An energy watchdog yesterday warned power producers that China's possible economic slowdown due to a downturn in the US economy and the nation's industrial restructuring may decrease energy demand.

 

The official from the National Energy Leading Group forecast that China's economic growth would hit "the highest point" of the cycle in the second quarter of this year and slow down thereafter.

 

"Chinese energy companies should keep a close watch on the economic cycle and market demand to maintain stable supply," Zhou Xi'an, from the National Energy Leading Group, told China Daily yesterday. But he assured the companies that there was still a "steady demand" for energy as the economy may grow at over 9 percent this year.

 

"Our understanding is that the US authorities have concluded that the country has already slid into recession because of the subprime crisis," said Zhou.

 

Studies have found that China usually follows the US growth trend with a six-month time lag, Zhou said. "We should be well prepared for the impact of a US recession."

 

Zhou's office has long been involved in a study on the relationship between economic cycle and energy demand.

 

"The second quarter of this year should be a turning point. We have taken the period between 2002 and that quarter as one of an upward trend. From then on, growth will be downward or stable."

 

Zhou said China's economic slowdown during 1996-2001 brought down energy demand. "In some years during that phase, the energy demand decreased and even the pace of energy supply growth dropped below zero. These are the lessons energy companies should keep in mind."

 

Generally, China's energy consumption growth is slower than its economic growth, said Zhou. Last year, the country's coal output was estimated at 2.52 billion tons, up 5 percent from the previous year. But the economy is forecast to have grown at about 11 percent.

 

An official report forecast China's oil demand will grow at an average pace of 4.5 percent in 2006-15, much lower than the planned average growth of around 8 percent.

 

The total oil consumption is projected to reach 515 million tons in 2015 from 346 million tons in 2006. By 2015, the country's oil dependence ratio is to reach 60 percent from the current 48 percent.

 

Zhou said economic slowdown may give China's energy sector a chance to restructure itself. In an earlier report, the National Development and Reform Commission said China will build six to eight large-scale coal enterprises, each with a capacity of 100 million tons, and eight to 10 coal enterprises with a capacity of 50 million tons each.

 

These large enterprises are expected to contribute more than half of China's coal output of 2.6 billion tons in 2010. China produced 2.4 billion tons of coal in 2006 but its 80,000 coal companies produced an average of just 30,000 tons.

 

Lin Yueqin, a researcher with the Chinese Academy of Social Sciences, echoed Zhou's views, saying China's industrial restructuring may also decrease energy demand.

 

Lin said the latest efforts are aimed at updating China's investment guidelines and phasing out resource-intensive industries in line with the nation's development policy.

 

The government is seeking public opinion on the revised 45-page guidelines, which include about 1,000 items. Outdated and small-scale coal mines, and power and iron and steel plants will be prohibited under the new guidelines.

 

(China Daily January 16, 2008)