<p> <br/>Daniel H. Rosen<br/>Visiting Fellow, Peterson Institute for International Economics<br/>China Strategic Advisory<br/>Trevor Houser<br/>Visiting Fellow, Colin Powell Center for Policy Studies<br/>China Strategic Advisory<br/>May 2007</p><p>Contents<br/>INTRODUCTION 4<br/>1 WHAT’S DRIVING DEMAND 6<br/>The Evolution of Energy Demand in China 6<br/>The Current Demand Picture 7<br/>Industry-Led Demand 8<br/>Consumption-Driven Demand 14<br/>2 CHINA’S ENERGY SUPPLY SYSTEM 17<br/>Formal Energy Policy Institutions 17<br/>Informal Channels of Influence 19<br/>Oil and Gas 19<br/>Coal and Power 22<br/>3 GLOBAL IMPACTS 28<br/>World Energy Markets 28<br/>Energy Security and Overseas Investment 30<br/>The Environment 33<br/>Goods Trade and Industrial Competitiveness 35<br/>4 CONCLUSION AND POLICY RECOMMENDATIONS 37<br/>Assessing the Domestic Response 37<br/>Prioritizing the International Policy Response 40<br/>Energy Security 40<br/>Industrial Competitiveness 43<br/>Climate Change 44<br/>REFERENCES</p>