Why China's energy saving
drive may be wasted By Wu Zhong,
China Editor
HONG KONG - To curb wasteful
energy consumption that has arisen because of the
unfettered pursuit of high-speed growth in gross
domestic product (GDP), China has begun to
introduce energy efficiency as a yardstick to
evaluate the performance of local officials.
However, if Beijing fails to find effective
measures to stop the malpractice of falsifying
economic statistics at the localities, the new
yardstick could well be distorted to serve local
interests.
China's state-run Xinhua News
Agency reported last week that Zhejiang, an economically
booming province on the coast, has decided to add
an energy-efficiency measurement to the system for
evaluating local officials' performance. Eleven
mayors and 58
county
heads in the province have recently been appointed
as top officials in charge of local energy-saving
work.
Zhejiang, like most of the eastern
provinces, is suffering from an energy shortage
due to its galloping economy. The average per
capita GDP in Zhejiang exceeded US$3,400 in 2005,
while 95% of its manufactures relied on imports
from overseas and other regions in China. Zhejiang
Governor Lu Zushan said his province "has set a
goal which requires the energy consumption per
unit of GDP in 2010 to decline by 15% from 2005".
The practice appears to be spreading
beyond Zhejiang. Other provinces or province-level
urban areas such as Jiangsu, Shandong, Hebei, Gansu and Shanghai have also
decided to evaluate officials' performance
according to their promotion of energy
conservation. Thus these regions have started to
implement Beijing's new policy of pursuing
energy-efficient growth. The new policy of
taking energy efficiency into account when
evaluating economic growth was officially launched
in March. During the annual session of the
National People's Congress, Premier Wen Jiabao, in
his Government Work Report to the legislature,
introduced energy efficiency as a new indicator
for economic development.
Wen demanded
that energy consumption on a per-unit-GDP basis
should be cut by 4% this year, while GDP was
targeted to grow by 8%. And by 2010, energy
consumption per unit of GDP must be reduced by 20%
from 2005 - that means an average 4% cut each year
for the next five years.
Over the past two
decades or so, China's fast GDP growth has been at
the expense of wasteful energy consumption.
According to official statistics, energy used to
generate every 10,000 yuan (US$1,250) in GDP in
2004 required the burning of 2.6 tonnes of coal or
its equivalent in other forms of energy. That
figure was 10 times the global average and 20
times that of Japan, which has strongly promoted
energy efficiency for many years. In 2004, China's
revised GDP was 13.65 trillion yuan, implying that
the energy consumed that year was equivalent to
burning 35.5 billion tonnes of coal.
Furthermore, China's 13.65 trillion yuan
GDP in 2004 accounted for 4.4% of the world's
total, but its consumption of crude oil and coal
took up 7.4% and 31%, respectively, of the world's
total. In addition, it appears that as the size of
the economy grows, China tends to be more energy
inefficient. In 2003, growth in energy consumption
was 1.3 times growth in GDP, but in 2004 this
surged to 1.6 times.
When energy
consumption outpaces growth, that means China is
wasting valuable resources, worsening pollution
and incurring more frequent fatal coal-mine
disasters. It also makes China's economy more
vulnerable to fluctuations in international oil
prices. Apparently, Beijing has become
increasingly concerned with the inefficiency
problem as China becomes increasingly rely on
energy imports to sustain its high-speed growth.
For Wen's target to be met, the energy consumption
allowable for generating 10,000 yuan in GDP will
have to be reduced to 2.5 tonnes of coal
equivalent this year, and further down to 2.1
tonnes by 2010.
What is the cause of the
inefficiency problem? Partially at least, it is
Beijing's own policies for evaluating officials'
performance over the past two decades.
After Deng Xiaoping launched the economic
reform and open-door policy in the late 1970s,
economic growth has topped the government agenda.
An official's performance has basically been
judged by whether he or she has boosted the
economy in his or her area of responsibility. And
since economic development has been measured
mainly by GDP growth, GDP growth naturally became
virtually the sole yardstick to measure an
official's merits. Under such a policy, local
officials naturally would focus on boosting those
economic sectors that could contribute to the
fastest growth of GDP. This led to the phenomenon
of "GDP worship", in which growth was blindly
pursued to the inevitable detriment of energy
efficiency and the environment. Furthermore,
falsifying economic statistics, already a major
problem in the pre-reform days, continued to be
rampant because local officials were eager to
prove their capability of boosting the local
economy in the hope of promotion.
Industries that could contribute more to
GDP growth have been boosted while others (perhaps
more in demand) were neglected. This has resulted
in what both President Hu Jintao and Premier Wen
have slammed as "unbalanced development" between
urban and rural areas; between the rich coast and
poor regions in the west and inland areas; and
between certain economic sectors such as property
development, infrastructure construction and
related industries, and other sectors, agriculture
in particular, that have been overlooked.
So in early 2004 when Beijing was about to
impose a belt-tightening policy to cool down those
industries it saw as overheating, Hu and Wen
summoned provincial officials to attend a study
session in the Central Party School. The aim was
to change their mindset so that they could get rid
of "GDP worship" and seek "balanced development".
It surely represents progress now that
Beijing has introduced energy-efficient growth as
the yardstick to evaluate officials' performance.
However, if the rampant malpractice of falsifying
economic statistics at the local level cannot be
stopped, the new yardstick could be easily bent to
serve local officials' interests.
For it
is not hard to understand that, given a fixed
quantity of energy consumed, if the GDP figure is
inflated, the per-unit-GDP energy consumption is
lowered. And there are many tricks local officials
use to inflate the GDP figures. A popular joke
among Chinese officials about how GDP is
"generated" is very revealing in this regard.
The joke goes like this: A rich man and a
poor man are taking a walk together. The rich man
sees a pile of animal dung on the road and wants
to make a fool of the poor man. So he says, "If
you eat that dung, I'll give you a million yuan."
The poor man thinks to himself, "Hell, this will
make me a millionaire right away." So he eats the
dung and feels rich.
They continue to walk
and then the poor man sees another pile of dung on
the road. Trying to tease the rich man, he says,
"If you eat that one, I'll give you back the 1
million yuan." Deeply regretting losing the
million yuan so easily, the rich man decides to
get it back. So he eats the dung.
The two
men looked at each other, both thinking the same
thing: What did we gain by doing this? They could
not answer the question, so they went to see a
local government official. After hearing the
story, the official became very excited, saying:
"You guys just generated 2 million yuan in GDP!"
In fact, duplicate calculations of GDP,
where unprofitable or "makework" activities are
promoted to inflate GDP figures, often do happen.
Sometimes, GDP figures are simply fabricated out
of nothing.
Consequently, Beijing needs to
find effective measures to put to an end to the
falsification of economic statistics if its
good-willed policy of boosting energy efficiency
is to be truly implemented.
One possible
way is to have the National Bureau of Statistics
send teams to do economic statistics for the
regions, removing the statistics function from the
control of local officials. Another measure
Beijing can take is to demand regional governments
increase their contributions to state coffers in
accordance with their GDP growth rates. So if a
regional government inflates its GDP growth figure
it will have to contribute more revenue to the
central government.
But a much more
fundamental solution would be simply to limit
government's influence over economic affairs. As a
market-oriented economy is taking shape, the
government should gradually pull its hands out so
as to let market forces play their role. And in
this way, a local official should be evaluated by
his popularity among the public under his
jurisdiction. But for this mechanism to work, it
will require some sort of political reform to
enable the public, and media, to supervise and
evaluate the performance of officials.
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