"We're number one! We're number one!" It's supposed to be a cheer, so ... why is China fuming?
This week, the International Energy Agency observed that China overtook the United States as the world's biggest consumer of energy in 2009. No sooner had it done so that China disputed the claim, issuing an official rebuttal and arguing that, in fact, it consumed slightly less energy (in all its forms -- oil, coal, gas, nuclear, and "green") than the U.S. had.
Whose number is the right one? In all honesty, it doesn't really matter. The IEA says China burned through about 5% more kilocalories than we did last year; China says we were the more voracious consumer by about a 1% margin. But with the Chinese economy expanding at a 10% clip so far this year, while the U.S. is stuck treading water and flirting with a "double-dip" recession, chances are just about certain that as you read these words, China has surpassed U.S. energy consumption and is expanding its lead.
Who's bigger? Who's better?
If you ask me, though, even if we take it as a given that China has us beat for the title of "No. 1 Profligate Energy Consumer," that fact misses the point. The real point isn't how much a country consumes, but how much its economy produces with the energy it uses. And by that measure, the U.S. has China beat, hands-down:
According to the World Bank, the U.S. generated $14.59 trillion in gross domestic product in 2008 (the most recent year for which figures are available), versus $4.33 trillion for China. And while the one-year time shift prevents this from being a pure apples-to-apples comparison, it's clear that when it comes to producing wealth economically, U.S. companies have China beat hands down, generating roughly $6,700 in wealth per barrel of energy consumed (even at $80 a barrel, that's a bargain), while China drips barely $2,000 in wealth out of its barrels.
Diff'rent strokes for different folks
Now, China bulls will look at these charts and with no doubt cry, "It's unfair!" Not a fair contest. China's consuming vast amounts of energy to build heavy industry and infrastructure. The U.S., in contrast, is blessed with an energy-sipping "services economy." But when I look at the charts in the context of the earnings reports that came out this week from the titans of U.S. industry -- United Technologies
To me, what this all looks like is the end of the Chinese miracle. One of the key reasons American industrialists are "beating earnings," after all, is cutting costs and becoming more efficient. Meanwhile, China, a country that's made its bones on claims of boundless growth, is starting to look more and more like an economy that's pursuing "growth at any cost" -- specifically, at the cost of low efficiency of production.
Foolish takeaway
This brings us back to the question of why China is disputing the IEA numbers in the first place.
My guess: It's because they give context to the country's startling rise in GDP of recent years. I mean, is China growing like wildfire? Absolutely. But fueling this fire is China's startling rise in the consumption of energy resources, forcing national oil champions like PetroChina
So ... congratulations on the win, China. You're welcome to it.
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