China’s economy is slowly recovering after the country finally ended its austere Zero Covid Policy late last year. The recovery of the world’s second largest economy has been gradual. China was hit hard by a wave of Covid-19 cases as soon as strict national lockdown measures were eased. But now, the pace of the country’s rebound is picking up, with major implications for the global economy as a whole.
More specifically, China’s re-opening is going to add a massive amount of demand for a wide array of commodities, and especially for energy imports. "The impact of China's reopening would be largely on the demand side, which would contribute to a higher global inflation rate," according to Yating Xu, principal economist at S&P Global Market Intelligence. According to economists’ projections, China’s resurging demands will “likely add up to a half percentage point to inflation in most economies” over the course of 2023.
According to reporting from S&P Global, “unlike prior slowdowns, when China provided an economic stimulus felt around the globe, the new economic push offers little support to economies ailing from weak growth and supply chain stress.” But that’s not true across the board. China’s reopening has been concurrent with a major thaw in diplomatic relations between Beijing and Australia, and, relatedly, a massive uptick in imports of Australian coal to China.
Just last month, China imported US$23.7 million worth of coking coal (72,982 tonnes) and US$18.2 million worth of thermal coal (134,254 tonnes) from Australia, according to official data from the General Administration of Customs. This is a significant turnaround from the past few years. Since 2020, China has upheld an unofficial ban on Australian coal due to a lengthy saga of rising political tensions and failed diplomatic relations between China and Australia.
The 207,236 tonnes of Australian thermal and coking coal bought by China last month is reportedly just the beginning of this renewed trade relationship. At a press conference earlier this month, Shu Jueting, spokesperson for the Ministry of Commerce, said that importers can now apply for a coal import license “normally”. A Shanxi-based coal information provider told the South China Morning Post that “a lot of vessels over two megatonnes” departed Australia in February are set to arrive in China this month.
China’s renewed interest in Australian coal is part of a much broader push from Beijing to shore up 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. Additionally, Beijing greenlit 106 gigawatts of new coal-fired energy capacity – the equivalent of 100 large-fired power plants – last year. This marks a fourfold increase from 2021.
Beijing’s energy security has faced extreme stress in recent years due to the Covid-19 pandemic and severe drought which devastated the country’s massive hydropower sector. As a result, China is investing in energy in any and every market and sector that it can. While coal-fired power is having a renaissance in China, Beijing is also spending record levels of cash on renewables. As a result, China is at once the undisputed leader of the clean energy revolution and the world’s largest burner of coal. It’s also the world’s biggest emitter of greenhouse gasses, despite all of its green energy gains.
This duality is emblematic of a broad struggle taking shape across the globe. Worldwide, we need green energy, and we need it now – but there is a fundamental lack of trust that renewables can reliably power the economy. This concern is well founded; the scope and scale of the transition necessary to avoid the worst impact of climate change is so unprecedented that hiccups and shocks are as inevitable as they are frightening. Weaning the global economy off of fossil fuels simply can’t happen overnight, but experts say that divesting from coal – the dirtiest fossil fuel – can’t wait.
By Haley Zaremba for Oilprice.com
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