China's Energy Outlook

Bryan Chan
December 16, 2011

Submitted as coursework for PH240, Stanford University, Fall 2011

Since economic reforms were instituted in 1978, China's Gross Domestic Product has grown rapidly. [1] However, such rapid economic growth has also resulted in rapidly increasing demand for energy. China has been responsible for approximately three quarters of the increase in world energy demand in recent years, and its energy consumption is currently larger than those of the three next largest developing countries, India, Russia, and Brazil, combined. [1]

To power its growth, China has relied heavily upon fossil fuels. A large portion of this has been in the form of coal, of which China has abundant domestic supplies. [2] As of 2009, 70% of primary energy came from coal, compared to a global average of 40%. [3] However, coal is extremely damaging to the environment, and has been estimated to cost China 1.7 trillion yuan a year, or 7% of its GDP, in damages. Combustion of coal emits soot, sulphur dioxide, nitrogen oxides, and carbon dioxide, which contribute to global warming. [3] The mining process, in addition to being a dangerous process that results in numerous deaths each year, also leaves by-products that damage the water system and agricultural land. [3] Besides coal, roughly 19% of primary energy comes from oil, roughly 4% comes from natural gas, and the remaining 9% comes from renewable sources such as hydro, nuclear, and wind power. Thus in total, nearly 90% of China's energy comes from fossil fuels. [4]

In its latest five-year plan, published in 2011 and active through 2015, the Chinese government has placed a greater emphasis on balancing economic growth with limiting environmental damage and making its energy sources more sustainable. [4] In order to decrease reliance on fossil fuels, the Chinese government hopes to increase use of renewable energy to 11.4% of total energy by 2015, and 15% by 2020. The published targets also aim to reduce energy use per unit of GDP by 16% by 2015 and carbon dioxide emissions per unit of GDP by 17% in the same timeframe. [4]

Although only a small fraction of energy used in China currently comes from renewable sources, the Chinese government hopes to promote growth in production of hydropower and nuclear power. Prior to the Japanese nuclear crisis that occurred in March 2011, China had extremely ambitious nuclear ambition plans. From a baseline generation capacity of 10.8 gigawatts today, China was hoping to raise capacity to 86 gigawatts by 2020, according to Kevin Jianjun Tu, a senior associate for energy and climate at the Carnegie Endowment for International Peace. [5] Since the disaster, a moratorium has been put on approving new nuclear plants, but experts believe this expansion will ultimately resume, albeit at a slightly slower pace. [4] Even if the 86 gigawatts target were achieved, nuclear power would still only amount to 8-10% of total energy, a fraction that is low in comparison to developed countries. [5] Simiarly, China is aiming to rapidly expand its hydropower capacity, with an official target of 284 gigawatts by 2015. [4]

In the interim, while China's alternative energy systems are being developed, China must continue to power its growth with fossil fuels. Fossil fuel demand growth is estimated at 8% a year, nearly in line with headline GDP growth, so this will not be an easy task. [6] While meaningful imports of coal and natural gas may be necessary at some point, it appears that the greatest challenge will be to find enough oil. [1] As China's oil demand has increased dramatically, it has been left with no choice but to import significant amounts of foreign oil. While China initially tried to be self-sufficient in this regard in the 1990s, they soon realized that this would be ineffective over the long term. [1] Instead, the government has changed its goal to increasing the 'security' of import streams. [1] Some have observed, as David Zweig and Bi Janhai did in Foreign Affairs magazine, that China has "been able to adapt its foreign policy to its domestic development strategy", by encouraging state-owned oil companies to pursue contracts with oil-rich countries, especially in the Middle East and Africa, while simultaneously encouraging governmental cooperation by conducting diplomacy and offering aid packages. [7] Some in the United States have argued that this trend poses rising risks to US national interests. The US-China Economic and Security Review Commission noted in 2005 that a "key driver in China's relations with terrorist-sponsoring governments is its dependence on foreign oil to fuel its economic development." [7] Citing Iran and Sudan as current examples of the time, they also predicted that this dependency would increase over time.

In conclusion, China's energy supply is currently over-dependent on fossil fuels, leading to environmental damage and potential energy security issues in the future. The Chinese government has instituted plans to diversify into alternative energy sources and secure oil imports in the meanwhile, but these efforts are very ambitious, and only time will tell if they are successful.

© Bryan Chan. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] G. C. K. Leung, "China's Energy Security: Perception and Reality," Energy Policy 39, 1330 (2011).

[2] R. K. Lester and E. S. Steinfeld, "The Coal Industry In China (And Secondarily India)," MIT Industrial Performance Center, MIT-IPC-07-001, January 2007.

[3] T. Branigan, "China Pays High Environmental and Social Price for Reliance on Coal," The Guardian, 27 Octd 08.

[4] "China's ' 12th Five-Year Plan: Energy," KPMG Advisory Ltd., April 2011.

[5] D. K. Tatlow, "Panic May Slow Nuclear Energy in China," New York Times, 23 Mar 11.

[6] A. Tudor, "China's Hunt for Oil Intensifies," Wall Street Journal, 3 Jan 11.

[7] D. Zweig and J. Bi, "China's Global Hunt for Energy," Foreign Affairs 84, No. 5, 25 (2005).

[8] "The Implications of China's Military and Civil Space Program," Hearing Before the U.S.-China Economic and Security Review Commission, One Hundred Twelfth Congress, First Session, Transcript, 11 May 11, pp 2-4.