The Energy Supply and Demand Predicament of a Collapsing China

No.54
June 1999
Research Fellow Jianmin Jin

1. The rapid growth of China's economy following reform and liberalization has spawned a precipitous increase in energy demand. In this environment, energy supply has become a bottleneck for economic growth. Particularly, with the reversal of its energy "self-sufficiency" policies beginning in the 1990s, Chinese demand has become a major presence in the international energy market. The startling growth of its economy and the reversal of its energy policies have been met overseas with numerous Chinese energy-crisis scenarios, and is even being called "The Chinese Threat" within global energy demand.
2. However, against the backdrop of the Asian financial crisis, the inefficiency of China's internal economic structure, and the chronic deficits of state-owned enterprises, China is facing an increasing trend of stagnation in its economic growth. This is resulting in a weakening of energy consumption that is greater than its proportionality with economic deceleration, and which is also constraining the accompanying adjustment of energy production. In contrast with previous foreign predictions, at least in the short-term to mid-term, the Chinese energy demand crisis seems to be a paper tiger.
3. Looking at the trends in China's demand-supply relationship, Chinese energy consumption has skyrocketed up until now. Demand for oil (and petroleum products) has grown particularly quickly, and domestic supply has not been able to match demand. Net imports of petroleum products and oil took a downturn in 1992 and 1996, respectively, and in 1998 import volume declined substantially. At the same time, despite the fact that coal demand-supply problems lay in transportation, China's abundance of coal has resulted in the expansion of investment and, in 1996, reached a state of excess supply. China's energy policies that have set high store on increased volume have necessitated a score of reforms, including the reevaluation of national energy demand strategies, production adjustments, cost reduction, and the improvement of business management.
4. For the short term and mid term, China's energy demand has entered a period of adjustment. In the long term, energy demand is expected to increase. Due to the abundance of coal resources, it is unimaginable that an energy crisis will develop within the Chinese economy itself. From the perspective of the benefits of efficient use and environmental conservation, China's entry into the world energy market is unavoidable. However, in order to prevent extreme reliance on oil imports in the long term, it is necessary for China to take advantage of the current period of adjustment in order to design efficient energy production and to increase the efficient use of energy by industry. Further, East Asian nations must also take advantage of China's current adjustment period by constructing a framework to protect the energy security of an East Asia that includes China, so as to prevent a future scramble for oil resources.

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