CHINA ’ S INCREASING ECONOMY AND THE IMPACTS ON ITS ENERGY STRATEGY

This work enters into the topic of one of the world’s most increasing economy, the economy of China. It will treat the question, how a country, hence a political system which was such closed and had a quite small economical standard and growth rate was able to improve in a tremendous way. This present fact discovers various questions, such like: How is it possible that a closed socialist state can improve its economical increase and international trade in a tremendous way? How is an increase in trade and production combined with energy consumption? How can China secure its energy sources in order to secure its production and energy household? The document starts with the theory of free trade to step into that topic.


INTRODUCTION
China's economic reform policy led to strong economic growth of the country. However, the positive effects of the enormous growth have also resulted in an extreme increase in China's consumption of energy. Certainly, China is an enormous energy producer; however, it needs the whole of its extracted energy for its own requirements. To the fact is that China's rising energy production can hardly keep up with the rising consumption.
Especially in the country's ever increasing oil demand, China consumes more then it extracts. To date, China's energy import dependency already amounts 50% of its total consumed energy, according to some sources, even 60% or higher.
This leads to the thesis that China's rising crude oil demand forces China to enter new import alliances with alternative regions respectively spheres of influence. How far this goes and in what reactions these relations result by industrial countries is described in the present work.
This work describes China's economic reform and analyzes the rising needs of its energy demand. At the core of the work is the examination of China's future strategy to guaranty its required energy reserves.
The theoretical border, therefore, is the so-called Limits of Growth theory (Simmons, 2000). When this theory is applied to China's increasing energy demands two conclusions can be drawn: · First, since crude oil as well as other fossil fuels is not an unlimited raw material, old established economic powers on the global market have already divided the world's supply of oil and fossil fuels amongst themselves. However, economic growth is restricted by resource energy. To secure its future energy resources China must, as a young economic power, follow alternative strategies and come to new arrangements on the global market.
· Second, on account of increasing resource shortages and simultaneous economic growth, an exponential increase of competition of resource access is to be expected. This spiral of ever-increasing competition in the energy market arises on account of the rising demand and diminishing supply. China in this connection is not only the country with the worldwide highest number of inhabitants, but also with the fastest economic growth and the largest increase of energy consumption. China thus strongly affects the world-wide oil market, more specifically the contest around resources and price formation.
This document analyzes China's economic growth on the basis of the classical free trade theory, and describes its energy demand growth, as well as its energy system. It also discusses the energy resources issue in combination with the limits of growth theory and, based on this background, looks at China's international energy security strategy.

THE ENERGY CONSUMPTION IN THE CHINA PROCESS
Energy supplies have had a decisive significance for economical activities.
The ample availability of cost-effective fossil fuels influenced substantial rapid growth of the world economy in the last few decades. The most important source of energy is oil, consisting of one third of total energy consumption, followed by coal and natural gas (Greiner, 2001).
Various factors influenced the energy consumption; one part among others is the international trade. Countries like China (but also India) will be the strongest energy consumers in the future (Bund, 2001).
Due to the fact that China's economy and trade is strongly increasing that point breeds various consequences for China but also for the international energy market, which are substance of the ongoing paper work.
China was formerly a closed market under a communist regime, however it commenced in the late 1970's a liberalization policy (Reisach, 2007). One part of the reform process was political reforms. Those reforms were necessary to realize economical reforms too. The political reform was implemented by small but important reform steps: such like ownership of private poverty, increase of foreign direct investments, freedom of religion, etc. (Fanchen, 2005;Woyke, 2005). Today, China sees itself as a Socialist Market Economy that means a liberal and opens market but a socialist government (Reisach, 2007).
Another main part of the reform process was the economical reforms. The country opened its market step by step and turned its production strategy from quantity to quality. With its new liberal-socialist face, the country achieved dramatic economic growth (Cho, 2005). The reform process had some important steps, such like: · The opening of the borders for foreign investors (Zinzius, 2006) · The straightening of marketeconomy interests in the national economy during the years (Bardosch, 2004) · One of China's main steps in its liberalization policy was the accession to the World Trade Organization in December 2001, which gave, and will still give, China's economy a tremendous boost, but also various future challenges as well as options (Rumbaugh and Blancher, 2004) The results of the market liberalization are an improved market access. Hence, today China is among the most important export destinations (Rumbaugh and Blancher, 2004

CHINA'S ENERGY DEMAND
As a country with strong economic growth, China needs an increasing share of the world's energy-and natural resources. Its consumption of energy mix is split to: 65% coal, 25% oil, 7% hydroelectricity, and 3% gas and nuclear power.
So, China's most important energy is coal which covers nearly two third of its energy demand. This country is the world's largest producer but at the same time also consumer of coal (

THE RESOURCES SUPPLY MATTER
For the strategic planning of a state energy household one question is essential: for how long will natural resources be available? Hence, that topic affects very strongly China's energy strategy.
For this question, in resources supply different aspects exist: · The limits of growth theory, and · Sufficient global resources are available (due to increasing global discoveries) The so called Limits of Growth theory, established by the Club of Rome, says that the exhaustion of our global fossil fuels is the limit of growth of our current economic system and that scenario could happen probably within the next one hundred years, hence an uncontrolled economic decline follows (Simmons, 2000).
The controversial theory, which says that sufficient global resources exist due to alleged increase of oil discoveries, concludes that there is no risk of probably future energy shortages (United States Geological Survey, 2000). Generally on basis of international statistics can be said that new oil discoveries are still made but the amount of new findings is decreasing (Leggett, 2005). An interesting fact is that reserve statistics are increasing anyway. Critics mention in that connection that the rise of reserves is only published by oil exporting countries to boost the export quota but actually if one would add the new discoveries to the old reserves then the total amount on reserves might show decreasing numbers (Leggett, 2005).
Other calculations, however, come to other results: if one takes the world scale of new discoveries, where the peak was reached in 1964, include all following findings and distinguish the consumption respectively anticipate future consumption, one calculates with a global production peak between 2010 and 2020 (Manning, 2000).
This scenario is a preview of the Limits of Growth theory, with all its consequences. For explanation: a world scale of production peak means that one half of the available oil has been consumed. The result of that prognosis is that the production of natural resources would decline and prices would rise (Manning, 2000).

GENERAL MEASURES TO REACH ENERGY SECURITY
Generally can be stated that for energy importing countries two factors are essential in that connection: · The energy security which means sufficient energy supply, and, · Price efficiency which means low energy costs by liberalization of the domestic market (Greiner, 2001).
Various measures are possible to reach energy security, China applies all of them: · Maximization of production: China's oil production is already at its peak (Pöllath, 2007) · Stockpiling of oil, what helps to prevent price fluctuations or supply bottlenecks (AFP, 2005) · Erection of oil-multinational companies to reach market power (Pöllath, 2007) · Restriction of consumption (International Energy Agency IEA, 2007a) · The establishing of alternative energy sources (International Energy Agency IEA, 2007a) · An improvement of the infrastructure (Xu, 2002) · Diversification of international suppliers, that point is China's main tactic. (Hurst, 2007) In that connection China tries to secure access to oil in adequate amounts through the widespread diversification of its oil supplying countries and thereby ensuring future economic growth. China's international energy policy is only possible in combination with a likeminded foreign policy. Therefore, one of China's core political positions is sovereignty of each state as a peaceful international body. That makes China an attractive partner for countries which are economically dependent or suppressed by western industrial states or international institutions like for example the World Bank or the IMF (Pöllath, 2007 Since 2000 the relationship with the USA steadily improved. However, all differences have not been removed and mistrust still exists. One of the US's main problems with China is China's growing resource demands and alliances with geopolitical consequences (Riemer, 2005).
Nevertheless, China has still clear interest in good relations with the USA but at the same time also with the Middle East (Yufeng; in Eisenman, 2007). But also China's interests in oil producing countries of Latin America causes conflicting interests with the USA, which is for example the main customer of Venezuela's oil.
Another global strongly economically increasing country is India. China and India had similar development strategies. India has been moving step by step with China in its pursuit of oil. In the current situation, China and India are the two countries developing the greatest thirst for oil. That makes both countries equally dependent on oil from abroad. Both countries realized that the best way to tap into equity oil is to focus on the oilfields of relatively crisis-ridden countries (Hurst, 2007;Riemer, 2005).
China is also investing in Canadian oil production. Since 1998 Canada has been the largest foreign supplier of oil to the US. The fact that China also stepped into that market causes displeasure of the US (Hurst, 2007).
China had even rights for various oil fields in Iraq: the US invasion in Iraq hit China hard, especially since the new implemented interim government pronounced contracts from the Saddam Hussein era as invalid; hence China lost its Iraqi developing rights (Kneissl, 2006).

International implications
China's increasing demand for oil is strongly influencing world commodity prices and markets and driving oil prices up to dramatic levels. Since China is the world's second largest energy consumer, its energy policy will have lasting effects on the global energy market (Hurst, 2007;Riemer, 2005).
The actual so called oil age is described as an epic battle for power and resources, which means China has to continue its strategy of acquiring oil contingents on the global market. Even the economic crisis had only small effects on China's oil demand, since China's economy is still increasing and at least its huge population dictates a huge demand (Gu and Mayer, 2007;Wang, 2009).

Possible options for the future
China has a rich potential for alternative fuels and energies, such like solar, wind, and tidal energy, but also modern bio-fuels are a potential option (International Energy Agency IEA, 2006).
China should seek stronger relations amongst international market players which are valuable in delivering efficiency to institutional and large commercial markets and especially useful to improve energy use efficiency. That includes more transparency of its resources policy as well as an international reliable policy (International Energy Agency IEA, 2006; Umbach, 2007).
Even a controlled slowing down of China's economic growth may help if Beijing does not interact in its economic growth in a controlled manner, probably various bottlenecks in the energy supply system, as well as environmental problems will probably force a slow-down in its economic growth in a less-controlled manner (Khan, 2008;Shealy and Dorian, 2007).

DISCUSSION
China, a former closed market under a communist regime, commenced in the late 1970's a total economic liberalization policy. The country opened its market step by step and turned its production strategy from quantity to quality. With its new liberal-socialist face, the county achieved dramatic economic growth. According to this pattern, various former closed economies have liberalized their markets and were also able to reach similar growth rates; however, on account of its growth speed and its world's highest population denseness, China's economic growth rates have sustainable influence on the global economy. One of China's main steps in its liberalization policy was the accession to the World Trade Organization in 2001, which gave, and will still give, China's economy a tremendous boost, but also various future challenges as well as options.
Coupled with China's economic growth, its energy demand and consumption has recorded a significant increase. China has the fastest growing energy demand in the world and is the world's second largest energy consumer, which immediately affects the global price for crude oil. While China is able to cover most energy demands by domestic resources, especially the main part of its most important resource coal, it is not provided with adequate oil resources and became an oil importing country in 2003.
However, due to China's ever increasing economy and it's consequently increasing energy consumption it became a net coal importer in 2007 also. For the Chinese government an everlasting increasing economy and consequently improvement of the populations living conditions is eminent since the satisfaction of the public expectations ensures the continuance of its political legitimacy.
Next to China's main energy resources coal as well as followed by far from crude oil, it uses other resources with a lower importance like hydroelectric, natural gas, nuclear power and other partly renewable power resources also.
Three main points are determining to China's domestic oil demand: · Its economic growth rate · Its transport and automobile policy · The grade of development and implementation of new technologies, such as hybrid technology and fuel cells in the transport sector or coal liquefaction, hydro or wind power etc. The more China is able to implement new technologies, the less natural resources will it be consuming.
The main issue in this context is that China's main energy demand bears on fossil fuels like coal and oil, hence on non-renewable natural resources. It is true that scientists prognoses dif-ferent scenarios concerning the use up of fossil fuels. Though, shortness in oil production respectively a discontinuing of natural fossil resources can be estimated most probably for the near future somewhere in the middle of the present century, therefore the global race for energy resources becomes stronger more and more. In that connection some scientists estimate a global production peak of natural oil resources within the next eleven years; afterwards the production rate is prognosticated to decline whereas the demand would still increase. That situation forces fundamental strategies to secure the availability of needed energy resources, especially for countries like China which has quadrupled its oil imports since the middle of the 1990's.
The traditional aims in energy policy of energy importing countries are energy security in terms of risk reduction of a possible interruption of its energy importations and price efficiency of energy supply. To secure its oil supply China invests in various measures, such as strategic stockpiling of oil reserves to prevent price fluctuations, the erection of oil-multinationals to reach market efficiency and bargaining power, alternative energy sources to decrease the consumption of natural resources, advanced infrastructure to secure cost efficiency, and diversification of international suppliers.
Further energy security measures which are rather not expectable to become stretched out in China are an additional maximization of production since the current production already became enlarged to its maximum and a restriction of consumption A further important aspect in an international point of view is that China's increasing demand for oil strongly influences world commodity oil prices and brings them up to high levels. That is not gladly seen from big established economic powers, all the more since the race for the natural resources is increasing and getting harder continuously. Indeed, caused by the economic crises China suffered a slowing down of its economic growth but its energy demand is still increasing and the economic growth prognosis for the future is well.
For China a sustainable development and implementation of alternative and renewable energies should, and already is, a priority aim for economy as well as for environmental aspects. Though, the current consumption of nonrenewable fossil fuels in China is tremendous and strongly increasing, even though the government follows high long term plans to counteract that trend. To reduce the energy consumption a slower, more controlled and sustainable development of its growing economy may help in terms of more eco-friendly production methods. That measure could get combined with alternative and renewable energies such like solar, wind, tidal energy or bio fuels, even bio gas is a better alternative. Further helpful measures are gaining energy efficiency in buildings, transportation or production sector. Those measures have strong potential because China's energy efficiency was decreasing since the last few years. If China will not be able to get its energy policy under control, the increasing demand may result bottlenecks in the near future and consequently cause unpleasant and uncontrolled cuts in its economy and production.