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China’s Readiness to Put Businesses Back on Track

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Originated in the Chinese Hubei province’s capital Wuhan, Coronavirus – or as scientists dubbed it Covid-19 – rapidly spilled out of China’s borders. At the moment, the virus has hit no less than 170 countries around the world. Governments have increasingly adopted restrictive measures, and some were forced to put their population into lockdown in a bid to contain the diffusion.

The global economy has shrunk quite massively, and financial markets have been suffering major turmoils since mid-January. However, in China, authorities believe the economy shall rump up promptly once the spread is contained and restrictions are lifted. To get businesses back on track, the restoration of sound energy demand is a key condition. How China is going to tackle the slowdown is likely to affect longer-term initiatives concerning energy transition and the achievement of its Paris-inspired emissions curtailment targets.

In 2019, according to CarbonBrief analysis, China’s CO2 emissions increased some 1.7-2 percent as a result of the rising coal demand (0.7 percent), oil (6.8 percent) and natural gas (8.6 percent) (CarbonBrief, 2020). Ahead of the outbreak of Covid-19, China was looking confident about the achievement of a widely expected economic growth that would double 2010’s GDP.
Moreover, in the last quarter of 2019, both manufacturing and industrial production had expanded and the “Phase One” deal signed with the US was indeed boosting investments in fixed assets. Nevertheless, it is astonishing how the outlook for China has changed in two months. On January 23, the Central People’s Government announced lockdowns had been imposed over Wuhan and other cities in the Hubei province. The decision came alongside celebrations for the Lunar New Year that had already witnessed millions of people traveling across the country on vacation.

As a consequence, the Chinese economy remained almost standstill for at least 3 to 4 weeks, thus taking a significant toll on energy demand (Meidan, 2020b). The tightening of travel restrictions has further exacerbated the slump in energy consumption. The Civil Aviation Administration of China reported losses of $3 billion in February, due to an 84 percent reduction in total passengers and a 21 percent drop in cargo volumes (China NBS, 2020).

Chinese carmakers – the bulk of which is within the virus-incubator Hubei province – also underwent massive cuts in sales and output levels, for not less than 60 million people were imposed to stay home. In January-February 2020, exports dropped 17.2 percent while imports let up 4 percent, thus, marking a trade deficit worth $ 7.1 billion (CEIC, 2020). It is only the fifth time since 2000 that China records a trade deficit. 

Cargos have been reportedly deferred in order, not to overload ports. In particular, as Chinese oil buyers who, prior to the outbreak, had been stocking up crude products as they usually do ahead of New Year holidays, were forced to cancel shipments either by refusing cargos or declaring force majeure. A report from the OIES suggests China’s oil demand hit a 1 million bbl/day loss in February which may result in a Q1 2020 oil demand decreased by at least 500 000 bbl/day compared to Q1 2019 (Meidan, 2020b).

Even though official data has not been released yet, it is likely to expect the most affected sectors will be the automotive, tourism and travels as well as the pharmaceutical one. The temporary blow to industrial activities also caused coal consumption at power plants and oil refineries to drop 30-35 percent, China’s National Bureau of Statistics reports. From January to February, the growth rate of coal output declined 6.3 percent year on year. Losses were partially made up of coal imports which on the contrary increased by 33.1 percent compared to the same period in 2019. 

The decline in energy consumption along with restrictive measures and travel bans had the flip-side effect of giving cleaner air back to Chinese people for an unusually long time. The relief was particularly evident in pollution-choked megacities whose NO2 and PM 2.5 indexes both fell between 30-50 percent up to March 1 (Hook L., Shepherd C, 2020). From an environmentalist point of view, the outbreak may have happened just on time. Satellite images gathered from NASA and ESA satellites showed the Chinese sky has been getting brighter and brighter as the reduction of people’s movements took in. Reportedly, China has cut the equivalent of the UK’s carbon emissions over six months, or some 200 million tonnes of CO2 (25 percent lower than the same period in 2019). However, analysts caution that the dip in pollution is likely temporary as a vigorous economic policy response is already set out.

Before the outbreak, China was gradually diversifying away from coal (11 percent lower from 2012 to 2017). Whereas natural gas is seen as the transitional fuel for electricity generation and heating purposes (demand has grown 16-17 percent for two consecutive years), China is also trying to “green” its energy mix by adding up to wind and solar total installed capacities. Moreover, it has been expanding its nuclear power and hydropower generation (both increased 15 and 5 percent respectively from 2012-2017) (BP, 2017 and Meidan, 2020b). In China’s latest Five-Years Plan (13th FYP 2016-2020), the government highlighted the key objectives of its Renewable Energy Development. 

Most interestingly:

– Increase the share of non-fossil energy in total primary energy consumption to 15% by 2020 and 20% by 2030

– Increase installed renewable capacity to 680 GW by 2020

– Increase installed wind capacity to 210 GW

– Lead renewable energy technological innovation. (National Development and Reform Commission NDRC, 2016)

Furthermore, throughout the last decade, China has implemented several environmental regulations to curb air pollutants as, according to a 2017 official report, 75 percent of its cities were failing to meet national air-quality standards (Haitao Y et al., 2019). As these measures are regionally structured, the primary goal is that of reducing harmful emissions in key economic areas. However, the lack of transparency and the prioritization of economic growth over-regulation enforcement by local governments have mostly undone these ambitions. 

Source: Financial Times

Analysts, or at least those who cheered for the decline in emission indexes and brighter sky, now fear that as production resumes, Chinese authorities may halt progress towards climate mitigation. Particularly, by relaxing emission curbs, and turning a blind eye to high carbon-intense activities in order to boost national recovery (Bloomberg, 2020). Such measures would likely cast uncertainties around China’s fulfillment of climate commitments just ahead of the long-awaited 14th Five-Year Plan.

In its latest bulletin, the National Bureau of Statistics assures “the resumption of work and production will accelerate” as well as that the disruptive short-term effects of the outbreak of Covid-19 will be manageable. Accordingly, the China Electricity Council forecasts that energy consumption will increase 4-5 percent and that non-fossil energy installed capacity will nonetheless match the 13th FYP target. Meanwhile, several industries in the hard-hit Hubei province have resumed production as for the first time in four months no new cases have been registered.

Just as it happened in the aftermath of the 2002-2003 SARS outbreak, China is likely to adopt expansive measures to get businesses back on track as quickly as possible. However, due to mounting pressures both internally and externally, the Central People’s Government may opt for a more relaxed approach so as not to thwart achievements and prevent emission cuts from becoming as rare as comets. 

The author of this article is Guglielmo Zangoni. Born in Italy, he holds a BA in International and Diplomatic Sciences from the University of Trieste and an MSc in Strategic Studies and Energy Security from the University of Aberdeen. His research interests encompass energy-related matters and geopolitics. In 2019, he created the blog Plugged-In.

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