WV Executive

China or the Peoples Republic of China (PRC) is the most populous country in the world with a little over 1.3 billion people and is expected to grow at a rate of 0.6 percent. After the United States, it is the second largest energy consumer. The Chinese are a very dynamic people and very satisfying to work with. In addition to their significant natural resources it will be the human resource that will be the engine for future economic growth.

I have lived and worked in many countries around the world, including Asia. Even with this experience and background my many preconceptions of China were incorrect. I had spent months in communist countries such as USSR, Poland and Hungary and I found myself thinking in these terms in anticipating the nature and potential difficulties of my future task in China. I was invited by the International Labor Office (ILO) and the respective Chinese officials in the early 1990s to be the chief technical advisor for Mine Safety and Health in China, supported by United Nations (UNDP).

The tasks proved to be very successful due in large part to the enthusiasm and willingness of the Chinese at all levels, from my counterparts to the ministry level, to work with me. Their passion to learn from the international consultants that worked with me was striking. So, in fact, my preconception of China and the Chinese was incorrect and I felt rather disappointed in myself for not knowing better. Perhaps not so surprising were aspirations of the young Chinese to launch themselves into life and take advantage of the opportunities the world has to offer. Overall, the Chinese and Americans have a similar outlook. Indeed, they have a lot of respect for the United States.

China has enormous challenges ahead as the government strives to continually improve the living standards of its people. This need to rapidly grow an economy is increasing the demand for energy, which in turn is having significant effects on world energy markets and prices. China’s gross domestic product grew 6.4 percent in 2005. However, economic development is rather uneven across the country. Measured on a purchasing power parity (PPP) basis, China is the second largest economy after the United States. The economic engine is driven by a combination of state-owned and private companies.

China has been restructuring its large state-owned enterprises (SOEs) with the objective of making them more efficient and profitable. Layoffs have been significant because many SOEs were overstaffed. From the late 1980s to today, the different generations of leaders have modernized, reformed and opened China’s economy significantly. During this time China has tried to combine central planning with market reform to increase productivity and living standards.

In 1949 Moa Zedong proclaimed the formation of the Peoples Republic of China (PRC). In the 1950s China undertook a massive economic and social reconstruction program. In 1958 they parted from the Soviet model and announced a new economic program, the Great Leap Forward. In 1966 a new movement, the Great Proletarian Cultural Revolution was launched. The Cultural Revolution Chinese leaders have attempted to develop a legal system and terminate abuses of official authority. The government continues to promote the rule of law. The Chinese government is centralized and authoritarian and is subordinate to the 67 million members of the Chinese Communist Party (CCP).

The Energy Challenge

China’s total primary energy production in 2002 was 41.1 Quadrillion btu, which is 10 percent of the world total, and the US is 17 percent. The primary energy consumption (2002) in China was 10.5 percent and 23.8 percent in the US of the world total. The average annual growth in energy between 2002 and 2025 for China and the US is expected to be 1.3 percent and 4.1 percent respectively. Sixty-five percent of China’s primary energy consumption is from coal and is the largest consumer and producer of coal.

A net importer of oil since 1993, China’s petroleum industry has been focused on meeting domestic demand, where petroleum product prices are regulated. The goal is to eventually eliminate subsidized prices. To meet future oil demand requirements China (China National Petroleum Corporation – CNCP) has acquired oil concessions in Canada, Venezuela, Iran, Iraq and other countries. After a going through a period of consolidation, during which many small refineries were closed the principal Chinese oil companies plan to add capacity.

China's Oil Production and Consumption

Source: EIA/DOE County Analysis Brief August 2005

Until recently, natural gas has not been a major fuel in China. However, China has significant (domestic) reserves of 53.3 trillion cubic feet (tcf) of natural gas. China’s natural gas industry does not have a unified regulatory system and natural gas prices are controlled by local regulations. Due to environmental concerns of other primary energy resources, natural gas is expected to experience a higher growth rate.

The electricity consumption average growth to the year 2025 is expected to be 4.3 percent. Electricity exports are 11 billion KWh and imports 1.6 billion KWh. As a result of industry restructuring in the 1990s, and the closing of the many inefficient state-owned companies, the electrical power industry experienced a significant oversupply. Consequently, the Chinese government shut down several small power plants and negated the approval of new power plant construction. Recently, however, long lead times of new power plants are resulting in a significant shortage of electrical generating capacity. Numerous major electrical generating projects include hydro-electric power in the upper reaches of the Yellow River, and nuclear power. The Three Gorges Dam will have total capacity 18 gigawatts when fully on-line in 2009. Environmental critics claim that erosion and silting on the Yantze River threatens several endangered species.

China has major energy-related environmental problems. According to a recent World Heath organization (WHO) report, seven of the world’s most polluted cities are in China. During the 2008 Olympic Games China will take the necessary measures to create a healthy environment, which may include temporarily closing air-pollution producing plants in the vicinity. Under the Kyoto Protocol, China has not agreed to binding targets to reduce carbon dioxide emissions, a factor in global warming. China produces (2003) 3.54 billion metric tons of carbon dioxide which is 14 percent of the world total; the US emits 23 percent. However, the Chinese government has efforts underway to reduce air pollution and pollution in general. In 1998 the Sate Environmental Protection Administration (SEPA) was upgraded to a ministry level agency.

Coal Industry Status

China is the largest producer and consumer of coal. Long-term coal demand growth is predicted to rise significantly, although coal’s share of the overall energy consumption is expected to decline as greater emphasis is put on natural gas utilization. For Asia in general, coal consumption is expected to double by 2025. Coal bed methane is also expected to increase and has attracted investment from foreign companies such as ChevronTexaco and British Petroleum. China is also very interested in coal liquefaction and the resulting coal derived fuels as a substitute for petroleum.

While coal was mined in England as early as the 13th century, China mined coal at least 1,600 years ago. Therefore the People’s Republic of China has a rich history of coal mining. As coal accounts for 65 percent of the total energy consumed, China's economy is dependent on the coal industry. In 2002 China produced 1.52 billion short tons of primary coal, which is 29 percent of the world total, the US produced 1.18 billion short tons or 22.4 percent of the world total. About 95 percent of the coal is produced from underground mines. The State mines produce approximately half of the coal production. Recent reforms undertaken in China’s economy and coal industry are now beginning to produce benefits. In the 1990s China attempted to shut down tens of thousands of small coal mines. Extensive reforms in the coal industry, such as eliminating subsidies and downsizing the workforce, were initiated in 1993. Since then, coal mines that had been losing money for decades have become profitable.

The rapid development of the economy and expansion of the coal industry has giving rise for concern for the safety, health and protection of workers. Presently China has the highest mortality rate in the world for coal mine operations, the greater incidence occurring at the many thousands of small, unlicensed underground mines. The drive to increase the national coal production is increasing the demand for mine mechanization and better educated and trained personnel. This is resulting in improvements in mine safety and health conditions. As most accidents occur in manual coal production operations, it is anticipated that increasing mine mechanization will result in reduced mine accidents. The safety and health records for underground mines are generally considerably greater than surface mines. Under-reporting of serious and minor injuries has been a problem. The rapid expansion of the economy also resulted in the dramatic increase in village-owned enterprises (VTEs) which prompted greater attention by the Chinese government to working conditions and the environment.