Transitioning Urbanization, Energy, and Economic Growth in China

By Lei Qiang
Manager, Strategic Research Institute,
Shenhua Science and Technology Research Institute
By Ning Chenghao
Deputy Director, Strategic Research Institute,
Shenhua Science and Technology Research Institute

Throughout history, instances of societal paradigm shifts have occurred as widespread urbanization and industrialization have rapidly taken hold. Such transitions have demanded a shift in energy sources, the amount of energy consumed, and the way in which energy is used. Perhaps the most well-known historical example took place in late 18th–early 19th century England as cities grew rapidly and the regional society shifted from one founded on agriculture to one based on industry. Higher density energy sources, primarily coal, displaced biomass and the Industrial Revolution was born.1

In modern times, the most prominent example of a rapid societal shift through urbanization is undoubtedly China—a country that has grown to be an economic powerhouse in only a few short decades. Urbanization, industrialization, and increased energy consumption have underpinned this growth. The increase in industrial production in China has been astounding. According to the United Nations, China’s total industrial production in 2007 was about 62% of that of the U.S. By 2010, however, China had overtaken the U.S. to be the world’s largest industrial producer and by 2012 China’s industrial output was about 126% of that of the U.S.2 From 2007 to 2011, as China’s cities grew, the country’s per capita primary energy consumption rose from 1551 to 2029 kgoe (kg oil equivalent).3 This energy was, and continues to be, largely based on China’s massive indigenous coal resources—67.5% of China’s primary energy came from coal in 2013.4

Since its reform and opening-up, China has urbanized rapidly, reaching an urbanization rate of 53% in 2014.

Since its reform and opening-up, China has urbanized rapidly, reaching an urbanization rate of 53% in 2014.

CHINA’S CURRENT STATE OF URBANIZATION

As China has industrialized, its cities have grown as workers have moved from rural areas to urban centers looking for a chance at improved employment and life prospects. The number of Chinese urbanites recently surpassed those living in rural areas, which is a considerable milestone in a country of 1.35 billion people.

The urbanization rate in China continues to increase (see Figure 1). It grew about fivefold from 10.6% in 1949 to about 53% in 2013. During this time the number of cities also increased from 193 in 1978, the beginning of China’s reform and opening-up, to about 660 in 2012.5,6

FIGURE 1. China’s changing urban and rural populations7

FIGURE 1. China’s changing urban and rural populations7

As shown in Figure 1, much of the increase in China’s urbanization has occurred over the last two decades.7 In the particularly rapid period of growth since 1995, the urban population has nearly doubled.8 Despite a recent slowdown in the country’s economic growth, with 46% of the population still living in rural areas there is reason to believe that urbanization will continue in China.

THE TIE BETWEEN URBANIZATION, INDUSTRIALIZATION, AND ENERGY

Many of China’s new urbanites have found employment in various industries, such as the country’s large manufacturing sector, as a result of which the percentage of employment outside agriculture increased from 47.8% to 68.6% over the last two decades.9 Industrialization, better access to energy, and more income to spend on energy has in turn driven up energy consumption. From 1995 to 2013 a clear correlation can be observed between urbanization and energy use: As the urbanization rate nearly doubled the per capita energy consumption also doubled. According to estimates, the annual average energy consumption of the urban population in China is about three to four times that of the rural population.10 Therefore, as urbanization is an ongoing trend, energy consumption can also be expected to grow.

FIGURE 2. Energy consumption, non-agricultural industries, and industrial added value7

FIGURE 2. Energy consumption, non-agricultural industries, and industrial added value7

While the most rapid growth has occurred recently, urbanization, industrialization, and energy consumption in China have been linked for the last half century (see Figures 1 and 2). In terms of the energy consumed by primary (i.e., agricultural), secondary (i.e., heavy industries, manufacturing, and construction), and tertiary (i.e., service-based) industries, China’s secondary industries consume about 70% of the country’s energy (this statistic includes residential use) and contribute about 50% to the gross domestic product (GDP).11

During the recent phase of rapid urbanization in China (1995–2013), correlation coefficients between the urbanization rate and economic growth, industrialization and economic growth, and energy demand and economic growth were calculated to be 0.92, 0.99, and 0.97, respectively. Urban areas contributed about 70% of the country’s total economic growth—about two times that contributed by rural areas (see Figure 3).12

FIGURE 3. Stimulation of national economic growth by urban centers12

FIGURE 3. Stimulation of national economic growth by urban centers12

The vast majority of China’s wealth is held within cities. From 1995 to 2013, the total fixed asset investment in China grew by a factor of nearly 21 (see Figure 4).9 This was especially true for the proportion of urban fixed asset investment, which approached 98% of the total fixed asset investment.9 The scale of investment grew by a factor of about 26 over this time frame, while GDP grew about tenfold—largely supported by the country’s urban centers (see Figure 5).9

Figure 4. Energy consumption and investment in fixed assets

Figure 4. Energy consumption and investment in fixed assets

Figure 5. GDP and investment in fixed assets

Figure 5. GDP and investment in fixed assets

CHINA’S NEW URBAN REALITY

Although further urbanization and energy consumption are on the horizon, clearly China will not follow its recent growth and energy consumption trajectories indefinitely. Like many other large urban areas, especially those in emerging economies, China’s cities face challenges, including problems with air quality, traffic and congestion, and overcrowding. In fact, a transition has already begun in China. The country now looks to make its industries and cities smarter through increased informatization, while focusing on new forms of industrialization and urbanization that can help address the major challenges faced by its cities.

The term “new industrialization” refers to the widespread use of information to promote and improve high-tech industrialization. It is believed that transitioning to higher tech manufacturing can result in increased economic returns, reduced resource consumption (including improved energy efficiency), minimized environmental degradation, and optimized employment. Similarly, “new urbanization” refers to improving the quality of urbanization by focusing on urban environments that are people-oriented, including better walkability, access to public transportation, and more green space.

There should be considerable opportunity to implement such changes in existing and new cities. While some may believe that urbanization and the associated increase in energy consumption may be leveling off in China, this seems unlikely considering the sheer size of the population that is not yet urbanized. In addition, there are plans in the pipeline to build out urban centers. For example, the Chinese government has recently announced that it is looking to urbanize large areas along the Yangtze River,13 and looks to designate about 317,000 square kilometers for the proposed project. This proposed development is an example of the government’s desire to bring larger urban centers and the associated opportunities to the middle of the country, which to date have mostly been enjoyed by coastal China. This new project could be an ideal opportunity to implement new urbanization and new industrialization.

RECOMMENDATIONS FOR CHINA’S NEXT GENERATION OF URBANIZATION AND ENERGY USE

China has made progress toward a new paradigm of improved urbanization and energy consumption, but much remains to be done. In this new phase of development, the fundamental transition from an economy driven by secondary industries to one driven by tertiary industries will accelerate. As the country moves toward growing the service sector there will be efficiency improvements and changes in China’s energy mix—a mild decoupling of GDP and energy consumption could occur as has been observed in other countries. The energy industry, which is founded on the country’s coal resources, is facing multiple new challenges and must also adapt.

The most important challenge to China’s energy sector is to minimize the environmental impact associated with its growth. Thus, the 12th Five-Year Plan made recommendations to optimize urbanization, industrialization, and sustainable economic growth in China—the 13th Five-Year Plan is expected to include similar recommendations. With the development of new urbanization and new industrialization as well as industrial restructuring and upgrading, the Plans suggest that the conventional, extensive, and inefficient use of fossil fuels should be phased out and replaced with high-efficiency, low-emissions (HELE) technologies.

According to research by Shenhua Science and Technology Research Institute, coal is expected to account for about 55% of the primary energy mix in China in 2035, and thus there are no foreseen fundamental changes expected in the energy mix. Therefore, the country’s investment in upgrading its coal-fired fleet of power plants to improve efficiency and reduce emissions makes sense.

China looks to increase the proportion of alternative energy sources in its coal-dominated energy mix.

China looks to increase the proportion of alternative energy sources in its coal-dominated energy mix.

Other technologies now exist that could also reduce the environmental footprint of coal utilization. In China, and elsewhere, coal is primarily utilized through combustion. However, there is much value in coal conversion strategies, such as gasification and direct coal conversion, which focus on the functional nature of coal as not only a source of fuel but also as a raw material (i.e., making full use of the elemental C and H in coal for heat generation and chemical synthesis).14 Such an approach can expand on China’s production of coal-to-gas, coal-to-oil, coal-based olefins, and coal-based ethylene glycol, while meeting demand for electricity and thermal energy.

In addition to improving coal utilization, the Chinese government has committed to strongly back development of alternative energy and renewables, as was highlighted in the 12th Five-Year Plan and is expected in the 13th Five-Year Plan. For example, there is a concerted effort to actively develop hydropower, nuclear power in a safe and effective manner, and wind energy; accelerate the diversified use of solar; actively develop shale gas and shale oil; advance other forms of alternative energy (e.g., biomass and geothermal); and promote the application of a distributed energy system. In the future, alternative energy and renewables will play a more prominent role in supporting the national economy as well as new industrialization and new urbanization.

TECHNOLOGY OPPORTUNITIES

Industrialization and urbanization are common threads woven throughout historical and modern societal development and are largely dependent on sufficient access to high-density energy. For this reason, and because coal is widely distributed geographically, dramatic increases in coal production and utilization are often associated with major societal transitions, such as the rapid urbanization and industrialization experienced in China.

The described societal shift has helped China to lift hundreds of millions of people out of poverty and provide energy access to nearly all of its people in just a few decades. The country is almost certainly the world’s most successful example of successful poverty alleviation. Coal has been the principal fuel behind this shift. However, China’s coal fleet grew quickly and is not fully equipped with modern emissions control technologies. Thus, the country is working to improve the efficiency and reduce emissions from its vast coal-fired power fleet.

Through supporting the development of energy, especially that from coal-fired power plants, China has fulfilled the growing demand for power during the process of urbanization.

Through supporting the development of energy, especially that from coal-fired power plants, China has fulfilled the growing demand for power during the process of urbanization.

Looking to China’s example, other countries and regions around the world are also urbanizing and industrializing. Many of these countries are also quickly growing their coal-fired power fleets. Today, with a suite of HELE technologies available, there is a real opportunity to ensure that these plants will use the best possible technology options. With greater international support, it is likely that the use of such technologies will increase and thus reduce the environmental impact of coal in countries that desperately need more energy. Therefore, some of the challenges associated with urbanization, industrialization, and increased energy use that have been observed in the past could be avoided in the future.

REFERENCES

  1. Lei, Q., & Ning, C. (2014). On the relationship between energy, urbanization, and industrialization—From the perspective of energy evolution. Development Research, 11, 60–66.
  2. Ross, J. (2013). China’s new industrial revolution. China.org.cn, www.china.org.cn/opinion/2013-08/27/content_29838533.htm
  3. World Bank. (2015). Data: Energy use (kg oil equivalent per capita), data.worldbank.org/indicator/EG.USE.PCAP.KG.OE/countries
  4. BP. (2014). Statistical review 2014 workbook, www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy/statistical-review-downloads.html
  5. World Bank. (2015). Data: Urban population (% of total), data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS
  6. Qiao, X. (2014). The transition process of “human urbanization” and “urbanization of things”: 1978–2011. Regional Economy, 4, 88–99.
  7. Government of the People’s Republic of China. (2014). National Bureau of Statistics of PRC, wind info.
  8. World Bank. (2015). Data: Urban population, data.worldbank.org/indicator/SP.URB.TOTL
  9. Government of the People’s Republic of China. (2014). National data, data.stats.gov.cn/
  10. World Bank. (2008). Urbanization in China on an unprecedented scale, econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:21812803~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html
  11. Government of the People’s Republic of China. (2014). China statistical yearbook—2014, China Statistics Press.
  12. Zheng, X. (2014). The contribution of urbanization to China’s economic growth and its realization. Chinese Rural Economy, 4–15.
  13. Reuters. (2015, 5 April). China to step up urbanization along Yangtze River, www.reuters.com/article/2015/04/05/us-china-yangtze-idUSKBN0MW0FB20150405
  14. Zhang, Y. (2013). Clean coal conversion: Road to clean and efficient utilization of coal resources in China. Cornerstone, 1(3), 4–10, cornerstonemag.net/clean-coal-conversion-road-to-clean-and-efficient-utilization-of-coal-resources-in-china/

 

The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.
E-MAIL ALERTS
Receive e-mail alerts when the new issue comes online!
Click here to opt-in or opt-out.

PRINT SUBSCRIPTION
Receive the new edition in print!
Click here to opt-in or opt-out.

Leave a Reply