Energy Shortages Could Limit China's Manufacturing

By John S. McClenahen Energy Crisis. That's how U.S. drivers now paying more than $2 a gallon for gasoline might describe their situation. But it's also what Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA), and Scott Roberts, CERA's director of China energy, suggest is taking place in China. Significantly, manufacturing, a major factor in rising demand for energy in China, could also fall victim to demand-created shortages. "The most important factor in Chinese energy demand is a surge in fixed asset investment -- a 28% increase in 2003 and in early 2004 -- that has rapidly expanded manufacturing activity in the most fuel- and electricity-intensive segments of the Chinese economy like steel, aluminum, cement and chemicals production," said Yergin and Roberts in a report presented in Qingdao on May 17. But manufacturing could also fall victim to rising demand. "The strong connection between China's industrial and energy demand trends suggests a clear risk that energy shortages might become severe enough to constrain manufacturing activity and limit overall growth," the CERA report said.

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