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Higher speed, less guzzling
(06/26/2002)
When analyzing the relationship between one country's gross domestic
product (GDP) growth and rise in energy consumption, some economists
tend to empirically assume a fixed correlation between the two elements
based on the data of previous years, make calculations of the ratio,
and use it to measure discrepancies between the two figures.
If there is no great changes in economic structure, technology
and management mode during the period, such a methodology of analysis
and the result are likely to be correct.
Otherwise, when the object under analysis is shifting, it is erroneous
to fixate the energy-output ratio.
Just as some overseas analysts have pointed out, towards the end
of the Eighth Five-Year Plan (1991-95), the development of China's
national economy still depended on an extensive growth mode characterized
by huge investment, high energy consumption and low efficiency.
However, during the Ninth Five-Year Plan period (1996-2000), with
deepening enterprise reforms, industrial restructuring, technology
advancement and improved management, the ratio of energy use to
economic growth declined sharply.
First, the energy consumption of industries with high unit energy
use undertook a drastic fall.
Although the total energy consumption during 1997-2000 posted negative
growth rate of -0.8, -4.1, -1.6 and -1.6 respectively, the production
volume of major energy users soared. These include sectors such
as electric power generation, metallurgy, building materials, chemistry
and fertilizer manufacturing.
For example, during the same period, the total electricity generated
saw an annual percentage growth rate of 5, 2.7, 6.2 and 9.4 respectively.
The cement production rose at annual percentage rates of 4.2, 4.7,
6.9, and 4.2 respectively.
According to the analysis of Thomas G. Rawski, an economics professor
at University of Pittsburgh, if energy consumption drops, there
should be an astute output decrease in industries with high energy
intensity.
But, in fact - except the production of coal and coke dropping
- most industrial products still maintained a rapid growth rate.
The factors responsible for the phenomenon of decreased energy
consumption coinciding with increased industrial output are the
following:
During the Ninth Five-Year Plan period, a cluster of small power
conversion stations and mills of cement and glass, with backward
technology and obsolete equipment, were closed. The efforts helped
to reduce the number of factories with low energy efficiency.
Technology upgrading and improved management of energy consumption
have led to big energy savings.
Thus, any assumption of a fixed ratio of energy use to GDP growth
will be a denial of the country's efforts to facilitate institutional
reform, develop technology and improve management.
Besides, China's industrial restructuring plays a huge role in
bringing down overall energy consumption.
The added value of the primary sector, agriculture, fell from 20.5
per cent of the GDP in 1995 to 15.2 per cent last year. Meanwhile,
the GDP added value of the tertiary industry climbed to 33.7 per
cent last year from 30.7 per cent in 1995.
It is no doubt that business, medical care, finance, telecommunication
and real estate sectors consume far less energy than the industrial
sector. As their added value accounts for a growing share of the
GDP, the energy use level of the comprehensive GDP is lowered.
Moreover, within the industry, those energy-saving labour and technology-intensive
sectors, such as mobile telecommunication equipment and electronic
computer manufacturing, saw remarkable two-digit growth rates between
1996-2001. This also led to increased added value accompanied by
energy savings.
Such strategies have brought two big changes in the national economy.
One is that many treasury-funded projects, such as road and railway
construction, irrigation and environment construction, have absorbed
much idle labour.
Second, redundant rural labour flowed to urban areas and engaged
in the construction, cleaning, gardening, garbage-collecting and
many other community-oriented service sectors.
Thus, part of the idle labour that did not generate any GDP in
the past now created wealth. And the GDP generated by such services
required little energy.
Another factor that can help to explain GDP growth accompanied
by a decline in energy use is that the government is pursuing an
environment protection policy in adjusting energy structure.
During the Ninth Five-Year Plan period, central heating was popularized
in many large and medium-sized cities. More households quit coal
burning and turned to natural liquid gas or electricity.
Such efforts have resulted in a sharp decline in coal consumption
while the demand for oil, gas and electricity climbed rapidly.
From the perspective of energy consumption mix, the total volume
of energy consumed decreased to 1.28 billion tons in 2000 from the
1.389 billion tons in 1996. And the share of coal usage dropped
from 74.7 per cent to 67 per cent.
The increasing share of oil, natural gas and hydra-electricity
contributes to increased heat efficiency.
Another argument that Rawski raised was that air passenger miles
rose by only 2.2 per cent on domestic routes during 1998-1999. He
believed, as the figure was far below the GDP growth rate at the
time, the GDP growth rate would have been inflated.
But the reality is, during the period, big strides were made in
raising railway transportation speed, and on many key routes an
overnight rail trip will take passengers to another big city more
than a thousand kilometres away.
Besides, the construction of expressways has been accelerated and
traffic mileage expanded with huge projects funded by treasury bonds.
As a result, many passengers who used to travel on a one to two-hour
flight now turn to the railway and road travel - the real factor
responsible for the slow-down of the growth rate of air-travelling
passengers.
Some scholars also cited the decline in freight volume as an argument
for their doubts for China's economic growth statistics.
However, such a view is also biased.
In view of the transportation mix, the freight volume posted growth
rates between 1997-2000 of 1.6, -0.9, 2, and 5.3 respectively. Meanwhile,
the growth rate of passenger volumes was 6.5, 3.9, 1.1 and 6.2 respectively.
The decrease of freight volume can be partly explained by the drop
in coal consumption and, hence, less transportation.
And the increased passenger volume tells that increasingly more
surplus labour in rural areas migrates to cities. The human resource,
to some extent, substitutes the role of material resources in the
contribution to GDP.
The author is a scholar of the Research Office with the Party School
of the Central Committee of the Communist Party of China.
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