China’s Power Lines Are Running Red-Hot Even as GDP Growth Sinks

23-Jan-2019 Intellasia | Bloomberg | 6:00 AM Print This Post

China’s power plants are thrumming but its economy is sputtering. So what gives?

The nation boosted electricity generation by 6.8 percent to a best-ever 6.79 trillion kilowatt-hours in 2018, setting records in every sector from thermal to nuclear to solar, and lifting growth by the most in a year since 2013. December’s expansion was the highest in four months. Gross domestic product, meanwhile, rose by just 6.6 percent last year, the slowest pace since 1990.

Electricity generation was once seen as a key indicator of China’s overall economic health, with Premier Li Keqiang famously telling a US diplomat that power demand, along with rail freight and bank loans, painted a truer picture than China’s GDP. That connection between power and the economy is weakening, though, according to Wood Mackenzie Ltd

China is becoming more reliant on services, which need less power than industry, said Frank Yu, a Beijing-based analyst for the research firm. The government’s anti-pollution curbs on coal-burning are further skewing usage by forcing some homes and factories to replace furnaces with electricity.

So, even though some industrial sectors posted record production in 2018, the impact is less than it was.

“When industry outperforms (as in 2018), it is highly effective in pulling up electricity consumption but contributes less to GDP growth due to its shrinking share in the GDP mix,” Yu said by email. “When industrial production falls short of expectations, electricity demand will take the hit but GDP growth will remain less affected.”


Category: China

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