Difficulties Predicting China energy consumption

by Ginosar  

It is clear that the rapid increase in demand for energy by the major developing countries, mostly China and India, could overshadow any attempt by the developed world to reduce its CO2 emissions.

Therefore, let's look at some of the key uncertainties regarding energy projections for China.

First some personal background: In the Early 70's, as manager of Techno-Economic Dept. at Litton Industries, Data Systems Div. I tried to understand the potential economic growth of likely clients. We sold Military Command and Control Systems to the US military and wanted to expand our markets to foreign governments. I read at the time a book by the futurist Herman Kahn in which he projected the growth of major global economies.

He projected that Japan would be the world powerhouse and overtake the US economy in a few decades.

What was interesting to me was that most of the time he used the existing current growth trends as the key basis to his projections. Japan had then 10% growth. He assumed it would be relatively constant for coming decades. It did not seem solid projection to me. And it was not.

Japan was becoming the world's second largest economy for several decades (average growth rates of 10% in the 1960s, 5% in the 1970s, and 4% in the 1980s until the Japanese Asset Price Bubble crushed in 1989. The Tokyo stock market dropped from near 45,000 to around 15, 000 Yen over a short period. http://en.wikipedia.org/wiki/Economy_of_Japan).

I had watched the Japanese economy over time and a year or two before the collapse I read an article by a Japanese market specialist that explained that one of the key elements lifting their market was the restricted real estate in Tokyo. Vast numbers of Japanese, especially in Tokyo, were experiencing rapid price growth of their small residential units and "invested" major part of it in the "forever growing" stock market. According to that article rural politicians had disproportionally strong political control on the political process and were able to restrict any urban development around Tokyo. That is, no more land was available for new housing and the growth of Tokyo population pushed housing prices very high.

It was easy to conclude from that article that this situation would eventually collapse and the housing market would drop drastically with the bubble stock market tied to it.

It was not clear; however, when this could happen. A friend I shared these views with reminded me a year so later that the collapse followed the path expected in that article.

I detailed the case to point to the fact that we can not predict the future economy based on current trends and that there are a very large number of unknowns facing China and its economy. Several of these are national-survival dilemmas.

Let's look at some of China's major unknowns:

To understand China we must think in terms of the needs of China, as they see it, and not from the Western, mostly personal interest point of view. We also must focus on the GW implications.

0.  It seems to me that the central government demonstrated in the last few decades, after the destructive decade of the Mao Cultural Revolution, its keen desire for stability and middle ground to benefit the nation as a whole at considerable success with benefits and also costs to the general population. If you do not grasp that just study how the majority of Chinese lived until the Communist Revolution.

I assume here that that trend would continue. The new generation of current and upcoming leaders has engineering education and is less ideology oriented. Also, China national leadership is able to influence national trends in rapid ways due to its very strong, but not complete, central control.

1. Population growth is limited by the one child policy prevailing across much of the country to 0.66%, about half of India.

2. Some 800 millions of China 1.38 billion people still live in primitive rural conditions consuming very little energy. Some 200 millions are expected to migrate to urban areas in the next ten to fifteen years demanding higher energy supply.

3. China economy has been growing at 10% per year until the recent global economic decline.

4. China FAST economic growth was largely based on export. It can not continue like that and internal growth is becoming larger by both government influence and increased internal demand.

5. China has some 1.5 Trillion dollars in US Treasuries- equal to the Japanese holding, with one key difference: The Japanese holding is spread across a vast private industry. However, almost all of the US dollar holding in China is in the hand of the central government. In fact, it uses these funds to influence provincial and local governments to follow the central government line.

6. China CO2 per Dollar GDP is four times larger that the US, leaving China large room to improve its CO2 per GDP. If we assume that the economy would increase by 10% per year, the increase in CO2 emissions could be lower by increasing its CO2 efficiency per dollar GDP.

If we assume that it would do that, with large and consistent assistance from the developing world plus its own increasing ingenuity and drive, it can improve its CO2 to GDP by at least 5%/year. With that China could reach the US level in three decades. It may seem fast, but it is not rapid enough to meet GW urgent needs.



More bad news about China:

1. China has vast arid regions which have been expanding rapidly in the last decades needing population transfer, mass forestation and water supply projects-all demanding massive energy.

2. The major sources of water are the main rivers fed by the Himalayas mountain region. These rivers are over used, polluted and are shrinking from the increasing demand by the urban population and expanding industry. In addition the rapid expansion of electricity generating station, 80% of which are coal driven, demand vast amount of cooling water.

3. The Himalaya region is larger than Europe and stores immense amount of water in its many glaciers. They have been melting in rapid rates for several decades. In some locations the extra melt waters are a temporary blessing, which would diminish with time. In other locations it causes floods, wash away large amount of fertile top soil and create temporary unstable lakes.

Over the next few decades, the melting of the Himalayas thousand years snow pack would not be able to supply sufficient water to the current population of about 2 billion people in the surrounding nations, and the expected increase in population.

4. China, like other nations, will need to supply water to a growing population while the main sources of its water are shrinking. The only solution (in addition to conservation) is water desalination which takes a vast amount of energy. Again the two opposing demands can not be met. China (and all of us) must reduce GHG emissions rapidly while they must increase the use of GHG-producing energy supply to survive.

Imagine the dilemma of the Chinese leadership knowing all these conflicts and trying to find some reasonable solutions.

From one side their population needs for energy are rapidly increasing, from another side this increase in energy demand accelerates GW and destroys the very foundation of their society water and food supplies.

The current economic Bubble in China.

James Chanos, who predicted the Enron downfall, appeared recently on PBS Charlie Rose and predicted the collapse of China apartment bubble. (Chanos specializes in short sell on a large scale of situations like that.)

According to Chanos, the rapid increase in economic growth in the last few years in China is due to a large extent to speculation in high-end apartments in major cities. Some 50 to 60% of the investment in large cities is in unfinished, easy to sell, apartments in high rise. Significant capital has been coming from external speculators and much of the recent financial stimulus of the Chinese economy by its central government probably also has been going to continue this bubble.

These, he emphasized, are not apartment suitable for incoming rural population. They cost in the range of $150,000 while the combined income of even middle class wage earners is in the 10 thousand range. And there is no supply of high income earners that would need these apartments.

This may be important on several fronts: One is that the rapid economic growth of China is unsustainable and is not a basis for valid long term growth projection. Another aspect is that much of the energy demand might have been based on speculating activities and not sustained solid growth, such as infrastructure.

Third, we can not project the energy demand of China with any validity because we do not truly understand and familiar with the Chinese economy. The Chinese are masters in keeping undesirable information to themselves, and also they are not infallible, as we may think. As capable as they are they are probably not wiser than we are. China to a large extent has been following the West's economic model and are too eager "to be like us." And we have revealed our utter ignorance of economic realities coupled by greed across the globe. This desire to follow the West is hurting China considerably.

In short, China is as ignorant and deniers of reality as we are.

If you doubt that just think again about the massive global economic decay that we are still in and will be for some time. Trillions of dollars disappeared in this mess to date, and we are still unaware how many.

With all the complexity mentioned above, and much that we are not aware of, the tendency would be to do little and procrastinate. That is the usual approach that all humanity is taking now. However, to delay tough decisions could be just too late for the Earth ecology to survive.


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