China's Energy Strategy: Economic Structure, Technological Choices, and Energy Consumption (review)

i88 China Review International: Vol. 5, No. 1, Spring 1998 Xiannuan Lin. China's Energy Strategy: Economic Structure, Technological Choices, and Energy Consumption. Westport, Connecticut: Praeger Publishers , 1996. xvii, 203 pp. Hardcover $65.00, isbn 0-275-95306-8. This book offers important insights into a fascinating feature of China's economic growth during the reform era—the declining energy intensity of the Chinese economy. The book crisply proceeds through summarizing the issue, propounding an input-output model of energy consumption, explaining the results produced by the model, and pursuing the model's insights in a case study of the iron and steel industry. As they grow, developing economies usually exhibit increasing energy intensity (the ratio of commercial energy consumption to GDP), a trend followed by China for thirty years after the founding of the People's Republic. The uniformity of this trend across China and other developing countries led outside observers reasonably to expect that growing energy and electric power shortages in China in the late 1970s would constrain economic growth. For example, the CIA (1980) predicted that electric power shortages would restrict China's economic growth to 3 percent per year in the first half of the 1980s.1 The Chinese economy dramatically disproved these predictions. From 1981 to 1987, the time period studied in this book, the Chinese economy grew about 10 percent per year. As the book stresses, this growth was not fueled by an equal growth of commercial energy consumption. Instead, the energy intensity of the Chinese economy "decreased by almost 22 percent" between 1981 and 1987 (p. 3). This unexpected decline has been the topic of much speculation and recent research . In the 1980s, the decline was often attributed to the shift in emphasis from heavy industry to light industry. In the 1990s various researchers have more carefully examined the available data to develop a more sophisticated understanding of this remarkable decline. This study adds to the research by decomposing the change in energy consumption, using China's 1981 and 1987 input-output tables. Input-output analysis provides a wealth of information about the interconnections between an economy's production and consumption sectors. As this book shows, much can be learned about energy consumption from looking at the changes in production technology and in the structure of final demand. Chapter 1 introduces the issue of falling energy intensity in the Chinese economy, explaining why this phenomenon warrants attention. Then it succinctly© 1998 by University states the research goals of the study and emphasizes their importance. This chapofHawai 'i Presster serves as a most accessible introduction to the topic for nonspecialists. Chapter 2, using tables and charts, describes energy consumption in China for 1981 and 1987 by production and consumption sector and by energy source. This gives the Reviews 189 reader a working knowledge ofthe data that the autiior's model explores in greater depth. Chapter 3, which presents the basic model of the book, may prove mildly frustrating to those readers who carefully try to follow the matrix algebra of the model.2 All readers can trust in the actual implementation ofthe model and should quickly grasp the basic technique: calculate the energy required to produce 1987 final demand using 1981 technology; then compare this to actual energy use in 1987. Using the 1981 and 1987 input-output tables, the key equation ofthe model (equation 8 on p. 49) shows that die change in energy use in China between 1981 and 1987 can be decomposed into a "final-demand shift" and a "production -technology change." The final-demand shift equals the extra energy required to produce 1987 intermediate output using 1981 technologyplus the increase from 1981 to 1987 in energy directiy used by final consumers. The production -technology change is the difference between intermediate energy used to produce 1981 final demand using 1987 technology and actual intermediate energy used to produce 1981 final demand using 1981 technology. The model elaborates on this basic idea, further decomposing the final demand shift and the production technology change by final demand sectors and by production sectors. Table 3.4 on page 54 concisely summarizes the elements ofthe model. Chapters 4 and 5 detail the findings yielded by...