Graphic picture painted of mainland inefficiency

PUBLISHED : Wednesday, 14 October, 1998, 12:00am
UPDATED : Wednesday, 14 October, 1998, 12:00am

This column occasionally carries some complicated charts but a picture still tells a thousand words and, if it were always so simple, my old countryman, Vincent Van Gogh, would not have much of a following.

This is not to say that the chart below is worth the millions that Van Gogh's Sunflowers fetches but you will do better with it if you want an insight into the problems facing the mainland's economy.

Electricity consumption around the world is a good barometer of economic growth. It goes up and down in line with changes in gross domestic product. Yet not all countries use electricity with equal efficiency and Asia provides some good examples.

It is measured here in terms of how many US dollars of GDP an economy can boast for every kilowatt hour of electricity it produces. Singapore with US$3.68 per kilowatt hour in 1997 and Hong Kong with $3.34 are the clear winners in this efficiency contest.

And the loser - the mainland with a figure of only 82 cents, barely a fifth of what Singapore has managed to achieve.

One can argue that these ratios correspond roughly to the differences in GDP per capita and therefore only reflect relative wealth. The mainland's GDP per capita, however, is twice India's and yet it has less efficiency in electricity usage.

But even if this explanation were valid, there is a good reason for it. Poorer countries are poorer because they use their resources more poorly. It is an indictment of them, not an acquittal.

One can also argue that Singapore and Hong Kong have their high efficiencies because they are compact city states with economies built on services rather than power-hungry smokestack industries and with their power plants conveniently located on urban boundaries.

Again it does not entirely hold true. Their power loads are heavily used for air-conditioning which may be a great convenience but contributes only indirectly to producing goods and services. If they do not use their power for smokestack industries the question is rather whether smokestack industries have uses great enough to justify their power consumption.

Another argument may be that the difference lies not in power usage but in the exchange rate used to derive the US$ GDP figure with which to compare it. This would imply that the yuan is overvalued. Perhaps it is but the scale of the difference in power efficiency is so great that exchange rate anomalies cannot possibly account for it.

The much greater likelihood is simply that the industrial heart of the mainland's economy remains hugely inefficient. Plant managers directed for many years towards production targets rather than profits ignored power wastage or were subsidised for it and the wastage grew little by little all over the country until it became a monster of economic inefficiency.

But therein lies the opportunity as well as the difficulty. Just think of it. If the mainland could get to only half of Hong Kong's power efficiency it could save billions allocated every year to more power production.

The Yangtze gorges could still be with us.

Not easy perhaps, but much cheaper than the enormous number of smokestack plants required to keep growth up the old way.