Energy consumption in China and underlying factors in a changing landscape: Empirical evidence since the reform period

In recent decades, the phenomenal growth in the Chinese economy has created increasing energy consumption. This is the first study analysing energy consumption in China considering economic, social and political dimensions of globalisation along with the effects from trade and financial sectors. The time period covers the full trajectory since the start of economic reform until recent times. In this respect, we use the Konjunkturforschungsstelle (KOF) globalisation index to explore the dynamic link between economic growth, financial development, trade and various dimensions of globalisation and energy consumption. Modern time series econometric techniques are used in establishing stationarity, long-run dynamics and causality of the series. The findings suggest that globalisation decreases energy consumption in the short run but increases it in the long run. However, the effect of financial development on energy consumption in China is opposite to the globalisation effect on energy consumption. Granger causality reveals a feedback effect between economic globalisation and financial development; globalisation in China can only reduce energy consumption if China develops its financial sector to a greater extent. In future, China should invest in its financial sector and low-carbon energy alternatives to achieve sustainable development. Prevention of energy shortfalls and cleaner environment would assist in bridging the gap both from social and political aspects to ensure China benefits significantly with high economic growth in this Asian century.