China looks to cut on energy intensity of economic growth

It is boosting the efficiency of the power sector.

Whilst power consumption has typically been a strong barometer of economic growth, China is boosting its efforts to reduce the energy intensity of economic growth and shifting towards a more consumer-oriented economy, according to Fitch Solutions. Consequently, power consumption is expected to decouple from economic growth indicators and slow down over the course of the next few years due to increased efficiency in the power sector.

Preliminary figures from the China Electricity Council (CEC) showed that China’s electricity consumption in 2019 grew by 4.5%, of which the contribution rates of the tertiary industry and household consumption were most significant, at 9.5% and 5.7% growth respectively. Consumption growth figures for 2020 are expected to remain largely similar to that of 2019, with only a slight dip.

“Whilst we initially expected power consumption to slow more substantially over the coming years, we have revised these near-term figures given our expectation that China will likely continue with its fiscal stimulus over 2020,” Fitch Solutions wrote. Despite the negative impact of the novel coronavirus (2019-nCoV), real GDP growth will still be supported by fiscal stimulus through 2020.

However, the growth in electricity consumption will not be sustained over the longer term as stimulus is set to wane after 2020/2021. This is a result of the Chinese government looking to rein in the financial risks associated with a loose fiscal policy, of which the banking sector is already beginning to show signs of strain, Fitch Solutions added.