After a 15-year drop in its fossil fuel consumption, China is seeing signs of returning to an economy that favors fossil fuels. To help the economy recover from the COVID-19 hit, China is promoting more infrastructure, including roads, railways and airports. From January to July 2020, over 70% of local government funds were directed to transport and urban and rural development projects. Heavily reliant on steel and heavy commodities, these industries demand more energy, particularly from fossil fuels. Ever since the National Energy Administration (NEA) lifted its restrictions for local governments to add new coal capacity in 2017, local governments have approved more coal power projects. In the first half of 2020, about 19.7 gigawatts (GW) of capacity was approved, the highest level in recent years.

China’s energy needs currently still rely on imports significantly, which represent over 70% of its crude oil consumption and 43% of its natural gas. To ensure that secure power supply is available to fuel China’s current economic growth plans, China’s abundant coal reserves once again emerge as a reliable and cost effective choice.

Whether the recent trends constitute a short-term adjustment or a more permanent signal may only be answered by China’s 14th five-year plan in March 2021. Massive public transport projects such as high-speed trains and subways will likely substitute cars and airplanes and reduce oil consumption. 5G communications also facilitate remote working and reduce the need to travel. New energy vehicles are also likely to become more popular for personal travels. While this will boost demand for electricity, a rising share of renewables in power generation might result in less fossil fuel consumption.

Source: S&P Global Platts Analytics and S&P Global Ratings, Economic Research: China’s Energy Transition Stalls Post-COVID (https://www.spglobal.com/ratings/en/research/articles/200922-economic-research-china-s-energy-transition-stalls-post-covid-11651271)