Coal Power Overcapacity and the Investment Bubble in China Report Briefing
1. Background In recent years, new norms have been established in both economic development and the power industry in China. In terms of economic development, an overall look at changes in national GDP over the 12 th Five Year Plan clearly show that while there were cyclical increases in GDP in the latter quarters of 2012, Q3 of 2013 and early 2014, there was an obvious general slowdown in GDP growth. Growth rates of more than 10% that China maintained for over 30 years ended during the 12th Five Year Plan and continued to gradually fall to just under 7% in Q3 2015. This new economic norm is not random. Objective factors include a general transition from super-high economic growth to mid/high economic growth rates. But a more direct factor may be the continued optimization of industrial structures spurred by a sustained transition in China’s internal demand structure during the 12th Five Year Plan. This is mainly due to continued increase in quantity of GDP contributed by the tertiary sector. Data from Q3 2015 show that tertiary sectors contributed 51.4% of domestic GDP, 10.8 percentage points higher than secondary sectors. [1-7] One of the factors behind the continued optimization of industrial structures is the sustained depressed growth in power intensive industries, which is the main reason for the new norm in China’s power industry. This is the last year of the 12 th Five Year Plan and based on figures on overall power use for the first three quarters of 2015 released by the National Energy Administration, quarter-on-quarter growth was only 0.8%, nearly 15 times lower than the 12% growth observed at the beginning of the 12th Five Year Plan. [8, 9] In terms of industry contributes to GDP, increases in power consumption by tertiary industries in the first three quarters of 2015 reached 7.3%, while secondary industries, which make up 70% of all power use, saw negative growth of 1%. This is proof that the decrease in power demand is a result of the slowdown in secondary industry growth. [9] Industry insiders point out that overall power usage will for the most part continue to follow a downward trend in response to this new norm in economic development.