China Posts Efficiency Gain

An analysis by Michael Lelyveld
2013-03-11
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china-xingtai-march2013.jpg
A man looks at smokestacks at a power plant in Xingtai, Hebei province, March 10, 2013.
AFP

China substantially improved its energy efficiency last year as economic growth slowed, according to official reports.

While the economy expanded at its lowest rate in 13 years, total energy use rose even less, the National Bureau of Statistics (NBS) announced on Feb. 22.

Energy consumption climbed 3.9 percent, but energy use per unit of output dropped 3.6 percent as gross domestic product (GDP) increased 7.8 percent, state media said.

The figures are a key measure of China's campaign to cut energy waste and curb emissions without stalling the country's economic engine.

The annual calculation of China's energy efficiency showed progress over 2011, when energy use per unit of GDP declined just 2.01 percent, far below the government's target of 3.5 percent for the year.

The poor performance that year was blamed on a massive economic stimulus program that relied on construction, creating a windfall for energy-intensive industries like steel, aluminum, and cement.

In 2011, energy growth soared to a four-year high of 7 percent while GDP rose 9.3 percent.

With the sunset of the stimulus, GDP growth has ebbed and energy intensity has cooled, giving the government a better chance of meeting its five-year goal of a 16-percent efficiency increase by 2015.

Smog crisis

But China's recent air quality crisis is likely to raise doubts about whether the per-unit efficiency index is doing enough, since the total volume of energy is still rising along with GDP.

Last year, consumption of high-polluting coal edged up 2.5 percent, the NBS said. Although the rate was far less than the 9.7-percent rise reported for 2011, the smog crisis suggests that any increase takes an environmental toll.

Greater efforts or slower growth?

The NBS report also raises questions about whether the improved efficiency numbers are the result of greater government efforts or just slower growth in the economy.

David Fridley, staff scientist in the China Energy Group at the U.S. Department of Energy's Lawrence Berkeley National Laboratory in California, has tracked the energy intensity index as far back as the early 1980s.

He says the slowdown in the stimulus and infrastructure spending makes it hard to tell whether China has made a fundamental improvement in efficiency or not.

"Yes, it's an improvement," said Fridley. "Given that these are the only numbers we have, it's really hard to decompose how it happened, but the underlying pressures haven't really changed much from the last Five-Year Plan."

Energy-saving measures

Fridley said the government has pushed energy-saving measures like setting higher five-year conservation targets for heavy industry and closing smaller, less efficient cement plants.

But the relative effects of government efforts and the slowdown in the construction-fed economy are still hard to sort out.

"A slowdown by itself won't necessarily improve this intensity number," said Fridley. "Without more numbers, it's kind of impossible to say."

In his work report to the National People's Congress (NPC) on March 5, outgoing Prime Minister Wen Jiabao said China had shut down 775 million metric tons of inefficient cement production capacity in the past five years without giving specific figures for 2012.

But Fridley noted a big drop in electricity consumption growth last year to 5.5 percent from 11.7 percent in 2011.

That suggests that power-hungry industrial users like smaller aluminum, steel, and cement plants were shut down.

Those would have used more energy than the value they added to the economy, helping to lower the energy intensity index.

Economic necessity?

But whether the government acted out of economic necessity or environmental priority remains unclear.

"My bottom line is economic growth trumps all. What they do to keep that engine going varies over time, but to me, that's the bottom line," Fridley said.

At the start of 2012, the central government faced calls for a repeat of the massive 4-trillion-yuan (U.S. $642-billion) stimulus that it announced in 2008, but it resisted and let smaller programs go ahead at the local level instead.

Fridley said the decision resulted from the realization that wasteful overbuilding is not a sustainable growth model, but another big stimulus was also impossible because the first program had created a burden of off-the-books debt.

"They're kind of in a bind because they can't do exactly what they did before, so the bad old days can't come back exactly the way they did before because they've pushed this particular model to the edge," Fridley said.

Growth expectations

The government has raised expectations that more moderate economic growth rates will persist in coming years.

During an NPC session on March 7, National Development and Reform Commission (NDRC) Minister Zhang Ping said last year's lower GDP growth "should be seen as a success rather than a setback," the official English-language China Daily reported.

Zhang called growth between 7 and 8 percent "the best option for China's development," adding that the government would continue with the goal this year and "probably in the foreseeable future."

In his work report, Wen said the 7.5-percent growth target would remain unchanged for 2013.