Postcard from China - Energy

China is a large and growing economic power in the world economy. But will its progress be checked by its ravenous appetite for energy ?

One of the undoubted highlights of Shanghai is The Bund. Winding its way alongside Huangpu River, it is home to 50 classical style buildings showcasing a multitude of architectural styles. It represented the crossroads of east and west, the trading centre of the Asian sphere and the housing of economic and political power.

It was from a restored bar upon the upper levels of one of these buildings that ’s energy issues become immediately apparent to us. We gazed across to the Pudong district with awe. Lit up against the night sky we saw the impressive Shanghai Tower, the brand new Convention Centre, the Jin Mao Tower, fourth tallest in the world and dozens more tall office and apartment towers, all built within the last 15 years. It is a shining example of a young, confident, developing country portraying its economic strength and power before an adoring populace.

And at 11.00pm, they turn the lights out !

Our waiter’s English was a little limited but he managed to outline that it is by order of the Government that, due to crippling power shortages, the non essential lighting must be turned off from 11pm. Rarely does a nation’s issues become so readily apparent as you relax with a cocktail in one hand and a camera in the other.

Clearly energy is one of the key issues facing . Securing stable and energy supplies are crucial to sustained economic growth. With ’s economy growing by 9% per annum this produces increasing demand for energy. Electricity consumption alone is increasing at roughly 15% per year and Chinese oil demand is up to 6.5 million barrels per day second only to the US.

In response, has mainly focused on the supply side. It seems to be scouring the earth attempting to sign long term contracts with various sources of oil around the world. It is extremely apolitical in this pursuit signing concession agreements with, among others, , , , , , , and to enable the offshore exploration and production.

Similarly, has 120 Gigawatt of electricity generating capacity currently under construction in . This includes the oft sited answer to ’s energy problems, the Three Gorges dam which alone accounts for 26 x 700MW power generators. In three meetings when we asked about ’s energy problems, they all acknowledged the shortages but all mentioned that the Three Gorges would solve them !

Apart from that though, the main issue is that most of the planned construction involves coal fired generators leading to increasing levels of pollution. The pollution levels in are particularly bad already with 16 of the top 20 polluted cities in the world located in . This is particularly noticeable in Beijing where we obtained a bad taste in our mouths after merely bicycling around for a few hours. Nuclear is part of the solution with around 30 plants currently under construction. But these will only account for 4% of the total energy consumption by 2020.

There seems to be little effort to control the demand side however. The wastage is legendary. Walking along the shopping districts, you are periodically blasted by waves of cold air emanating from the retail stores. All the trucks on the road are old diesel contraptions spluttering away under their heavy loads. Construction of buildings is at such a rapid pace that it continues well into the night under insufferably bright lights and the cities are accursed with two stroke pedal bikes which are extremely inefficient users of petrol. consumes about 3 times as much oil per unit of GDP as the . Furthermore the Chinese Government, like most Asian countries, subsidises the cost of petrol and diesel. This has become an expensive proposition lately amid rising oil prices and there are moves to slowly take away this ‘aid to the poor’.

But this is the rub, the nation is a Communist country and thus relies more than ever on the good will of its citizenry. Amidst the worst of the power shortages in the summer months, factories could be closed down for 7-10 days, office buildings could experience periodical power shortages, but power to residential housing was never shut down. The prospect of democratic rebellion lingers and must be given zero impetus. Similarly the removal of petrol subsidies would be extremely unpopular, however necessary economically.

We don’t confess to know the answer. The situation is hugely complex and difficult to summarise in such a short space. However we cant imagine a situation where a manufacturer welcomes, on short notice, being shut down for 7 days because it’s hot outside. What impact can this have on exporters, manufacturers, miners and the like ? Suffice to say watch this space but if you want to see the lights from the Bund, get there early.