China Economy and Environment

Economy

The Third Plenum of the CPC, held in November 2013, set the general lines of economic policy under the Xi-Li administration. The problems addressed are largely related to the need to entrust the market with a decisive role in the allocation of resources. While State Owned Enterprises (SOE) are guaranteed a ‘dominant’ position in the socialist market economy in the final communiqué, new rules have also been announced to encourage competition less constrained by central aid. Resistance within the party on the part of those who hold economic rents, however, has slowed down the SOE reform, which is cyclically announced, without yet achieving substantial results.

According to ANIMALERTS, the global crisis was also partially felt by China, whose GDP in 2008-09 fell by 5 percentage points compared to 2007. At the end of 2014 there was a growth rate of only 7.3% and for 2015 growth is expected to be around 6.8%, while the party’s goal is to keep it above 7%.

The purpose of creating a free land market, which would revolutionize the current state-required household registration structure, would not only encourage urbanization, but would change the volume of local government revenues, which currently manage the buying and selling of agricultural land. Local officials have been harshly criticized in China for the way they have allocated funds from the economic boom. Analysis of the debt-to-income ratio reveals that the highest indebtedness is in the SOEs and unlisted ones. The final report of the Plenum indicates financial leverage, the fight against corruption and the improvement of control bodies among the most urgent objectives. The announced reforms are aimed at transforming the core of the development model from an economy model guided by investments and exports to one based on internal consumption. Exports, the nerve center of the Chinese economy, declining due to the international crisis, began to grow again in 2012 (+ 34.6%). Chinese financial policy has specific characteristics given that most of its foreign reserves (45%, according to estimates) have been invested in US debt (1.6 trillion). It is the result of a policy of devaluing the renminbi on the foreign exchange market through the purchase of dollars, then converted into US government bonds, the main destination country for Chinese goods in 2014. Until 2012, the European Union was the most important reference for exports: the bond had grown in parallel with the exploit of the Asian economy. It is actually a limited phenomenon: only 2.6% ofFdi (direct investments abroad) in Europe come from the PRC. A sensitive element concerns China’s foreign investments in Southeast Asia. In particular, these investments prove to be a form of competition with the directives of the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership. However, broader bets are not underestimated, albeit in defined contexts: this is the case of the Chinese role in BRIC and in the development of the ‘Silk Road of the twenty-first century’.

Energy and environment

With the economic growth there has been a parallel increase in the demand for energy which, according to 2013 data, is supplied for 68% by coal and 16% by oil. China is the largest coal producer in the world (49.5% of the total in 2013) and is also the first country for carbon dioxide emissions. The government, through the XII Five-Year Plan (2011-15), has allocated approximately 330 billion dollars to investments aimed at energy optimization and has set the general objective of producing 30% of electricity with non-fossil sources and reducing, per unit of GDP, energy consumption by 16% and carbon dioxide emissions by 17%. This policy is also destined to continue in the medium and long term, so much so that it will be reconfirmed in the 13th Five-Year Plan (2016-2020). The International Energy Agency (IEA) estimates that in 2035 the PRC ‘s energy demand will be about 70% higher than that of the United States.

Overall, the country produces less energy than it consumes, a factor that could affect its relations with exporting countries. The production methods do not seem destined to change in the short term: the Economist Intelligence Unit expects an increase in coal consumption by 35% for 2020. Oil production, despite having been growing steadily since the 1980s, is unable to satisfy domestic consumption which, since 2008, has registered the highest growth rates in recent decades. According to the forecasts of the IEA, the People’s Republic is destined to become the largest world importer, net of local extraction.

Although the importance of gas is still relatively limited, the relationship between demand and production changed between 2006 and 2007 in favor of the former. This forced Beijing to increase the capacity of its regasifiers and to import gas, mainly from Kazakhstan and Turkmenistan through the Central Asia-China Gas Pipeline, completed in 2009, which passes through Xinjiang. In addition, important projects have been launched for the construction of gas pipelines from Russia which should start operating in 2018.

China Economy and Environment

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