China's rapid economic growth has monopolized the news in recent months. The annual gross domestic product (GDP) growth rates of around ten percent that were common in the 1990s have continued in the early years of the 21st century. China's investments in new factories, offices, and other infrastructure have driven this growth. The implications for global supplies of raw materials are considerable. In 2003, China accounted for 27 percent of world steel consumption, 31 percent of global coal demand, and 40 percent of world cement demand. As a result of this growth, China's demand for oil has also risen steeply, with imports up 40 percent in the first half of 2004. China's economic development has significant implications for national and global energy supplies.
But what does this growth mean for China? The speed of this development has posed the most serious challenges for Chinese policy makers. One of the most pressing problems in China is the increasing frequency of power shortages. Power companies are struggling to build enough generation and transmission capacity to meet soaring demand, particularly for air conditioning in the prosperous eastern provinces. Meanwhile, there is pressure to tackle the environmental impacts of China's coal-dominated energy system.
Tensions between economic growth, energy security, and environmental protection goals are familiar to many countries. For a developing country the size of China, however, they are particularly acute. While experts agree that one way to help resolve these tensions is to invest in cleaner, more efficient technologies, they disagree on the best way to do this. Most tend to advocate a move away from coal towards other supply options such as natural gas, renewable energy, and nuclear power. Many also point to the huge potential for improvements in energy efficiency, particularly in Chinese industry.
While Chinese firms and research institutions have capabilities in relevant energy technologies, there is still a significant gap between their means and the international standard. Technology transfer from foreign companies will be crucial for the Chinese government to achieve its policy goals. Unfortunately, past experience has shown that this kind of technology transfer is difficult. Contrary to statements by some Chinese policymakers, technology transfer does not simply involve commitments by industrialized states to donate new technology to developing countries. These difficulties, however, have also shown that real progress is possible if collaborative arrangements are carefully planned.
Moving Away from Coal
Opportunities for a technology transfer of cleaner energy to China will depend on the historical legacy of coal as the dominant energy source. Due to large domestic reserves that are cheap to mine, coal accounts for almost two-thirds of national energy consumption (see "Burned Out"). Coal is used to generate 80 percent of China's electricity. It is also used to meet a significant proportion of energy demand in industry and households.
Although its share of national energy consumption has fallen in recent years, coal is expected to continue to be China's largest source of energy. Absolute annual consumption is now on the rise after the declines that were reported in the late 1990s. According to the US Embassy in Beijing, consumption increased from 1.4 billion tons in 2002 to 1.6 billion tons in 2003. But the declining share of coal in Chinese energy supply coincides with steeply rising demand for other sources of energy. Oil consumption in China is growing particularly rapidly and is beginning to replace coal in many economic sectors, partially because of the huge rise in car ownership and use. The increase in oil consumption has reinforced China's position as a net oil importer, which has also contributed to rising global oil prices.
Gas has historically played a limited role in China's energy system and currently supplies only three percent of consumption. …