China and the World's Energy Market

BACKGROUNDMao Zedong declared the founding of the People's Republic of China atop Beijing's Tiananmen Square on October 1, 1949. He copied Stalin's development approach by coursing China's economy along the path of a rigidly controlled command system. After more than a quarter century of unstable growth, the Chinese economy remained among the rank of the world's less developed countries when Mao's demise came in 1976.Deng Xiao-ping replaced Mao as China's paramount leader by the late 1970s. A pragmatic socialist, Deng valued concrete outcomes more than ideological purity. With the approval of the Chinese Communist Party's third plenary session of the Eleventh Central Committee in December, 1978, systemic reform took its first tentative step in the farm sector. Phenomenal successes from experimental farm reform measures validated Deng's belief in the merits of decentralization and liberalization. A uniquely new development approach emerged from the world's most populous economy.Nearly thirty years after the inception of reform in early 1979, China replaced Japan as the world's second largest economy. Its population grew from 962.3 million in 1978 to 2011's 1.34 billion. The net increase of 384.8 million persons during the period under consideration would be equivalent to the combined populations of the U.S., Canada, Australia and the Netherlands in 2014. For the period 1979 through 2011, China's GDP rose from 1978's 3.65 trillion Yuan to 201 l's 47.29 trillion Yuan. At constant prices, China's real GDP rose from 1978's 3.55 trillion Yuan to 2010's 31.46 trillion Yuan. Accompanying rapid economic growth during the nearly three decades has been notable structural transformation. Before reform began, China's primary sector accounted for 28.2 % of its GDP while that of secondary and tertiary sectors contributed 47.9% and 23.9%, respectively. By 2011, however, whereas the secondary sector's contribution to GDP remained relatively stable at 46.6%, the primary sector's contribution decreased to 10.0 percent while that of the tertiary sector's contribution rose to 43.4 % (China Statistical Yearbook, 2012).CAUSE FOR CONCERNThe success of China's systemic transformation has nudged it from a not overly consequential position in the world to its center stage on all major international issues. However, paralleling China's rapid economic growth has also been a phenomenal surge in energy consumption and needs.Total energy production at the dawn of reform was 627.7 million tons of standard coal equivalent (SCE) in 1978. By 2011, the total energy production soared to 3.18 billion tons of SCE (China Statistical Yearbook, 2012. Table 7-1). Energy consumption in 1978, on the other hand, was only 571.4 million tons of SCE. Therefore, there was a surplus of 56.3 million tons of SCE at the dawn of reform. By 2011, however, total energy consumption increased to 3.48 billion tons of SCE. Consumption was greater than production by 300 million tons of SCE by 2011 (China Statistical Yearbook, 2012, Table 7-2). Aside from drawing down on reserves, the need for energy imports became unavoidable.More disconcerting for developed economies of the West has been how China's growing needs for energy imports, especially for petroleum, is to impact the future of the world's markets for conventional sources of fossil fuels. A dozen years after China's economy began to thrive, China produced 138 million tons of petroleum products in 1990 and imported 0.776 million tons. By 2010, however, its production increased only to 203 million tons whereas imports of the same accelerated to 294.4 billion tons (China Statistical Yearbook, 2012, Table 7-4). It was a 39-fold increase in petroleum imports during a brief two-decade period.China's thirst for energy forms may be viewed from yet another perspective. Its energy consumption soared between 1979 and 2011. There was also unprecedented increases in petroleum imports and consumption between 1979 and 2011. …

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