COVID-19 and the electrification of the Chinese economy
After a two-and-a-half-month delay caused by the COVID-19 pandemic, China opened its ‘Two Sessions’ on 21 May. This year, the meetings were particularly important as they marked a turning point in China from epidemic control to economic recovery, highlighted by the government work report, which outlined the government’s blueprint for the country’s future development. Stability, employment, and resilience were the dominant themes in the work report, following the unprecedented impact of the COVID-19 pandemic and escalating tensions with the United States.
The government’s recovery package is set to focus on ‘new infrastructure’ and ‘new urbanisation’, as Beijing is looking to create new drivers of economic growth and foster indigenous innovation. While these have long been tenets of the government’s economic rebalancing agenda, they have gained additional urgency as fears of a potential technological decoupling with the US rise. There is considerable debate whether this recovery package will be “green” or “brown”, but in any event, it is set to accelerate the electrification of the Chinese economy.
At the same time, energy security is clearly making a comeback. The deteriorating relations with the US have heightened concerns about import dependency while COVID-19 has stressed the domestic infrastructure bottlenecks related to distribution and storage. As a result, the work report discusses “energy security”—a first in this five-year plan (since 2016)—defining it as the need to develop flexible and reliable supply systems for all fuels. And while the report reiterates the government’s commitment to have non-fossil fuels account for the bulk of incremental demand growth going forward, coal remains firmly on the list of power sources.
The ‘Two Sessions’ also mark the start of the drafting process for the next five-year plan. Debates about the future of China’s power sector and the role of coal will be critical in the coming months. Renewable capacity additions are slowing while policymakers are increasingly looking to coal as one of the country’s most reliable energy sources both for supply security as well as growth and employment. There is therefore a growing risk that China’s twin drive for energy and technological self-sufficiency will expedite the electrification of end-uses while also slowing the decarbonisation process.