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Reading the Energy Tea Leaves

For some China watchers, energy demand data is considered a more reliable measure of Chinese economic activity than official GDP statistics. If they’re right, the Chinese economy is in deep, deep trouble:

Headline Chinese energy demand in decline: Based on preliminary data, overall Chinese energy demand declined in 2015 – the first time that’s occurred since 1981. Electricity demand fell as well, a sharp departure from more than 10% average annual growth between 2000 and 2014. Apparent coal demand fell 4.6%, and natural gas demand growth has been cut in half.

Economic collapse or economic rebalancing? Behind these headline numbers, however, there is some ground for comfort. The decline in headline energy usage, as well as coal and electric power demand, is being driven primarily by a slowdown in the engine of China’s old economic model – infrastructure and property investment and the heavy industry that feeds it. The service sector and private consumption growth, the engines of China’s economic future, are comparatively strong, and this comes through within the energy data.

Preparing for the future: 2015 provides a snapshot of the energy implications of China’s economic rebalancing. If Chinese leadership is successful in implementing much-needed economic reforms and headline economic growth remains relatively strong, Chinese energy demand growth will still remain anemic at best.

Posted August 1, 2017
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