China’s astonishing annual GDP growth of 18% between 1979 and 1996 was surpassed only by its even more impressive consumption of energy relative to its economic growth . Since China’s annual energy consumption growth rate was only 5% during the same period, its average energy-to-GDP elasticity was 0.28, meaning that energy consumption in China only increased 0.28% for every 1% of GDP growth . Considering that energy-to-GDP elasticities of most developing countries are well above one, the ability of the Chinese government to decouple its economic growth from energy consumption was impressive. While the reported GDP in China grew continuously even during the Asian Financial Crisis, China’s energy statistics declined unexpectedly between 1996 and 1999 before strongly rebounding afterward. The implied energy-to-GDP elasticities between 1996 and 2004 ranged from -0.59 to 1.19. As both the minimum and maximum values have never been witnessed since the beginning of the economic reform era, doubts were raised regarding the credibility of China’s energy statistics. Taking a closer look, one finds that the absurd “V” shape of the energy trend was primarily caused by a 17% drop in coal consumption from 1996 to 2000 and a 55% rebound between 2000 and 2004 . Now, the question becomes: what happened to China’s coal statistics?
Background: How the Issue Arose
China’s energy statistical collection system was initially developed—and functioned well—under a planned economy, with the assumption that all units producing, transforming, delivering and consuming commercial energy would provide complete and accurate reports . As China quickly moved toward a market economy, however, the energy activities outside of the state-owned enterprises grew rapidly. For instance, the percentage of coal produced by township and village coal mines increased from 18% in 1980 to 49% in 1995 . Yet no reliable mechanisms were in place to collect the coal statistics from small, non state-owned mines, so the quality of China’s coal statistics deteriorated over time. Moreover, with the intention of alleviating environmental degradation and improving the safety record of the coal mining industry, the Chinese government launched a campaign to close small, non state-owned coalmines in 1997, imposing a stringent national production cap on the coal mining industry . As the aged state-owned coalmines became increasingly unable to keep pace with the demand spike fueled by the booming economy, however, many of the small coalmines that were ordered to be shut down during the campaign managed to survive. Allured by the tax revenue, local governments in coal mining regions were unwilling to comply with the central government’s production cap and simply underreported the coal supply and demand within their geographic boundaries.
Inflicted by serious staffing shortages, the NBS headquarters struggled to compile the country’s energy balance tables, let alone conduct investigations for suspicious claims. As doubts were raised about the accuracy and reliability of the coal statistics, the NBS resorted to dependence upon spokespersons defending their numbers and quoting various explanations such as efficiency gains, economic structural changes and fuel substitution.
The Magnitude of the Problem
In his annual Coal Economic Review, widely regarded as the most authentic analysis of China’s coal industry, Pan Weier revealed that a survey on China’s township and village coalmines indicated that the unreported coal supply from these mines was over 100 million tons in 2000. His own calculations revealed that the NBS underreported the national coal supply by about 209 million tons in 2001 . Similarly, Liu Xueyi and Liu Anhua of the China Energy Research Association estimated that the amount of unreported coal production was 52, 225, 260, 175 and 173 million tons for the years 1998, 1999, 2000, 2001 and 2002, respectively . They also identified township and village coal mines as the main source of the discrepancy, consistent with Pan’s findings . These inaccurate statistics would prove to be detrimental to China’s policymakers since energy-economy models were extensively utilized in the 1990s to assist in planning.
As inaccurate energy statistics were input into the models, researchers were confronted with a dilemma. They would either have to correct the statistics and contradict official data or calibrate their models accordingly. If they calibrated their models according to the recent coal statistics, the distorted momentum built into the initial modeling period would inevitably make their research findings less meaningful at best and misleading at worst. Thus, with the deadlock of coal statistics unresolved, energy modeling activities in China largely subsided after the late 1990s, though there were some exceptions. When a group of researchers from the Energy Research Institute (ERI) applied LEAP (an energy accounting model) to forecast China’s energy trajectory between 1998 and 2020, tremendous effort was spent adjusting China’s 1998 energy statistics. Their detailed engineering analysis indicated that China’s coal consumption was underreported by approximately 155 million tons in 1998. When this researcher applied CIMS, a hybrid energy-economy model with similar technological details as the ERI LEAP, to China’s energy sector between 2002 to 2004, 1995 instead of 2000 was chosen as the baseline year. The accuracy of China’s oil, natural gas and electricity statistics were acceptable during the period, so a reference scenario was calibrated, which confirmed official statistics except for coal in 2000. Again, the simulation output confirmed that China’s coal statistics in 2000 were underreported .
The inaccuracy of the statistics has resulted in unnecessary pressure on China’s energy sector and distrust between the government and the industries. For example, the State Environmental Protection Administration (SEPA) relies heavily on the coal statistics to prepare its inventory of national SO2 emissions. When coal statistics dropped unexpectedly after 1996, the SEPA struggled hard to maintain the credibility of its ambitious acid rain control targets. Similarly, when inflated efficiency gains before 2000 were presented by energy gurus without caution, unnecessary pressure was placed on the National Development and Reform Commission (NDRC) to set unachievable energy efficiency targets.
The Big Picture and Policy Implications
Since the inception of the economic reforms in 1979, China’s decision-makers have long recognized the problems inflicting China’s energy sector. Yet the reform has only received mixed reviews so far. The central government has made progress in terms of reducing subsidies, although decentralizing key energy industries and introducing moderate competition—reforms that have led to improved productivity in other sectors—have not been applied with rigor to the energy industries. The energy sector remains largely in state hands, and the major state enterprises are still too powerful to be tamed by regulators.
The current de jure energy regulator in China is the Energy Bureau of the NDRC, but its inability to exert effective control over the energy sector and its failure to solve massive power shortages across the country have nearly resulted in its abolishment by the central government (Radio Free Asia, December 16, 2004). Some argue that hierarchy, mandate seniority and human resource constraints are all contributing factors to the Energy Bureau’s inability to solve the country’s complex energy problems. Yet, any alternative management model would need to redefine the fundamental power structure of China’s political system . Similar to the leadership role enjoyed by the Ministry of Economy, Trade and Industry in Japan, the NDRC dominates China’s domestic political arena. In 1952, when the predecessor of the NDRC, the State Planning Commission, was founded, it was given the mandate to control China’s planned economy. Although this ministerial level commission itself was subject to government reorganization, its fundamental role in China’s political system has been virtually unchallenged, which is evident when it was renamed as the State Development Planning Commission in 1998, and restructured as the NDRC with more management responsibilities in 2003.
Having recognized the severity of the problem, the central government has initiated reforms that have strengthened its collection mechanisms. First, the State Council decided to place all statistical survey teams under the direct supervision of the NBS, and the new rule came into effect on February 1. The reform would strengthen the authority of the NBS, reduce the influence of local officials who intend to distort statistics for political gain and thus improve the quality of national statistical accounting (Economic Daily, January 5). Second, when the NBS released the 2005 Gazette of National Economy and Social Development of China on February 28, the national energy consumption levels of 1,349, 1,482, 1,709, and 1,970 Mtce (million tons of coal equivalent) between 2001 and 2004 were revised to read 1,432, 1,518, 1,750 and 2,032 Mtce, respectively . Unlike the media exposure devoted to recent GDP growth, however, the revisions of China’s energy statistics were assigned a very low profile. As additional details were unavailable, it is unclear whether the recent revision accounts for the misreported and non-reported coal consumption during the early 2000s. Likewise, it is uncertain when the NBS will adjust the coal statistics of the late 1990s.
The recent events indicate that China’s decision-makers intend to restore order to the regulation of energy industries. Nonetheless, it is still uncertain what exactly will happen next. With the central government’s emphasis on a harmonious society and stability, a radical reorganization of the government does not sound appealing to the current leadership; the further restructuring of the NDRC toward a more market-oriented player with a concentrated energy management mandate is more likely to be considered. In order to achieve the ambitious economic development target of quadrupling its GDP between 2000 and 2020, China will have to address its growing energy and environmental challenges. At the top of its list should be its regulators and its energy industries.
1. National Bureau of Statistics (NBS), China Statistical Yearbook. NBS (2006) Announcement on Revised Result about Historical Data of China’s Gross Domestic Products.
2. NBS, China Statistical Yearbook.
4. Lawrence Berkeley National Laboratory, Report No. 49024.
5. Total coal supply in 1980: 620.1 Mt; Coal supply by township and village mines in 1980: 113.6 Mt. Total coal supply in 1995: 1360.7 Mt; Coal supply by township and village mines in 1995: 665 Mt. NBS; China Coal Association.
6. Chinese Coal, Volume 28, Issue 3.
7. NBS, China Statistical Yearbook; Chinese Coal, Volume 29, Issue 3.
8. NBS, China Statistical Yearbook.
9. Energy Policy Research, January 2004
10. Available at www.emrg.sfu.ca.
11. China had a Department of Energy between 1988 and 1993, but the short-lived department did not survive the turbulent power struggle that its creation had aroused.
12. The revision in 2001 alone might imply a 116 million ton increase in coal consumption. The energy consumption difference in 2000 is 1432 Mtce – 1349 Mtce = 82.85 Mtce. As one ton of average coal = 0.7143 tce, if we assume all the aforementioned discrepancy is caused by the underreporting of coal supply, then the implied coal supply increases in 2001 = 82.85/0.7143 = 116 Mt coal.