China Comment

Energy, Environment, and Economy

The Bell Tolls For Hutongs?

Hutongs, the classic dilapidated, though picturesque, alleyways with crowded living-spaces and poor sanitation, made the news section of USA Today on May 27th. An article by Calum MacLeod entitled “Beijing bulldozes its old neighborhoods” raised a few basic questions that lead to more complicated questions about Chinese sociology and politics. How do and how should hutongs interact with modern Chinese cities, and why does Beijing seem so ready to demolish these popular tourist locations. Below is a consideration of the issues and questions that they raise.

A Hutong Near the Bell Tower, 2006

1. Problems With Hutongs. Let’s get the negative things about hutongs in Beijing out of the way first. They are often dilapidated– and do not have indoor plumbing. Some have electrical issues and raise fire safety concerns. Bathrooms are established for an entire street. They also often have poor cobblestone roads and are prone to suffering flooding and muddy footpaths. The people who live in them are quite poor and they are often bothered by tourists who either walk or are carted around by pedicab drivers.

Hutongs also, as I discovered in some conversations with locals, are considered to be embarrassing– they demonstrate China’s poverty, something that the country hopes to leave behind as it becomes a world leader. If this view extends from common people up to China’s leadership, then perhaps plans to renovate Hutongs and make them plastic “show alleys” with new construction and clean walls, as was done in Qianmen District south of Tiananmen Square, will be the fate for most hutongs.

2. Good Things About Hutongs. Tourists love hutongs. Many travel on pedicabs north of the Forbidden City, around the Bell and Drum Tower, to Prince Gong’s Residence and even out to the back alleys beside Yonghegong Lama Temple in order to see a glimpse of what China once was. Hutongs, like Europe’s classic back alleys, are a picturesque stop and a treasure.

3. Beijing’s Compromise.

What Beijing appears to have attempted in order to retain the hutongs‘ tourist attracting potential, while improving sanitation, and removing poor people from the city center; is to remove thousands from their homes, widen some streets and to “refurbish” the hutongs– getting rid of much of the “living” street culture that made up the alleyways, and destroying the very flavor that draws people to experience them.

Suggestions

It is difficult to argue with claims that life in unremodeled hutongs is not a very good life choice. However,

A Remodeled Hutong Courtyard (Interior), 2008

some people have gentrified hutongs, improving the interior courtyards while retaining the beautiful reddish-brown exterior walls and cobblestone late 19th-century feel of the places. Perhaps a better solution to the Hutong problem is to keep them small and crowded and thus retaining Beijing’s distinctive character and remaining attractive to tourists but to gradually install upgraded plumbing, and to remodel the interiors to make them more livable. Either the hutongs could be increasingly gentrified as monied people buy property inside them (siheyuan, courtyard homes) in order to live close to the city center; or the city could subsidize the poor people to live there–maintaining their homes in traditional style as a cultural district that celebrates what China once was– a poor country that has gradually become much, much richer.

Is a compromise of this sort possible? Or are hutong’s only futures (1) to be plastered with 拆 (chai) signs, then demolished for necessary office buildings, or (2) to be turned into plastic, clean, and overly-sanitized tourist spots that are not to be lived in– or are to be lived in, but separated from the hustle and the bustle of the world?

29 May, 2010 Posted by | China Environment/Health, China General, Isn't That Odd? | , , | 2 Comments

Citizen Influence on Mega-Projects

China added 330 gigawatts of electricity from 2005-2008. Some commentators state that China will need to add the equivalent of Britain’s electrical capacity every year for the next several years to keep up with current demands (Britain’s total capacity is 83.6 GW; the US added 105 GW from 2005-07).

China’s government sees energy security as a vital part of their country’s stability, and citizen challenges to already-planned projects that involve power plants, refineries, or hydroelectric dams meet stiff resistance from the Government. Despite this resistance, citizen-input has been present in several cases.

Chinese citizens have used public participation through the involvement of legislators and some alternative dispute resolution techniques in order to influence development of several power projects. Whether ordinary citizens can influence power projects’ development seems tied to local official involvement, face,  political power, and potentially the province’s economic wealth.

How Public Influence Works

Public involvement in processes is often expressed through informing legislators who take issues to higher levels and act as “champions” for citizens.

It is rare in China for a citizen to affect power projects’ development by sitting down with officials and a neutral third party agency to determine what will happen. Instead, government officials trade power and influence to decide how power projects will be developed and where they will be placed. Ordinary citizens, however, get involved in the process by informing legislators about issues and hope they take concerns to higher levels and act as “champions” for the citizens.

Citizens Without Power (But About To Gain Power Generation)?

Chinese citizens may protest some power projects, but outright protests tend not to gain positive results.

Citizens protested the building of dams near Pubugou in 2004. These dam projects would result in many citizens in losing their land. Pubugou is located in a poor part of Sichuan where the average per capita income was 12,930 RMB in 2007. Rural residents’ net income per capita was 4,120 RMB. (average per capita income in Beijing was 21,864 RMB in 2006).

“More than 100,000 people protested over several days. . . until riot police crushed the demonstration,” and several people were killed at Pubugou over the development of the planned hydroelectric dam. (Jim Yardley, NYT, 2).

Prior to the rioting, citizens communicated with government officials and lodged complaints when the country decided to construct dams that would flood and destroy land.  However, the national need for development preempted those people’s attempts to preserve the status quo, as is detailed in Andrew Mertha’s book China’s Water Warriors.

Citizens With Power (Moving Power Generation)

A different situation prevailed in Guangdong province, where citizens are richer.

Sinopec and Kuwait National Petroleum Company agreed in 2007 to construct the Nansha oil refinery between Hong Kong (xianggang) and Guangzhou in order to ease “the tension of Guangdong’s petroleum supply, [promote] . . . energy security and . . . social stability.”(Yang).

The refinery was estimated to cost around $5 billion to complete, making the project China’s largest joint venture.1 The project would process 15 million tonnes of crude oil a year2 and produce 800,000 tons of ethylene.3 The Nansha Refinery would produce refined crude oil and ethylene.4

Following the project’s approval by the NDRC in 2007, residents inside eight square km of land were removed to make room for the project. However, the project still needed to complete an Environmental Impact Assessment (EIA) and then a half-month public comment period.

An EIA was made, but there was concern that the EIA would not be made public. Groups from Hong Kong lawmakers, to bloggers, to Greenpeace called for the EIA to be made public. The Government pushed back, telling media not to run “comprehensive coverage” of the EIA, but that they would in due time make the report public. (Chloe Lai & Shi Jiangtao, Nansha Refinery ‘Likely to Move’: Delta Petrochemical Plant Could Shift to Western Guangdong After Opposition From HK, Macau, S. China Morn. Post, Mar. 21, 2009.)

Although some citizens hoped the EIA would come out in March; as late as May the EIA was not released. (Wang).

Ultimately, disputes surrounding the Nansha Refinery situation were resolved through general administrative processes and the interference of several political movers-and-shakers in Guangdong Province.

The public push-back against the Nansha refinery found champions in government agencies to support their ideas. There was institutionalized lobbying on the part of 14 Guangdong provincial People’s Congress deputies, but there were no publicized mass protests or marches.

Guangzhou’s Special Champions

The government eventually decided to move the refinery. Government champions were noted for succeeding but little attention was paid to the citizens who initially suggested changes. Lobbying by powerful representatives in Pearl River Delta cities was likely vital to reconsideration of the refinery’s location. (See Chloe Lai & Shi Jiangtao, Nansha Refinery ‘Likely to Move’ Delta Petrochemical Plant Could Shift to Western Guangdong After Opposition From HK, Macau, S. China Morn. Post, Mar. 21, 2009).

Perhaps as a result of public cries for the Environmental Impact Assessment (EIA) report’s release, the report was issued in the same year it was made. This is quite a feat considering that historically, EIA reports have been significantly delayed or not released.

The political power of Guangzhou’s local representatives, when coupled with Hong Kong residents’ affluence and the important central policy of lowering pollution in the Pearl River Delta (PRD) region helped encourage higher officials to sit down with representatives and ultimately decide to to relocate the refinery further west along the coast, to Zhanjiang.

In the wake of the EIA statement, Zhanjiang, a place that only has a yearly GDP per capita of “17,973 yuan (HK$20,400), nearly 20,000 yuan lower than Guangdong’s average”, became the new planned home for the refinery. (Ivan Zhai, Guangdong to Help its Backward West Prosper: Region is Earmarked for Heavy Industries. S. China Morn. Post, Sept. 30, 2009.)

Citizen Involvement and Power Projects in Conclusion

The Nansha refinery case demonstrates that power project permitting can be influenced and local concerns can be addressed when local officials express distaste for nationally approved policies. Local officials’ may have considerable power even when state-owned corporations such as Sinopec are involved in the siting process for large projects.

However, the Nansha Refinery situation could be an isolated case where politics and or money influenced the State’s willingness to conduct, and then release an EIA assessment and relocation, as well as the State’s openness to dialogue.

Footnotes

1 Chloe Lai & Shi Jiangtao, Nansha Refinery ‘Likely to Move’: Delta Petrochemical Plant Could Shift to
Western Guangdong After Opposition From HK, Macau
, S. China Morn. Post, Mar. 21, 2009.

2 Zeng, supra note 212.

3 Chloe Lai, Key Report on Nansha Refinery Under Wraps, S. China Morn. Post, Mar. 20, 2009.

4Winnie Zhu, China Approves $5 Billion Sinopec-Kuwait Oil Project, Bloomberg, Dec. 4, 2007, available at http://www.bloomberg.com/apps/news?sid=aP3B6lsQZ3QA&pid=20601080 (last visited Nov. 1, 2009).

1 April, 2010 Posted by | China Democratization, China Energy | , , , , , , , | Leave a comment

Publishing in China

Have you ever wondered how a Chinese book gets published? Books in China are once again in the spotlight, due to Google Books’ scanning of Chinese copyright owners’ works without their permission, so I decided to comparatively examine the process of copyright and book publishing in China versus in the United States.

Book Identification Numbers

Anyone can publish a book and sell it in the United States and books are not reviewed by any state agency before publication. Despite the relative ease of publishing and self-distribution, selling a book to stores (and yes, even Amazon) is a bit more complicated. Retail outlets will only order books if they have something called an ISBN number. An ISBN number may only be purchased directly in blocs of 10 for $250 (Although larger bloc purchases of 100 or 1000 are possible) (Source). However, ISBNs can also be purchased individually from a company that previously purchased a bloc of ISBN numbers. These companies then sell ISBNs piecemeal to would-be self-published authors.

Until 2003, all Chinese publishing houses were owned by the state, but the state has gradually decoupled its ownership of publishers (Jing Bartz). The Chinese publishing industry has undergone three phases of changes since 2002. The first stage pre-2002 was government control over publication and oversight of book issuance. The second stage, after WTO entry, from 2003 to 2008 was a time when the state gradually divested both control over publication and oversight degraded. The third state, from 2009 until the present day is another time of tightening or shou of oversight, but loosening (fang) of control regarding publication. (See: Peterson Institute, page 3 for a description of China’s cycles of fang/shou, loosening and tightening, throughout reform periods.)

Books in China, unlike those in the United States, are not supposed to be published and distributed at all unless they have a state-issued identification number, a 书号 (shu hao) from the GAPP (General Administration of Press and Publishing). China today uses ISBN numbers, as can be seen from the back page of any recent-published book from China. These numbers may be purchased only from several state-designated publishing houses. Before 2009, the publishing houses made extra money by buying large numbers of book numbers and then selling them to third parties who were not directly associated with government approved (or run) print houses. (Jing).

A new system went into effect in 2009. The new system issues “book numbers on a per-title basis, eliminating the surplus ISBNs that could be sold off to unlicensed cultural companies.” (Martinsen, Danwei). Apparently, the new system will increase the Government’s influence on the book publishing industry. One Chinese newspaper expresses some fear that books may only be allowed to gain book numbers after being examined and approved by officials or those influenced by officials. (Martinsen, Danwei). Still, the 2003-2008 system has apparently continued in part due to the logistics of implementing the new system–the titles just may be more closely examined by officials than before: “[E]ven under the title-based application system, many publishers are still book number dealers: their books are actually produced by other cultural companies… . For books that have poor sales projections, authors use “self-financed publications” — actually, they buy book numbers from a publisher[,]” (Martinsen, Danwei) which in practice- despite murky legality in China, is similar to the path taken by some U.S. self-published authors.

A China Youth Daily article suggests that implementation of this new system is merely a tightening step enforcing existing laws before the publishing industry becomes more open three to five years (CYD, see second paragraph and phrase beginning “2010年年底…”) after the government decouples its remaining publishing units from their attached bureaus. Still, although these new publishing units may be more vibrant and nimble economically,  that does not necessarily mean the books will not  have to be approved. Under new policies, the censorship process merely shifts back a step as the Government retreats from ownership, but not from supervision.

Copyright

Copyright in China of a book lasts for 50 years past the author’s death (Article 21). The United States used to limit copyright’s extension to such a limit, but the Sonny Bono Copyright Term Extension Act– the “Mickey Mouse” law, passed in 1998, changed the law to “protect” works for up to 70 years after an author’s death.

Book Sales

“China had [about] 544 book publishing houses in 2007, turning out 248,000 varieties of books, of which 136,000 varieties being published for the first time. [NOTE: The 136,000 number is the number commonly used to compare to Britain and the US' numbers of books released.]” (Hu Dawai’s Comments at Frankfurt Book Fair). In 2003, Britain published 120,000 titles and the United States 175,000 titles. (Beijing Review). (172,000 in the US in 2005)

China’s publishing industry as a whole sold 55 billion RMB of books in 2008 [about 8.5 billion USD.] (Jing). $24.3 billion in books were sold in 2008 in the United States, down from $25 billion in 2007. (Jing).

Appendix and Links

* PRC Copyright Law (english version; bilingual)

* Richard Lea of The Guardian gives a general overview  of Chinese Literature

* Overview of the Sonny Bono Copyright Term Extension Act.

* US Book Industry Statistics, 2008.

* Religious Book Publishing in China (Interesting).

* China Statistics on Books (2004).

* China Publishing Today (chinese)

* China Books Blog.

* And of course, Danwei.

22 January, 2010 Posted by | China Economy, China General | , , , | 5 Comments

China’s Coal (Part II): Alternatives

Coal accounts for over 70% of China’ energy mix, whereas in the United States, coal is 44% of the energy mix. Below I analyze several reasons why China has such high coal requirements as a percentage of its energy supply and I attempt to explain why China’s coal requirements may remain high for a long time to come.

Just how fast are China’s coal demands rising? According to a study, “offsetting one year of recent coal demand growth of 200 million tonnes would require 107 billion cubic meters of natural gas (compared to 2007 growth of 13 BCM), 48 GW of nuclear (compared to 2007 growth of 2 GW), or 86 GW of hydropower capacity (compared to 2007 growth of 16 GW).” (Lawrence Berkeley National Lab. Study)

(See Part One of this series on China’s Coal and a chart comparing China’s energy use to the United States’ Here).

China has trouble diversifying energy supply sources because it lacks significant natural gas supplies, it is starting from a very low base in installed nuclear power plants, and because of other renewable energies’ technical limitations.

1. China’s Lack of Extensive Natural Gas Supplies

Natural gas provides over 20% of US energy, but China has much less natural gas reserves than are available in the US. The US has 79 trillion cubic meters estimated natural gas reserves, whereas China has 22 trillion cubic meters. (EIA). Natural gas only accounts for 3.5% of China’s total energy supply and it is unlikely that Chinese natural gas utilization will increase to anywhere near the levels that it is used in the United States.

Natural gas generally burns cleaner than coal, so use of natural gas is desirable from both a carbon and a sulfur emission point-of-view. “[I]n 2011, China [hopes to]… raise the ratio of natural gas in its total primary energy consumption by 1 to 2 percentage points. . . . Using natural gas … as opposed to coal, could reduce carbon dioxide emissions by 130 million tons a year and sulfur dioxide emissions by 1.44 million tons a year.”( China’s LNG.)

Still, much of China’s natural gas has a high sulfur content, which makes it expensive to produce in a usable, or clean form. However, unconventional gas reservoirs may increase China’s future output. Not all unconventional resources, however, are included in estimations of producible reserves (such as those given above). “[L]ow permeable gas, coal bed methane, and shale gas are each respectively estimated at 100 trillion cubic meters, 30 trillion cubic meters, and 100 trillion cubic meters.” (China Coal Resource, Sept 2009)

Even fast-increasing development of unconventional gas resources will only marginally affect coal’s dominance of China’s energy supply. A 2005 Oxford study determined that “the share of natural gas in the primary energy supply is predicted to rise no higher than 10 per cent by 2020, even in the most optimistic scenario in which natural gas use is significantly promoted.”

Realizing that its domestic resources may not be enough to guarantee sufficient natural gas supply, China has also planned natural gas pipelines to surrounding countries to import gas. China also constructed several LNG (liquid natural gas) terminals (The Guardian, Watts, 2006; see also p3 Oxford Energy Study for a map of planned LNG terminals as of 2005).

(A more in-depth study on the future of China’s natural gas industry is deferred until another article).

2. China’s Coming Nuclear Additions

Nuclear accounts for 20% of US capacity. China has plans to increase their nuclear capacity from ~1.3% of China’s current energy mix to 5% by 2020. Despite plans to construct the most nuclear plants of any country in the upcoming ten years (and subsequently demanding a great deal of uranium), China will find it difficult to quickly displace coal’s dominance of China’s energy supply.

The United States has over 104 nuclear reactors, built over a thirty-year period. Prior to 2002, China had less than three operating nuclear power plants. Today, China has 11 nuclear facilities and plans to construct at least 20 in the next 10 years. But even with a significant building program, it may not be in China’s energy security interest to rapidly increase its percentage of nuclear power. If a massive nuclear-buildout occurs, large quantities of uranium will need to be imported, and engineers will need to be rapidly trained. A more gradual increase in nuclear capacity may be in China’s best interest rather than a break-neck development speed.

3. China’s On-line Wind Capacity And Renewables

Wind and renewables have steadily increased as a percentage of China’s energy mix, rising from 0.06% of China’s energy mix to 1.3% from 2006 to 2008. Additionally, hydroelectric power capacity has grown significantly in the past three years. “In 2008, the country added 20.1 GWe of hydro capacity” (World Nuclear Ass.)

There are limits to how much any country can depend on renewables, however. Engineers I have spoken with claim that an energy grid can only handle a maximum of around 25% of its power from wind. Wind is a variable source and needs scaling units (other energy sources that can turn on when wind is not blowing) to balance wind’s output. Wind’s average capacity utilization factor is only around 31%. In comparison, Combined Cycle Gas, Nuclear, and Coal steam turbines all rated capacity factors above 40%, according to the Nuclear Energy Institute.

Given current technology, at the most, wind could only account for about a fourth of China’s energy mix- and subsequent developments in battery storage or natural gas scaling units are required to make wind economically viable and reliable. (See China’s Dirty Wind for more on wind and scaling). (See “Capturing the Wind” by the House Research Organization for the Texas House of Representatives for an estimate of  the maximum amount of wind that can be integrated onto the grid using existing technology without radical alterations– 15GW; as of 2007 Texas already had nearly 5GW of wind online- which was only about 2% of the state’s energy supply.)

4. Hydroelectric Power

Hydroelectric power has been met with some controversy in China. Although there are environmental concerns, property takings concerns, and rainfall has declined, hydroelectric has a lot to offer China. Over 37 GW of hydroelectric capacity was added in China between 2004 and 2007. An additional 20.1 GW of capacity was added in 2008. China’s total potential hydroelectric rating is one of the highest in the world- at 694 GW. However, only around 171.5 GW of China’s capacity is utilized. China hopes to reach 320 GW of installed hydroelectric capacity by 2020 (Huang, 1658).

Of all potential alternatives to Coal, hydroelectric power will likely remain the number two energy supply source. Hydroelectric power has also done a great deal to reduce the amount of ash, sulfur dioxide pollution, and carbon dioxide emissions.

Conclusion

Although China’s coal consumption is double the number two producer’s amount, China seems to have little other viable options to displace coal as an electricity source in the near term.

China is embarking on ambitious wind and nuclear development programs, and it has built pipelines for natural gas, but these programs take time to develop, and there are drawbacks to all alternative energy sources. Even massive hydroelectric expansions have resulted in environmental and land-relocation controversy (See articles on the Nu River Project and the Three Gorges Dam; specifically see the book China’s Water Warriors by Andrew Mertha).

Coal will likely continue to provide a significant portion of China’s energy for the next 20 years– simply because the alternatives are not practical enough to scale-up large enough to replace coal’s necessary position in China’s energy mix.

These next few years will bring large challenges for China’s leaders as they try to balance energy security, energy demands, resource depletion and environmental concerns. With luck, China’s leadership will use constructive and creative solutions to manage and confront these growing concerns.

Recommended Reading

The Lawrence Berkeley Lab. Government Sponsored Study of the Chinese Coal Industry (July 2009)

Andrew Mertha. China’s Water Warriors. 2008.

24 November, 2009 Posted by | China Energy, China Future | , , , , , | 2 Comments

China’s Coal (Part I)

China, Coal, and Energy: Part I

China needs and must use coal to satisfy its energy demands; at least in the near term. In fact, the entire World needs to use coal until more energy is produced using nuclear, hydro and wind…practical systems that do not generally generate large volumes of CO2. Oil, natural gas, and corn/sugar cane alcohol all produce significant amounts of CO2 in their combustion.

Given the upcoming Copenhagen climate talks and inspired by the comments section of a recent WSJ article inveighing against China’s “obsession” with coal, I concluded it might be interesting to compare America and China’s Coal use and to determine what is being done to mitigate China’s coal demand, which if unchecked- according to an article in Science, as reported in Wired- may result in “carbon dioxide emissions… reach[ing] 8 gigatons a year by 2030.” That amount of emissions would equal current total worldwide carbon pollution.

Statistics below are mostly from the US DOE (Department of Energy). World Rank is in Brackets after #. In some cases, links are to articles elsewhere (such as Reuters) for updated information.

Statistics China US
Total Energy Consumption 73.808 quadrillion BTU(’06) (#2) 99.856 quadrillion BTU (2006) (#1)
Total Electricity Consumption
2.835 trillion kWH (#2) 3.873 trillion kWH (2006) (#1)
Coal Production 2584.246 MMST (’06) (#1) 2,772.799 MMST (’07) (#1) 1,112.292  MMST (2006) (#2) 1,128.836 MMST (2007) (#2)
Coal As A % Energy Mix 70% (‘06/’09) 350GW (2006)
44.4% (2009)
Average Sulfur Content (Coal)
1.1% (Thompson) 0.8%
Average Ash Content (Coal) 17% (Attwood) 14.6%
Nuclear As A % Energy Mix 1% (‘06) 1.3% (‘07) [9.1GW] 1.1% (‘08) 20.4% (2009)
Renewables As A % Energy Mix >1.5% [9 GW] (’08) + 21.64%  Hydro [171.5 GW] (’08) ~1.0  +7% Hydro (’06)
3.6% (Sort of) + 7.1% Hydro (’09)
Natural Gas As A % Energy Mix [Consumption]
3% (‘06) 3.5% (‘07) [77.18 billion M3] (#11) 23.2% (2009)[657.2 billion M3] (#1)
Coal As A % of CO2 Production 82% 36%
Carbon Production 6,017.69 mil metric tons CO2 (’06) (#1) 5,902.75 mil metric tons CO2 (2006) (#2)

Chinese coal production is very high– twice the level of the United States’ production. All this coal production has led to carbon dioxide production, sulfur dioxide pollution, and coal ash pollution. (Detailed in the NYT’s award-winning “Choking on Growth” series).

Given the amount of coal that China produces, and the relatively higher sulfur and ash content  of some Chinese coal (MIT article | summary | Green Leap Forward’s Analysis) , the mere slight CO2 production lead that China has over the US is quite interesting– though that is likely in part due to China’s lower automotive emissions. “In [2005], coal combustion accounted for 82 percent of China’s CO2 emissions, and [only] 36 percent of America’s CO2 emissions.” (MIT, 3)

Chinese coal’s average sulfur content was about 1.1 percent, according to an article by T. Attwood in “Market opportunities for coal gasification in China” (Journal of Cleaner Production 11 (2003) 473–479.) (See also 1998 statistics of 1.1% in Thomson, 192). In contrast, “coking coals produced in the United States have … a relatively low sulfur content of approximately 0.8 percent by weight.” (EIA). In 2003, burned American coal rated a 0.93% sulfur content.

China’s coal also has a relatively high ash content- but that percentage appears to have declined over time. 60% of China’s coal used in the late 1990s had an ash content of 25-35%, and some parts of the country saw ash contents of 40-50% (Thomson, 192). In the 1990s in the US, the rate was 14.86%. Apparently China began using coal with lower ash content in the early-2000s, but the content at 17% was still higher than American ash content (Attwood).

Cleaner Coal Plants?

China’s coal plants have installed technology that allows them to reduce their amount of sulfur emissions. A surprising percentage of China’s coal generation power has been improved with cleaner-coal technologies. By the end of 2007, according to some Chinese estimates, over 270 GW of generating capacity had been installed with some form of FGD [Flue Gas Desulfurization] equipment.” (MIT)[and] “state regulations demand that all new power plants as of January 1, 2004, must be equipped with FGD systems and a series of programs have been initiated to insure retrofitting of FGD systems on older plants by the end of the decade.” (MIT).

“[E]missions levels from Chinese powerplants (sic) … “depend almost entirely on the quality of the coal they use. When they’re hit by price spikes, they buy low-grade coal.” Lower-grade coal, which produces high levels of sulfur emissions, can be obtained locally, whereas the highest-grade anthracite comes mostly from China’s northwest and must travel long distances to the plants, adding greatly to its cost. Contrary to what many outsiders believe, the Chinese state has substantially improved its ability to implement and enforce rules on technology standards. It has been slower, however, to develop such abilities for monitoring the day-to-day operations of energy producers.” (MIT Summary)

Some question whether the cleaning technologies are actually being operated effectively, and argue that “regulatory traction is partial at best. The shortfalls appear particularly serious on the operational side of power plants. That is, the systems are increasingly in place, but whether they are actually operated is another question.” (MIT)

Further Thoughts

So why does China use so much Coal rather than natural gas or nuclear– which account for 40% US energy, but both of which are negligible in China’s energy-mix, accounting for less than 7% of their energy supply?

And is there any possibility that China will increase the amount of cleaner or non-coal generating sources?

Next week, I will provide some analysis into why China needs to use so much coal and the chances that natural gas, wind, hydroelectric generation may reduce China’s Coal dependency and CO2 emissions.

Annex

* The October 2008 MIT article mentioned above analyzing China’s coal power industry is well worth the read.

20 November, 2009 Posted by | China Energy, China Environment/Health | , , , , , | 4 Comments

China’s Dirty Wind

News in the WSJ on Sept 28th reported that China’s wind farms, which as I have noted before* , have some connectivity problems in joining the electrical grid. That information is nothing new, but the rest of the article’s discussion piqued my interest.

Apparently, the Chinese government is planning to ensure ample supplies of wind (even when it is not blowing) by balancing the load not with fast-starting natural gas plants, as some US wind farms utilize to manage the load, but with slow-starting and arguably heavy-polluting coal plants.

What is not common knowledge is that producing power is not as easy as connecting a wind farm into a preexisting grid. Wind power fluctuates and varies and sometimes needs to be shut down/curtailed if wind speeds exceed say 35 mph, or blow at less than around 5 mph. Too much or too little wind on the grid can cause power shortages. (A very basic explanation of load management and peaking is HERE). A news article on the problem of variable loads being matched with hydroelectric power is HERE.

According to NERC, which (under FERC’s supervision) can assess fines and create rules to ensure electricity reliability in the US, “Wind machines “ramp up” and trail off so fast that the grid is likely to need new generators fired by natural gas that can start up or shut down faster than the ones in service now.” (NYT).**

When I read the WSJ article, I could not initially believe what it was saying. For a country run by engineers and geologists, one would think that China would be well aware of the difficulties in cycling up and down different types of power. Natural gas is a good match for wind power because it is easy to cycle up quickly. Coal, however, takes longer to cycle up. For coal to be an efficient match to mitigate the variability of wind power, coal plants will need to be on constantly.

Considering that coal is a relatively cheap source of energy, wouldn’t it be cheaper for Chinese power plants only to invest in coal and run the plants at 100% capacity rather than constructing wind plants while running coal power plants at 50% and then scaling up their use when needed? By matching coal with wind, most potential environmental gains are negated since coal’s emissions constantly flutter into the atmosphere. Still, it could be said that some reduction in carbon output is better than none at all. But the matching of coal to wind certainly drives wind power’s costs up– for China’s economic detriment and only marginal environmental gains. (It could be that China is hoping the build-out of wind power helps them when the Copenhagen environmental carbon market targets are achieved; or that natural gas can be matched to the wind farms after certain pipelines are completed.)***

Why is China using coal instead of natural gas? China simply does not have very much natural gas. (EIA) Natural gas only accounted for 3% of China’s total energy mix in 2006, compared to nearly 70% provided by coal. (EIA). And of that, only 29% was used for electric power or residential and commercial uses as of 2005. (page 4, Yang Dengwei; 32% was used for industrial fuel) This should change, however, due to pipelines that China is constructing from bordering countries that have natural gas surpluses. And of course, Liquid Natural Gas technology also raises the amount of imports that China can receive. By 2011, China hopes to “raise the ratio of natural gas in its total primary energy consumption by 1 to 2 percentage points.” (China Daily). China’s natural gas consumption rose from 50 billion cubic meters in 2005 to 76 billion cubic meters in 2008, to an estimated 86 billion cubic meters in 2009. (China Daily).

I suspect that China may eventually decide to go down the route of battery storage of excess wind power in order to better manage the loads. But battery storage technology is still a bit expensive, “costing roughly $3 million per megawatt plus millions for start-up and testing.” (Scientific American).

When China’s excess natural gas pipeline capacity comes online, the country may also begin greater utilization of natural gas to manage wind’s load, but natural gas supplies will still be dwarfed by China’s coal– and natural gas prices may rise again like they did in Summer 2008. If a majority of China’s natural gas supplies are imported (as appears likely), in order to preserve energy security, Beijing may want to discourage generators from using natural gas to provide safety from wind’s variability. Hydroelectric power could also be paired to wind power. However, hydroelectric power is mostly concentrated in China’s south, whereas much of China’s wind resources are  located in the North (Inner Mongolia, Xinjiang, etc.). Perhaps nuclear could balance the wind grid like coal currently does, but most new nuclear plants are to be built on the coast and near China’s south.

It will be interesting to examine how successfully China marries coal to wind generation and what sort of effect this will have on China’s future electricity pricing.

Endnotes

*In my older post I perhaps noted China’s wind connectivity problems a bit too harshly given that the US also has some grid connection problems regarding wind since even more so than in China, a great deal of US wind capacity is far from its citizens and will require long transmission lines to provide wind. This transmission problem helped lead to the demise of part of the Pickens Plan for a massive wind farm in Texas.

**At the very least, “[b]atteries or flywheels, both of which can store energy, may be needed to smooth out the production of wind farms, which stop producing power when the wind stops, or when the wind goes faster than the turbines can handle.” (NYT) [which leads to patents like THIS.]

*** Interesting fact. Due to the need for wind to be matched to more reliable sources of power, wind farms are not 0 carbon emission investments. One study reported that;  “Increasing the capacity of wind energy on the Austin Energy grid causes increased usage of these less efficient peaking units. In other words, as more wind energy is generated, there is a drop in the overall efficiency of fossil fuel based energy on the grid, resulting in greater carbon emissions per unit of energy from the nonrenewable sources. . . For purchased wind energy from Austin Energy, with a 20 percent capacity of wind energy, each megawatthour of electricity would increase the emission from the fossil fuel sources by 60 lb of CO2 . While this CO2 emissions rate is lower than the current UT plant emissions of 694 lb/MWh, it is also not zero. Instead of the purchased wind energy being 100 percent carbonfree, the reserve offsets result in 91 percent carbonfree energy” (Is Wind Energy Hot Air?, UT)

5 October, 2009 Posted by | China Energy | , , , , , | 3 Comments

China’s Food Safety Law and Tort Reform

With its new Food Safety Law that went into effect on June 1st, 2009, China has edged closer toward an “Americanization” of its tort law system (at least in the Product Liability area). China has given a little more power to people who file lawsuits. The incremental changes in this particular law which allows greater monetary recovery; however, probably does not signal a near-term shift in China’s general attitude toward permitting recovery of higher sums in other sorts of tort law litigation.

China’s Tort Laws have been in semi-serious revision since around 2002, and have been through numerous drafts. (See 2002 draft translation; and a 2007 discussion.) One of the proposed drafts “doubles the [currently used] 1986 Code tort liability provisions from thirty-four articles to sixty-eight articles, which * * * state basic principles of tort liability.” (Conk, 937 ; 2007)

Whether or not “tort reform” in China (I.E. making it easier to sue and to recover more in damages) is necessarily a positive development or not is debatable, but it does seem that the trend in China has been to grant more power and recovery for individuals in certain circumstances.

China’s new Food Safety Law appears to demonstrate an intention to get tough on public health violations.  The Food Safety Law allows harmed consumers to claim higher punitive damages. “In addition to a compensation covering the damage they have suffered, [customers may claim] damages up to ten (10) times the purchase price of the product in question from the relevant manufacturer or seller.” (DLA Piper; additionally the law imposes more severe penalties against manufacturers and sellers, permitting criminal liability, confiscation of unlawful gains and property, and fines ranging from 2,000 RMB to 5-10 times the value of the defective product.)

Class action lawsuit reform which would make it easier for class action lawsuits to form, appears to be on hold. Although a class action suit was filed in January, the suit has not yet been accepted. The first individual lawsuit against a melamine-injecter was only accepted in Hebei in March.  To date, no class actions have been accepted against any actor involved in the melamine scandal. And class action lawsuits related to the Sichuan earthquake have also been rejected. (A more indepth study of class action lawsuit reform may be warranted at a later date).

Punitive Damages and Government-Based Compensation

Generally, the Chinese government is adverse to mass tort claims and it tends to rely on government-directed fines or state compensation to achieve the same ends that are achieved in American class action suits (Green, 152). Fines and government-directed compensation levied against Sanlu helped cause the firm to go into bankruptcy. (Also see: China milk firms ‘to pay victims,’ BBC, Dec. 27, 2008 ; demonstrating the government-fine system). In the wake of the Sichuan earthquake, Chinese local governments preferred to settle claims and give compensation rather than go to court. And indeed, few if any earthquake-related cases, have gone through trial.

[Also see an article on Xinhua that concerns possible updating of the state compensation system].

Conclusion

It is interesting to see the Chinese government taking a step back from government directed and centralized compensation policies and permitting lower courts to hear individual cases (at least one), and permitting higher recoveries on punitive damages.

Over the next few months as the case(s) wind their way through courts and the courts respond to societal pressures we will be able to see if there is any pending tectonic shift in the way that China practically handles tort law product liability cases. Although the law has “liberalized” somewhat, what really matters is what goes into practice- and a verdict on that will have to wait.

Appendix:

The Food Safety Law. (Promulgated February 28, 2009; In Effect June 1, 2009)

DLA Piper’s Report on China Product Liability.

George W. Conk, A New Tort Code Emerges in China:An Introduction to the Discussion and a Translation of Chapter 8 – Tort Law of the Official Discussion Draft of the Proposed Revised Civil Code,” 30 Fordham Int’l. Law Journal 935 (2007).

Andrew Green, Tort Reform With Chinese Characteristics: Towards a “Harmonious Society” in the People’s Republic of China, 10 San Diego Int’l Law Journal 121 (2008).

NY Times articles on the Sichuan Earthquake and the Chinese Government’s response.
PS: June 2nd, 2009 marked the one year anniversary of this website. :) 加油!(Over 65 articles, averaging 1.1 per week)

22 June, 2009 Posted by | China Future, China Law | , , , , , | 1 Comment

Beijing Commodity Demand Boom– A Bust?

China’s commodity demand has risen sharply in the past few months. Its stock market is up and China seems to have dragged commodity prices out of the cellar. However, China seems to be gambling with its stimulus growth. Its demand boom seems to be artificially backed more by government lending rather than sound economics.

Professor Michael Pettis’ article at the RGE EconoMonitor inspired this examination of China’s commodity demand, its existing liquidity, its borrowing spree, and a possible aftermath in the wake of these radical changes.

(Conversion note: ~6.7 RMB/Yuan to a dollar)

1. China’s Commodity Boom

* Oil is up above $65 dollars, driven by hopes of expanding demand in emerging markets.

* “In May, China produced 46.5 million tonnes of crude steel, the highest rate of production since June 2008.” (Hindu Business Line).

* “Chinese customs statistics show record copper imports. For the first five months of 2009, Chinese total copper imports hit 1.76 mt compared with 1.15 mt for the same period in 2008. However, imports are likely to slow after June as demand enters a seasonally weak period. So, until there is clear evidence of a slowdown in copper demand, prices could stay firm.” (Hindu Business Line).

China is demanding a lot of commodities, and is apparently producing a lot of manufactured goods. But it does not appear to be selling a lot of goods abroad, or at home– which implies that China is creating a pseudo-bubble market– and that should be a reason for concern.

(For more sources and citations; See my comments and sources on China’s declining exports and shrinking tax base in section 2b below)

2. Worries About Artificial Growth

Artificial growth, fueling a pseudo-economy and backed by shady investments in real estate and over-extension of debt, contributed to the economy’s crash in America. It is possible that China’s 4 trillion yuan (~520 billion USD) stimulus package may, likewise, create weak institutions and tendencies across its country even as China’s rising commodity orders help drag the rest of the world back into GDP growth.

Including local government debt, according to the Wall Street Journal, China’s stimulus debt is not at the officially claimed sub-20% of GDP level. Instead, China’s debt is nearly 40% of GDP. (Still, this compares favorably with the US’ over 60% of government-held debt as a percentage of GDP– but there is one difference between the two places; China is a developing country, whereas the US is a developed country-Economists will argue whether that means China’s debt is better or worse than America’s). (Wall Street Journal).

2a. Government Borrowing

Some echoes of the United States’ spendthrift ways can be seen Chinese Cities’ spending on bond issuances and construction projects. Caijing has many good articles on this topic (See Appendix below).

As much as two-thirds of Beijing’s 4 trillion yuan stimulus program will be spent by local governments, primarily financed by state-owned banks.

The extent of borrowing in China is massive, even just by cities and provincial governments. “About 2.8 billion yuan in local government bonds were issued across the province last year. But so far this year, municipal bond issues have totaled 8.5 billion yuan. And 7.9 billion yuan in borrowing is pending NDRC approval… Maturity periods range from seven to 10 years. ” (Yu Ning, Zhang Man and Fang Huilei; Caijing)

The borrowing may lead to difficulties since China’s province and township-backed companies are competing with each other for State-backed money and for customers.

The borrowing in China also seems a bit reminiscent of the real-estate market troubles in the United States:

According to Huang Huidong, the general manager of Liuan City Investment Co., the city’s government has a 1.5 billion yuan budget gap. The company borrowed 1.24 billion yuan from banks and issued 1.5 billion yuan in bonds. Income from land leasing seems to be the only way to make ends meet.

“We can make about 3.6 billion yuan by leasing land to balance the 2.7 billion yuan in debt,” Huang said.

However, Huang admitted leasing will be difficult if the real estate market sours. “If land is not leased, and there are no government subsidies, city investment companies will go bankrupt.”

Liuan collateralized its bonds with 28 properties valued at an estimated 4 billion yuan. But Caijing learned from the local land bureau that the Liuan government earned only 800 million yuan from land leases last year, and the city has had no major real estate sales so far this year. Flats in six buildings near Liuan’s best school are currently for sale at 3,200 yuan per square meter – cheap by Beijing standards, but the most expensive housing in Liuan.” (Yu Ning, Zhang Man and Fang Huilei; Caijing)

Chinese local governments increasingly lack land to collateralize against for loans, an assistant director at CASS (China Academy of Social Sciences), warned. “Some local governments will virtually go bankrupt,” Professor He told BusinessDay. “Previously, local governments got all their money from selling land. This is not sustainable. Some areas have already sold quotas from the next 30 years.”

If China’s stimulus money was mostly being corralled toward infrastructure and long-term investments that can unequivocally help the local governments that are spending the disbursements, the long-term aftermath of China’s bond issuances might be more positive.

However, it appears that the majority of China’s stimulus money is going toward manufacturing- which leads to jockeying amongst the provinces and townships to prove the best rate and the best deals for eventual export or domestic manufacturing plants.(And the manufacturing is generally the dirty low-end kind rather than the high-end kind: See: Tom Miller, Financial Times on Dongguan)

This competition between local governments, financed through state-owned banks, could have grave consequences as at least some provinces will bet poorly and their SOE, TVE, or local government-loan backed factories will go out of business. Then, the provinces may be at a loss to pay their debts. (To say nothing of the possible crowding out of wholly private non-Town and Village Enterprise-owned factories… such as they exist).[Admittedly, the current situation of SOE/TVE/Local Government participation rates is worth a book-- and the paragraph above is only a broad overview. Wu Jinglian wrote some comprehensive books on China's state-business interaction.]

Due to declining demand (and perhaps rising competition??) “China’s consumer price index fell 1.4% in May from a year earlier, the fourth straight month of drops,” (Terence Poon ; WSJ) Increased competition could cause prices in China to continue to decline; still, economists almost paradoxically fear eventual inflation (due to extensive government borrowing) – which should offset the deflation.

Ultimately, the real story and worry here is neither inflation nor deflation, but of Chinese local governments’ backed-enterprises potentially competing each other out of business.

As a Caijing article reported: “Where is the money going? Unlike an economic development blueprint sketched out by the central government that favors infrastructure projects and low-emissions, high-tech industry, the province’s local governments have shown that they still prefer the old standbys — manufacturing.”

2b. Industry Borrowing

“A National Statistics Bureau survey of 22 regions found industrial profits totaled only 323 billion yuan during the first quarter, down 32 percent from a year earlier. That means annual profits for all industries will amount to only about 1.6 trillion yuan this year.

Outstanding loans currently stand at 35 trillion yuan. Assuming companies have kept a moderate debt ratio averaging less than 50 percent, their capital investments now exceed 35 trillion yuan. And profits of 1.6 trillion yuan versus 35 trillion in capital investment means an annual return rate of only 4.57 percent, below the weighted loan interest rate of 4.76 percent we saw in March.”  (Lu Lei, Caijing)

“China’s relatively new corporate-bond market, where many local governments also are raising funds, provides a bit more clarity. By the end of May, issues of local corporate bonds — virtually all of which are indirectly backed by local governments — totaled 102.53 billion yuan, already more than the 68.39 billion yuan sold in all of 2008.” (Wall Street Journal).

Although a lot of money is being borrowed, it seems to be borrowed more to prop-up flailing businesses rather than to reflect businesses catering to increased Chinese or foreign demand for services. Overall exports were down 22% year-on-year for April, ” “Electricity generation is down y/y, even though industrial value added it up” (Setser) and this year China’s tax base is smaller.Looking at tax revenues, local governments nationwide were unable to collect as much in the first quarter as in the same period 2008. In fact, tax receipts fell 1.4 percent, in sharp contrast to the 34.7 percent increase posted a year earlier.”

3. How Long Can the Borrowing Be Sustained?

Economists will debate the complicated question of how long Chinese local governments’ borrowing can be sustained and how long the worldwide economic downturn will continue.  Regrettably, those questions are a bit too rich to effectively treat here at this time.

4. What Is Left In The Aftermath of China’s Spending Spree?

It seems that without worldwide economic recovery and a rebound in the demand for Chinese manufactured goods; China’s cycle of bubble-borrowing may lead to inflation and instability, or defaults that may bring its financial system into danger.

However, China’s financial system has the strong backing of the government. (And China’s Investment fund and foreign reserves continue to grow.)

“At the end of March, the State Administration of Foreign Exchange (SAFE)—part of the People’s Bank of China (PBoC)—managed close to $2.1 trillion: $1.95 trillion in formal reserves and $184 billion in “other foreign assets.” China’s state banks and the China Investment Corporation (CIC), China’s sovereign wealth fund, together manage another $200 billion or so. This puts China’s total holdings of foreign assets at $2.3 trillion. That is over 50 percent of China’s gross domestic product (GDP), or roughly $2,000 per Chinese inhabitant.” (Brad Setser; CFR)

Here, although I very much believe in China’s long term economic success, I argue for some sobriety in assessing the extent of the current “Chinese miracle” of recovery.

It is nice to see China take some lead in stimulating a worldwide economic recovery. But it makes one wonder, is China’s debt-fueled growth rising demand for commodities like oil causing an artificial climb in prices that will ironically hurt demand for Chinese exports?

Could the Chinese be doing a disservice to themselves by embarking on a massive borrowing spree? China has benefited over the past 20 years from a high savings rate (30-40% per person), that the country may only now be cashing in so that the country may maintain stability and over 6 percent yearly growth needed to employ the majority of their college graduates.  So China may be able to afford its spending spree- it is certainly better positioned to afford a spree than is debt-heavy Japan, for example.

Interestingly, one Financial Times commentator argues that at least in Guangdong, the employment situation seems to be holding steady:

“the local government estimates that of the 10m migrant workers who went home for the lunar New Year, 9.5m have returned to the province. Of these, about 5 per cent (or 460,000 people) had not found jobs… in the context of a province with a total population of 110m, half a million migrants is a sizeable [sic] but manageable army of unemployed.”

However there is a real fear by the Chinese government that a sizable amount of unemployed could lead to real troubles of unrest. And of course, the numbers could be exaggeratedly small– especially given China’s real decline in Q1 tax receipts and in electricity demand (Setser) .

Although China is out borrowing and stimulating the world economy, just as some in the West have called for China to do, there may be a worrisome double-effect of the infusion of so much government-backed “play cash” into the market.

If one believes in the power of the market to correct, then there may be a correction. Without demand for its exports, Chinese demand for commodities will slacken and commodity prices will decline. But at what price for China?

As Professor Michael Pettis stated, perhaps best, this appears to be an opportunity for China to shift its economy’s composition; and the gamble it is taking with its stimulus requires either a rebound in foreign export demand or for an increase in domestic demand.

Although “China will be the first one out of the crisis because it is least likely to be affected by it,… China [still]may be the last one to say goodbye to the recession, because it has to make “difficult adjustments” to transform its economy from exports-driven to domestic consumption-oriented.” (Caijing)

Appendix:

Cities Rush into Debt … Caijing

No End in Sight for Loose Monetary Policy… Caijing

China’s Stock Market Could See a Huge Drop… MarketWatch

The Chinese puzzle: why is China growing when other export powerhouses aren’t?… Brad Setser

(Interesting Argument: “The answer, I suspect, is that China – unlike many other countries that relied heavily on exports for growth – actually did have an underlying dynamic of domestic demand growth… It is now clear that the majority of China’s stimulus has been off-budget: the huge increase in lending by state owned banks mattered far more than the change in the budget of the central government.”)

15 June, 2009 Posted by | China Economy | , , , , | 1 Comment

China’s International Leadership

From February 26th through the 27th I attended a symposium at the University of Texas in Austin, TX on China’s Emergence: Effects on Trade, Investment, and Regulatory Law.

Here are some thoughts on the more notable issues raised at the symposium:

Raj Bhala, a professor of law at the University of Kansas and a graduate of Harvard Law, Oxford, and the London School of Economics, spoke about China and the Doha trade round. He suggested that China’s actions at the WTO’s Doha round discussions demonstrate that China’s claims to be a global player in the highest echelon of nations are premature.

Bhala argued that China’s failure to take leadership to promote the common good with a compromise solution for the Doha round is a worrisome indicator for the future of the agreement. Without the leadership and investment of time and effort by one of the world’s most populous and economically involved countries, it may be impossible for Doha to become satisfactorily resolved.

Some tangential issues raised by Prof. Bhala’s talk were:

(Note: Professor Bhala merely raised the topics; the below research and musings are solely the work of China Comment’s point of view that has been shaped by a synthesis of Bhala’s lecture and other sources.)


1) China’s Leadership in International Forums, or lack thereof

China has sent peacekeepers to the Caribbean and to Sudan (and accounts for 2,200 of the over 115,000 UN peacekeepers); and recently it has wielded its UN Security Council veto more forcefully, but China still appears to ascribe to the policy of waiting and seeing how circumstances develop before taking a firm stand on an issue.

For long, China would not wield a UN veto, instead abstaining when it disagreed with a policy. (China has only used its veto around six times in the past thirty years.) But recently, China vetoed resolutions attempting to levy sanctions on Zimbabwe in 2008 and Myanmar in 2007.

Although China’s comments about abandoning the dollar as the world’s standard trading currency surprisingly seemed to indicate a more assertive country, any comments that the Yuan will in the near term present a significant threat to the Dollar as a reserve currency are likely idle speculations, not the least because the RMB still trades in a managed band and is not fully convertible. There does not seem to be enough being done by the Chinese, other than a few meetings with Brazilian dignitaries to suggest that the proposal has merit and is being advanced for any reason other than to distract from US policies pushing for Chinese currency revaluation- although China Comment will follow the situation. (A measured and detailed discussion of the merits of Zhou Xiaochuan’s plan is presented by Pieter Bottellier which reveals that the suggestion is FAR more nuanced than a mere call for the RMB to supplant the dollar. Jeffrey Sachs sees some merit in Zhou’s plans, as do others. Brad Setser at CFR has a good round-up of all the important people’s views on the subject.)

China also failed to take leadership on agricultural trade issues during the Doha round. It could be argued that China used India’s objections to the Doha trade rounds in 2008 as diplomatic cover to likewise reject the deal in order to avoid being criticized too harshly for their demurral.  (See some collected views from major newspapers on who caused Doha to fail, HERE and HERE). [Note: The topic of China's actions in Doha is far too expansive to discuss here. Likewise, the topic of China's leadership in agricultural trade is beyond the scope of this digression.]

Gao Guangsheng, Director General of the National Coordination Committee on Climate Change, did posit an interesting argument about how the world could help decrease China’s pollution. He suggested that the developed countries pay China 1% of their GDP, about $350 billion in 2008 (Because, in past eras, developed countries were allowed to pollute as much as they wanted). It is a little difficult to take Gao’s environmental-hostage-taking demands seriously.

China Comment suggests that as China becomes more confident in its economy vis-a-vis America, it will increasingly throw its heft behind solutions and ideas. But before it can do this, it will have to become an international financier and investor. China has already begun to travel down that road, with an April 2009 annoucement that it would create a $10 billion investment cooperation fund, and offer $15 billion in credit to its Southeast Asian neighbors to promote infrastructure development (also “the trade value between the ASEAN and China increased from 59.6 billion US dollars in 2003 to 171.1 billion US dollars in 2007, growing at an annual rate of 30 percent”). Additionally, China made a May 2009 agreement to lend $10 billion to Petrobras, and has entered into assorted lending contributions to African countries, from Zambia to Mozambique (for a Hydroelectric dam).

Still, China has some way to go to compare its giving to the billions that the United States and Japan and the EU donate to the UN (US donated 22% of the UN’s budget. China paid 2.03%.), the IMF (China contributes 3.72%, the United States contributes 17.09%), and other organizations and countries. With China’s billions in reserves, however, the country is flush with enough cash ($1.95 trillion in forex reserves; and over 1,000 tons of gold) that strategically spent, can make a huge difference.

2) China’s International Diplomatic Style (Its “Grand Strategy”)

China’s putative international diplomatic style is to exert a large amount of “soft power,” to not “ruffle feathers,” and to pursue a policy of peaceful development. (China Daily, December 2005) China also expresses a support for multilateralism, which is a bit strange given that China also demands to resolve natural resource disputes bilaterally rather than multilaterally, specifically in regards to the Spratly dispute (Valencia, Mark J., Jon M. Van Dyke, Noel A. Ludwig, Sharing the Resources of the South China Sea, 1997. 118.)

To this end, China has made investments in Africa and in 2007 conducted $50 billion of bilateral trade with sub-saharan Africa (up from $10 billion in 2000). (Rotberg, Robert I. China Into Africa, 2008, page 3).

China’s policy of peaceful development, however, is sometimes looked on negatively by other countries as the Chinese can be seen as global free riders, who do not assume their international obligations, who contribute too few soldiers to UN peacekeeping missions, who contribute too little money to international lending institutions, who pollute the environment, and who have for long done too little to rein in their troublesome neighbors- like North Korea.

China has attempted to involve itself in multilateral institutions for discussion in both the economic realm (ASEAN) and the security realm (the SCO) in order to gain influence in a non-threatening fashion while working with regional allies.

- This topic certainly merits more in-depth study and research in a future article.

3) China’s Ultimate View of the International Trading System

- What are China’s long term goals? Its suggestion that the dollar be replaced as a global reserve currency may indicate a desire for China to assume economic leadership, but when will that be feasible? And what sort of leadership will China take? Will they be promoters of free trade- China has signed many bilateral free trade agreements (See China Comment’s Article), or will they be less ideological, and more realist in their plans- not pushing any philosophical strategy save that of friendship with China?

Conclusion

China does not seem to have yet taken leadership in inventing a workable global trade structure, one that is harmonious for all, or even one that is China-centric. When will the confidence to create and propose such a system come? Reflecting on China’s financial philosophy, and comparing that to the invention of Western financial philosophy- it seems that ideas for world financial structure are implemented only in times of great crisis or upheaval; Post Cold War-WTO, Post WWII-Bretton Woods (which had concepts germinated during the Great Depression and WWII), Great Depression Keynesianism (which had concepts germinated after World War I and in the early years of the Great Depression), and that the ideas which eventually shape the system originate from the “great power” at the time.

It could be a chicken and the egg problem of whether economic leadership causes a country to become a great power or if only great powers can take economic leadership, but even if China has decided to avoid its chance to grab world economic leadership during the current crisis as Prof. Bhala indicates, I believe that China and its academics are consolidating ideas and preparing themselves for the next worldwide military crisis, or are awaiting the next cyclical economic crisis (c. ~2012-2015) to grab its next opportunity. And when that opportunity arises, much of the thoughts germinated by Chinese academics during this current crisis may very well become world policy.

Note: It would be useful to conduct a literature review of Chinese academic writings on world financial markets. Since time for that project currently eludes me, I will point a link here to Michael Pettis’ wonderful site on China’s Financial Markets. The Jamestown Foundation may also occasionally have some information on what China’s academics are currently thinking.

1 June, 2009 Posted by | China Economy | , , , , , , | 1 Comment

Slight Delay In Updates

Hello. Thank you for reading China Comment these past ten months. China Comment looks forward to another very successful ten months in the future!

Regrettably, however, there will probably be no updates for the remaining month of April and until the end of May. But China Comment expects to return to its normal schedule after May.

Currently, China Comment is working on two articles that hopefully will be published in an academic journal. Both articles deal with aspects of China. One is about half done, the other (which deals with China’s Energy) has just passed the literature review stage and pen has been put to paper. Those articles have absorbed much of my free time.

However, China Comment intends to return to regular updates as soon as possible.

Thank You again for your patronage!

~ Francis.

17 April, 2009 Posted by | Introduction | 2 Comments

The US Government and China’s Currency

From February 26th through the 27th I attended a symposium at the University of Texas in Austin, TX on China’s Emergence: Effects on Trade, Investment, and Regulatory Law.

Here are some thoughts on the more notable issues raised at the symposium:

Timothy Reif, the incoming General Counsel of the Office of the US Trade Representative, spoke as a private citizen to open the event as its keynote speaker. He expressed a desire for China to “stop manipulating” its currency and to move on currency reevaluation. Currently, China’s currency trades in a limited range of .5 percent daily against the dollar (up from .3 percent daily pre-2007).

Responding to a question, Reif acknowledged that China’s economy and the world’s economy would need time to adjust to a freely-floating regime. He suggested that China might not be prepared to freely float the RMB until perhaps 5-10 years in the future. Still, Reif speculated that if the Obama administration did not push China to take some actions toward reevaluating its currency, then the United States Congress may take aggressive action against China.

Reif’s speculation may be based on fears grounded on prior Senate actions directed against China’s currency valuation. (The following paragraph’s information is supplemental. The issues were alluded to, but not discussed in depth. The summary is provided for readers’ reference.)

In 2005, Senator Schumer introduced a bill in the Senate, S.295, that would impose an additional duty of 27.5 percent on “Chinese goods imported into the United States unless the President submits a certification to Congress that the People’s Republic of China (PRC) is no longer manipulating the rate of exchange and is complying with accepted market-based trading policies.” (Thomas.Loc.Gov) That bill was not put to a vote and, even if passed, would have been non-compliant with WTO standards. However, in 2006 and 2007, Schumer and others in the Senate tried again with a bill believed to be WTO-compliant. That bill was the Currency Exchange Rate Oversight Reform Act of 2007, which was placed on the Senate legislative calendar after passing the Senate Finance committee with a 20-1 vote; but the bill ultimately did not come to a floor vote.

Ultimately, Reif did not indicate support for China to take any particular policy. He expressed no opinion on support for a wider managed band in which the currency could trade, nor for increased disclosure on which currencies are included in China’s market basket. His believes it is imperative that China’s currency appreciate, but at the time and in this venue he could not comment on exactly how the appreciation should be managed.

The most interesting question raised by Reif’s talk was to what degree will US President Obama and the Congress push against China to appreciate its currency during this economic downturn that is negatively affecting both countries. His comments seem to reflect that if America’s economy fails to improve, then domestic pressure will encourage Obama and/or Congress to take significant action to counter “imbalances” caused by China’s currency policy.

(Part III will include commentary on presentations from Raj Bhala (Law Professor at the University of Kansas), and John Greenwald (International Trade Lawyer).

9 March, 2009 Posted by | China Economy | , , , , , , | 1 Comment

Subsidies and Trade Liberalization

From February 26th through the 27th I attended a symposium at the University of Texas in Austin, TX on China’s Emergence: Effects on Trade, Investment, and Regulatory Law.

Here are some thoughts on the more notable issues raised at the symposium:

Trade Imbalances, Subsidies, and the Market Distortion of Prices

Scott McBride of the US Dept. of Commerce, speaking as a private citizen, discussed countervaling duties, world poverty, and market distortions (my terms, not his) that contribute to inflate the real prices of goods. This particular point was only a small portion of his talk on the “US Government’s Recent Responses to China’s Enforcement Problems and Countervailable Programs.”

McBride claimed that one reason for American subsidization of farmers in the cotton industry is in order to combat cheap Chinese cotton. However, although US subsidies are aimed at protecting American farmers from subsidized Chinese cotton imports, the subsidies also hurt the four major C-4 African cotton manufacturing countries (Mali, Benin, Chad, Burkina Faso). These African countries lack the resources to subsidize their crops, or to increase their crops’ efficiency. Although African cotton would be relatively competitive in a trade-barrier-less world, it cannot hope to contend with cotton-subsidizing American policies, and a China that supports its cotton industry and has a relatively weak currency. He went on to state that the US’s position is generally that it will not drop its subsidies until China drops its support for its domestic cotton industry.

Extra research by China Comment revealed that the United States is also bargaining for enhanced market access to developing countries’ markets before it will significantly drop its cotton subsidies (AllAfrica, October 2008).

According to a source cited in a CRS report (Congressional Research Services), “cotton producers in developing countries (not just Africa) face annual losses of about $9.5 billion as a result of subsidies… the United States provides the largest amount of subsidies to its cotton producers, which it estimated at $2.3 billion in 2001/2002. Other countries’ subsidies in 2001/02 included China ($1.2 billion), European Union (EU) countries Greece and Spain ($716 million), Turkey ($59 million), Brazil ($50 million), and Egypt ($29 million).” (CRS). “Washington has paid out $2 billion (1 billion pounds) to $4 billion a year in subsidies in recent years to the 25,000 U.S. cotton farmers who export 80 percent of their output and account for 40 percent of cotton traded internationally around the world.” (Reuters; July 24, 2008 / See Also The Guardian; July 2003)

The Point:

(1) American subsidy policies that are aimed to combat unfair trade advantages gained by one country often have a double-effect that causes repercussions in (arguably innocent) third-party countries. (This is something to keep in mind when well-meaning NGOs suggest sending aid to Africa. Sometimes, the better policy may be to drop trade barriers first. Still, the African countries often wish to keep their own restrictive trade barriers.)

(2) The more America or China subsidizes their agricultural industries, the more other countries begin to subsidize their agricultural industries. These subsidy policies lead to a market-distorting situation similar to that suffered by the debt-fueled American mortgage-industry boom. Ultimately, the policy benefits no one except subsidy-receiving farmers. Meanwhile, national debts rise to unsustainable proportions.

In the interests of increased efficiency, China Comment supports trade liberalization and progress such as that imagined by the WTO’s heretofore disappointing Doha round. (A full discussion of exactly what details of trade liberalization would be fairest is far beyond the scope of this article. Even full-time economists and government negotiators have difficulty getting their minds around all the nuances of the Doha round in order to craft a compromise. Perhaps that is why Doha has been so much of a disappointment.)

(Part II will include commentary on presentations from Raj Bhala (Law Professor at the University of Kansas), and John Greenwald (International Trade Lawyer).

2 March, 2009 Posted by | China and Africa, China Economy | , , , , , , | Leave a comment

Lucky 8

Instead of having a year end review in January when China Comment would compete against others’ reminiscences for your valuable consideration, China Comment waited for a more auspicious time.

So now, on the 2nd of February 2009, China Comment celebrates its first eight months of existence with an overview of the site’s most popular articles.

8 Most Popular Articles on China Comment

1) China’s Nuclear Power

An examination of China’s nuclear power industry. (June 26, 2008)

- The China Law Blog and What About Clients? linked to this post, bringing in a significant amount of traffic.

2) What is Happening With China’s Economy?

An analysis of economic numbers and articles dealing with China’s economic situation. (September 22, 2008)

- The China Law Blog, and others linked to this post.

3) China and Georgia

Repercussions of Russia’s invasion and China’s historical relationship with the Caucasus country. (September 4, 2008)

- The Wall Street Journal’s China Journal, and others linked to this post.

4) A Weak China?

The positives and negatives of China’s economy, environment, and demographics. (July 30, 2008)

- The China Law Blog, and others linked to this post.

5) China and the American Election

A consideration of the American candidates and their possible future relationships with China. (September 1, 2008)

- The China Economic Review, and others linked to this post.

6) Beijing Smog

An artful musing on and examination of Beijing’s pollution. (July 10, 2008)

7) Brazil’s Passage to China

The BRICs are getting Closer. (July 16, 2008)

- The Wall Street Journal’s China Journal, and others linked to this post.

8) China’s Free Trade

China’s planned free-trade agreements. (September 8, 2008)

- The Wall Street Journal’s China Journal, and others linked to this post.

4 Most Popular Links Out of China Comment

allroadsleadtochina.com, What China Thinks of ObamaElite Chinese Politics and Political Economy, The Candidates on US Policy Toward China.

Other Notable Articles

Refining a Relationship: Venezuela and China

China and Venezuelan oil and gas exports. (October 2, 2008)

Natural Gas – Development

China’s Natural Gas industry and its future. (July 14, 2008)

Xinjiang’s Energy Resources

A look at China’s wild, wild west. (August 27, 2008)

Olympic Pollution- Comparisons

A comparison of Beijing’s particulate matter, sulfur dioxide, and nitrogen dioxide levels pre-Olympics and during the Olympics. Additionally, pollution numbers for four other “Games” cities were compared. (August 25, 2008)

The Wall Street Journal’s China Journal, and others linked to this post.

—–

Best Wishes for a Lucky “Niu” Year,

~ Francis.

16 February, 2009 Posted by | China General, Introduction | | Leave a comment

Fighting Corruption

Chinese national banks’ regional and provincial branches are audited by the state, and many state employees consider anti-corruption missions quite seriously. But to some degree, Chinese companies suffer from significant systemic corruption.

A Chinese friend served an internship over the Summer with the financial auditing arm of a provincial government. She worked on a team investigating a Shaanxi branch of a national Chinese bank’s accounting books. The team found several irregularities in the numbers, and they reported to their supervisor, who confronted the bank’s director.

The director offered to take the team to dinner and discuss the matter. He offered to pick up the check. My friend’s superior accepted and they ate, drank and discussed. The director argued that the misplaced amounts were inconsequential, somewhere around 7000 USD. He tried to convince the team to overlook the transgression in return for “help” and “benefits.”

The superior declined and the bank was fined. The director kept his job since the amount misplaced was only a “mistake” and the bank director was a “good man” who had long served. China’s system of friendship among bank officials almost guaranteed that unless the crime was disproportionately large, little negative attention would be fostered on the wayward director.

When asked what she felt about this situation, my friend seemed nonchalant. She stated it was common for bank owners to embezzle but she still admired her superior for being so “driven” in achieving his objective. She said most supervisors would probably have taken a bribe. Afterward, her team discussed the tragic situation whereby bribery and corruption are considered the status quo. They recalled their supervisor’s lament that although he always tried to quash corruption, his plans were often flummoxed. He annoyed too many in his bureau due to a “righteous” mentality, and was overlooked for promotions. He feared he could never move to a provincial-wide managerial position. Instead, for his efforts, he was stuck at a mid-level job, where he could be overruled if political considerations superseded a need for economic honesty.

China disciplined 115,000 Party members for corruption in 2005, and has dealt with an “average of 130,000-190,000 Party members each year for various types of misdeeds and crimes since the early 1980s,” according to Minxin Pei of the Carnegie Endowment for International Peace. For various reasons, “24,000 of the Party’s 68 million members” were expelled from the Party in 2005, according to Edward Cody of the Washington Post.

The country could have grown even faster without the stultifying effects of late-1990s corruption. According to Chinese economist Hu Angang, cited by Will Hutton in The Writing on the Wall, the annual cost of corruption “is between 13.3% and 16.9% of China’s [potential] GDP.” Admittedly, that number is difficult to believe and I would like to see it backed up by another independent evaluation. Still, when confronting the anecdotal evidence and the recent Gome and real estate scandals, it is not too difficult to perceive millions of RMB flowing where it should not.

My friend’s view of corruption is a common one, and she could not say she would refuse a bribe if it had been offered to her. The bank director was a powerful man and held lots of influence. Without protection, she may not dare confront such a man. She admired her heroic supervisor, but wondered whether she could emulate his courage.

Positively, the number of prosecuted corruption cases has risen in recent years. But negatively, many former Party and government members have “jumped into the sea” of business, and used government connections to flout laws, “grease wheels,” and avoid bureaucratic regulations.

Without a reevaluation and a recognition that everyone is equal under the law and none are more “equal than others,” people like my friend will hesitate in acting honorably and working against corruption. Eventually, they might do the right thing and oppose corruption, but without a change in its culture of privilege, China could face a very stormy and increasingly corruption-filled coming decade.

Links and Final Comment

Pei: http://www.carnegieendowment.org/files/pb55_pei_china_corruption_final.pdf

Cody: http://www.washingtonpost.com/wp-dyn/content/article/2006/02/14/AR2006021400672.html

It is far beyond the scope of this article to evaluate various countries’ approaches to fighting corruption. Corruption seems to be present everywhere in the world. Every few years the United States suffers something along the lines of an Enron, a Tyco, or a Bernard Madoff scandal; Germany suffers a Siemens scandal, Korea suffers a Samsung scandal, and so it goes ad. infinitum.

Note: This article was originally written in January 2008, and was recently updated.

2 February, 2009 Posted by | China Business, China Economy, China Future | , , , | Leave a comment

China’s Hidden Environmental Lessons

China’s environmental troubles are often decried in the Western press, and generally there is a good basis for the articles’ conclusions (See the NYT ‘s “Choking on Growth” series). Still, China and its people also have a lot to teach foreigners about prudent energy conservation and consumption.

Although China may not have the best energy efficiency utilization (see EIA numbers), the country’s prior poverty inspired its populace to adopt some surprisingly environmentally-friendly policies.

Person-Driven Policies

The Chinese consumer, to conserve cash, often makes due without unnecessary perks that are common for Westerners. Chinese consumers, by doing so, save thousands of dollars and millions of watts of electricity.

- Natural Drying Clothes    (Live Naturally)

Many Chinese do not use electronic driers 烘干机. Instead, Chinese clothing dries in the wind and sun. This method of drying works great for clothing, not so well for bedding or woolen materials. Still, if one owns a spare bed-cover or wool jacket, then natural drying works perfectly. Most clothing dries within twenty-four hours.

Forgoing driers saves China millions of watts of electricity each year.

- Human-Powered Recycling     (Capitalist Environmentalism)

Although the recent US economic recession greatly increased the number of lower-class entrepreneurs wandering city streets collecting recyclable trash, the Chinese long ago perfected the art of scavenging. In China’s cities, from Beijing to Chengdu, poor and retired people seek plastic and aluminum to recycle.

In every city, poor entrepreneurs dart hither and tither, snatching empty plastic bottles from hands and scavenging from trash cans. Although each plastic bottle only results in a few jiao of cash, China’s poor act as guardians of the environment- ensuring that not even a plastic bottle, crushed and covered by garbage, escapes recycling.

Entreprenurial Recycling in Beijing

Entrepreneurial Recycling in Beijing / China Comment

Also of note, from 2003: http://www.china.org.cn/english/2003/Jul/69702.htm Amusing complaints that people are not sorting their trash. Perhaps the people decided trash-sorting was unnecessary because they knew the city’s unofficial garbage collectors would likely scavenge the trash before the municipality’s collectors arrived.

- Air Conditioning Only When Necessary     (Waste Not, Want Not)

Chinese restaurants save millions of yuan each year by only turning on air conditioning units when customers actually utilize portions of the restaurant.  Many Chinese restaurants have both a common dining room and a selection of private dining “party rooms.” Each party room often has a space heater or air conditioner that is only turned on when the room is occupied.

- Heating When Necessary      (Think Global, Act Local!)

Chinese often huddle slightly cold in some restaurants and most universities, wearing jackets and scarves tucked in tight. Although restaurants and universities have the ability to heat their common rooms, the proprietors and deans choose to keep thermostats turned down. These proprietors understand that by refraining from over-heating buildings they can keep down costs.

In contrast, American universities spend millions on heating and cooling each year. All their spending results in higher carbon output and higher student tuition costs to pay for heating and maintenance overhead. American universities and campus environmentalist activists can learn much from Chinese students’ stoic endurance of slightly uncomfortable weather.

- Hotel Lights   (Use Only When You Need)

Chinese hotels slash unnecessary electricity bills by only allowing patrons heating, air conditioning and light in their rooms if the patrons are actually present in the room. Rooms’ lights only turn on if a room key is placed in a wall socket unit. American budget hotels could save thousands of dollars by implementing similar conservation-inducing practices.

- Hot Water, Not Bottled   (Reuse!)

Although bottled water sells well in China (at 0.8 RMB it’s a great bargain), Chinese are just as often likely to be seen toting hot water in plastic containers. Although the process of warming water to a boiling point consumes electricity, the use of reusable plastic containers cuts down on disposable water bottle waste.

- Solar Water Heaters   (Self-Sustainability)

“China has a cumulative installed capacity of solar water heaters (SWHs) that surpasses 90 million square meters (m2) of collector area—roughly 60 percent of the world’s total. In fact, nearly one in ten Chinese households owns an SWH.” (from http://www.ita.doc.gov/media/Publications/pdf/china-clean-energy2008.pdf pg 11)

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Government Driven Policies

- Plastic Bag Revolution   (Pay For What You Consume)

China attempted to reduce plastic bag consumption in summer 2008. In July, a ban was imposed on ultra-thin bags. Thicker bags could be sold, but major cities’ supermarkets and department stores were supposed to charge 0.3 to 0.5 yuan per bag (Xinhua, July 2, 2008).

Bans on free plastic bags are popular in some places in Europe and a few American cities, but have yet to permeate America wholesale.

http://news.xinhuanet.com/english/2008-06/06/content_8320694.htm

http://news.xinhuanet.com/english/2008-06/18/content_8390250.htm

China’ Comment’s July 4, 2008 article on Plastic Bag Entrepreneurs

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Later, China Comment hopes to post other environmentally-friendly measures practiced in China. If you know of any other energy-saving lessons that China can teach America and the “West”, China Comment would be glad to hear them.

19 January, 2009 Posted by | China Environment/Health | , , , | 1 Comment

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