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Wednesday, February 15, 2017

Global Growth in Energy Consumption (& Economic Growth) is All About China...Nothing but China

Since 2000, China has been the nearly singular force for growth in global energy consumption and economic activity.  However, this article will make it plain and simple why China is exiting the spotlight and unfortunately, for global economic growth, there is no one else to take center stage.  To put things into perspective I'll show this using four very inter-related variables...(1) total energy consumption, (2) core population (25-54yr/olds) size and growth, (3) GDP (flawed as it is), and (4) debt.

First off, the chart below shows total global energy consumption (all fossil fuels, nuclear, hydro, renewable, etc...data from US EIA) from 1980 through 2014, and the change per period.  The growth in global energy consumption from '00-'08 was astounding and an absolute aberration, nearly 50% greater than any previous period. 

Of that growth in energy consumption, the chart below breaks down the sources of that growth among China (red), India/Africa (gold) and the rest of the world (blue).  It's plain to see the growth of Chinese energy consumption, the decelerating growth among the rest of the world, and the stagnant growth among India / Africa.
But here is the money chart, pointing out that the growth in energy consumption (by period) has shifted away from "the world" squarely to China.  From 2008 through 2014 (most recent data available), 2/3rds or 66% of global energy consumption growth was China.  Also very noteworthy is that India nor Africa have taken any more relevance, from a growth perspective, over time.  The fate of global economic growth rests solely upon China's shoulders.

Interestingly, the chart below breaks down the growth in annual energy consumption among China, India/Africa, and the rest of the world.  The prominence of China since '00 is obvious.  However, equally obvious is the major deceleration in energy consumption growth taking place since 2012.  In the absence of Chinese growth, there essentially is no growth.
But wait, there's more...the chart below puts this transition into a bigger picture from 1981 to present, adds the distinction between Africa and India, and smooth's out the "rest of the world" collapse of '09 and recovery of '10.  Oh, and by the way, the minimal growth in global energy consumption of '13-'14 is inline with earlier periods of global recession?!?
So what?

I have outlined the linkage of nations core populations to the nations total energy consumption HERE.  Lo and behold, China's core population is essentially peaking this year and beginning a decades long decline (not unlike the world, HERE).  The chart below shows total Chinese core population peaking, energy consumption stalling, and debt skyrocketing.

The chart below shows China's core population (annual change) again against total debt, GDP, and energy consumption.  The reliance on debt creation as the core population growth decelerated is really hard not to see.  This shrinking base of consumption will destroy the meme that a surging Chinese middle class will drive domestic and global consumption...but I expect this misconception will continue to be peddled for some time.
So, if we break the data down over three periods, we can see why the China growth story is in big trouble (detailed previously HERE). 
  • '85-'00
    • China's core population added almost 200 million to it's cadre, energy consumption grew by 23 quadrillion BTU's, GDP up by $1 trillion, and debt up a very modest $0.5 trillion.
  • '00-'15
    • Core population grew at less than half the pace of the previous period, +90 million.  However, energy consumption grew nearly 4x's as much (80 quadrillion BTU's), GDP up by $10 trillion (10x's as much), and the primary cause was that debt creation went nuts, about 60x's as much as the previous period.
  • '15-'30
    • Core population will decline by about 80 million or almost a 12% decline in the core population of China (this is no estimate, just advancing the significantly smaller existing population of young into adulthood).  Best guess is energy consumption will decline (as it has been doing in the US, EU, Japan, etc. since about 2005), GDP will stagnate, and debt creation will be astonishing (blowing global bubbles across the world as the new money leaks out of China).
 

So if Chinese domestic growth is essentially over, perhaps China can continue to export its way to prosperity, like Japan or Germany?  The chart below shows the annual 0-64yr/old combined population growth among the 35 OECD nations, China, Russia, and Brazil.  These nations represent 70% of global oil consumption and 80% of global importers.  Note that the chart highlights when Japan's, Germany's, etc. own domestic 0-64yr/old consumer bases began declining...but they were able to continue exporting to the still growing global base of consumers.  However, China will face the daunting task of trying to grow their exports into a now shrinking base of global consumers.  Chinese growth will necessarily have to come at the expense of some other nation(s) decreased growth.

Conclusion:

Simply put, China of '85-'00 grew on population and demographic trends. China of '00-'15 grew despite decelerating population growth but on accelerating debt growth...this growth in China kept global growth alive.  China of '15-'30 will not grow, will not drive the global economy and absent Chinese growth...the world economy is set to begin an indefinite period of secular contraction (big picture outlined HERE).  China ceased accumulating US Treasury debt as of July of 2011 and continues to sell while busy accumulating gold since 2011 (detailed HERE).  Unfortunately, neither quasi-democracies nor quasi-communist states have any politically acceptable solutions to this problem of structural decelerating growth and eventual outright contraction...but that won't keep them from meddling to stall the inevitable global restructuring.