China

By: Tim Kraski

General Situation of China:

Until the discovery of the Daqing oil field in 1959, China did not belong to the world’s major oil producers. Since then, it has developed into the world’s fifth largest oil-producer and today, China’s production accounts for about 5% of global production. At current levels of production and given that the estimation of reserves is correct, China’s proven reserves will last for about 12 more years. Only a small part of China’s oil is exported - to a large extent, it is refined and used in the country. In 1993, China became a net importer of oil and China’s demand, fuelled by economic growth, keeps on rising. Currently, China’s production covers about 60 % of the country’s demand. China’s largest oil producing fields in the east are mature, production has peaked and recent oil exploration efforts have focused on developing oil-fields in the western provinces. However, the remote location and the difficult geological structures of these provinces will make exploration and development difficult. To reduce dependency on the open oil market, China heavily invests in exploration and development in countries that have oil fields but lack the capital or technology to exploit them (e.g. in Africa ).

In-depth analysis:

After the communist party came into power in 1949, a socialist heavy-industry-development strategy was followed and the share of heavy industry in GDP doubled in the period from 1952 to 1975. Economic reforms were launched at the end of the 1970s and parts of the economy, especially in the eastern provinces, were liberalised and opened for foreign direct investment . Today, China is the world’s leading producer of consumer goods and since the move away from central planning began, the economy has grown by an average of over 9% a year. However, there are imbalances, such as the overreliance on merchandise exports, severe regional disparities, which threaten political and social stability, the reliance on foreign investment as engine of growth, the appalling environmental situation and the restrictions to human rights. The economy’s explosive economic growth has pushed energy consumption to very high levels, resulting in continued power shortages in many parts of the country. The low energy efficiency of China’s industry exacerbates this problem: China needs 2.2 times more energy per GDP unit than the international average.

The government is aware of these problems and has taken measures to foster regional development and further diversify the economy, for example by promoting more research and development in the high-tech sector. A programme designed to increase national consumption and to become less dependent on foreign investment has been started and in 2005, the government passed a law to promote renewable energies .

To improve its beyond-oil preparedness it is crucial for China to safeguard the implementation of these ambitious plans. The violations of intellectual property rights and the large market of product piracy remain unresolved problems and it remains to be seen if China can continue its economic liberalisation without implementing political reforms and improving the human rights situation.

Beyond oil preparations:

China already has to struggle to meet energy demand and the government seems to have realized that energy efficiency and renewable energies are important factors for a sustained development of the country. The eleventh five-year-plan (2006-2010) includes the goal to reduce the energy used per GDP unit by 20 % until 2010; the promotion of renewable energies is of high priority. Until 2020, 16% of the total production of primary energy shall come from solar energy, wind- and hydro power. China already is the worldwide leader in the production of solar water heaters and 60% of the world’s installed solar-thermal collectors are to be found in China. Combined with continued economic growth, the government’s willingness to reduce dependency on oil might allow a smooth transition to the beyond oil age.

Beyond oil summary:

Even though problematic areas such as the economic structure and the critical human rights situation remain, China’s growth rates and its plans to rise energy efficiency and the share of renewables in energy production throw a positive light on the prospects for the beyond oil age.