University Report: National Energy Strategy of China - Analysis

This report provides a comprehensive analysis of China's national energy strategy, examining the country's rich energy resources including coal, oil, natural gas, and electric power. It explores the current situation of China's energy sector, highlighting the impact of rapid economic growth and increasing energy demand. The report details the challenges faced by the sector, such as power shortages, supply-demand gaps, low energy efficiency, and insufficient investment. It also outlines the government's policies and strategies aimed at ensuring sustainable energy supply and promoting renewable energy sources. The analysis covers various aspects of the energy sector, including coal production, oil and gas imports, and the development of electric power. It further discusses the issues of lower tariffs in electricity and lower productivity of state ownership. The report concludes by emphasizing the importance of addressing these challenges to support China's continued economic growth and environmental sustainability.

Running head: NATIONAL ENERGY STRATGY OF CHINA
NATIONAL ENERGY STRATGY OF CHINA
Name of Student:
Name of University:
Author Note:

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NATIONAL ENERGY STRATGY OF CHINA
Executive summary
The aim of the paper is to present a discussion on the energy resources of China has and the
steps the nation is required to take takes in order to conserve and make efficient use of their
energy resources in the coming time. It has been found that china is rich in its energy
resources such as coal, gas and others. However, the increasing economic activity is causing
depletion in these resources. This is because the country is growing at a faster rate of 10
percent every year boosted by growing economic activities over time. This compels the
country to shift its focus to the usage of more renewable energy resources and other
implementation under Agenda 21.

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Introduction:
In terms of gross domestic production economy of China owns the second highest
rank among the global economies. The Asian country is recorded to be top fastest growing
economies of world that brings forth largest consumer market. the economy grows at 10%
rate consistently for last ten years. China is also the largest manufacturing nation that plays
the role of global manufacturing hub producing and contributing to largest manufacturing
goods. This makes the country become largest exporter to the world. In terms of import, the
nation is second largest in the world. All of this information conforms to the fact that the
nation requires much energy resources to conduct the production and meet the demand
worldwide. As per sources, the country has coal and metals as major natural resource
consisting almost 90% of the natural energy resources. The nominal value of the total natural
resources is US$23 trillion 1.
Starting from the economic breakthrough that China faced in 1978, the national
economic growth has been consistently higher paving way for more demand of the energy
resources. This has led to supply as well as management of the resources through adoption of
various policies and reform subject to foreign exchange, pricing, legal and enterprise of the
nation. The national government in order to enhance the performance of the sector as well as
be more able to attract investments has also devised restructuring of the energy industries 2.
1 Andrews-Speed, P. (2012). The governance of energy in China: Transition to a low-carbon
economy. Palgrave Macmillan.
2 Blackwill, R. D., & Tellis, A. J. (2015). Revising US grand strategy toward China. Council
on Foreign Relations.

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This paper aims to present a discussion focusing on the present situation of Chinese
energy resources and the national strategy to conserve and use it in order to ascertain the
future growth of the economy without negotiating with current pace of the growth rate. The
discussion outlines the current condition of the energy sector and its future consequences in
the coming years.
Current situation in China:
The new economic policies and subsequent economic breakthrough in Chinese
economy propelled the growth of the nation remarkably since then owing mostly due to
increased domestic consumption. Moreover being the largest exporter of manufacturing in the
world, the country is source of huge international demand of goods and services. This induces
huge amount of production that requires enormous supply of power. The majority of power
used by the nation that is almost 80% are generated from the combustion of fossil fuels
produced in thermal plants. Among this, 17% are produced in hydroelectric installations and
2% are sourced from nuclear energy 3. The national has huge untapped potential in energy
resources, which needs to be channelized and developed in order to bring out more efficient
energy sources. Another important factor playing crucial role behind availability and supply
of the resources is the geographical distribution of it based on the location advantage or
disadvantage. If the source of the resources are distant from the operative area of the industry
then availability and supply of them becomes a challenge 4. But if the industries are located
3 Bridge, G., Bouzarovski, S., Bradshaw, M., & Eyre, N. (2013). Geographies of energy
transition: Space, place and the low-carbon economy. Energy Policy, 53, 331-340.
4 Chang, J., Leung, D. Y., Wu, C. Z., & Yuan, Z. H. (2003). A review on the energy
production, consumption, and prospect of renewable energy in China. Renewable and
Sustainable Energy Reviews, 7(5), 453-468.

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near the source of energy then the supply becomes easy and cheap. China’s geographical
distribution of energy resources reports that the northeast of the nation has rich availability of
coal and oil. The central of north China has major resources of coal and coastal areas in
southwest have huge potential in hydroelectric resources. Heavy industries have grown
centering around the major energy resourceful areas of north eastern China excluding its
southern part. There are few industrialized regions around lower Yangtze and Guangzhou
around shanghai that has lower availability of resources posing challenges to the production 5.
Energy sources of China:
The structure of the national energy sector consists of coal, oil, natural gas and electric
power.
Coal: As per the IEA estimates in 2011, major energy resources of China is coal. The
national records annual coal production worth 22,784 TWh in terms of net energy available.
The next bigger source of energy in China is oil. The energy use of China per capita is
2,236.73 kg oil. The nation produces abundant of coal categorized into three broader sections;
state mines under local government and central government and local non state mines 6. Prior
to 1980 the production of the state owned mines were pretty high compared to the non state
mines. China is major exporter of coal whereas larger importer of oil.
5 Feng, Y. Y., Chen, S. Q., & Zhang, L. X. (2013). System dynamics modeling for urban
energy consumption and CO 2 emissions: a case study of Beijing, China. Ecological
Modelling, 252, 44-52.
6 Geng, Y., Sarkis, J., Ulgiati, S., & Zhang, P. (2013). Measuring China's circular
economy. Science, 339(6127), 1526-1527.

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Oil & Gas:Next bigger resource to energy of the nation is oil and gas that defines the
national economic activity in broader sense. Three evident sections are available for the oil
sector that are
 offshore and onshore exploration and production
 Manufacturing and refining
 Distribution an d marketing of refined petroleum products
The source of oil as energy resource makes the country heavily dependent on the import from
the Middle East.20% of the crude oil that is processed in China are imported and the
estimates show this import amount to rise over the period of time reaching 4.8 barrel per
capita 7.
The sector faces rapid growth owing to the higher demand of refined petroleum and
petrochemical products. The increasing urbanization and more highway and aviation traffic
induces the demand for convenient fuel like gasoline and jet fuels that further increases the
greater demand for the oil.
This leads to higher import cost that worsens the balance of payment of the nation.
The country has been interested in diversifying the sources of the oil it imports also finding
substitute of it. The new destination of oil import for the country has been central Asian oil
fiends like Kazakhstan.
The country focuses more on increasing the quantum of natural gas production.
Natural gas as of now is less utilized resource contributing only of 3% to the total
consumption of the energy. Beijing has incorporated the natural gas production target of 4%
7 Gilley, B. (2012). Authoritarian environmentalism and China's response to climate
change. Environmental Politics, 21(2), 287-307.

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in the 10th Five Year Planning. Quite remarkably USA uses up 25% of natural gas in its
energy consumption. As per the forecasts made by the analyst the nation is expetected to
record an increase of natural gas consumption by double digit in the coming years 8.
Electric Power:
One o the major component of national energy sources is electric power. Since 1949
the state government own the operation and distribution of the of the electric power that
generates almost 90% of the total power. The construction, management and operation of this
firms were under state monopoly. Overtime the need of improving the sector made the nation
lead toward market mechanism and build integrated connection or network 9.
Issues in energy sector in China:
Problem of power shortage has been acute in China since 1980s when the demand for
it rose remarkably owing to the economic breakthrough. The shortage spread toward north
from south owing to growth of the industrial sector that requires more of electricity. The
power shortfall is consistent problem of the nation affecting industrial manufacturing sector
over time.
8 Jiankun, H., Zhiwei, Y., & Da, Z. (2012). China's strategy for energy development and
climate change mitigation. Energy Policy, 51, 7-13.
9 Kostka, G., & Hobbs, W. (2012). Local energy efficiency policy implementation in China:
Bridging the gap between national priorities and local interests. The China Quarterly, 211,
765-785.

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Demand – supply gap:
The major issues concerning the nation regarding energy sector is the substantial
supply and demand gap that is persistent in chronic manner. The huge production stemming
from domestic consumption and world demand of Chinese exportable make the country
consume more of the energy resources which gets depleted over time the major problem of
the non renewable resources is that the supply don’t grow with the pace of growth n demand.
This leads toward demand supply gap that poses great challenge to the production, as the
country needs to import more of the required energies. This s further make the national
responsive to the vulnerability caused from volatility of world oil market and price. This
affects the balance of payment of the nation and increases domestic prices leading to
inflationary pressure and politically unstable situation 10.
Less energy efficiency :
The avalable ressources of the nation are not efficient and optimal. The main reason
behind that is the greater dependence on the low quality coal as source of energy. The
random and incessant use of poor quality of coal in power generation led the country become
ineffciient in thermal production in the energy sector compared to the other nations.
The reduced level of consuming low level coal can improve teh nation’s energy efficiency
Lower tariffs in electricity :
The root cause of the inefficiency and shortage in the Chinese energy sector is the
lower prices of the energy ressources. The national tariff in the electric sector has been
unchanged over 30 years from 1950 to 1980 and also at lower level than cost of production.
10 Liu, W., Lund, H., Mathiesen, B. V., & Zhang, X. (2011). Potential of renewable energy
systems in China. Applied Energy, 88(2), 518-525.

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The sector is yet to undergo pricing reform as the prices of coal and oil were excluded to
reflect the world prices. Lower prices caused deficit to the power companies and made them
inclined toward heavy borrowing and subsidies of governmenet. Funds of capital were
arranged through government and bank at low cost. Most of the power sector firms received
coal at subsidised lower price. This lower prices led to the power sector firms charge lower
tariffs 11.
Lower productivity of state ownership:
China has state owned enterprise system of production initiated in 1949 and operative
since then it dominates the Chinese power sector. The operative inefficiency and
unproductive outcome led to higher borrowings, huge losses and lower productivity over
time. This led to higher debt-asset ratio in the state owned enterprises amounting to almost
85%12. The concentration of the loss is inclusive of the sectors like coal mining, gas and oil
and machineries. The social burden on the enterprise made them more unproductive
compared to the other countries of the world.
Insufficient investment:
There was not up to the mark availability of the capital domestically for the
development of power sector. The gap of the requirement versus reality has been almost
about 20-30% which requires to be filled by the foreign direct investment. There has been
11 Liu, Z., Geng, Y., Lindner, S., Zhao, H., Fujita, T., & Guan, D. (2012). Embodied energy use
in China's industrial sectors. Energy policy, 49, 751-758.
12 Liu, Z., Guan, D., Crawford-Brown, D., Zhang, Q., He, K., & Liu, J. (2013). Energy policy:
A low-carbon road map for China. Nature, 500(7461), 143-145.

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NATIONAL ENERGY STRATGY OF CHINA
strong imbalance between domestic capacity and planning of expansion. This low domestic
capability has led to bigger market for the companies of foreign origin 13.
In the 1980s, the Chinese government adopted foreign investment opportunities in the
equipment market to ascertain and secure technical transfers from MNCs. In order to capture
access in the vastly growing Chinese market, the foreign companies became interested to
invest in these power companies to help them upgrade the equipments used in power. Since
1990 the Chinese economy became much lenient and opened itself more toward foreign
investments in order to reduce the shortage problem the nation has been facing. Yet the
investments were not sufficient to keep parity with the expected level14.
Poor government policy regarding the foreign investment policy is one of the major
reason behind insufficiency of capital investment. Involvement of red tapes in larger projects
required approval of state councils that demotivated the investors who were more interested
in the smaller projects which made the nation negotiate with the scale of operation in the
power generation.
13 Ming, Z., Ximei, L., Na, L., & Song, X. (2013). Overall review of renewable energy tariff
policy in China: evolution, implementation, problems and countermeasures. Renewable and
Sustainable Energy Reviews, 25, 260-271.
14 Schuman, S., & Lin, A. (2012). China's Renewable Energy Law and its impact on renewable
power in China: Progress, challenges and recommendations for improving
implementation. Energy policy, 51, 89-109.

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NATIONAL ENERGY STRATGY OF CHINA
Policies & strategies:
To ensure maintenance of proper supply that can take care of sustained economic
growth, Chinese government has resorted to adopt Energy Policy of China. The concern has
grown more as the nation has been greatest contributor of the greenhouse gases emitter. But
the nation has also been marked as largest potent renewable energy producer. The industrial
operations in the sectors like electricity, steel, construction, oil processing and chemical
elements contributes to the 70% of total energy use. Around 4% of global carbon emission is
contributed by Chinese cement production alone 15. The country has resorted to adopt Agenda
21 in 1993 to take care of its environment and development. The country took up various
Green Projects to control the consumption of energy and the environmental condition 16.
The 11th Five Year Planning declared strategy of conserving energy and that also
through development of energy resources that can be renewed or replenished like natural gas,
solar and wind power. The greater focus was vested on environmental protection. A 20%
reduction in the consumption of energy per unit of GDP was set as target. Moving away from
coal inclination was suggested more on source of clean energy including natural gas, oil,
nuclear power and renewable sources. The clean coal technology has been greater aim along
15 Shahbaz, M., Khan, S., & Tahir, M. I. (2013). The dynamic links between energy
consumption, economic growth, financial development and trade in China: fresh evidence
from multivariate framework analysis. Energy economics, 40, 8-21.
16 Zhao, X., Li, N. and Ma, C., 2012. Residential energy consumption in urban China: a
decomposition analysis. Energy Policy, 41, pp.644-653. Zhao, X., Li, N. and Ma, C., 2012.
Residential energy consumption in urban China: a decomposition analysis. Energy Policy, 41,
pp.644-653.

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with tapping the enormous potential of hydroelectric resources the nation has. The
Renewable Energy Law effective from 2006 called for the nation to achieve 10% of its
energy resources to come from renewable resources by 202017.
In the 12the Five Year Plan, the nation has declared to reduce its carbon emission by
17% in the year 2015.and increase the energy consumption intensity by 16%. The targets
were set favoring the developed regions with presence of heavy industries. The nation
designs its planning of achieving 11.4% of the energy requirements primarily sourced from
non fossil sources. This has led to adoption of Low-Carbon Development Zones and
Residential Communities 18.
Social Impact:
. The Strategic Energy Action Plan of 2014-2020 set the aim at much higher level with
the promise of lowering the consumption level of CO2 and coal beyond the expectations
made internationally. The policymakers focus more on lessening the share of coal in the
national energy mix and amounting to 58%in 2020 in comparison with the 62% in 2014. The
national consumption level has been capped at 4.1 Gt. There has been huge shift of focus
toward enhancing the renewable energy sector performance. As per the estimation made by
the national energy Administration, the installation capacity of wind and solar power are
expected to reach 210GW and 110 GW by 2020. This target is higher than the declaration
made in 2014. The decarbonization and low carbon energy targets have been consistent
17 Staffas, L., Gustavsson, M., & McCormick, K. (2013). Strategies and policies for the
bioeconomy and bio-based economy: An analysis of official national
approaches. Sustainability, 5(6), 2751-2769.
18 Su, B., Heshmati, A., Geng, Y., & Yu, X. (2013). A review of the circular economy in China:
moving from rhetoric to implementation. Journal of Cleaner Production, 42, 215-227.