China may have made a major breakthrough in its pattern of energy consumption last year, but questions about its slower-growing economy make it hard to tell.
In January, the National Bureau of Statistics (NBS) reported that China used 4.8 percent less energy to produce each unit of economic output in 2014, beating its annual efficiency target of 3.9 percent for the first time in years.
China's struggle to cut "energy intensity" has been at the heart of its efforts to trim waste, curb pollution and reduce reliance on smokestack industries for economic growth.
Last April, a member of the National People's Congress Standing Committee, Wang Qingxi, noted that despite the efficiency efforts, China still used one-fifth of the world's energy while accounting for only 11 percent of its gross domestic product (GDP), the official Xinhua news agency said.
Although China has routinely lowered its energy use on a per-unit-of-GDP basis, its total consumption has grown along with economic expansion, adding to emissions and smog.
But while last year's GDP grew at a 24-year low rate of 7.4 percent, energy intensity fell at the fastest estimated pace since 1999, suggesting a significant efficiency gain.
By comparison, the intensity index dipped by a more modest 3.7 percent in 2013 as GDP rose 7.7 percent.
Signs of ‘decoupling’
Analysts have waited years for signs of "decoupling" in the Chinese economy that would break the near-lockstep link between growth in GDP and total energy demand.
Last year's big drop in energy intensity offered hope that decoupling and economic restructuring are finally at hand.
In January, the international consulting firm Wood Mackenzie said 2014 was "a significant year for China as economic rebalancing led demand growth—for a range of major energy commodities—and GDP growth decoupling significantly for the first time."
A recent study by the Paris-based International Energy Agency (IEA) also cited "notable increases in Chinese efficiencies" with the closing of excess capacity in high- polluting industries including coal and steel.
“Beijing's efforts to fix its crippling air pollution problems through efficiency gains and cleaner-burning fuels will add to the de-emphasis on export-driven industries and construction-led growth,” the IEA said in its Medium-Term Oil Market Report.
While GDP grew 7.4 percent in 2014, power use rose by a far smaller 3.2 percent, the lowest rate since 1998, Reuters said.
The IEA also estimated that oil demand increased only 2.5 percent last year.
Diesel use fell 0.7 percent, declining for the first time in over a decade, Wood Mackenzie said.
Coal production was down 2.5 percent in the first drop since 2000, according to the China National Coal Association.
Overall energy use rose by a mild 2.7 percent, a research arm of state-owned China National Petroleum Corp. (CNPC) said.
The numbers all appear to tell the story of less energy consumed in creating economic growth.
But the numbers could also be signs that GDP growth has been considerably weaker than official estimates indicate.
In that case, lower increases in energy use may be largely the result of a sharper-than-reported economic slowdown rather than a greater efficiency gain.
Numbers frequently skewed
The NBS has been trying for over a decade to reform its GDP calculations, which have been frequently skewed by local officials seeking promotion by overstating production numbers.
In its latest attempt to reform data collection, the NBS announced in December that it would no longer use local GDP estimates from China's 31 provinces, municipalities and autonomous regions in compiling national figures. But the plan is unlikely to take effect before 2016, Xinhua said.
In its report, the IEA argued that efficiency gains have been significant, but it added that "these economic numbers may be more fable than reality."
The mixed message may leave the good news about the energy intensity index in doubt.
Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington, said the NBS tries to "smooth" its GDP data to avoid implications of major or abrupt changes from year to year.
The effect is likely to show up in the energy intensity ratio, he said.
"In a slowdown, GDP growth is over-reported and energy use per unit of GDP is under-reported," Scissors said.
He argued that the same thing happened in 1999 following the effects of the Asian currency crisis.
In that year, the NBS estimated that GDP rose 9.2 percent, while the international Monetary Fund put the figure at 7.6 percent.
"Suddenly, the energy intensity numbers looked better," said Scissors.
For the year, energy use per unit of GDP fell 6 percent, according to data compiled by the China energy group at the U.S. Department of Energy's Lawrence Berkeley National Laboratory in California.
Similarly in 1998, the NBS reported GDP growth of 9.6 percent, compared with an IMF estimate of 7.8 percent. The drop in energy intensity was recorded as a whopping 11 percent.
Big drops in diesel fuel
Some recent reports cite successes in government efforts to cut overcapacity in major construction-related industries, leading to substantial drops in diesel fuel used for transporting coal to inefficient plants.
In 2013, the government ordered steel, cement and other industries to close outmoded facilities under a five-year anti-smog plan following estimates that capacity utilization had dropped to 70 percent or less.
But official reports on the steel industry may raise doubts about the effect that shutdowns have had on energy savings so far.
Last month, Mao Weiming, vice minister of the Ministry of Industrial and Information Technology (MIIT), told reporters that China had closed 31.1 million tons of steel-making capacity last year, topping an annual target of 27 million tons.
But the report did not appear to take into account the opening of new production capacity to replace the old plants.
On Feb. 19, the MIIT reported that China's steel production capacity stood at 1.16 billion tons at the end of last year, a rise of 200 million tons since 2012, according to Bloomberg News.
Apparent steel consumption last year fell 4 percent to 740 million tons, Reuters reported, while output stood at 822.7 million tons, the World Steel Association said.
The China Iron & Steel Association expects production will fall 1.1 percent to about 814 million tons this year.
The reports raise further questions about the role that industrial capacity cuts may have played in energy savings last year.
"Generally, oversupply in the steel sector is unlikely to improve this year, exports will drop slightly, steel prices will stay at low levels and steel mills' profitability may not be positive," an MIIT statement said.