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Examining China’s energy conservation from view of embedded flow in trade

LIU YANHONG and GUO CHAOXIAN | 2019-02-14
(Chinese Social Sciences Today)

A border guard in Shenzhen inspects bundles of waste textiles smuggled into China. Photo: XINHUA


 

As the largest developing country in the world, China has made remarkable achievements in energy conservation, emission reduction and the promotion of low-carbon, green and sustainable development. However, with rapid economic growth and deepening internationalization, spillover effects from China’s economic development on its resources and environment have become increasingly evident.


When China overtook the United States as the world’s biggest carbon emitter in 2007, it came under pressure in global climate negotiations, being grilled with such rhetoric as “China threat” and “free rider.” Most of these comments are based on the direct trade volume of energy, raw materials and other commodities, or on the data for China’s domestic production and emissions, overlooking the embedded international flow of resources and environmental factors in a large number of manufactured goods and even services.


In recent years, the study of embedded flow in foreign trade has provided a more objective and accurate evaluation of China’s position in the global allocation of resources and environmental factors. Embedded flow in trade refers to the cross-border flow of resources and environmental factors in trade, including the direct and indirect consumption of natural resources and the total emission of pollutants in the production process or service.
Compared with the direct trade in natural resources, such as of energy and raw materials, the embedded flow in trade reveals the resource consumption and pollution emissions behind traded goods and services, which can more truly reflect the global flow and configuration pattern of resources and environmental factors.

 

Huge energy consumption
Since China’s reform and opening up, especially after its entry to the WTO, China has become the world’s largest manufacturing center by virtue of its price advantage in land, resources and labor, as well as its capacity advantage in processing and manufacturing. China’s exports of manufactured goods have been rising, and their share of the global market has been expanding.
In 1990, the share of China’s manufacturing industry in the world was only 2.7 percent, ranking the ninth in the world. In 2000, it rose to 6.0 percent, ranking fourth in the world. In 2010, it was 19.8 percent, surpassing the United States to become the world’s largest manufacturing country. As a result, China quickly became a major consumer of natural resources such as energy, land and water in a relatively short period of time.


According to a recent study, China’s direct energy consumption reached 95.3 exajoules (1 quintillion joules) in 2010, accounting for nearly 18 percent of the world’s total energy consumption (532EJ), ranking highest in the world.


However, from the perspective of embedded flow, China is a large net exporter of embedded energy, ranking third in the world after Russia and Saudi Arabia. About 27.4 percent of its 95.3EJ total energy consumption is used to serve overseas consumers.


In terms of carbon emission, since China’s entry into the WTO, the rapid growth of exports has led to a substantial increase in the external demand for emissions, from 0.59 billion tons in 2001 to 1.97 billion tons in 2009, a growth of more than three times. From 2001 to 2007, the share of external demand carbon emissions in China’s production-side emissions increased from 20.8 percent to 31.8 percent, meaning that China produced nearly a third of its carbon emissions each year not to serve its own consumers but to serve consumers abroad.


China not only delivers high-quality and cheap manufactured goods to the world, but also bears a huge resource consumption and environmental burden for global consumers.

 

Resource hub
After joining the WTO in 2001, China accelerated its integration into the global industrial division and became the world’s factory in a short time. As the largest manufacturing country in the world, China plays the role of “resource hub” in the global supply chain of resources and environmental factors.


A large number of primary products from other developing countries are re-processed in China and re-exported to other parts of the world in the form of finished products, especially to developed countries with higher consumption levels.


With the global division of labor, intermediate trade has become a necessary link supporting the operation of the global industrial supply chain, and its trade scale far exceeds that of the final goods. The resource and environment factors embedded in the trade of intermediate goods have become an important indicator for monitoring the scale and direction of the embedded flow of global trade.


For example, in 2013, the embedded energy consumption in global trade was 519EJ, among which 85 percent came from intermediate trade, while the embedded energy consumption in final goods only accounted for 15 percent. The former was five times more than the latter. An examination of China’s import and export trade would find that the proportion of intermediate goods was much higher than that of final goods.


According to data from the Eora Database and the UN Food and Agriculture Organization, in 2010 China’s embedded land in net exports, the land used to meet the demand of overseas final consumers, totaled 0.596 million hectares. Its embedded land in net imports, the land used to meet  intermediate demand, totaled 15.81 million hectares. China’s foreign trade is typical of production-oriented import and consumption-oriented export. That is, a large number of imported goods do not serve the country’s final consumption, but are put into production as intermediate goods then exported to serve final consumption abroad.


Based on the embedded energy data in 2013, China ranks third in the world after Japan and the United States as a net importer of intermediate goods. In the trade of final goods, China is the world’s largest net exporter of embedded energy, in contrast to the United States, who is the largest net importer. Hence, China, as the global processing and manufacturing base and the resource hub, plays a unique role in the optimal allocation of global resources.

 

Climate governance
As a major developing country, China has taken action to address climate change, and it has become an important participant, contributor and leader in global climate governance and sustainable development, despite its per capita resource consumption still being significantly lower than the world average.


For example, though the overall size of China’s final energy consumption in 2010 (84.6EJ) ranked second in the world after that of the United States (101EJ), its per capita energy consumption level is only 0.064 terajoules (1 trillion joules), ranking 93rd among 186 countries in the world. Compared with the other two energy consumption giants in the world—the United States (0.33TJ) and Japan (0.28TJ)—China’s energy consumption per capita is only one-fifth and one-quarter of theirs, respectively.


Nevertheless, China has taken the initiative to pursue its emission reduction obligations and fulfill its commitments. According to the 2018 annual report on China’s policies and actions on climate change released by the Ministry of Ecology and Environment, China’s carbon emission intensity in 2017 was about 46 percent lower than that in 2005, achieving the target of a 40-to-45 percent emission reduction by 2020 ahead of schedule.


At the international level, China took the initiative in 2015 to commit 20 billion yuan to set up a South-South climate cooperation fund. Also, starting from 2016, China will carry out 10 low-carbon demonstration projects, 100 climate mitigation and adaptation projects in developing countries, and provide 1,000 training opportunities for developing countries on climate change.
Going forward, China must adhere to the basic state policy of conserving resources and protecting the environment, in order to build a beautiful country, create a good working and living environment for its people, and contribute to global ecological security.

 

Liu Yanhong is an associate professor from the University Of the Chinese Academy of Social Sciences and Guo Chaoxian is a research fellow at the Institute of Industrial Economics at the Chinese Academy of Social Sciences.

(edited by YANG XUE)