China Shifts Towards Renewables – 1/22/16

Since 2010, China has been the world’s biggest energy consumer. It has propped up oil and coal for years and investments made by the Chinese government have been a massive boost to renewable energy production in recent years. Now that the country is shifting away from energy intensive industries like steel and towards renewables, the long boom for commodities like oil, coal, and iron ore has ended and no country is set to match China’s old appetite anytime soon. So what will happen to China and trading partners that enabled its runaway growth?

At the World Economic Forum, economic adviser Fang Xing gave some information on the government’s plan. “The transition of China’s economy from investment-led to consumption-led is taking place,” said Mr. Fang. “China will continue the transition path in 2016 and beyond. His remark suggests that the investment boom in traditional industries is not going to repeat itself as the government attempts to grow via consumption and increased service -industry job growth. Some overhauls laid out by Chinese leadership include shuttering steel mills, making it easier for farmers to move into the numerous unsold homes in cities, opening to foreign and private investment, and writing off bad debt. Mr. Fang also said “China will not allow the economy to slow down too sharply” and will keep policies to place to prevent such a decline. The transition will be difficult for China given the tens of millions of jobs that depend on overcapacity that the government has promised to cut.

Chinese renewable and nuclear energy industries are finding a silver-lining in the downturn as the nation shifts away from coal-fired heavy industry. Rising levels of air and water pollution have also prompted a movement to decarbonize the economy through diversification of sources.With coal imports falling 30% and the services sector accounting for over 50% of economic growth last year, China may already be past peak coal usage. The Chinese government has already planned to close thousands of coal mines and suspend approval of new mines. Meanwhile, China’s clean energy investment has risen 17% to nearly double the $56 billion spent by the US.

In the US, the Obama administration has made moves similar to those made by the Chinese government to reduce coal consumption and boost renewables. The deep cuts to coal usage projected by the world’s largest consumer nations will be the bane of the coal industry for the next few years.

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