Question

China's economic growth has been heavily dependent on coal. Discuss its implications.

Answer 1

The aim of this paper is to re-examine the relationship between coal consumption and real GDP of China with the use of panel data. This paper applies modern panel data techniques to help shed light on the importance of the heterogeneity among different regions within China. Empirical analyses are conducted for the full panel as well as three subgroups of the panel. The empirical results show that coal consumption and GDP are both I(1) and cointegrated in all regional groupings. Heterogeneity is found in the GDP equation of the full panel. The regional causality tests reveal that the coal consumption–GDP relationship is bidirectional in the Coastal and Central regions whereas causality is unidirectional from GDP to coal consumption in the Western region. Thus, energy conservation measures will not adversely affect the economic growth of the Western region but such measures will likely encumber the economy of the Coastal and Central regions, where most of the coal intensive industries are concentrated.1After its adoption of the open-door policy in 1978, China’s rapid economic development has brought about a growing demand for energy.The energy sector has undergone remarkable expansion. In recent years, structural reforms, market incentives, and decentralisation policies were introduced to attract foreign investment in the energy sector. In 1997, the government introduced a four-step restructuring framework for the electric power industry to be in place until 2020. In 1998, the coal, oil and gas industries were also restructured. In the current Tenth Five-Year Plan (2001-2005), entitled “Developing the West”, emphasis is placed on developing energy resources (including hydropower, oil and gas) in West China and their transport to the coastal regions.China is the world’s largest and second largest producer of coal and electricity respectively. China is also a major exporter of coal and importer of oil. The energy sector plays an important role in the economy, both in terms of employment and industrial output. Major oil and power enterprises are among the largest state-owned enterprises (SOEs). But despite the remarkable growth of the energy sector, the balance between energy supply and demand is achieved at a very low level of per capita consumption; and the country remains starved for energy. In 2003 and 2004, China experienced an acute shortage of energy which severely disrupted the industrial output of the country.This article first reviews the current energy situation in China. This is followed by an outline of the current industry and regulatory structures of the energy sector. Specific critical issues pertaining to the development of the energy industry are then considered. The last part of this article looks into the prospects for the energy industry. The focus of this article is to consider how these structural reforms could impact the future development of the energy industry.Power can be derived from a country’s ability to leverage its resources toward economic and political gains. Conversely, dependency on foreign resources—such as energy—restricts policy options, thereby reducing the avenues through which a country can cultivate its national power. Sudden shifts in the energy market and overseas political instability may also diminish access to foreign energy sources or dramatically increase the cost of energy imports, further compromising the ability of import-dependent countries to pursue their national objectives.
China’s economic transformation and new growth pattern have significant implications for energy demand and greenhouse gas emissions. Using an extended version of a large computable general equilibrium model of China, we explore alternative futures for the Chinese economy and its energy needs over the period from 2015 to 2030. The simulation results show that encouraging household consumption and accelerating economic transition from investment-led to service-led growth will boost China’s economic growth. Capping coal consumption will improve China’s energy consumption structure and reduce greenhouse gas emissions significantly. The simulation exercises imply that, with a well-designed policy, the Chinese government can meet the challenges of strong economic growth, lower carbon emissions, environmental benefits, and energy security. Moreover, the Chinese government’s goal of peaking carbon emissions at 2030 is achievable. China’s rapid industrial growth in the past three decades.