This is China! blog

At the end of 2010 Shell Oil produced two future scenarios of how the world might revert wholesale to renewable energy sources – Scramble and Blueprint – both of which take account of China’s new-found role as energy heavyweight. TrendsAsia extended the Scramble scenario into a third, grittier scenario called Skirmish.

The first, called Scramble, sees countries in a grab-fest for energy resources they stake out with gusto, cordoning off supplies for their own society’s consumption and perhaps – if there’s enough to go round – for their allies, as well. A lack of inter-governmental coordination and unfettered use and abuse of fossil fuels leads to a global slowdown around the year 2020, which catalyzes governments to place public and private strictures on the use of energy until, ten years on, the world has become green.

Read more at TrendsAsia.asia …

Technorati Tags: alternative energy, blueprint, china, energy, green energy, oil, scenarios, scramble, shell oil, skirmish

The Hong Kong edition of The China Daily recently invited me to contribute an article about China’s renewable energy development trends and the country’s relationship with southeast Asia. So I wrote about all the dams China is building in the south, southwest and west of the country it’s neighbors are unhappy with.The editor didn’t like the story. It might be Hong Kong, I was told, but it’s orbit is very close to Beijing’s, after all.

So I wrote another story, about how the subsidies for solar power in China will lead to even more (over-)production that will drive down the costs of photovoltaic technologies even further – a natural for archipelago nations like Indonesia, which have islands of people unable to hook into a national grid.

The editor accepted the sun-shiny story. entitled, “China may light up southeast Asia’s energy portfolio”. It’s a fine story; it’s just that it’s so … well, constructive. You’ll find it here, on page 14 of the HK edition.

Technorati Tags: bill dodson, china, electricity, energy, hydropower, indonesia, solar power, southeast asia, trends

Check out a recent Marketplace radio interview in which the intrepid Rob Schmitz interviews me during a National Public Radio report about how energy trends in China are impacting companies – foreign and domestic – doing business in the country.

Listen to the podcast report and read the transcript of the piece here.

Technorati Tags: bill dodson, business, china, energy, marketplace radio, national public radio

The China Daily reports the Ministry of Industry and Information Technology (MIIT) website said on July 11, 2011 that it will continue closing energy intensive manufacturing industries, with 2,255 slated for closure. MIIT has targeted 18 major industrial sectors for restructuring, including iron, steel, coke, cement, flat glasses, paper making as well as printing and dyeing. The factories are simply sucking too much power from more productive uses in the society, not to mention from foreign operations in the country.

A prime example of the amount of energy heavy industry is consuming and wasting are the glass making furnaces of Xuzhou, in northern Jiangsu Province, a four-hour drive northward over the Yangtze River from Nanjing. Western inspectors have told me of massive furnaces that operate round-the-clock. Trucks circulate through the factories to disgorge tons of materials for making glass, while others pick up delivery of vessels of every shape and size. When one of the Western inspectors asked a manager of one of the kilns about how plant staff maintain the furnaces, the manager explained they merely use the furnaces until the kilns can no longer operate, then replace them with new facilities. The furnaces are open to the air, with employees – typically in their fifties – plucking near-molten glass vessels with tongs from conveyor belts that never stop. Furnace stacks blow heat and soot into the air, unfiltered.

When asked about any problems with electricity, local managers simply pointed to power plants that dotted the sooty landscape. The furnace and other heavy industries in the area were guaranteed power from local authorities because of the importance of the industries to the local economy and the standing of local political bosses.

I’ve edited a research note on the ramifications of ongoing power outages on foreign operations in China, titled, “Lights Off for Western Manufacturers in China“, located at TrendsAsia.

Technorati Tags: natural resources, policy trends

The GM of a European company told me yesterday the local power utility in Suzhou Industrial Park served the company notice a couple days ago the company will have to shut down operations for seven or eight days during the summer. The company, I know, has been running two shifts a day to keep up with demand. The company employs several thousand staff. He told me his company had submitted a formal letter to the power bureau to ask if the factory could turn its lights off for fewer than the days the utility had requested. The GM is awaiting a response.

A British engineering manager confirmed the power bureau sent his company in SIP, as well. The letter requests a certain number of days during which the factory is closed during the summer. Companies have to submit a schedule of the dates of closure to the utility soonest.

I write in more depth about the dynamics surrounding the power outages in a research note, titled, “And the Rains Came: The Impact of Recent Flooding on Electricity Generation for China Operations”.

Technorati Tags: natural resources

Yesterday I delivered a talk to the Shanghai Foreign Correspondents Club (SFCC) on the energy challenges China is facing. For instance, power shortages are so severe in Yiyang, a small city in Hunan province, that homes and businesses receive power only every third day. Chinese suppliers in the Yangtze River Delta have also seen their electricity supplies become erratic, making it difficult on a day-to-day basis – according to foreign factory managers I know in the area – to ensure they receive the components and parts their suppliers promise. The cap will eventually be raised to bail out ailing power suppliers, a fifth of the more than 450 of which may be facing bankruptcy, according to a source in a New York Times article.

Though the much discussed issue of the government-enforced cap on coal prices at which power plants are forced to buy coal is important, I focused during the talk on the most enduring challenge the country faces in meeting increasing requirements to produce electricity for its modernizing country: water – or rather, the dearth of it. Again this year, hydropower dams in the southwest are generating power below capacity. Coal mines in the north are unable to operate due to a lack of water. And – to my estimation – aggressive plans to build nuclear plants along the Yangtze and Yellow rivers will have to change due to the lack of water flowing the concourses (and what to do with waste river water in the event of a Fukushima-style event).

The knock-on effects for the energy sector include greater opportunities for growth in the wind and solar power industries, and increased emphasis on energy efficiency, especially in its dreadfully wasteful property sector. However, by 2020 – when China’s energy requirements are set to double from the 2010 level of 1,000-gigawatts -  these alternatives will account for less than five percent of the total portfolio for energy generation. China’s big bet to take hydropower from generating its current level of about 20% of the nation’s energy to 25% by 2020 just may not be realized. The abundant sources of water the country has banked on for thousands of years may simply no longer be available in the quantities it has planned for its new and enlarged cities.

Coal – and the sort that’s even dirtier, lees refined stuff Chinese power plants have been burning  this past decade – may become an even more prevalent source of energy. Last year coal accounted for 83% of power generation; it may well gain ground as the waters recede.

It looks like food prices will skyrocket even further here in China, with Xinhua announcing the worst drought to strike Shandong province in 200 years. Shandong is a part of China’s wheat basket, in the northeast of China.

While south China has just over half the population of the country, it has nearly 85-percent of the nation’s water resources. The south supports 40-percent of China’s croplands. The north, by contrast, has only about 15% of the country’s water, 55-percent of its population and 60-percent of its cropland. For instance, the citizens of the sea port city of Tianjin, which faces the Korean peninsula, can only provide its population of 10 million with one-tenth the amount of water of the average citizen in the world.

Modernization has only exacerbated the historically drought-like conditions in the north: industrialization, certainly; but agricultural, overwhelmingly. The low price of water connected with the lack of education of farmers in sustainability and the government’s lack of regulation and enforcement of irrigation has made a bad situation even worse, very quickly (see photo).

Technorati Tags: china, environment, natural resources, water

Martin Wolf writes an insightful analysis in the Financial Times of the rebalancing of the world economy back toward the heft of Asia, at the center of which are the populations of India and China. His point is that the divergence in wealth creation between East and West in favor of the West from the 1800s on was actually the historic aberration; Asia had been the world’s economic fulcrum for more than a thousand years.

He places the divergence in the late 18th and 19th centuries, following the thesis set out by Kenneth Pomeranz of the University of California, Irvine in his book The Great Divergence (which I have not read but now want to). Angus Madison, a statistical historian, Wolf cites, pinpoints economic divergence in 1820.

I place divergence much earlier than the two of them, around 1700, with the increased interest in burning coal to run steam engines and turbines. It’s no coincidence at the time that Britain mined nearly 80% of the world’s coal at the time, and that the seat of the Industrial Revolution was that little island with the terrible weather. Nevertheless, James Watt’s massive improvements on the use of coal in combustion chambers paved the way for Britain – and then the other European countries and eventually America – to mine the energy they would need to “artificially” push the world into economic divergence.

China, meanwhile, had closed it’s doors to the outside world two hundred years before with the destruction of Zheng He’s fleet of massive ships that plied the seas as far away as India and Africa in the early 1400s. Unable and unwilling to keep abreast of the innovations occuring in the West, China set about deforesting southern China and northern Vietnam to maintain a burgeoning population and increasingly complex society. Without the energy needed to keep the country together, the Manchus were able to sweep in from the north, and essentially fight a losing battle over the next three hundred years to consolidate the country. No energy, no money, no society – a lesson today’s Chinese leaders know very well.

Perhaps if the Manchus had opened up the empire to the energy-related innovations of the West in the 1700s – just as the CCP has the last ten years -  the society would have trumped all comers and seen off a divergence that became a near-death experience for a nation.

What do you think?

China has set fire to the coal market at home and abroad. The National Development and Reform Commission (NDRC) recently commanded provinces to stop restricting shipments of coal to other regions to ensure stable supplies for the country, according to the Associated Press. The Ministry of Commerce, seeing a bubble in the making, has been attempting to stem speculation and outright scalping by ordering local authorities to press hard on companies and organizations hoarding coal, gas and other fuels. Profiteers attempt to manipulate auctions on the spot market to drive prices even higher than they are now for buyers, including steel mills and power generation plants. Of course, local governments that themselves have interests in local mining concerns may even sometimes thwart central government’s intent to keep the playing field somewhat level…

Read more of my China Economic Review column for this week …

Further reading: After Burning for 50 Years, Chinese Coal Fires May Finally Be Extinguished

image credit: treehugger.com

A couple weeks ago in Shanghai over a lunch of Sichuan spicy chicken and Yangzhou-style fried rice (with obligatory stir-fried spinach with diced garlic) Rob Schmitz and I discussed his trip at the beginning of the month to Inner Mongolia. Rob is China Bureau Chief for the Marketplace Business Report, which airs daily on National Public Radio (NPR), in the U.S.

“Everyone thinks Ordos is empty because of speculation,” Rob told me. Ordos is a prefecture bordering the better-known Hohhot. “Actually, it’s because of all the money that’s suddenly entered the local economy from the huge deposits of coal they recently discovered in the surrounding lands that they had money to build the city. It’s not speculation, like the rest of China – it’s because they actually have the cash.” Rob told me pretty much the only residents of the fully functional city are local administrators.

Knock on effects of the new coal business, Rob told me, have included the forced removal of nomads from their now-valuable land, a fair amount of which had already become unusable because of over-grazing by the sheep that have been providing the cheap merino wool sweaters consumers love.

Rob produced several other radio reports on the boom in the economy of Inner Mongolia, because of coal mining. Just a couple days ago, he offered a report on China’s real estate bubble.

Check out the podcasts here:

Urban Desert: Empty homes in Ordos

Boomtime on China’s grasslands

Is there a housing bubble in China?

Related posts:

Space is Curved in China

Property Value Woes

China Property Woes: An un-American Response