This is China! blog

I asked the Suzhou Bookworm manager, Alexis, “So, who over there is the author?” He pointed at the tallest fellow in the huddled group at the back of the bookshop. I commented, “One of the things I like about writers compared to businesspeople is that writers typically don’t want to be found out; businesspeople are dying to let others know how great they are.” And with that, the group of about twenty attendees at the first joint Bookworm/Green Drinks gathering set about listening to an engaging talk about Sam Chambers’ book, Oil on Water: Tankers, Pirates and the Rise of China. Green Drinks is a Hangzhou-based discussion group of expats interested in environmental issues.

Sam co-authored the book with the prolific Paul French. The two, according to Sam, conceived of the book project while bored on a five-day trip aboard an oil tanker that had launched from Singapore. Ultimately, the book is about the fragility of the ocean-bound supply chain for oil.

Sam is a tall, handsome, self-effacing Brit who gave a fact-filled account of the extraordinary importance of the shipping arteries and infrastructure skeleton that support the transport of the most precious energy source in the world: oil. Water, I learned from the talk, is the most efficient mode of transporting the huge loads from source to consumer:

• 40% of the growth in oil consumption the world over is because of China’s growing thirst for the slick stuff;
• 60,000 people die each year from shipping-related incidents;
• Pollution from oil tankers in any given year is worse than all the cars in America put together;
• By 2015, 40% of all the oil shipped around the world will be on tankers made in China;
• China now has 13 ports making oil tankers;
• 3% of the world’s carbon emissions come from shipping; more than from aircraft flights

Compared to other developing nations like India and Bangladesh, China has amongst the cleanest approach to breaking up obsolete ships: Chinese bring the old ships into docks and take them apart piece by piece, whereas along the shores of the subcontinent Indian and Bangladeshi captains ram the ships onto shore where oil and other toxins coat the beaches while scavengers peel away the ship’s skin and cart away its vital components.

Listen to my podcast with Sam to hear about China’s strategic interests in becoming oil independent (something, we both agreed, Congress still does not understand about China).

Image Credit: Made-in-China

My column in the China Economic Review analyzes just how China’s back room dealings with Japan and control of supplies of rare earth minerals may leave China trawling in empty waters one day…

The Turbot War of 1995 saw Canada take a Spanish fishing vessel the Canadians claim were over-fishing waters just outside Canada’s Exclusive Economic Zone. Over a span of several weeks battle lines were drawn along Anglo-American and European Continental lines as the British and Irish sided with Canada in the international conflict against, it seemed, every other country in the European Union. At that time, the natural resource under contention was fish. Now at issue between China and Japan are deposits of oil and other natural resources in an island chain the Chinese call the Diaoyutai Islands and the Japanese call the Senkaku.. At stake for the moment is Japan’s access to rare earth metals it uses in its celebrated electronics and motors. Also held hostage is world’s ability to develop clean and renewable energy technologies to ensure the survival of entire societies.

Read more of the column …

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

Whilst all eyes are gravitating toward the Copenhagen Summit on Climate Change, and China’s contribution to reducing carbon emissions that are changing the earth’s ecosystem, little is being said about the huge disruption to life and society in North China due to dramatic water shortages. Northern China makes up 19% of China’s water resources, with a little less than half all China’s population. What with Beijing sinking at 8mm per year because its sucked dry its own underground aquifers, and the farmers and fishermen of surrounding provinces stomping around on cracked, dessicated soil that was once farmland and fishing holes, rationing of water is becoming more commonplace.

China has just one-quarter the amount of water per person compared with the world average, and uses 65% of its water irrigating farmland that only yields 15% of the countries GDP. Yet, US$.31 per cubic meter, the cost of water in China is amongst the lowest in the world, at less than half the cost of the United States, and a tenth that of Germany. The cost of agricultural use of water in 2000 in China was a mere US$.01, compared to US$.15 for city dwellers and US$.16 for industrial use. The agricultural sector in the US uses water at US$.23 – still considered cheap by international standards. Cheap water has only encouraged farmers in the north to use water in abundance – and to waste accordingly: only 45% of this water allocation ever reaches the farm plots. Farmers waste nearly three-quarters of the water they use to irrigate their farms.

So, though, efforts to raise water prices will help somewhat with conservation, sustainable models of agriculture need to be developed and implemented. Quickly. Piping water from the south to north will simply buy the north some time – but not much, given the wasteful ways of northern farmers – and the climate catastrophe to its west.

The glaciers that provide the water to China’s greatest rivers are melting at an alarming rate. Indian and Chinese scientists estimate China (and India, as well) have merely 20 to 30 years more their societies can rely on melts from ice sheets. They are working together to see what can be done to stem the glacial recession. The Dalai Lama mid-November implored the Chinese government to set political differences aside to tend to the issue. According to Reuters, he said, ”
“A political solution (for Tibet) may take time, but that’s okay, we can wait.”

Much of the success of a sustainable model of water usage is in educating farmers on how to use the water, appropriate amounts and kinds of fertilizer and the kinds of crops that are appropriate to a geography that is rapidly changing.

Water – or rather, the lack thereof – is rapidly becoming the Chinese leadership’s greatest challenge. Not energy. Not even carbon emissions. Try to float your boat on that priority.

Further reading: Reuters, Daily Reckoning, WSJ, Green Leap Forward