China Eyes Power Curbs

Popular subsidy program boosts sales but wastes power, analysts say.
By Michael Lelyveld
Share on WhatsApp
Share on WhatsApp
china-appliances-305.jpg A worker dismantles old television sets at a home appliance trade-in center in Beijing, Aug. 22, 2009.

BOSTON—China has limited a program to raise living standards amid growing concern about electricity use, experts say.

On June 24, the Ministry of Commerce (MOC) announced new restrictions on government subsidies for sales of home appliances, which have proved wildly popular in both cities and rural areas.

Under the new rules, citizens will be allowed to buy no more than five subsidized appliances like refrigerators, televisions, and computers, while companies are limited to purchases of 50, the official Xinhua news agency said.

The curbs come just three weeks after the MOC said it was expanding the "old-for-new" program to cover 28 cities and provinces from the original nine eligible for subsidies last year.

Consumers have already snapped up 14 million appliances valued at 54 billion yuan ($7.9 billion) under the program as of May 31, the ministry said.

The mixed signals reflect multiple motives for the subsidies and the clash between economic and energy policies, analysts say.

Increased consumption

"They certainly increase power consumption," said Philip Andrews-Speed, a China energy expert at Scotland's University of Dundee in Edinburgh.

"Individually, you may have more energy-efficient appliances. But when you look at total energy use per unit of GDP, this massive surge in sales of electric appliances is not going to reduce energy intensity," he said.

The government has become increasingly nervous about its failure to meet efficiency targets under the current Five-Year Plan, which calls for cutting energy use by 20 percent per unit of GDP by the end of this year.

In 2009, China improved energy efficiency by 2.2 percent, only about half the annual target, while the index declined 3.2 percent in the first quarter of 2010.

By the end of last year, the country had achieved only 14.3 percent of the 20-percent efficiency goal, according to official data.

Analysts say the government may have intentionally paused its efficiency campaign when it implemented its 4-trillion yuan ($586-billion) stimulus program and pumped up high energy-consuming industries.

Now, with the five-year goal looming, leaders are concerned about the results. In May, Premier Wen Jiabao threatened to use an "iron hand" to crack down on inefficient enterprises and punish officials for poor performance.

Efficiency 'still slipping'

Robert Ebel, senior adviser to the energy and national security program at the Center for Strategic and International Studies in Washington, said officials may have underestimated the effects of the stimulus binge.

"I think their plate is so full that they just didn't pay attention to what was going wrong and what was getting ready to go wrong," Ebel said.

Electricity use rose by over 20 percent in both April and May from year-earlier periods, about double the rate of economic growth, suggesting that efficiency is still slipping.

The government has responded with threats to cut bank loans and power supplies to wasteful industries. But such measures have proved hard to implement in the past.

The policy conflicts have been mirrored in the appliance subsidy programs, which have spurred production while promising to improve efficiency with modern appliances.

Officials have also promoted appliance sales as a way to improve the quality of life for rural dwellers and narrow the growing gap between rich and poor.

Andrews-Speed said there have been at least three separate subsidy programs.

The first, launched in January 2008, provided price breaks on appliances in rural areas, where many lacked conveniences like refrigerators. The second offered trade-ins with subsidies for new appliances, while the third extended discounts to the most efficient models.

Manufacturers benefit

But what began as a social benefit for poorer areas has turned into a huge business for manufacturers.

In the first half of the year, subsidized sales of over 32 million appliances in rural areas soared 320 percent to 67.8 billion yuan ($10 billion), according to MOC data.

The figures appear to be in addition to sales under the "old-for-new" program. A total of over 68 million appliances were sold in the six-month period, Beijing Business Today reported, citing the Ministry of Finance.

Items like air conditioners and DVD players may boost living standards, but they are unlikely to improve energy efficiency since many households did not have them before.

The subsidies may be even a bigger benefit for China's appliance makers, who are said to number over 120,000. As with many such programs, the government may find it hard to shut down.

Back-down from pledge?

But the energy efficiency target is also seen as a measure of China's ability to deliver on its international pledge to fight global warming. Last December, the government promised to cut the carbon content of GDP growth by 40-45 percent in 2020 from 2005 rates.

Andrews-Speed said the 20-percent efficiency goal now looks "impossible," barring a major statistical revision of past results.

Last week, the National Bureau of Statistics (NBS) raised its estimate of 2009 growth in GDP from 8.7 to 9.1 percent, suggesting that a revision of energy efficiency figures is in the works.

Robert Ebel said the threat of harsh measures like power cuts to wasteful industries appears empty.

"It's a threat that they would not follow through on, but they want to get people's attention," he said.

"It would be disastrous if they had a major cutback in power."


Add your comment by filling out the form below in plain text. Comments are approved by a moderator and can be edited in accordance with RFAs Terms of Use. Comments will not appear in real time. RFA is not responsible for the content of the postings. Please, be respectful of others' point of view and stick to the facts.