Ideas, Institutions and Interests: The Politics of China’s Energy Policy Change 1996-2015

Abstract

This study investigates and explains the shift of the relative priority in China’s energy policy in the 1990s and 2000s. Between 1996 and 2015, the priority of China’s national energy policy had shifted from an emphasis on energy supply security to energy demand efficiency. A central question this study seeks to answer is: what forces led to this shift of policy priority?

To answer the question, this study proposes a multi-layered and cross-sectoral analytical framework based on Historical Institutionalism theory. It focuses on the complex interaction between ideas, institutions and interests to understand the politics of China’s energy policy change. This study establishes a model of policy change as a means of institutional adaptation to manage an emerging mismatch between evolving ideational patterns at the national level, and the persistence of certain interest-seeking behaviour shaped by historically-formulated institutions at the subnational level.

With the introduction of the “Socialist Market Economy” idea in the early 1990s, China began to deepen its reform on two sets of fundamental institution that define China’s state-industry relations and central-local intergovernmental relations. Over time, the reforms profoundly impacted the development of China’s two major energy-based industrial value chains, namely the Coal-Metallurgical Value Chain (CMVC) and the Oil-Petrochemical Value Chain (OPVC), by shaping their asymmetrical institutional connections with Chinese government at central and local levels. At the national level, the 1990s reforms helped to build strong institutional connections between the central government and the OPVC, which greatly contributed to China’s energy security in the 2000s. However, decentralising and marketising most heavy industries allowed interest-seeking local governments to build strong institutional connections with the CMVC, causing the 1990s reforms to produce an unintended consequence of heavy industrialisation that has significantly changed China’s economic structure. Such uncontrolled heavy industrialisation, revealed by the country’s declining energy efficiency in the early 2000s, had increasingly went against a new generation of Chinese top leadership’s “Scientific Development” idea. A major energy policy shift was therefore initiated and utilised by the central government to curb the heavy industrialisation. The central government’s institutional connections with the coal-based heavy industries, especially those in the CMVC, were rebuilt and strengthened.

Overall, this study provides a more sophisticated understanding of how ideas, institutions and interests dynamically interact to produce major policy change in the context of a transitional state.