PRINT THIS PAGE Energy Outlook for China 200610/05/2006. Source: KPMG.
This KPMG paper assesses the complexities and challenges of meeting the growing energy needs of China in 2006, and paints the background private equity need to be aware of when entering this seemingly insatiable market. China’s appetite for energy is insatiable. With an economy growing at a yearly average of 9 per cent over the past two decades, demand for power has soared. Domestic power consumption climbed by a record 16 per cent in 2004, according to the National Bureau of Statistics (NBS).
The same year, China overtook Japan to become the second largest consumer of energy in the world behind the U.S., accounting for 12.1 per cent of global energy consumption — up from 9 per cent a decade ago.
China’s leadership faces a worrying scenario, where energy consumption continues to outstrip production to the point where power shortages affect the country’s modernisation programme and weaken economic growth.
Key primary industries — steel, aluminium, and chemicals — consume vast quantities of coal and electricity, while China’s burgeoning middle class is devouring electricity (for air conditioners), heating oil and petrol. The country’s steadily growing economy, which reached 9.5 per cent in 2004 and which is forecast to remain above 8 per cent in 2005, according to the China Economic Quarterly, a Beijing-based publication, will remain the principal driver of energy demand, forcing China to expand domestic power production and step up its global hunt to secure mineral resources.
China’s energy shortfall is highlighted in the country’s power generation sector where in 2004, despite raising total installed capacity from just 100 gigawatts (gw) in 1987 to some 425gw by the end of 2004, the country still suffered its most severe power shortages since the beginning of the 1990s. Twenty-seven of China’s 31 administrative regions were forced to turn off electricity supplies or limit their use, according to the Energy Research Institute under the NDRC.
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