Powering China’s Economy Takes More and More Electricity

China’s electricity consumption is expected to rise 8.5% this year, picking up from last year’s growth rate of 6.6% despite a slowdown in economic growth, the State Grid Energy Research Institute said in a report.

The report released over the weekend attributed the pickup in electricity consumption, a key barometer of economic activity, to factors including Beijing’s strategy to accelerate rural revitalization and revamp the countryside’s power grid.

As a result of China’s “Blue Sky Protection Campaign,” production in high-energy-consuming industries has slowed, but manufacturing is still leading the rapid growth of power usage in the secondary sector, with an estimated growth of 6.1% in 2018, accounting for 57% of the country’s total power consumption, the report said.

China’s economy grew 6.5% year-on-year in the third quarter of 2018, its slowest quarter of growth since 2009. Economists at Beijing’s Renmin University expect growth to reach 6.6% this year and slow to 6.3% next year as the country struggles with the challenges of trade and structural reform.

Economic expansion has historically been the most important contributor to the increase of electricity consumption in the world’s second largest economy, but this year’s trend shows a decoupling between the two measurements, which is due to policy, weather and technical factors, said Tan Xiandong, deputy director of the economy and energy supply and demand research institute at the State Grid Energy Research Institute.

The gap between growth in electricity usage in the secondary sector and the country’s economic growth is the factor most responsible for the decoupling effect, Tan explained.

China’s government is attempting to rebalance the economy to achieve a “new normal” of slower but more sustainable economic growth. The elasticity of electricity demand, defined as the percentage change in electricity consumption to achieve a 1 percent change in national gross domestic product, in the secondary industry reached 1.26 in the first three quarters of 2018, marking the first time ever that the measurement exceeded 1. This means that China has to consume proportionately more electricity to grow its economy.

Tan expects overall power demand growth to decline to about 7% next year, due to a slowdown in global growth and the uncertainty in China’s trade dispute with the U.S.

The U.S. and China agreed over the weekend during the G-20 summit to a ceasefire in their trade war, with Washington postponing plans to increase tariffs on $200 billion in Chinese goods and the two countries agreeing to keep talking.