21 July 2010

China's Energy and GDP Data

Last week China announced a surprising revision to its official data with the effect of making the achievement of its aggressive energy intensity targets within reach. According to the FT:

It’s amazing what a bit of creative accounting can do. As recently as last week, China looked set to miss its energy intensity targets for the end of this year by a wide mark.

But now, after revisions from the National Bureau of Statistics, the country is within reach of its targeted 20% reduction in energy intensity from 2005 levels. Beijing has long called for energy intensity—a measure of power consumption per unit of GDP—to be a global benchmark for environmental regulation.

Before the revisions China had only lowered energy intensity by around 12% from 2005 levels. The new numbers, posted online on Thursday, show increased efficiency gains in every year from 2006 to 2009, lowering current energy intensity to around 16% of 2005 levels. These figures were calculated “according to the results of the second economic census,” the statistics bureau said in the online statement.

The news will be welcome relief to China’s leaders, who have called for officials to use an “iron hand” to reach environmental targets. This year has been especially problematic, with energy intensity going up in the first quarter instead of down.

“The debate is whether they are going to fudge the numbers to meet the marker by the end of this year,” a Western diplomat told the Financial Times last month, before the revisions.

China also has taken issue with claims this week that its energy usage has surpassed that of the United States:

China on Tuesday dismissed claims that it was the world’s largest energy consumer, calling the latest estimates from the International Energy Agency “not very credible”.

The energy watchdog disclosed on Monday that China had overtaken the US in energy consumption, according to preliminary estimates. The news – and China’s quick reaction – underlines the sensitivities that surround China’s thirst for energy, particularly as the government struggles to meet ambitious efficiency targets by the year’s end.

Zhou Xian, head of the general office of the Nat­­ional Energy Administration, dismissed the numbers. “When the IEA came to China to publish its energy outlook a couple of days ago, they also overestimated China’s energy consumption and carbon dioxide emissions,” he said. “We think that is because of a lack of knowledge about China, especially about China’s latest developments of energy conservation and renewable energy.”

If a policy goal is expressed in terms of a reduction in the ratio of energy consumption to GDP, then there will be incentives to show growth in energy consumption as low as possible and growth in GDP as high as possible. Such incentives don't make China's data automatically wrong, but they should be examined from an independent perspective. So far at least, independent data suggests a different interpretation of energy intensity decline than China is suggesting.