A complementary blending of industrial policies and consumption patterns is crucial for reining in China's explosive growth of energy demand.

According to experts at a recent symposium on China's energy strategy and investment, demand side management should be immediately and immensely strengthened.

The symposium was organized by the Research CentER of the State-owned Assets Supervision and Administration Commission under the State Council to exam energy challenges the country faces.

China's robust economic growth is a key driving force for its energy demand. Encouraged by its own success over the past two decades, the country has attempted to repeat the same development miracle of quadrupling its economy with doubled energy consumption within two decades.

However, China's voracious appetite for energy over the past two years has not only worried the world market but also triggered domestic debates about the country's energy perspective.

It is roughly estimated that according to the current situation, China's annual oil consumption will reach 300 million tons by 2010 and 400 million tons by 2020, noted Zhang Wenkui, an expert with the Development Research Center (DRC) under the State Council.

But the country can only produce about 200 million tons annually, far from enough to quench its thirst for oil.

Another pressing problem is widespread power shortages.

Thanks to the unanticipated acceleration of growth in its industrial sectors over the past two years, the country has fallen victim to inadequate capacity in coping with the soaring demand for electricity.

"In this country the number of household air conditioners increased by almost 10 million annually in recent years, incurring additional capacity demand close to the total generating capacity of the Three Gorges project," said Zhang Yue, CEO of Broad Air Conditioning, a domestic maker of gas-fueled air conditioners. "But we cannot build a new Three Gorges project every year."

While most industry experts and related government officials stress securing energy supplies, few paid enough attention to the demand side management.

In fact, energy-saving does not simply mean reducing consumption. It has more to do with efficient consumption to ensure steady improvement of production and living levels.

Following a recent hike in water prices, on Monday the Beijing Municipal Government issued an open letter to increase the public's water-saving and energy-saving awareness.

Price leverage is surely a useful tool. But a blanket price hike is much less effective than a right mix of industrial and consumption policies featuring incentives for efficient and clean energy consumption.

According to Zhang Yue, electric air conditioning accounts for about half the total capacity during the nation's peak hours of power consumption. But the power air-conditioning consumes is only 5 per cent of the country's total supply. That indicates a potential waste of power generating capacity in non-peak hours.

Diversifying energy resources for air conditioning could be an immediate solution to the current power shortage across the country.

Yet, due to the lack of a power consumption policy that properly prices additional capacity demand, consumers will keep buying cheap electric air conditioners regardless of the extra cost they impose on the already strained power supply system.

Compared to air conditioners, cars are an even greater cause for concern.

It is estimated that more than two thirds of the country's additional oil demand will come from the transportation sector in the coming decades.

Though China's per capita gross domestic demand has just reached US$1,000, the country's energy consumption already ranks second in the world, noted Fred Hu, managing director of Goldman Sachs (Asia) L.L.C. And the nation is poised to become the second largest car market on the planet.

Does China really need that sort of "American dream" life on wheels?

Fred Hu believes some of the country's industrial policies are misleading by turning a blind eye to the environment and the health costs that extensive energy consumption incur.

Rising energy prices will worsen the country's terms of trade and spoil its sustained growth at large if such extensive energy consumption patterns are not fixed promptly.

It is true that including environmental and health factors in industrial and consumption policies could result in a substantial increase in energy prices and threaten the country's current growth momentum.

But the crux of the problem is that without such temporarily painful adjustments, sustainable development will be impossible.

(China Daily August 5, 2004)