In October, China's power consumption declined for the first
time this decade. With economic growth likely to remain high, by
early 2009 China may appear to have made an abrupt breakthrough in
energy efficiency. The data supporting such a conclusion are
slippery, to say the least. Consequently, there are compelling
reasons to be skeptical of both the power consumption numbers and,
perhaps more important, GDP.
The Chinese economic miracle has been accompanied by soaring
electricity production and consumption, which have even exceeded
double-digit GDP growth rates. In 2007, for example, the official
China Electrical Council reported that electricity demand climbed
by more than 14 percent. In 2002, the country generated 1.6
trillion kilowatt-hours of electricity. Remarkably, by 2007, this
output doubled to 3.2 trillion kilowatt-hours.
Given these recent surges in power demand and supply, a mere
increase of 5 percent would be surprising; a decrease is stunning.
This is precisely what occurred in October when, for the first time
since the Asian financial crisis in 1998-1999, China's domestic
power demand and supply both contracted.
Last month's decrease was fueled to a large extent by the
current global and local economic slowdown. For the past year,
China's economy has been slowing. The trend was exacerbated by the
blow to foreign demand from the international financial crisis, the
effects of which were felt for the first time in October.
Consequently, power demand could continue to decline in November
and December and perhaps beyond.
Yet it is still very unlikely that real GDP growth will be
announced below 7--or even 8--percent. As a result, there appears
to be an impressive silver lining to the economic slowdown: China
has suddenly become significantly more energy efficient than it was
during the boom period.
The idea of a greener China has an intuitive appeal. After all,
numerous power plants brought or kept online when the economy was
surging may have been shut down, and it is possible that less
efficient plants were the ones shuttered. Beyond intuition, numbers
do not lie, do they? China's change from 12 percent GDP growth and
14 percent power demand growth to 8 percent GDP growth and -2
percent power demand growth certainly looks to be a major stride on
the conservation front and new hope for the future.
However, these numbers are, more likely than not, fraudulent.
When GDP growth was 11 percent and power demand growth was 14
percent, China was becoming less energy-efficient, less globally
responsible, and less ecologically virtuous. During this economic
boom, there were official objections that energy consumption per
unit of GDP was actually declining. But such protestations flew in
the face of the electricity demand numbers and the well-known rapid
expansion in auto sales, airline travel, and shipping.
Now Beijing ostensibly has the power figures to make a real case
that the country is going green. The question is whether either the
power or GDP data can be trusted.
In the 1990s, China's power consumption also seemed to lag the
rest of the economy, leading some observers to argue the country's
purported economic growth was being exaggerated. As it turns out,
China's power consumption was being understated, with thousands of
illegal (and unsafe) coal mines feeding hundreds of power plants
constructed without central government approval. Since these mines
and plants were not supposed to exist, their output naturally was
not reported. While their relative importance may have decreased,
there are still large numbers of illegal mines and unauthorized
Energy data may also have been distorted by the Communist
Party's 2005 formal decision to endorse energy efficiency and
castigate pollution, which left provinces scrambling to boast
progress on both fronts. Part of the reason for the disconnect
between frenetic electricity use and supposedly stabilizing energy
use is central officials struggling to make sense of provincial
economic and environmental reports that strain credulity.
Such confounding provincial reports tie directly to the other
element of the comparison: unreliable GDP. While a full reporting
of the flaws in China's GDP reporting would necessitate a separate
paper all together, the fact that provinces often all grow faster
than the national economy is a good representation of the problem.
China's new math extends farther than that--in many cases, all
counties grow faster than their province as a whole. Honest brokers
at the State Statistical Bureau have their hands full.
Eager to act in the face of a potentially quite painful economic
retrenchment, the national leadership of the party is also a
participant in data manufacturing. Indeed, the party has explicitly
staked its legitimacy on economic advancement since 1979. It did
not react well to the last serious downturn, which occurred as a
result of the 1998 Asian financial crisis. State spending was
ramped up and official GDP growth exaggerated by a factor of at
least two for six or more quarters.
In response to the current crisis, Beijing is trumpeting another
state spending package. Even though the mainstream press has
exaggerated the size of the package, the point is clear: For
powerful political reasons, the party is seeking to boost
confidence that the economy will soon do better. Consequently,
there are strong reasons to be especially skeptical of China's
forthcoming GDP growth numbers.
It is likely that China will close 2008 by touting continued 8-9
percent growth in the fourth quarter along with the magnificent
accomplishment of an actual reduction in power use.
Environmentalists will praise China, and new projections based on
official data presented during the slowdown will be rushed to the
public. Some parties may take this scenario as an opportunity to
focus misguided attention on the U.S. as a laggard.
But no magical discovery was made in energy efficiency this
autumn; there is no reason to think the same Chinese economy that
was becoming less efficient for five years became much more
efficient in the space of a few months. Accepting Chinese data at
face value is difficult enough; taking the data and running with it
leads straight off a cliff.
Derek Scissors, Ph.D., is
Research Fellow in Asia Economic Policy in the Asian Studies Center
at The Heritage Foundation.