China Economic Update: July 2017

Old King Coal – coal still a big part of China’s energy mix but its role is on the wane

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Overview:

  • In early 2016, Chinese authorities introduced restrictions on domestic coal mining designed to improve the profitability of the sector, which has been plagued by high debt levels and falling demand. Coal consumption has fallen in recent years, however the fuel still makes up a sizeable share of China’s energy mix, and will continue to do so for the foreseeable future. While changes to the energy mix will likely be slow, they could have a major impact on global commodity markets.
  • China’s energy consumption has continued to increase in recent years, however the patterns around Chinese energy consumption are changing. In 2016, China’s primary energy consumption rose by 1.6% –well below the typical rates seen since the turn of the century. With the gradual evolution of China’s growth model – away from energy intensive heavy industry toward much less intensive services – growth in energy consumption is likely to be more moderate in the future.
  • Coal remains the dominant fuel in China’s energy mix, accounting for around 62% of the country’s primary energy consumption (a share that has declined noticeably over the past decade). The decline in China’s coal consumption in part reflects efforts to address the air pollution crisis which gripped the northeast region in late 2013 – while at the same time there has been increasing penetration of other technologies in the energy sector, particularly renewables.
  • The decline of both Chinese domestic consumption and production could have a significant and uncertain impact on global coal markets – depending on which falls faster. In the past fifteen years, China has gone from being a major coal exporter to a major importer – fundamentally altering global markets. While imports accounted for just 7% of Chinese coal consumption in 2016, they accounted for almost 19% of global trade – highlighting China’s outsized impact on markets.

For further details, please see the attached document.