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Print Edition> Business
UPDATED: July 25, 2011 NO. 30 JULY 28, 2011
Cutting Back on Profligate Industries
Energy-consuming sectors pose a daunting challenge as China tries to rebalance its economy

GREENER FUTURE: Workers of Xinyu Iron and Steel Co. Ltd. in Jiangxi Province work during holidays to produce high-quality steel (PENG ZHAOZHI)

As China gears up for more sustainable growth, economic rebalancing has become a national priority. The country's major stumbling block for the time being is taming energy-guzzling industries hampering that growth. Electric power, iron and steel, building materials, nonferrous metals, chemical and petrochemical industries staged a significant rebound in the first half of this year, complicating the government's efforts to steer the economy toward a greener future.

China's power consumption totaled 2.25 trillion kwh in the first half of this year, representing an increase of 12.2 percent from a year ago, according to data from the National Energy Administration (NEA). Of this total, 5.3 percentage points came from China's main energy-depleting industries: electricity, steel, building materials, nonferrous metals, chemicals and petrochemicals. In addition, the six sectors saw their combined power consumption jump by nearly 11 percent in the first six months year on year.

Investment in those sectors has been heavy, making it more difficult for China to restructure its economy, said Xu Yongsheng, Director of the Electricity Department of the NEA.

"China still faces an over-dependence on energy and resource consumption as an impetus to economic growth, and the country still has a long way to go to reshape its growth pattern," said Xu.

China's arduous task of achieving the target for emission reductions is complicated by the momentum these energy-guzzlers seem to be maintaining. Earlier this year, the Chinese Government set the target for 2011: reducing energy consumption per unit of the industrial added value by 4 percent, decreasing carbon dioxide emission per unit of the industrial added value by at least 4 percent, cutting water consumption per unit of the industrial added value by 7 percent, and increasing the comprehensive utilization rate of industrial solid wastes by 2.2 percentage points.

The cause

"China has spared no effort to advance industrial restructuring, but the measures have yet to yield satisfactory results," said Han Xiaoping, CIO of China5e.com, a major energy information website.

"While the heavy industry continues expanding, hi-tech businesses are not growing as fast as expected," said Han. "A major reason is that many local governments have borrowed large amounts of money to boost energy-intensive industries."

In the wake of the financial crisis in 2008, China stepped up a 4-trillion-yuan ($615.4 billion) stimulus package to revitalize its economy. Some local governments submitted a batch of energy-depleting projects that were under the cloak of key development projects to the Central Government for approval and received funding as part of the stimulus package. Meanwhile, many state-owned enterprises have recklessly expanded their industrial capacities. Furthermore, since this is the first year of China's 12th Five-Year Plan (2011-15), investments are creeping up across the country. All these factors have pushed up investments in energy-consuming industries.

Han added that local governments are pushing into energy-intensive sectors, looking to expand their GDP growth rates and tax revenues. They offered favorable policies to lure investors, accelerating development of energy-depleting capacities.

"That has consumed huge amounts of resources and energies, and also exacerbated environment pollution," said Han. "In addition, low-price products exported by those industries have prompted trade partners to take anti-dumping measures against China."

The only solution is to step up a stringent clampdown on those industries and remove the stumbling block on the path of sustainable growth, he said.

In a recent report, the Development Research Center under the State Council attributed the vicious cycle faced by the Chinese economy to a string of factors.

First, China remains a developing country with its population accounting for one fifth of the world's total. The accelerated process of urbanization and industrialization and the Chinese people's growing desire to improve their living standards have created a great demand for more energy resources and raw materials. Although China is already widely recognized as the "factory of the world," it lacks technological prowess to push forward effective economic rebalancing. Given the huge size of its economy, it would take time for the country to optimize its growth model.

Second, local governments have protected energy-consuming industries because of their profitability. And at the central level, the power of industrial supervision, project approval, land approval, environment review and financing is in the hands of different departments, making it difficult, if not impossible, to control.

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