months to 405 billion yuan (U.S. $65.8 billion).

In another possible sign that stimulus policies are creeping back in, Western news outlets reported on Sept. 17 that the PBOC injected 500 billion yuan (U.S. $81.3 billion) in the country's five big state-owned banks to boost the economy.

The official English-language China Daily cited the initial report by the website Sina.com, although it was not confirmed by the PBOC.

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