Determinants of energy intensity in Chinese provinces

Abstract

How can limited energy resources ensure a continuous development of the Chinese economy? In the study, we have employed the 1995–2014 data of China's 29 provinces (Autonomous Regions and Municipalities) for an energy intensity analysis in the three approaches of panel regression, Morishima elasticity of substitution, and decomposition of energy intensity. The study finds first of all that the prices of China's energy and capital are distorted because of excessive intervention by the government at all levels. The seriously distorted prices have prevented energy from being effectively replaced by labor and capital inputs in most regions, and the distortion of energy prices was much more serious than that of labor and capital; second, technological changes, scale, and pure efficiency have played a weak role in energy intensity reduction, and the increasing energy supply constraints for each region have had no significant effect on the decline of energy intensity; third, the effects of factor substitution on energy intensity reduction have remained more evident in the Bohai Rim, Northeast, Central, Southwest and Northwest of China, while the industrial share has played a crucial role in the decline of energy intensity of the Yangtze River Delta and the Southeast coastal areas. These findings imply that the Chinese authorities are expect to revise its price generation mechanism for factor inputs, develop targeted energy-efficient technology, and enable technical progress to become the major driver of China's economic growth.