Monday, February 27, 2006

Chinese Economy: China's Energy Worry

Chinese Economy: China's Energy Worry

For a long time, the Chinese economy is growing at an outstanding pace and I think no other economy saw so much expansion in the last 10 years like the Chinese economy. This growth has taken China into a new level in the world politics. Now China is gradually being recognized as a huge economic power by rest of the world. However, this growth means that Chinese economy is consuming more and more fuels like oil, gas and coal. This matter is becoming a growing concern not just for the Chinese economy but for the rest of the world too. As a result of the Iraq War and destabilizing condition in Middle East the price of oil has remained a cause of concern for the last 2-3 years and the growing demand for Chinese economy can only make matters worse.

Much of the time for the last one decade Chinese GDP experienced nearly double digit growth rate. This way, Chinese economy has turned into the world's fourth largest now. If the current trend continues after 2-3 decades the Chinese economy will emerge as the largest. This means that Chinese economy will consume more energy in future too. The rest of the world is looking at China now to see what the country is doing to address this issue. China has already become the second largest importer of oil. This sounds to be astonishing because only 2 decades ago Chinese economy hardly needed any imported oil.

After the growth of Chinese GDP started at a double digit the demand for oil increased and gradually Chinese economy needed more and more imported oil. Another reason for the increase in demand of oil is the fact that the number of cars in the Chinese street is increasing in a huge pace. In the past, China was a role model for its use of bicycles. This increase in demand for oil coupled with the rising price of oil in the world market in the last one decade for a various number of reasons. To meet the growing demand, China is going after securing supplies from oil fields from various parts of the world. At the same time, since Chinese economy is on a ride, China can afford to purchase oil at a slightly higher price than other countries. The main concern for the policy makers in China now to find an alternate to oil as the global oil reserve is diminishing at a fast pace.

China is actively pursuing the development of alternative sources of energy. China has a huge reserve of coal and Chinese policy makers are now focusing on making the best use of its coal mines. A massive initiative has been taken to extract gas from coal. If this project can become successful then many Chinese cars would run with gas instead of oil. Gas extracted from coal will also work as source of energy for the power plants. Another option is hydro electricity and China is aggressively pushing it. Almost all the major rivers of Asia have originated in China. However, this plan can face stiff resistance from other countries who are in downstream.

China's worry for energy only reminds us of the fact that we have become too much dependent on oil and if we do not give enough importance to finding alternative sources for energy then the future is very bleak indeed not just for the Chinese economy but for the world economy as a whole. The time has perhaps come for us to become desperate for developing alternative sources of energy.


Bill Belew said...

These thoughts are very insightful and I think you realize well the impact the growing economy of China has on the world.

You mentioned the Chinese pursuit of alternative fuels. There is one that you did not mention and that is Nuclear Power. Just a few years ago, the Chinese had only one nuclear reactor. According to - China will be among the world's leading nuclear industries by 2025.

Here come the Chinese.