China: An Electrostate for the 21st century
By John Mathews
In an important review of global energy trends published last month, The Economist contrasted American global energy strategy with that of China. It noted how the US, building on the shale oil and coal seam gas phenomenon, has become the world’s premier fossil fuel supplier. Meanwhile China, now the world’s largest oil and gas importer, has become the world’s premier fossil fuel consumer. So great is China’s market power, noted the magazine, that it now leads discussions to set up a world consumer cartel that might match the power of the oil export cartel, OPEC.
But the real interest of this analysis from The Economist lies in its characterization of the overall thrust of China’s energy strategy, which is a radical departure from the 20th century focus on coal, oil and gas. China’s strategy, the magazine argues, is consistent with global trends – the peaking of demand for fossil fuels, the decarbonization of energy systems, and electrification (substituting electric power in industries like cement and steel production for burning of coal and oil). It is electrification that drives the swing towards renewables (since they generate electric power directly, rather than indirectly through combustion) and the associated technologies like EVs, FCVs and batteries. So significant is this trend that The Economist coins a new term to capture it: while the US and other states in the 20th century based their power on petroleum (as petrostates) China is the world’s first electrostate, basing its industrial power directly on electrification and renewables to feed the process. The magazine uses a chart to show the contrast – revealing how oil consumption is peaking (with rapid reduction by 2050) whereas electricity consumption is rising, and could reach as much as 50% of global energy consumption by 2050 (with China well in the lead).
The strategy of the electrostate is introduced by the magazine’s anonymous author as follows.
“What China lacks in oil and gas supplies it makes up for with industrial policy, which it has long been using to support domestic coal production and nuclear power as well as what is now by far the world’s largest renewables sector. Chinese companies have invested in mines from the Democratic Republic of Congo to Chile and Australia, securing access to the minerals needed for solar panels, electric vehicles and the like. Unable to be a petrostate, it is becoming what one might call an electrostate, investing strategically all along the chain from mine to meter.”
Manufacturing, which is an essential part of the argument, is not mentioned at this point. The argument is brought together in the final par:
“To maximise its electrostate power China needs to combine its renewable, and possibly nuclear, manufacturing muscle with deals that let its companies supply electricity in a large number of countries. The International Renewable Energy Agency has suggested that such “infrastructure diplomacy” might prove as important to Chinese power in the 21st century as the protection of sea lanes was to American power in the 20th. If it uses it deftly, the energy transition could bring it advantages beyond any achievable with rigs, derricks and pipelines.”
It is the strategy of using state power to drive electrification combined with reliance on manufacturing to enhance energy security, and with the added ingredient of “infrastructure diplomacy” based on international supply of renewables and electrification, that makes China an electrostate. This is what I have been arguing for the past several years, based on the point that renewables as products of manufacturing generate both energy security and decreasing costs – but it is The Economist that has coined this graphic term electrostate to describe and capture the strategy, and to emphasize the distinction from the strategies of petrostates. In this Note I wish to acknowledge the argument as presented by The Economist, and extend it.
The argument begins by noting that China cannot hope to ever be a petrostate (even if it wanted to be one). It does not have the resource endowment required, and could never hope to produce coal, oil and gas at the scale required for the scale of its industrialization ambitions. So China has to look elsewhere for its energy security. Where better to look than at products which are produced under domestic control by manufacturing – such as wind turbines and solar cells, batteries, EVs and FCVs, and water turbines for hydroelectric systems? The emphasis on such products carries a triple benefit. 1) They enhance energy security, in that they are under domestic control as manufacturing processes – rather than making the country dependent on fossil fuel imports, with their price fluctuations and import costs and geopolitical complications. 2) They produce electricity directly (rather than indirectly, via combustion) and thus complement a strategy based on electrification. And 3) as manufacturing systems, they benefit from cost reductions based on the experience curve (learning curve). Learning curves generate cost reductions that are predictable (like the Swanson curve for cost reduction in solar cell manufacturing) – unlike the fluctuating and generally rising costs associated with mining and transport of fossil fuels.
These are three profound principles, or core elements, of an alternative to the energy strategy of petrostates. China has made a sound choice in opting for an electrostate strategy in that such a strategy can be expanded virtually without limit (by extending manufacturing and the circulation of materials needed, via the circular economy); it is under domestic control rather than placing the country in dependence on external petrostates; and it can be anticipated to lead to lower and lower costs, via the various learning curves involved. And as a manufacturing based system it can be enhanced by innovation and competition, which can be anticipated to further drive down costs and build a base for exports as international standards are created to regulate the rise of electrification via renewables. In other words, the electrostate strategy creates a world in which it promises to be a key producer and trader of the means required.
Such a strategy of renewables-based electrification, as pioneered by China, has the added advantage that it can evolve along with the country’s experience. So we see that wind power in China is evolving from onshore (land) based systems, where China has emerged as world centre of manufacturing expertise (accounting for 45% of global turbine production), to offshore based systems (offshore wind power OWP) where China is now emerging as an innovative practitioner and producer of the giant turbines required. The advantage of OWP is that it removes the constraints on wind power imposed by land-based power generation – such as visual disfigurement, land shortages, or encroachment on agricultural land supplies. Instead, OWP offers a virtually limitless frontier as floating wind turbines extend further and further out to the open sea, invisible, connected to onshore grids via undersea cable, and easily identifiable by competing shipping and maritime interests. China is already one of the world’s leaders in manufacturing not just the huge turbines needed for OWP, but also can be expected to emerge as a manufacturer of floating platforms for generation of offshore wind power as well as the ancillary equipment – platform moorings, erection cranes, supply vessels, cable producers.
So industrialization via renewables-based electrification represents a sound strategy for the 21st century, as a superior successor to the 20th century strategy of industrialization based on combustion of fossil fuels. Britain and western European countries were the first practitioners of this breakthrough strategy, based on coal. Then in the 20th century the US rose to world power based on its mastery of petroleum. Later in the 20th century the East Asians – led by Japan, and then followed by Korea, Taiwan and Singapore -- all built modern industrial systems based on fossil fuels and manufacturing, emulating these initial western successes. Now in the 21st century China is the preeminent industrializing power, and pursuing its goals at a scale never before attempted. It has sensed that a fossil fuels based- strategy is self-limiting (not to mention environmentally destructive). But an alternative strategy of renewables-based electrification offers a way of going beyond the initial fossil fuels-based industrial efforts, by removing the immediate physical and geopolitical constraints based on extracting fuels from the earth. Instead it taps into renewable resources such as sun and wind and water utilizing manufactured devices produced under domestic control and offering economic advantages based on international trade.
 See “The changing geopolitics of energy: America’s domination of oil and gas will not cow China”, The Economist, Sep 17th 2020, at: https://www.economist.com/briefing/2020/09/17/americas-domination-of-oil-and-gas-will-not-cow-china  See the Commentary article I published with Dr Hao Tan in Nature in 2014, at https://www.nature.com/news/economics-manufacture-renewables-to-build-energy-security-1.15847  On China’s electrification strategy and its distinctiveness, see Michal Meidan, “COVID-19 and the electrification of the Chinese economy”, Oxford Institute for Energy Studies, June 2020, at: https://www.oxfordenergy.org/publications/covid-19-and-the-electrification-of-the-chinese-economy/