China’s economy is slowly recovering after the country finally ended its strict zero-Covid policy late last year. The recovery of the world’s second largest economy was gradual. China has been hit hard by a wave of Covid-19 cases once strict national lockdown measures were eased. But now the pace of the country’s recovery is accelerating, with significant implications for the global economy as a whole.
More specifically, China’s reopening will fuel massive demand for a wide range of commodities and especially energy imports. “The impact of China’s reopening would be largely on the demand side, contributing to higher global inflation,” said Yating Xu, chief economist at S&P Global Market Intelligence. Economists have forecast China’s resurgent claims over the course of 2023 “likely to add up to half a percentage point to inflation in most economies.”
According to reports from S&P Global, “In contrast to previous slowdowns when China provided economic stimulus that was felt around the world, the renewed economic surge offers little support for economies suffering from weak growth and supply chain stress.” But that’s not true across the board. China’s reopening was accompanied by a major thaw in diplomatic relations between Beijing and Australia, and with it a massive surge in Australian coal imports to China.
Just last month, China imported $23.7 million worth of coking coal (72,982 tons) and $18.2 million worth of steam coal (134,254 tons) from Australia, according to official data from the General Administration of Customs. This is a clear trend reversal compared to the last few years. Since 2020, China has maintained an unofficial ban on Australian coal due to a long history of rising political tensions and failed diplomatic relations between China and Australia.
The 207,236 tonnes of Australia’s thermal and coking coal that China bought last month is reportedly just the beginning of this renewed trade relationship. At a news conference earlier this month, Shu Jueting, spokesman for the Ministry of Commerce, said importers can now apply for a coal import license “normally”. A Shanxi-based coal information provider told the South China Morning Post that “many vessels over 2 megatons” that left Australia in February will arrive in China this month.
China’s renewed interest in Australian coal is part of a much broader push by Beijing to strengthen national energy security. And in China, energy security is synonymous with coal. In January and February of this year, China’s coal imports increased by a whopping 71% compared to 2022. In addition, Beijing last year gave the green light for 106 gigawatts of new coal-fired power capacity — the equivalent of 100 large power plants. This is a fourfold increase compared to 2021.
Beijing’s energy security has been under extreme strain in recent years due to the Covid-19 pandemic and the severe drought that has devastated the country’s massive hydropower sector. As a result, China is investing in energy in every market and sector where it can. While coal-fired power plants are experiencing a renaissance in China, Beijing is also spending record sums on renewable energy. As a result, China is simultaneously the undisputed leader of the clean energy revolution and the world’s largest combustor of coal. It’s also the world’s largest emitter of greenhouse gases, for all its green energy gains.
This duality is emblematic of a broad struggle taking shape around the world. We need green energy around the world, and we need it now – but there is a fundamental lack of confidence that renewables can reliably power the economy. This concern is justified; The scale and scale of the transition required to avoid the worst impacts of climate change is so unprecedented that the hiccups and shocks are as inevitable as they are frightening. Weaning the global economy off fossil fuels just can’t happen overnight, but experts say phasing out coal — the dirtiest fossil fuel — can’t wait.
By Haley Zaremba for Oilprice.com
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