This is China! blog

I tend to be skeptical when it comes to just how “green” the Chinese revolution is in the renewable energy sector. Hundreds of makers of solar photovoltaic (PV) cells and attendant equipment manufacturers crowded the hallowed halls of the Shangahi International Exhibition center. The SNEC 4th International Photovoltaic Power Generation Conference & Exhibition ran from May 5 -7, with conference proceedings from May 7 – 9.

One of the more revealing exhibits was that of CRS Reprocessing Services, based in Louisville Kentucky. Since 2003 CRS has been cleaning up after PV makers in America, Europe and Japan, and is just breaking into China. The company builds the equipment and implements the processes needed to recycle chemical slurry for re-use. The company claims a 98% re-capture rate. The slurry is a combination of liquid chemicals and a fine dust that result from cutting silicon into the thin wafers that serve as the base for photovoltaic cells. Prospects for growth for the company in the China market are huge, as Chinese PV makers have until a recent  change in government policy been pouring a poisonous slurry into plastic bags they pile up in the back of their factory compounds.

Deborah Reese, Director of Marketing, told us of one potential Chinese customer who had so much of the slurry built up “you could actually see the dump from satellite photos, if you knew where to look.”

Of course, national government promotion of a sector looking to grow into a trillion dollar marketplace would prefer we look elsewhere.

Japan is not a happy neighbor. While extending a hand to China to bolster trade links and advantages with its out-sized neighbor, it is watching out one eye as the Chinese People’s Liberation Army Navy runs frigates and submarines ever closer to Okinawa. The latest episode happened just a couple days ago with ten Chinese warships and subs passing through international waters near Okinawa. Just a week before, according to the Financial Times, a ship-based Chinese helicopter came within 90 meters (!) of a Japanese destroyer. One can almost see the Chinese pilot thumbing his nose at apoplexic Japanese sailors, just itching to take out the mosquito of a craft.

The United States Navy’s “Sputnik”moment” came in November 2007 when a Chinese Song-class nuclear attack submarine surfaced 160 feet from the U.S. aircraft carrier U.S.S. Kittyhawk. Sputnik was the Soviet Union’s satellite program in the late 1950s that crystallized American fears of losing the race for outer space. The 1000-foot Kittyhawk, with 4,500 personnel on-board, was being escorted by at least a dozen other naval vessels and two submarines when the Chinese sub had apparently been tracking the carrier group for some time, running on super-quiet electric motors. The Chinese crew revealed its presence to the Americans in waterways near Okinawa. American naval leaders were apoplectic at the Cold War tactic, while the diplomatic corp lodged angry complaints with the Chinese government. Beijing offered it had been ignorant of the submarine maneuvers and suggested the encounter was a coincidence. American military leaders had not considered that any of the 13 Song class subs at the time were as advanced as they apparently were.  The surprise served as a rude awakening to American policy makers that the Pacific Ocean was no longer the pre-eminent domain of its navy.

Ultimately, what’s at stake here for Japan and China are untapped sources of energy and national pride. China’s central government, in other words, has a full mandate from its citizenry to force its collective will onto islands off China’s and Japan’s coast that both countries contend are their territory. At the center of contention are the Diaoyu (Senkaku, for the Japanese) islands, Tianwaitian (Kashi) and Chunxiao (Shirakaba), the latter two of which are characterized more as rock outcroppings than as masses of land that come anywhere close to becoming islands. Nonetheless, all lie nearly equidistant from the shores of both economic powers, which are willing to go the military distance to protect their territorial claims as well as potential oil resource riches.

Though in 2008 the two countries agreed to jointly develop gas fields in the disputed seas, China has signaled through military exercises around the outcroppings that it’s not much interested in detente. A dangerous trend indeed.

Further reading: Globe and Mail

A Bogey Man That Will Never Die

Warlords in Suzhou

New Prescription Needed: Blurring a Bi-polar World

Local and national Chinese TV has been full of news stories about the terrible drought affecting southwest China: Guizhou, Yunnan, Guangxi. Peasants scooping spoonfuls of muddy water from dried wells; entire families scrabbling deep into caves to collect teat-fulls of water formed by condensation from stalactites; long lines on towns-folk queuing at trucks loaded with bottled water, sent by city governments as far away as Suzhou and Shanghai.

News footage also shows something even more disturbing to me than thirsty children, faces smeared with dirt: the sheer, uncontrolled waste of what will be the most precious resource China has squandered on an unprecedented scale: water. Army soldiers of the People’s Liberation Army march into townships and turn on fire hoses connected to container trucks to spray jet-fulls of water into fields that gulp down the precious fluid like a man stranded in a desert for weeks; delivery trucks disperse boxes of bottled water that children gleefully chug at in front of waiting cameras; city fathers splash buckets-full of water drawn up from stressed wells into waiting plastic basins, liquid splashing onto the ground and onto the arms and faces of happy villagers.

The systematic waste and the lack of even a modicum of thought or habit in China for conservation of water, valuation of its forests, and too-rapid industrialization will prove challenges far greater to its leadership than whether America will continue to accept cheap Chinese-made sneakers onto its shores. All too soon.

Related posts:

One of the nicer aspects of the turn to Spring in the Yangtze River Delta is that I won’t have to be running the electricity bill further up to keep warm. But at least I have electricity. Yunnan, and much of southwest China, has been suffering a drought that is drying its reservoirs. This is unfortunate as the southwest relies on the dams at the reservoirs to generate electricity. Unfortunately, the region may see electricity supply fall by as much as 20% during the first five months of the year.

As the WSJ points out, melting glaciers and drying riverbeds will affect China’s overall attempt to rely more on hydropower than on coal-generated electricity. As water becomes more dear, companies in the southwest and northwest of China can expect higher electricity bills – or grayer skies.

Previous posts:

Addicted to Cheap Water

The Real Feel

Precious Little to Go Round

I just received my electricity bill for the last couple months of winter. Whoever said coal-generated power in China was cheap hasn’t lived in Greater Shanghai. Now I really understand why so many Chinese south of the Yangtze River don’t even turn on their heating, even in the depths of winter. Save money!

Western countries seem to be standing aside and allowing China to capture the cost-effective end of the renewable energies market. According to the New York Times, China already produces the most solar panels and wind turbines in the world. “Yet many Western and Chinese executives expect China to prevail in the energy-technology race,” the Times writes. Domestic subsidies to buyers and energy producers (as well as the occasional diktat) the society already investing in less-polluting sources of energy than America and Europe. The sheer size of the market serves to further drive prices down. Of course, little is said about the processes and energy-efficiency of the manufacture of the renewable energy devices.

Now, from a global markets point of view, the country seems to be able to export the products to countries that have been politicking about investing in low-cost energy alternatives. But, as Ma Lingjuan, deputy managing director of China’s renewable energy association notes, “Every country, including the United States and in Europe, wants a low cost of renewable energy. Now China has reached that level, but it gets criticized by the rest of the world.”

My, aren’t we sensitive.

Further reading: NYT

I swear every day I take a drive around Suzhou or Shanghai I see at least one new construction project is starting up. If anything’s clear, China’s simply going to need more steel to keep up the pace of building. Typically, though, the biggest buyer has the upper hand in negotiations. Not so in the latest round of iron ore negotiations, in which Australian mining companies found Chinese buyers too annoying to deal with. The Australians said they’ll go on to set benchmark prices for this year’s iron ore with the Japanese, who are shrewd in their own right, and polite, to boot. Meanwhile, Chinese steel producers – of which there are many – need to organize their own thinking about a benchmark price to present to the Australians; and they need to separate politics from international business – difficult to do without a loss of face given the arrest of Rio Tinto employees in Shanghai last summer on spying charges (steel production costs are national secrets).

This particular case makes the point that international companies should not necessarily take at face value what Chinese companies insist on – as opposed to propose. And that Chinese companies have been frozen out of negotiations that have far-reaching global implications indicates the Chinese have not yet fathomed international norms of engagement: the belief that the same sort of bullying tactics that work domestically should be effective internationally has been proven wrong – and will be shown to be wrong again and again as the Chinese try to get international detente right.

The world, it seems, will continue to rule China for some time to come.

Further reading: FT

Steely-eyed

The new Silk Road has no camels, no caravans, no adventurers, traders, ne’r do wells nor princesses. The cargo of the new Silk Road, though, is amongst the most precious in the world: natural gas. The leadership of China and Kahzahkstan recently opened the Kazakhstan portion of the 7,000km (4,300 miles) pipeline, which starts at a gas field in Turkmenistan and will end in Xinjiang when completed in 2013. The route the pipeline takes helps make some Central Asian countries more independent from Russia’s resource whims.

Russia can be none to happy that former Soviet territories are gravitating into Chinese orbit. If only, though, those same Central Asian countries took a look at their Muslim neighbor to the east, already enmeshed in China’s sphere of influence, they’d get some idea of the true cost such intimacy.

Further reading: BBC

The average Chinese I talk with could care less about carbon emissions caps; that is, unless they figure it’s yet another Western plot to spoil China’s ascent. The bill before Congress placing tariffs on imports based on their carbon emissions is fundamentally a good idea that needs to be equally applied to imports and domestically produced goods. The bill essentially penalizes imports that were made with “dirty” technologies or that have “dirty” components.It would certainly spur China to actually put its policy where its mouth is in terms of forcing its heavily polluting (and wasteful) industries to meet the stricter carbon requirements the central government continues to tout. After all, if its second largest customer (after the European Union) says it wants to change its buying habits, well … the customer is (nearly) always right.

On the other hand, for the United States government to hand free emissions credits to its own dirty industries does smack of protectionism as well as gives the finger to global efforts at reducing carbonemissions – hardly the sort of trend-setting actions the rest of the world looks to the United States for. Instead of encouraging industries that need to clean their collective acts up, congressional efforts should be encouraging industries that want to clean the Earth up. The consumer backlash consumer advocatespredict is, well, predicatable.Let’s face it, though:, don’t Americans have enough stuff?

Tackling climate change is going to require big changes in habits that in a mere 65 years have become a part of national American mythology that has also become embedded in the national psyches of othercountries: that is, that this earth is ours to do with as we please.

The earth, though, has greater considerations.

Further reading: China Briefing

Just days before, He Yafei, China’s vice-foreign minister, had accused Todd Stern, the US special envoy on climate change, of a “lack of common sense” and said the developed world’s attitude towards China’s footing its own bill for climate change initiatives in its own backyard was “extremely irresponsible”. Of course, this rather undiplomatic outburst is singularly unhelpful in developing a global response to climate change. However, with China having blurred the lined between what constitutes a developing country vs a developed country (see previous post), new thinking will have to come to pass to qualify who pays and who gets money from richer nations.

Though China seems to have changed tack and is no longer pushing to have developing countries bankroll its emissions reductions implementation, the CCP still continues to play that “poor pitiful us, look what those rapacious Western countries did to us (and are still doing to us),” card. Unless, of course, Mr He is simply a devoted viewer of the pap CCTV and local Chinese TV stations insist on airing in China about how victimized the Chinese have been over a century and a half (with, of course, blind spots to their own self-inflicted social disasters large enough to push an Olympics stadium through).

China wants to have its industry and eat its pollution, too. One day, however, as a modernized and – in gross terms, at least – increasingly wealthy country, it will one day soon find itself clearly on the “developed” side of the line. What then will it tell its poor relations when they come cap in hand?

Further reading:

FT (Dec 11, 2009), FT (Dec 14, 2009)

New Prescription Needed: Blurring a Bi-polar World

It’s tough to lend a helping hand when you’re not sure what’s happened to your hand afterward. It’s just recently been revealed that the United Nations board that approves issuance of credits for carbon trading to developing countries has since the summer stopped providing credits to Chinese manufacturers in the wind power generation industry. Apparently, the UN has issued nearly US$1 billion to Chinese companies in a bid to help the companies build wind farms that would not have been built without the credits. The credits trade on international bourses, like stocks, and have real value. They are one of the developed world’s ways of helping modernizing countries curb power generation projects that produce a great deal of carbon-related pollution. The UN has refused approval on 50 Chinese projects.

China has received over 50% of the carbon credits the past five years, while at the same time ramming up wind turbines at an ever-increasing volume each year. Suppliers for turbines have gone from over 95% foreign-owned in 2000 to nearly 60% domestic suppliers in 2007. European manufacturers in particular such as Vestas and Siemens have been crying foul the past year in the face of a projects-bidding system they claim the State has rigged against international players.

Indeed, the largest wind turbine producers in China were unbundled from State Owned utilities companies, and are still heavily guided by the State: Guodian, Datang, Huadian, CPI and Huaneng produce more than half the wind turbines in China today, according to the Danish Wind Energy Development Program.

So, one can only imagine international wind turbine manufacturers sighing a bit of relief at the UN moratorium. With governance and shareholdings in large Chinese companies that have heavy State legacies as opaque as the smoke that billows from coal-powered generators, it may be some time before the UN actually figures out where the credits are going, and whether they’ve done any good.

Read More: FT