The Disintegration of Production
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The Disintegration of Production

Firm Strategy and Industrial Development in China

Edited by Mariko Watanabe

In the past two decades, China has experienced rapid industrial and economic growth. This fascinating book explores the unique Chinese business strategy of vigorous market entry and low prices, which has been the key feature of this accelerated industrial growth.
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Chapter 11: Energy: pricing reforms and the end of low energy prices

Nobuhiro Horii


How did the Chinese government set the price level of energy, one of the most important industrial inputs, during the rapid economic growth period? And how big an impact did it have on production costs? This chapter will focus on coal, which accounted for 68 percent of China’s primary energy consumption in 2010. During the economic reform and open-door policy period, China chose to achieve rapid economic growth through industrialization, and, therefore, it was inevitable that energy consumption would rise dramatically. History has shown that in the development of heavy industries, such as steel and chemical industries, energy consumption, especially demand for electricity grows drastically along with economic development. However, faced with ever-increasing energy consumption, the Chinese government adopted a policy of keeping energy prices low, even though low energy prices provided little incentive to reduce energy consumption, resulting in increased inefficient use of energy. The intention of the Chinese government was to keep energy prices as low as possible to prevent inflation, to increase the competitiveness of Chinese companies in the export market, and so on. Since the 1980s, following the transformation from a planned economy to a market economy, the prices of various goods were deregulated one after another. However, energy was one of the last goods to adopt market-based pricing.

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