World Energy Outlook 2007

On the other hand, higher economic growth would bring substantial
social and economic gains to China and benefit the economies of many
other nations too. If this growth were associated with stronger policy
efforts in China to adjust the structure of the economy and with global
efforts to improve energy efficiency, diversify energy sources and
mitigate the negative environmental and other consequences of higher
energy use (as described in the Alternative Policy Scenario), the net
benefits would be yet more substantial.
Background and Assumptions
The rate of China’s economic growth is a major source of uncertainty about the
country’s energy-demand prospects. The projections in the Outlook are highly
sensitive to the underlying assumptions about GDP growth – the main driver
of demand for energy services. Were China’s economy to grow significantly
faster than assumed in the Reference Scenario, its energy demand could turn
out to be much higher by the end of the projection period. Recent experience
highlights just how uncertain the outlook is for China’s economic and energydemand
growth. The economy grew by 11.1% in 2006, while growth in
energy demand over the period 2002-2005 had already averaged 12.9% per
year, compared with 3.2% in 1980-2002. As a result, energy consumption in
2006 reached the level that many analysts, only a few years ago, predicted
China would reach by 2020.
Under-predictions of energy demand have been largely caused by assumptions
about GDP growth that proved to be too low, partly because they failed to take
account of the positive impact on the growth of the Chinese economy of trade
liberalisation and market-oriented structural reform. Strong export demand
and investment – in particular in heavy industry – were largely responsible for
the acceleration in the GDP growth rate from an annual average of 8% in
1997-2002 to over 10% per annum from 2002 to 2006. Surging industrial
production in energy-intensive sectors is the main reason for the recent reversal
in the long-term trend of declining primary energy intensity. The government’s
11 th Five-Year Plan aims to moderate economic growth to 7.5% per year
between 2006 and 2010, but there are few signs as yet that this goal will be
attained. Indeed, in the first half of 2007, GDP growth exceeded 11%.
The High Growth Scenario allows us to test the sensitivity of energy demand
and supply to an assumed higher rate of GDP growth in China (and India –
see Chapter 19) and to analyse the implications for energy trade, investment
needs and the environment in China itself and the rest of the world. For China,
we assume that the main impetus to growth in this scenario is sustained high
investment and continued rapid productivity gains, as the government pushes
ahead with reforms to increase the role of the private sector and to open up the
390 World Energy Outlook 2007 - CHINA’S ENERGY PROSPECTS