Section I China’s Rapidly Increasing Energy Consumption and Its Driving Forces

I. China Has Become the World’s Largest Energy Consumer

Boasting the world’s largest population and the fastest-growing industrialization in the modern age, China has grown into the largest energy producer and consumer in the world. In 2016, China’s total energy consumption reached 4.36 billion tons of coal equivalent, accounting for 23% of the global energy consumption and one third higher than that in the US, the second largest energy consumer. Add to that China has also become the world’s top electricity generator and consumer, with the largest power generation, transmission and distribution system in the world. By the end of 2016, China’s installed capacity of electric power generation stood at 1.65 billion kilowatts, generating 6,242.49 billion kWh of electricity, both ranking first in the world, accounting for roughly one quarter of the world’s total amount and about 50% higher than those in the US. In particular, China’s installed capacity for generating thermal power, hydropower, wind power, and photovoltaic power, as well as the scale of the nuclear power under construction, rank top in the world. In 2016, approximately 4,437.03 billion kWh, 1,193.37 billion kWh and 241 billion kWh of electricity was generated respectively using thermal power, hydro power and wind power, all ranking first in the world.

China has long attached importance to relying on domestic resources to meet the energy demands. The abundant coal resource has enabled the rapid growth of coal production in China, making coal the most important energy in China. Coal output once reached over four billion tons, making up nearly half of the global total. The coal-based energy supply structure has kept China’s self-sufficiency rate of primary energy at around 80%, but along with the overconsumption of coal came increasingly prominent problems of environmental pollution and low energy efficiency.

China is also among the world’s major oil producers, producing more than 200 million metric tons of crude oil per year, and used to be a major oil exporter in Asia. However, as the domestic demands for petrochemical products and the number of automobiles keep increasing, the domestic crude oil production has fallen short of demand. China has since 1997 become a net importer of crude and refined oil and now, it’s the world’s largest oil importer. China’s total net import of crude and refined oil has surpassed that of the US, while its oil consumption second only to the latter. With the rapid increase in the natural gas imports in recent years, China has become a major importer and one of the largest consumers of natural gas.

In 1980, China’s energy consumption stood at merely 600 million tons of coal equivalent, as opposed to 1.5 billion tons in 2000 and 4.36 billion tons in 2016. In the meanwhile, China’s power generation increased from 300 billion kWh in 1980 to 6,142.49 billion kWh in 2016. Having mainly relied on the expansion of domestic energy production capacity to increase energy supply, China has kept increasing investment in the energy supply from RMB 400 billion in 2000 to over three trillion yuan annually by now.

In addition, given the increasing import of energy, China has continued to increase overseas investment in energy that delivered three benefits. For a start, it has helped to improve the overall energy supply capacity in the world, especially in the oil and gas market, contributing to balance of supply and demand as well as price stability in the global oil and gas market. The second benefit is that it has enabled Chinese energy companies to go global and share the oil and gas exploration and development technologies, managerial experience and capabilities with a number of other developing countries. The third windfall is that Chinese enterprises have grown stronger in the process of going global and developed cooperation with many foreign and multinational energy companies. Currently, China’s overseas investment in energy has covered all the seven continents of the world, which has not only promoted energy development and economic growth in many countries, but also greatly boosted the global energy supply capacity and gone some way toward the energy security in all countries over the world as well as the stability of international energy market.

II. Driving Forces for Energy Consumption in China

1. Rapid economic growth

The fast-growing economy constitutes the strongest driving force for rapid increase of energy consumption in China. China’s economy has maintained a high growth rate, evidenced by the increase of GDP from RMB 454.5 billion in 1980 to RMB 74.4127 trillion in 2016, registering a 163-times increase if calculated at current price. Taking into account the incomparable factors such as inflation and statistical caliber, the real GDP in the 36-year span increased by 27.4 times, at an average annual growth rate of over 9.6%. During the decade from 1990 to 2000, the average annual growth rate was 10.43% that rose to the peak of 10.48% during the decade from 2000 to 2010. The highest annual growth rate went above 15%. China’s economy maintained high-speed growth even after the global financial crisis in 2017. From 2007 to 2016, the annual economic growth rate was averaged at 8.8% that gradually declined since 2010 to 6.7% in 2016. However, the average annual economic growth rate from 2010 to 2016 reached 7.5%. It’s expected that China’s economy will continue to grow at a high rate until 2030.

2. Large population

China is the most populated and the largest developing country. At the end of 2016, the Chinese mainland had a population of 1,382,710,000, registering an increase of 8.09 million over the previous year and the population is still growing slowly. The urbanization rate stood at a relatively low level. A total of 793 million people live in cities, accounting for only about 57% of the total population, including 220 million rural residents who moved to cities for work but haven’t registered. Most of these new immigrants from rural areas haven’t solved the problems regarding family resettlement and permanent residence. Significant improvement in the socioeconomic conditions is needed for them to settle into urban life.

When the People’s Republic of China was founded in 1949, China was home to a population of 540 million, including 57.65 million urban residents scattered across the country, making up merely 10.64% of the total population. In 1980, the population rose to 987 million, with less than 200 million living in cities that accounted for less than 20%. Over the past 36 years, some 600 million farmers moved to cities and the urbanization rate has increased by an average of one percentage point per year. The accelerating urbanization has greatly boosted employment in the industrial and public service sectors. Today, there still exist considerable disparities between urban and rural development. A majority of the cities have been modernized with well-equipped public services. Many small and medium-sized cities and towns still call for improvement. A better part of the rural areas, especially those far from the cities, is quite backward in absence of essential public services. In line with China’s poverty standard, there were about 70 million improvised people in need of government subsidies and assistance in 2015, mostly in rural areas. Over the past 30-plus years, China has lifted roughly 800 million people out of poverty. The nation aims to eliminate poverty by 2020. In the meanwhile, economic growth, industrialization and urbanization have been the main economic development goals of China over the past 30-plus years and will continue to be so in future. In an effort to create over 10 million jobs every year in urban areas, the cities in China have witnessed an annual growth of more than 13 million jobs on average, with the peak at 13.14 million in 2016 (Figure 1.1).

3. Booming housing construction

In a drive for improving the living conditions of urban and rural people, especially the housing and working conditions, the housing construction in China has embarked on a journey of fast-paced and massive development. In the early days of the People’s Republic of China, there was scarcely any modern industry and China had to focus on the development of heavy industries, with sluggish improvement in the residential housing conditions. In 1980, the per capita floor space of urban residents was only about 7 m2 and almost all families had a poky little living space. In rural areas, the per capita floor space stood at merely 9.4 m2, but in poor quality. By the time, the improvement of people’s housing conditions had become a most urgent need in China. Since the introduction of the reform and opening-up policy in 1978, China has seen a robust expansion in the housing construction.

Rural housing construction has since emerged as a strong driving force for rural economic growth. Chinese farmers have cherished the tradition of building and expanding their own houses as a vital means for wealth accumulation. Therefore, improving or rebuilding houses has been a primary consideration for the use of their savings. The past 30-plus years have witnessed three or four housing expansions by many farmers. In 2015 the per capital floor space in rural areas reached more than 40 m2. With the steadily increasing farmers’ income, the size and the quality of their houses have been improving. In some economically developed rural areas, one household may even enjoy a living space as large as hundreds of square meters and modern buildings of four or five floors are commonplace. The quality of most rural houses has significantly improved.

The expansion of housing construction in urban areas started later but developed at an even faster pace. At the beginning, the houses were mainly built by the state and enterprises for employees. In the mid-1990s, China undertook the reform for housing commercialization, which fueled accelerated development of the housing construction. In recent years, the annual sales area of newly built commercial housing has exceeded one billion m2, reaching 1.375 billion m2 in 2016. Add to that a raft of government-subsidized housing projects and public buildings. Currently, on a yearly basis, the newly built floor area of housing projects has reached 3.5 billion m2 and the urban floor area under construction has risen to 13 billion m2. The total floor area of the housing projects in China has soared from over 10 billion m2 in 1980 to 59 billion m2 today. The per capita residential floor area has reached about 40 m2, approaching that in industrialized European countries and undergoing continuous rapid growth.

4. Burgeoning infrastructure development

China’s infrastructure construction is seeing remarkable development in speed, scale and quality. Prior to 1980, the highway system was underdeveloped and there was no expressway back then. Except for a limited number of railway lines linking big cities, road transport facilities between cities were so poor that maximum speed of the vehicles could only reach 40 km/h under normal circumstances. In mountainous areas, a 200km drive may take half a day or even one day. Many rural areas had no access to commercial energy or even electricity. The economic growth in China has facilitated infrastructure construction on a large scale, including highway, railway, telecommunications, shipping, water conservancy and environmental facilities, as well as energy infrastructure.

China’s infrastructure has developed at an amazing speed and scale. Take transportation facilities for example. From 68,700 km in 2000, the total length of the Chinese railway in operation climbed to 91,200 km in 2010 before hitting 121,000 km in 2015, with an increase of 8,700 km in 2014 and 9,200 km in 2015. From 14,900 km in 2000, and China’s electric railway mileage climbed to 32,700 km in 2010 before soaring to 74,700 km in 2015, with an increase of 37,800 km in 2015. China has built an extensive highway network connecting all rural areas, while striving to link all cities through expressway.

The high-speed railway construction has been a vivid demonstration of China’s capacity to pool resources to accomplish big tasks and build new transport facilities on a large scale and at a high speed. As a new type of rail transport system, China’s high-speed railway can support a maximum speed of 300 km/h. Since its operation in China in 2008, the high-speed railway in operation extended from 671.5 km to 5,133.4 km in 2010 before reaching 19,838 km in 2015.

The scale and speed of energy infrastructure development have been impressive as well. The total installed capacity of power generation in China rose from less than 320 million KW in 2000 to 1.65 billion KW by the end of 2016, increasing by over 100 million KW per year since 2006. China’s newly installed capacity of power generation within a year almost equals to the total of a major economy in the Europe. The thermal power plants took off around 2010, with as much as 70-80 million KW newly installed thermal power capacity put into operation every year. Beginning from 2011, the newly installed non-fossil energy capacity has been increasing substantially year by year, especially the installed capacity of wind power and solar power. In recent years, the annually installed capacity of non-fossil energy has outnumbered that of thermal fire by a large margin.

China’s infrastructure projects also cover the construction of public facilities in other fields, among which the massive construction of inner-city transportation facilities, the subway in particular, has been underway. In addition, environmental protection systems like sewage treatment and garbage disposal facilities, the urban heating system, the urban supply systems of gas and power, among others, constitute an important component of infrastructure development.

5. Accelerated urbanization

In the process of industrialization-based urbanization in China, almost all aspects of urban development have been closely related to the development of manufacturing industry that has been on a tear since the 1980s. At the beginning, the development of manufacturing industry mainly aimed to overcome the shortage in a wide range of daily necessities and durable consumer goods, ending the era of Chinese households with zero modern domestic appliances and bringing refrigerators, colored TV, air conditioners, microwave ovens, and other home appliances to almost all urban households. In rural areas, the penetration rate of colored TV and refrigerator has reached 116.9% and 82.6% respectively. Moreover, the penetration rate of car increased from zero to 30% and 13.3% respectively among the urban households and the rural households in 2015. With China’s accession to the WTO, China’s abundant supply of cheap labor and remarkable capacity to mobilize social resources became a magnet for manufacturers around the world. As many international brands of durable consumer goods set up factories in China, the nation has become the worlds’ factory and provided an enormous number of supreme-quality products at a competitive price to other countries, making China the largest exporter of consumer goods in the world. If we classify all products in the world into 500 categories, China would top the output list of over 220 categories. In the categories of raw materials and basic consumer goods, China’s output has accounted for a quite high proportion of the world total.

Such massive infrastructure development, housing construction, production capacity building, and huge production of bulk commodities have stimulated the runaway growth of energy-intensive industries in China at the cost of substantial consumption of various raw materials. In particular, China produced and consumed a high proportion of metal raw materials, building materials and basic chemical products in the world. In 2016 China produced 808.36 million tons of crude steel, 1,138.012 million tons of steel and 53.103 million tons of various non-ferrous metals, including 31.873 million tons of aluminum, 8.436 million tons of copper, 2.41 billion tons of cement, and 49.43 million tons of chemical fiber. China outshined other countries in the output of these energy-intensive products and manufactured even over half of the world total output of some products.

Over the past 30-plus years, the rapid economic growth, industrialization and urbanization have been the main driving forces for China’s exponential growth in the energy consumption.

III. Structure of China’s Energy Consumption

The rapid growth of manufacturing industry, industrialization and urbanization, significant improvement in the people’s housing conditions and massive infrastructure construction have consumed a huge amount of steel, cement and other metal and non-mental raw materials. The energy-intensive industries, like the materials processing industry, also experienced explosive growth and have become big energy consumers. Unlike the energy-consuming structures in developed countries, industrial development is the largest consumer of energy and electricity in China. For a long time, China’s industrial energy consumption accounted for over 70% of the total. Despite a slight drop in recent years, the number is still higher than 65%, as opposed to 12% of household energy consumption in urban and rural areas. In terms of the electricity consumption, the secondary sector (mainly the manufacturing industry) has long consumed more than 70% of the total. In a few economically-developed provincial regions, the industrial power consumption accounted for over 75% of the total, as against around 13% in household electricity consumption.

In 2015, the energy consumption for the production of various materials (including chemicals, building materials, ferrous and non-ferrous metallurgy, petrochemicals, mining, etc.) and the generation of power and heating made up 57% of the total in China. For over a dozen years, it had been the main engine driving the increase in the overall energy consumption.

The burgeoning industrialization and urbanization has boosted the fast-paced growth of transportation volume. Nowadays, China’s annual cargo transportation volume reaches about 44 billion tons with a turnover of 1.85 trillion ton-km (tkm), both ranking first in the world. The freight volume has been increasing at an average rate of 7% over the past decade. The annual passenger volume achieves 20 billion and the number of outbound trips for tourism and business reaches 120 million per year. The auto industry has also experienced high-speed development over the years. In 2016 the auto production and sales volume both exceeded 28 million and the monthly sales of cars reached two million, making China the largest producer and seller in the world. The motor vehicle ownership has surpassed 300 million, including 200 million cars. As the car emerges as an important means of transportation for Chinese households, the auto market in China still has great potential for further expansion. Currently the car ownership per hundred persons is less than 16%, a far cry from that in the industrialized countries. Even if China doesn’t aim to keep up with the highly industrialized countries like the US and the European countries in terms of the car ownership, China will undergo a long period of growth in the total car volume, which will serve as a main engine driving the growth of gas consumption in China.

The current energy consumption in service industries and household use accounts for a somewhat low proportion of the total. The residential energy consumption made up merely 12% of China’s total primary energy consumption. The energy consumption in various service industries other than transportation accounts for about 13%, but has been experiencing the fastest growth in recent years. The residential energy consumption is undergoing the process of improving service and energy quality. Having been long constrained by energy supply capacity, China had to limit the scope of heating supply in winter to the northern areas. The residential and public buildings in urban areas in northern China are equipped with heating devices for winter, while scattered households are equipped with briquettes for heating. As the living conditions continue to improve, the heating conditions in urban areas have experienced continuous improvement, with central heating or district heating systems covering all urban areas in northern China. Natural gas has emerged as the main energy for cooking. However, energy supply in rural areas is still lagging behind. Due to long-term shortage in the supply of commercial energy, quite a number of rural households still rely on the fuel wood for heating and cooking. The rural areas close to the cities gradually gained access to commercial energy and have begun to use coal for heating and LPG or electricity for cooking. The rural areas far away from cities still have to rely on biomass energy.

In central China, especially the area along the Yangtze River, the minimum temperature in winter can get below 0℃ and if without heating, the indoor temperature can drop to below 5℃. Even in southern China, especially some mountainous areas, it’s very cold in winter, with the indoor temperature falling to below 5℃. Due to limited energy supply capacity in the past, there were no heating systems in these areas and most residents had to endure uncomfortably low indoor temperature in winter. Even in public buildings, the temperature is too low. It’s even worse in rural areas. Thanks to the development of electric power industry in China, the nation-wide coverage of electricity has significantly improved the power supply conditions for urban and rural residents and satisfied the residents’ demands for power ratings and supply stability. This has been a remarkable progress of China in the twenty-first century. The marked improvement in the power supply conditions for urban and rural residents laid the foundation to build up the heating system in winter and cooling system in summer in central and southern China, delivering benefits to most residents in winter. With the massive expansion of natural gas infrastructure in recent years, natural gas has become available in more areas, making it possible for more convenient and comfortable heating for residents. However, given the low level of per capita residential energy consumption, there’s a great potential for improvement in energy services. The supply of more high-quality energy to urban and rural residents will be a priority of China in the upcoming years.