November 5, 2014 / 9:02 AM / 5 years ago

Slowing China power growth may reflect structural changes more than sharp economic cooldown

SHANGHAI (Reuters) - Growth in China’s power consumption is expected to halve to between 3.5 percent and 4 percent in 2014, the China Electricity Council forecast, marking the slowest growth in at least a decade.

The marked deceleration comes as economic growth in the world’s second-largest economy has slipped to its lowest level in five years, growing by 7.3 percent in the third quarter, and amid signs that it could be losing even more momentum in the closing months of the year.

But while electricity consumption rates seem to indicate a sharp slowdown in growth, analysts said the real economy was still robust, as government efforts to rebalance the economy in recent years means growth is now less-reliant on energy-guzzling sectors.

“China’s development has entered a ‘new normal’, whereby economic growth is moderating and industries face growing pressure to improve energy efficiency and reduce pollution,” the China Electricity Council (CEC) said in a statement on its website seen on Tuesday.

Beijing’s clampdown on the housing market and efforts to tackle overcapacity have also hurt many other energy-intensive sectors such as steel, aluminium and copper, said Zhou Hao, an economist at ANZ Bank in Shanghai.

The CEC said electricity demand this year would also be hit by weaker consumption in the fourth quarter, as thousands of factories surrounding Beijing have been ordered to shut production during the Asia Pacific Economic Cooperation (APEC) Summit this month to tackle air pollution.

This is the second time the CEC has downgraded its power consumption forecast, following a February estimate of 7 percent growth.

China’s electricity use, a key indicator of industrial activity, rose 7.5 percent in 2013, when its annual economic growth was 7.7 percent. The lowest rate recorded in the last decade was in 2008, when it grew by 5.23 percent.

The steeper slowdown in power use versus the real economy underscores the structural changes the Chinese economy is undergoing, some experts said.

Electricity consumed by the industrial sector accounted for 74 percent of total consumption in 2009 but the ratio has fallen to 70 percent this year, with the tertiary industry now accounting for a higher portion of power use, according to official data from the CEC.

“Such a shift in growth momentum will lead to moderating electricity consumption growth because the services sector and households use far less electricity than industries,” said Dai Daohua a senior economist at Bank Of China.

The services sector made up 46.1 percent of gross domestic product in 2013, surpassing the secondary sector - manufacturing and construction - for the first time, as the government aims to create more jobs and boost domestic consumption.

Additional reporting by Shanghai Newsroom; Editing by Kim Coghill

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