August 03, 2004
Economic View
When the lights went out in Xinjiang
By Rosemary Righter
IT WAS 39C outside, distinctly cosy inside and would be a lot hotter as the day went on. The lift was not working. The hotel’s emergency generator could, sort of, cool the bedrooms, but not run the lift and cool the public areas as well. Kizil, a dusty town just north of the Taklamakan Desert, has ways of making you understand why Marco Polo took the sea route back rather than retrace this punishing segment of the old Silk Road.
China’s “Develop the West” campaign has barely impinged on this western corner of the country’s northwest, in the great sweeping wildness of Xinjiang. But that made the power cut unexpected. Rich in oil and coal and under-industrialised, Xinjiang is supposed to be one of the few areas of China not affected by the country’s crippling energy crisis, its worst in history.
China is 30-35 gigawatts short of the energy it needs this year, a gap equivalent to four fifths of the energy Britain generates in a year. Chinese towns and cities endured 757,000 brownouts between January and June — even before summer temperatures drove urban demand up by 40 per cent, as offices, factories and millions of increasingly affluent consumers switched on the air-conditioning. Now, in torrid heat, the lights are going out all over China.
Literally, in some apartment blocks, where parents complain children cannot see to do their homework; metaphorically, in the booming heart of Shanghai. The municipality has dimmed lights on the Bund, installed low-energy bulbs in Pudong’s landmark Oriental Pearl TV tower and introduced minimum temperatures for shops, restaurants and government offices. It has sent out inspectors to shut off supply to “low-efficiency, energy-consuming enterprises”, a ban now to be enforced nationwide.
In Beijing, 6,000 factories were recently closed for a week. Some government employees have been sent on holiday. Sales of fuel-guzzling private generators have soared, pushing up demand for fuel oil by 100,000 barrels a day.
Government statements that supplies are adequate, or would be if demand were not out of control, are not going down well.
Manufacturers complain that brownouts have depressed production by 20 per cent, just when they need to fill Christmas export orders. They also complain that power still reaches “well-connected” enterprises.
Yet the Chinese authorities have a point: energy demand, like much else in this strange hybrid economy, is out of control, galloping way ahead of domestic capacity, far faster than international markets anticipated and, at 15 per cent a year, three times as fast as government planners anticipated. You can take that as a healthy sign, proof that no power on earth can now suppress Chinese commercialism, or as the grim harbinger of a landing so hard that it could throw global growth off course.
“Oil for the lamps of China” is moving world markets in unexpected ways. Sabotage in Iraq, Yukos-related uncertainty about Russian supplies and awareness that Opec is already pumping close to peak capacity have helped to drive crude prices up 30 per cent to $43.20 a barrel last Friday; but it will be China’s needs that determine long-term trends. This has happened fast. It is only 11 years since China became a net oil importer, yet last year it overtook Japan to become the world’s second-largest consumer of petroleum products. China accounts for at least 40 per cent of the growth in global oil demand. That may be 50 per cent by the end of this year.
A report issued last week by the US Energy Information Administration shows how the gap between China’s production and consumption has widened since 1980 (see chart). EIA analysts suggest that we ain’t seen nothing yet. Twenty years from now, they predict, China’s consumption will more than double, to 12.8 million barrels per day, and it will be hunting for 9.4 million of these on world markets, nearly three times today’s imports.
This forecast assumes little increase in domestic production — recent finds in Xinjiang and elsewhere are unlikely to do more than compensate for declining output at Daqing and Liaohe, China’s two big established fields. Yet on consumption, EIA projections may even be too modest.
So says the Chinese Academy of Engineering itself. In the next 20 years, China will need as much extra power from all sources as the United States developed in the past half century, it says. One reason for that is obvious. Although China absorbs 10.5 per cent of the world’s energy output, consumption by individual Chinese is little more than a tenth of American levels.
This will change. Go shopping and observe consumers beginning to live the American dream. They are buying not watches, transistor radios and footpowered sewing machines, but televisions, washing machines, air-conditioners — and cars. Gulp. But there are other reasons for China’s power-guzzling.
The first is that China is a horribly inefficient consumer, using 50 per cent more energy per unit of output than even India; its best factories are three times as wasteful as American counterparts. The second is a massive concentration on four energy-intensive sectors (steel, aluminium, cement and chemicals) which together absorb a third of China’s electricity. In the first half of this year economic growth of 9.7 per cent was accompanied by a 15 per cent surge in demand for power.
A pell-mell construction boom is partly responsible. Whatever may be done to cool the economy elsewhere, steel and cement factories, as well as building gangs, will be kept busy by Beijing’s preparations for the 2008 Olympics and for Shanghai’s Expo 2010. But the other factor, which I wrote about in this column after visiting China last September, is the phenomenon of “empty growth” — copycat investment in manufacturing and construction, regardless of market demand and quality. Local authorities compete for their “share” of growth by pouring investment into identical industrial parks, “silicon valleys” and “special” development zones.
At the personal level, the cadres are being quite rational, since it is still largely true that promotion depends on glowing production statistics. Besides, it is impossible to be an administrator in China without becoming deeply sceptical about central planning. The country’s energy crisis is very much a case in point. China's five-year plan for 2001-2005 botched almost every aspect of energy planning.
Take fuel oil. The plan called for demand to decline by 2005, as domestic coal replaced oil. So Sinopec and PetroChina, two of China’s three oil giants, duly cut fuel oil production. Coal — the unwashed, sulphur-belching kind — is still king in China, providing three-quarters of its electricity, and it was in oversupply. But coal has to be delivered, and China’s railways can handle only 100,000 freight cars, a third of demand. Power stations ended up so short that last month the Government requisitioned 5,000 extra freight cars and announced emergency plans to shift coal by coastal ships. As for fuel oil imports, they have doubled since 2002.
Similar misjudgments were made over refining capacity and over electricity, where the plan halted construction of fuel-burning power plants. Official forecasts of consumption in 2005 were realised last year, two years ahead of schedule. And, because too low a priority was given to completing a national grid, as well as the West-to-East hydropower network and gas pipelines, power cuts will plague China for at least two more years.
The danger now is overreaction the other way. China is bingeing on power plant construction, building 130 gigawatts of new capacity. It is scouring the world for guaranteed oil supplies (the reason, in case you wondered, why President Hu Jintao paid a call on Gabon last February); it is seeking deals in the Caspian, Kazakhstan, Indonesia and Latin America. It is pressing Russia hard to route a proposed new Siberian pipeline from Angarsk via Daqing in Gansu Province, rather than to Nakhodka, as the Japanese would prefer.
The one thing China will not do, it appears, is open up its energy markets to foreign multinationals. It will take their money, through limited IPOs, but give them no voice as partners. So official plans will continue to call the tune, not profitability. In energy, there will be no “new economic model”. And China, not America, will be the energy glutton of tomorrow.
http://www.timesonline.co.uk/printFriendly/0,,1-37-1200393,00.html
Economic View
When the lights went out in Xinjiang
By Rosemary Righter
IT WAS 39C outside, distinctly cosy inside and would be a lot hotter as the day went on. The lift was not working. The hotel’s emergency generator could, sort of, cool the bedrooms, but not run the lift and cool the public areas as well. Kizil, a dusty town just north of the Taklamakan Desert, has ways of making you understand why Marco Polo took the sea route back rather than retrace this punishing segment of the old Silk Road.
China’s “Develop the West” campaign has barely impinged on this western corner of the country’s northwest, in the great sweeping wildness of Xinjiang. But that made the power cut unexpected. Rich in oil and coal and under-industrialised, Xinjiang is supposed to be one of the few areas of China not affected by the country’s crippling energy crisis, its worst in history.
China is 30-35 gigawatts short of the energy it needs this year, a gap equivalent to four fifths of the energy Britain generates in a year. Chinese towns and cities endured 757,000 brownouts between January and June — even before summer temperatures drove urban demand up by 40 per cent, as offices, factories and millions of increasingly affluent consumers switched on the air-conditioning. Now, in torrid heat, the lights are going out all over China.
Literally, in some apartment blocks, where parents complain children cannot see to do their homework; metaphorically, in the booming heart of Shanghai. The municipality has dimmed lights on the Bund, installed low-energy bulbs in Pudong’s landmark Oriental Pearl TV tower and introduced minimum temperatures for shops, restaurants and government offices. It has sent out inspectors to shut off supply to “low-efficiency, energy-consuming enterprises”, a ban now to be enforced nationwide.
In Beijing, 6,000 factories were recently closed for a week. Some government employees have been sent on holiday. Sales of fuel-guzzling private generators have soared, pushing up demand for fuel oil by 100,000 barrels a day.
Government statements that supplies are adequate, or would be if demand were not out of control, are not going down well.
Manufacturers complain that brownouts have depressed production by 20 per cent, just when they need to fill Christmas export orders. They also complain that power still reaches “well-connected” enterprises.
Yet the Chinese authorities have a point: energy demand, like much else in this strange hybrid economy, is out of control, galloping way ahead of domestic capacity, far faster than international markets anticipated and, at 15 per cent a year, three times as fast as government planners anticipated. You can take that as a healthy sign, proof that no power on earth can now suppress Chinese commercialism, or as the grim harbinger of a landing so hard that it could throw global growth off course.
“Oil for the lamps of China” is moving world markets in unexpected ways. Sabotage in Iraq, Yukos-related uncertainty about Russian supplies and awareness that Opec is already pumping close to peak capacity have helped to drive crude prices up 30 per cent to $43.20 a barrel last Friday; but it will be China’s needs that determine long-term trends. This has happened fast. It is only 11 years since China became a net oil importer, yet last year it overtook Japan to become the world’s second-largest consumer of petroleum products. China accounts for at least 40 per cent of the growth in global oil demand. That may be 50 per cent by the end of this year.
A report issued last week by the US Energy Information Administration shows how the gap between China’s production and consumption has widened since 1980 (see chart). EIA analysts suggest that we ain’t seen nothing yet. Twenty years from now, they predict, China’s consumption will more than double, to 12.8 million barrels per day, and it will be hunting for 9.4 million of these on world markets, nearly three times today’s imports.
This forecast assumes little increase in domestic production — recent finds in Xinjiang and elsewhere are unlikely to do more than compensate for declining output at Daqing and Liaohe, China’s two big established fields. Yet on consumption, EIA projections may even be too modest.
So says the Chinese Academy of Engineering itself. In the next 20 years, China will need as much extra power from all sources as the United States developed in the past half century, it says. One reason for that is obvious. Although China absorbs 10.5 per cent of the world’s energy output, consumption by individual Chinese is little more than a tenth of American levels.
This will change. Go shopping and observe consumers beginning to live the American dream. They are buying not watches, transistor radios and footpowered sewing machines, but televisions, washing machines, air-conditioners — and cars. Gulp. But there are other reasons for China’s power-guzzling.
The first is that China is a horribly inefficient consumer, using 50 per cent more energy per unit of output than even India; its best factories are three times as wasteful as American counterparts. The second is a massive concentration on four energy-intensive sectors (steel, aluminium, cement and chemicals) which together absorb a third of China’s electricity. In the first half of this year economic growth of 9.7 per cent was accompanied by a 15 per cent surge in demand for power.
A pell-mell construction boom is partly responsible. Whatever may be done to cool the economy elsewhere, steel and cement factories, as well as building gangs, will be kept busy by Beijing’s preparations for the 2008 Olympics and for Shanghai’s Expo 2010. But the other factor, which I wrote about in this column after visiting China last September, is the phenomenon of “empty growth” — copycat investment in manufacturing and construction, regardless of market demand and quality. Local authorities compete for their “share” of growth by pouring investment into identical industrial parks, “silicon valleys” and “special” development zones.
At the personal level, the cadres are being quite rational, since it is still largely true that promotion depends on glowing production statistics. Besides, it is impossible to be an administrator in China without becoming deeply sceptical about central planning. The country’s energy crisis is very much a case in point. China's five-year plan for 2001-2005 botched almost every aspect of energy planning.
Take fuel oil. The plan called for demand to decline by 2005, as domestic coal replaced oil. So Sinopec and PetroChina, two of China’s three oil giants, duly cut fuel oil production. Coal — the unwashed, sulphur-belching kind — is still king in China, providing three-quarters of its electricity, and it was in oversupply. But coal has to be delivered, and China’s railways can handle only 100,000 freight cars, a third of demand. Power stations ended up so short that last month the Government requisitioned 5,000 extra freight cars and announced emergency plans to shift coal by coastal ships. As for fuel oil imports, they have doubled since 2002.
Similar misjudgments were made over refining capacity and over electricity, where the plan halted construction of fuel-burning power plants. Official forecasts of consumption in 2005 were realised last year, two years ahead of schedule. And, because too low a priority was given to completing a national grid, as well as the West-to-East hydropower network and gas pipelines, power cuts will plague China for at least two more years.
The danger now is overreaction the other way. China is bingeing on power plant construction, building 130 gigawatts of new capacity. It is scouring the world for guaranteed oil supplies (the reason, in case you wondered, why President Hu Jintao paid a call on Gabon last February); it is seeking deals in the Caspian, Kazakhstan, Indonesia and Latin America. It is pressing Russia hard to route a proposed new Siberian pipeline from Angarsk via Daqing in Gansu Province, rather than to Nakhodka, as the Japanese would prefer.
The one thing China will not do, it appears, is open up its energy markets to foreign multinationals. It will take their money, through limited IPOs, but give them no voice as partners. So official plans will continue to call the tune, not profitability. In energy, there will be no “new economic model”. And China, not America, will be the energy glutton of tomorrow.
http://www.timesonline.co.uk/printFriendly/0,,1-37-1200393,00.html
