Power industry investment, electricity production and economic growth in China: Relationship and forecast

This paper attempts to investigate the relationship between power plant investment, electricity production and economic growth in China, and forecasts at least 5 years, using modern econometrics techniques and software for the period 1980-2009. The paper applies unit root test, Johansen cointegration test and vector error correction model for the past 30 years data, which include GDP, power industry investment, electricity production and installed capacity. It also investigates the non-stationary relationship between these data and makes them become stationary by difference method to create stationary vector autoregressive model. The impulse response is also used to obtain the response between each data. The empirical results show that power industry investment, electricity production, installed capacity and GDP have certain relationships. Power plant investors can forecast economic growth according to past value of investment, and predict future electricity consumption by past GDP. It may help investors to investment rationally, not randomly. The paper also gives some suggestions to government and investors.