However, in the last two years, it seems the country's official GDP statistics haven't matched electricity and energy consumption. China's GDP grew 7.4 percent in 2014, but electricity consumption only grew 3.8 percent while energy consumption rose 2.2 percent. Based on the data available so far, GDP is stated as having grown at around 7 percent in 2015 while growth of energy consumption is expected to be zero. Electricity consumption for the whole year is not available yet but it grew 0.7 percent in the first 11 months.
The divergence in economic growth, energy and electricity consumption has prompted Western media to question the authenticity of China's statistics. Some investment banks also suggested in their research reports that China's actual growth was around 5 percent in the first quarter of the year, much lower than the official reported figure of 7 percent, based on indicators such as rail freight volume, electricity consumption, bank lending and industrial output, and after being adjusted for nominal GDP. Critics believe that China's current industrial structure and low energy consumption cannot support claims of GDP growth of 7 percent.
So is it possible that the GDP growth of China under the current industrial structure is not consistent with electricity and energy consumption?
Actually, decoupling between the country's GDP growth, electricity and energy consumption has occurred twice in the past - in the Asian financial crisis in 1997 and in the global financial crisis in 2008. For example, China's GDP grew 9.6 percent in 2008, while its energy consumption only rose 2.9 percent and the growth for electricity consumption was 5.6 percent.
From the perspective of reducing inventory, the divergence happened because industry (especially heavy industry) is most sensitive to crisis. These firms tend to cut production during a crisis but will continue to boost sales through reducing inventory, and as a result, it is possible GDP growth may not decline significantly. Given that energy consumption by heavy industry accounts for a large proportion among all industries, a sharp decline of electricity and energy consumption by firms in heavy industry will cause a large divergence between economic growth, energy and electricity consumption. After the global financial crisis was over, electricity and energy use rebounded considerably in 2010, with growth of electricity demand exceeding GDP growth. This process is called restocking inventories.
The same phenomenon also happened in the US. In the early 1980s when its economy suffered stagflation, its GDP grew 2.6 percent in 1981, while electricity use fell by 2.5 percent, with a gap of 5.1 percentage points. Therefore, it can be concluded that economic cycles can lead to divergence in GDP growth, electricity and energy consumption. Compared with the US, heavy industry takes up a larger proportion of China's economy, and it is more likely GDP growth will not be consistent with energy and electricity consumption.
Projection of energy demand is a start for making a rational energy strategic plan for the 13th Five-Year Plan period (2016-20). The current demand for energy will have a significant impact on future energy demand forecasts. What is the outlook for energy and electricity demand during the new period?
The experience of the developed economies shows that national GDP growth, energy and electricity demand will still remain relatively high during urbanization and industrialization. The same will apply to China, which has not completed urbanization and industrialization.
Energy demand is obviously impacted by the current economic slowdown. Once the economy recovers, energy demand will pick up accordingly. But as China is currently seeking to adjust its economic structure to focus on quality growth and combating pollution and at the same time the infrastructure construction frenzy in the country is fading away, China has probably gone past its energy consumption growth peak. The focus of China's economy is shifting to light industry and services. Energy and electricity demand can hardly resume the same high growth as in the past, and energy oversupply may persist for a while.
Given the relatively sufficient energy supply in the 13th five-year period, energy prices should be relatively low and stable. In that case, the price level will provide good fundamentals for energy reforms, while the government needs reforms in the energy system and prices on the macro level to support reforms in enterprises' operation and management at the micro level. As long as energy prices don't go up, the public will welcome the energy reforms, which will offer a friendly reform environment for the government.