How China’s Downturn Could Save the World
Strains in the country’s CO2-intensive growth model may be an issue for its economy, but good for the planet.
Less pollution?
Photographer: Qilai Shen/BloombergThe story of emissions over the past two decades has been written in Chinese.
Since it joined the World Trade Organization in 2001 and became the world’s factory, China has contributed nearly two-thirds of the growth in carbon pollution globally. Even in per-capita terms, it’s now a bigger greenhouse emitter than the European Union. The world’s carbon footprint is split into three roughly equal portions: China, all developed nations, and the rest of the world.
The Elephant in the Room
Nearly two-thirds of the rise in CO2 emissions since 2000 has been in China
Source: Energy Institute
Note: Shows change in annual CO2-equivalent emissions relative to 2000.
That makes the recent signs of strain in the country’s CO2-intensive growth model an issue not just for Beijing, but for the long-term fate of the planet.
If things head in a similar direction to the former communist states of Eastern Europe when their similar economic model came off the rails in 1989, we may be about to see the most dramatic reduction in emissions the world has ever seen. That might be a disaster for China’s leadership, as well as for a population who would likely suffer through a lost decade as the economy reorients toward more productive activities. For China’s long-term prosperity and the fate of the planet, however, it would be an unexpected victory.
Giving up Smoking
The 10-year growth rate of carbon emissions was slower in the decade after the fall of communism than in the decade after the first oil crisis
Source: Energy Institute
Note: Shows compounded annual growth rate of carbon emissions in the 10-year period prior to the named date.
Few people were closely considering the climate implications when the Berlin Wall fell in 1989. But the change was extraordinarily dramatic: In Russia, CO2 output dropped by more than a third over the subsequent decade, and by half in Ukraine and Romania. The 10-year growth rate of global emissions slowed more in the 1990s than it did after the 1973 oil crisis.
Through ambitious green policies, the EU managed to cut its greenhouse footprint about 28% between 1990 and 2022. With barely a shred of climate intent, economic crisis has left the oil-stained former Soviet Union about 20% below 1990’s levels.
How was this achieved? The best explanation was outlined in the early 1980s by Hungarian economist János Kornai, who presciently argued that Eastern Europe’s command economies had become bloated under a system of so-called “soft budget constraints.” Investment was being directed not to profitable enterprises that would improve long-term prosperity, but to whatever projects would do most to juice the headline rate of growth. Once the financial bubble burst, swathes of the economy turned out to be junk calories.
End of the Line
The fall of communism in Eastern Europe prompted a collapse in emissions
Source: Energy Institute
Note: Rebased. Peak year = 100. Peak year for China is 2023. For other countries, peak year is 1989. Shows only CO2 emissions from energy.
That’s a remarkably apt analogy. Peking University finance professor Michael Pettis, one of the more notable bearish voices on the Chinese economy, is a follower of Kornai, who has argued his theories are a good explanation of the direction the country has taken over the past 15 years.
Energy consumption in China is inextricably linked to gross domestic product in a way Kornai would recognize. Former Premier Li Keqiang once argued electricity demand and rail loadings (which are mostly coal) were a better guide to gross domestic product than the official numbers. During the first phase of the Covid-19 pandemic in 2020, Caixin reported that local governments were ordering businesses to keep equipment running in deserted offices to maximize power consumption and minimize the perceived downturn in output.
What would China look like if it spurned the junk calories of energy-intensive growth? The government has been trying to make that switch for a decade. In the early years of Xi Jinping’s presidency, there was much official talk of a switch from investment to consumption as the driver of growth. More recently, the government has pledged to crack down on so-called “dual-high industries” — high in both energy usage, and carbon intensity, such as cement, steel and glass — which account for about half of the country’s greenhouse pollution.
Fuel for You
The Xi era has made progress on carbon intensity, but less on energy intensity
Source: World Bank, Energy Institute, Bloomberg Opinion calculations
Note: For Xi, compares 2022 figures for primary energy use divided by GDP, and CO2 emissions divided by primary energy use, with those from 2012. The same calculation is done with previous presidents.
Neither policy has shown many signs of success. Indeed, while the carbon-intensity of Chinese energy consumption has fallen dramatically under Xi’s leadership thanks to rising renewables usage, the energy-intensity of economic growth has stalled relative to his predecessors Hu Jintao and Jiang Zemin.
That’s likely because the government has become so dependent on energy-intensive heavy industries such as infrastructure and real estate as the only available tool to hit its economic targets. It’s a counterproductive ambition, though: Were China able to generate as many dollars from each megajoule of energy as developed countries, its GDP would be twice as large.
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