China may be talking the talk of meeting energy reduction targets, but whether they will walk the walk long term remains to be seen.

And the impact of their energy reduction plan--to shut down 2,000 high-energy-use factories in heavy industries across the country--could have a big impact on the companies being targeted. Certainly a failure to comply will have a big effect.

The administration in China pledged in 2005 to reduce energy consumed per unit of GDP (or energy intensity) by 20 percent over five years. That means the target date is the end of this year. 

The country was on track to meet its target before the crisis hit: it had 
reduced energy intensity by 15.6 percent by the end of last year. 

But with the introduction of its $586 billion stimulus package in 2008, a big 
chunk went to heavy industries like steel that are high energy consumers. Consequently energy intensity increased by 3.2 percent in the first 
quarter of 2010. 

This means that China will have to cut its intensity figure by 7.6 percent this 
year to meet its target. 

In order to do so, the administration has announced plans to force companies in heavy industries--which make up 50% of energy use in the country--to close high-energy-consumption factories. 

It publicly listed each company that was on the list for shut-downs and listed 
how much they must reduce production by the end-of-September target date. 

Enforcement will be strict as well. Those that do not comply could see business licenses revoked, power cut off, and a freeze on bank lending.

Not even state-owned companies were safe, as a number of companies on the list were subsidiaries of wholly government-owned companies. However, some skeptics have suggested that the shut-down may merely be a short-term ploy to reach targets and the new year--after the target date for reductions--could see the reopening of those plants affected.

But in the meantime their rush to meet this target could have a big impact on 
growth figures for the year. According to some reports, it could cut economic 
growth figures by as much as 2 percent in the second half of the year.

Given that the government has been focusing on slowing growth and rebalancing the economy, this is in line with current policy, and may be part of a move to shift away from heavy-industry-fuelled growth, suggesting it could be a longer-term change.

As Michael Pettis, Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University’s Guanghua School of Management, noted in his blog on Tuesday, the CBRC is widely believed to be in favor of slowing growth and rebalancing the economy. He adds, however: “My guess is that a lot of policymakers are very worried by the pace of the slowdown.”

What this will mean in terms of the reopening of plants affected by the closures will have to wait until the New Year for answers.