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

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 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

The Future of China Quality

“According to the Xinhua news agency, in the first seven months of this year, 3631 small scale enterprises producing toys mainly for the US market have closed down due to a decline in the demand for China-made toys from the US. These enterprises… constituted 52.7 per cent of all toy-making companies in China— Source “South China Morning Post” and AFP.” (South Asia Analysis Group)

China’s 2007 lead toy scandal, its 2007 diethleyne glycol poisoning scandal, and its melamine in milk scandal all highlight problems of accountability in China’s sourcing system, as well as the dangers of unsupervised small (and often-times unbranded and therefore often unaccountable) producers whose goods are purchased by players higher up the value chain.

The fallout from these negative news stories might have some chance of encouraging greater CSR (Corporate Social Responsibility) in the industries affected, but in a decelerating economy, it seems unlikely that Chinese companies will choose increased quality and differentiation practices rather than cost-focused strategies.

However, if the companies do have cash, they might see benefits in investing in something other than labor which has become more protected and expensive due to China’s 2008 Labor Law. Supply-chain management, RFID tagging, and greater computerization and modernization of systems can do much to raise accountability that retailers, such as Wal-Mart are increasingly demanding.

What does China Need to Ensure Quality?

* “No law places clear responsibility on food enterprises for the production of safe products,” according to a UN Report (AP, Oct 08). “[R]esponsibility for food and drug safety [as of 2007] involve[d] as many as 17 government agencies, ranging from the Ministry of Health, which sets hygienic standards, to the Public Security Bureau, which has power to investigate criminal cases” (NYT, July 07).

* Stronger oversight and more accountable expert-overseers. Increased cadre-responsibility.

* Allowing less restricted news reporting on real scandals. Permit people to spread information in an uncensored way about which foods are damaged and which are not.

* China could benefit from better tort laws that allow people to directly sue companies for damages. This will reduce the likelihood that a “big brother” government bureaucrat protects and enables some exploitative factory owners who are good friends of people in the overseeing administrative agencies (See Note 1).

* Consolidation in factories and in agriculture. The new Farm Land-Use Law might encourage and promote this chance for Chinese producers to move along the value curve and achieve greater economies of scale. The average Chinese farm has less than two acres (WSJ), and in total there are about 200 million farms (NYT). “China [also] has around 450,000 registered enterprises engaged in food production and processing but most — about 350,000 — employ just 10 people or fewer.” (AP and NYT).

* Greater business investment in technology and modern agricultural and manufacturing practices. The big players, the Lenovos, Haiers, Galanzes, etc. already recognized the value of modernity. It’s time other less-modern economic sectors caught up.

Mixed Results With A Slowing Economy

China’s economic growth is slowing to around 9-9.5% this year, and its economy may only grow at 8.5% next year; however, if it can achieve that growth, the country will continue to have vibrant industries. The more efficient and better capitalized export manufacturers will survive in a low-priced commodity world (less than $100 oil) since the China Price continues to be relatively low despite imposition of new labor and environmental laws.

Will the better capitalized and managed export manufacturers take this downturn as a chance to invest in capital improvements to increase quality and efficiency? Will they drive down costs not by racing to the bottom and paying workers less, but by hiring fewer workers and improving the manufacturing process?

Sometimes there is great pressure for companies, especially state owned companies to value employment over efficiency. However, the January 2008 labor law, which makes it more difficult to lay off workers, may encourage companies to draft strategic plans based around equipment rather than manpower.

It is difficult to generalize about the overall Chinese manufacturing economy, but previously when market forces encouraged chaff to be weeded due to oversupply, as documented in Donald Sull’s excellent book “Made in China,” more quality-conscious manufacturers emerged.

Sull described how the white goods giants Haier and Galanz emerged from a crowded field of hundreds of low-quality manufacturers back in the 1980s and early 1990s. Both decided their product strategy would be differentiation. They made higher-end, defect-free goods and improved their production processes.

Through investment and consolidation with some well-positioned competitors during supply-glut-driven downturns, both companies gained success and dominated their markets. The lesson learned by them, and taught to other Chinese entrepreneurs through books and lectures is clear; quality sells, and accountability and branding ultimately leads to greater success than anonymity and “selfish-off-the-books, off-the-records and under-the-table economic safety”.

Quality appears to be the route to success for Chinese businesses. China Journal pointed out on Oct. 27th that “in marked contrast to the firm’s survey of American consumers, who ranked price as a top concern, Chinese consumers place greater emphasis on service,” perhaps because they have been “burned” too many times before by faulty merchandise. American consumers can afford to value price over quality because American goods (arguably) are safe if they are sold– in China that is not always the case. With discretionary income comes greater sophistication and value of “quality” over “cheapness.”

While in China (before the melamine issue blew up), I attended a lecture and spoke with Xu Erming, a deputy dean at Renmin in which he discussed  Chinese dairy manufacturing, consolidation, and improvement of quality milking procedures. Despite the recent scandals, it is important to realize that milk’s quality and quantity ballooned exponentially since the late 1990s when cows were not even healthy enough to be milked en-masse. Product pipeline oversight today is much better than even five years ago. With time, consolidation, investment in capital expenditures for tracking the product, and increasing sophistication (agricultural and business-wise), China’s industries will increasingly see quality improvements.

Successful Chinese industries will move down the path of accountability simply to survive as labor costs increase. The “easy” and “dumb” money in China has already been made; real Chinese entrepreneurs realize the need for quality and will increasingly work toward increasing it.

Are Western Companies Also At Fault?

Blame for poor quality does not rest on Chinese manufacturers alone, so it is important to examine more globalized trends that can help China’s product quality improve. As foreign purchasers realize they need to spend more money to get quality in order to avoid recalls and negative publicity, they will create a system (as Wal-Mart has) where they do not encourage producers to indiscriminately cut costs.

Or, poor quality toy makers will depart for elsewhere in Southeast Asia where labor regulations may not be as stringent. Still, it is likely many toy manufacturers will remain in China since elsewhere there are more severe difficulties in stability, resources, economies of scale, and  infrastructure.

Conclusion

Quality in China’s industries depends on foreign companies’ oversight as well as internal regulatory measures. Scandals hopefully will result in less cost-cutting since few companies want the negative publicity and customer shyness that accompanies scandals.

The ultimate future of China’s quality is murky. A sudden policy turnaround favoring uncensored news reporting seems unlikely, and development of class-action tort damages is even less likely since to allow mass lawsuits would be much too similar to Beijing tacitly approving “mass incidents” which challenge the government’s legitimacy.

However, consolidation of industries, self-regulation by foreign purchasers, and greater funding and improvement of government regulation does seem likely in the next one to two years.

Ultimately, systemic problems affecting Chinese quality will continue to plague certain low-margin parts of China’s industries, but China appears to be taking practical steps to resolving shortfalls in its quality-control systems.

Extra

Note 1:  I agree that the “Chinese” solution of the government doling out compensation can rectify some damage. However, if the “Chinese characteristics” of a society are to be respected at the same time Justice is ensured, the government needs to rectify bureaucracies and hold people accountable to encourage others to proactively comply with regulations.

Mere ex-post administrative oversight may catch some culprits, but could just as easily protect other culprits who have better connections, better guanxi, better friends in the regulatory system.

Additionally, bringing government-pursued cases into the sunshine of public oversight will do much to ensure that the Chinese people can see justice is being pursued and that the Party truly cares about their interests.

27 October, 2008 Posted by | China Economy, China Environment/Health, China Law | , , , , , , | Leave a comment

China’s Aging

The Dallas Morning News, the AP, and other news outlets often warn China’s aging will put significant breaks on its future economic development. I disagree.

Although China has some challenges to address regarding its aging population, aging alone will not be a significant drag on China’s GDP growth rate. Here, I examine some common fears about China’s aging populace, then I rebut the dire predictions.

Elder Population Explosion

Warnings about China’s aging population often start with the China National Committee on Aging’s claim that “[b]y 2020, China will have 400 million people age 60 and older, and 100 million older than 80. By 2050, a third of the 1.4 billion Chinese will be at least 60.”

This is a lot of elderly, and some commentators believe China may grow old before it grows rich. But a population of 400 million elderly still leaves nearly 900 million younger folk ready to work and contribute to increased productivity.

When the support ratio of young to the elderly dwindles from 5-1 to 3-1 or 2-1 that could feasibly cripple sustained economic growth in most economies. However, China is not a typical developed country that has fully exploited the human capital of its workers– China’s workforce is still developing.

Productivity and Economic Potential

Beijing is pushing energy efficiency, development of rural regions, and policies that will help move millions of Chinese out of the rural sector and into the urban. Amazingly, some “98 million to 128 million Chinese agricultural workers are surplus.” In “A Weak China?” I discussed how 30-45% of China’s population is still rural, whereas South Korea and the United States have less than 7%!

Economic growth comes when productivity, education, infrastructure, and efficiency are present. Even though China has been underdeveloped in all those sectors, it has posted remarkable 10%+ GDP growth for years. Ultimately, China still has a long way to grow.

Caring for the Elderly

China’s economic growth could slow if society is required to care for the elderly through imposition of social programs. However, unlike in the West, Beijing simply has not made the same massive social welfare program commitments. Although Beijing recently made some commitments, the Party’s pocketbook does not grant the same level of government-sponsored elder-care expected by Westerners. Instead, “66 percent of interviewed rural residents said they would rely on their children when they were old” (People’s Daily).

The lack of government obligations allows China to invest in infrastructure, energy development, and other productive, GDP-growing enterprises.

Because Chinese people know they must depend on themselves and not the government for elder care, they have traditionally saved a great deal of cash that could otherwise have been used to promote even faster Chinese GDP growth.

The Dallas Morning News, citing Cai Fang, “director of the Institute of Population and Labor Economics with the Chinese Academy of Social Sciences,” attempts to indicate that 1/4th of China’s economic growth came “from the productivity of a workforce with few dependents younger than 15 or older than 65… [and that] In “five years, that advantage will start disappearing, and a rising number of the elderly will slow down China’s economic growth,” according to Dr. Cai.

Although there may have been “few dependents” during China’s growth period, China’s savings rate has been one of the world’s highest, “totaling nearly 40% of the gross domestic product” as of 2004 (as noted by the McKinsey Quarterly). This could be because the Chinese traditionally plan ahead to their own elderly futures, expecting to use their own money instead of government subsidies.

The Chinese already have a good deal of cash saved, therefore it is odd to assume that those expecting to become elderly will divert significant additional money from the economy to retirement savings accounts. Individual Chinese are, in general, already prepared for financial disaster.

Demands of elder-care seem unlikely to directly affect Chinese consumer spending any more than their current 40% savings rate already has allegedly “depressed” consumer spending.

Health

Alarmist stories about China’s aging problems often cite how China’s elderly are compelled to work longer to ensure they will have enough money available for when they retire. This, however, seems to be an argument for continued Chinese growth rather than economic contraction. Assuming the elderly remain relatively healthy, they will have a longer time to contribute to China’s GDP.

The elderly’s health may be in question, given China’s environmental record, but there has been progress in China’s health care system and its confrontation of environmental problems.

Where There Will Be Problems

Admittedly, Chinese aging will create some problems. Those problems are, however, addressable.

* Rural Rust Belts. In Japan, which currently has nearly 21% of its population aged 65+, rural cities have been hollowed out. Aging will press hard against rural areas which may need to attract polluting industries in order to gain money that can be used to subsidize elderly populations. The young have moved to the coasts where economic opportunities exist. However, the young may return. The future of China appears to be in development of its internal market. It seems likely that for various reasons, the center of the country will experience significant investment growth from 2011-onwards. (A future article will examine this theory.)

* Older people will be alone, without anyone to support them, or to give comfort. This could lead to psychological problems, crime problems of people preying on the elderly, public health hazard problems, and stability problems (the banned F-G belief system was remarkably popular among the elderly.)

* Health concerns. It can be quite costly to pay for elder care and if the Chinese society ages poorly and develops chronic conditions that are expensive to treat, even the massive amounts they saved may not be enough to ensure fiscal security.

* Rising expectations for public health care could tie down government investment in productivity-creating enterprises. Although on average “retired Chinese [currently] get government help of little more than $50 a month,” there are demands for more government assistance.

According to the Dallas Morning News article, “[some] polls [they do not cite which polls or who conducted them] show 87 percent of Chinese now expect the government to take care of retirement income and health care… A startling share of Chinese now believe the primary responsibility for caring for the elderly should be with society as a whole – the state… And if the state fails to deliver on that expectation, it could be a real social and political crisis.”

Conclusion

China is aging and with age will come new challenges. However, China is well-situated to confront its challenges. Although the net size of China’s workforce will decline, the net productive urban manufacturing core will remain steady as over 120 million rural agricultural workers transition to other industries. China can improve its infrastructure, logistics supply chains and, energy efficiency. Even improvement to US-levels will result in millions worth of savings that will directly transition toward GDP growth.

In China, wisdom (infrastructure improvement, energy efficiency growth) certainly will accompany age.

Last Notes

* On Energy Efficiency: “In 2005, China’s energy consumption per unit of GDP was… more than three times the level of the United States, more than five times that of Germany and eight times that of Japan” (Xinhua); specifically, “the energy intensity of China in 2005… was 35,766 British thermal units per U.S. dollar. In the U.S., the Btu/dollar ratio was 9,113. In the U.K. and Japan, the figures were even lower, 6,145 and 4,519 respectively” (Forbes).

* In General: I realize there are almost limitless factors to consider regarding the future of China’s aging, so if you would like to discuss China’s aging, feel free to communicate in the Comments section.

13 October, 2008 Posted by | China Environment/Health, China Future | , , , , | Leave a comment

Olympic Pollution- Comparisons

Air quality in Beijing during the Olympics, according to the BBC, was actually quite clean. “Beijing met the strictest WHO standard for particulate matter in six out of the first 11 days of the Games.” Below, I examine just how good Beijing’s air quality was compared to air quality in previous games’ cities.

Pollution during the Beijing Olympics was rated on average 62 AQI for July 25 through August 24. Pollution was a 43 from the 18th through the 24th of August, according to the WSJ Beijing Air Quality Widget. (AQI is a composite number that includes measurements of ground-based ozone, sulfur dioxide, nitrogen dioxide, and particulate matter.) An AQI score of 43 would be considered green or safe in the United States, and yellow or fair in Canada.

To better understand the improvements Beijing made in its air quality, I present numbers from Runner’s Magazine’s September 2008 issue (page 96) which presented a comparative study of Olympic host cities’ pollution rates. The study measured average yearly concentrations of particulate matter (PM), sulfur dioxide (SD), and nitrogen dioxide (ND).

Note: Numbers below for “Beijing 2008″ are pre-Olympics.

Particulate Matter
Montreal (1976)… 19
LA (1984)… 34
Barcelona (1992)… 35
Athens (2004)… 43
Beijing (2008)… 89
Beijing (DURING OLYMPICS)… 52-62
Safe Levels… 15-35
2004 EU Levels… 30
WHO Air Quality Target… 50

Sulfur Dioxide
Montreal (1976)… 10
LA (1984)… 9
Barcelona (1992)… 11
Athens (2004)… 34
Beijing (2008)… 90
Beijing (DURING OLYMPICS)… 10-14
Safe Levels… 20 (WHO Guidelines. p.414)

Nitrogen Dioxide
Montreal (1976)… 42
LA (1984)… 74
Barcelona (1992)… 43
Athens (2004)… 64
Beijing (2008)… 122
Beijing (DURING OLYMPICS)… 24-32
Safe Levels… 40
2004 EU Levels… Over 40

(numbers in micrograms per cubic meter)

Beijing appeared to do a good job on reducing Particulate Matter pollution. Beijing lowered its average PM10 pollution by nearly 40 points on average. However, Beijing still suffered more floating particulates than were present in previous Olympic host cities. On average, Beijing was over the “safe” limit by nearly 30 points. 

Beijing’s sulfur dioxide content, however, was notably lower than that of Athens in 2004 which put sulfur  dioxide pollution within safe levels. Still, the amount was higher than SO2 content in other previous Olympic host cities.

Perhaps the best pollution prevention news is that nitrogen dioxide pollution was down by 1/4th, and was much lower than NO2 pollution in previous Games-holding cities.

Conclusion

China effectively confronted pollution in Beijing, at least in the short term. As September arrives and factories and construction begin turning on and cars return to the road, Beijing’s usual smog will return. But with luck, Beijingers now enjoying clear skies might be motivated to adopt and promote further environmental measures.

For now though, let us celebrate Beijing’s clear skies and Olympic environmental-stopgap success.

Appendix

In English, here are district by district reports of air quality from the Beijing Municipal Environmental Protection Bureau for August 23:

DISTRICT/ SULFUR/PARTICULATE MATTER/NITROGEN

    Dongsi Station in Dongcheng District 7 46 22
    Guanyuan Station in Xicheng District 10 39 22
    Tiantan Station in Chongwen District 9 48 25
    Wan Shou Station in Xuanwu District 8 52 17
    Olympic Sports Center Stadium in Chaoyang District 10 46 32
    Agriculture Exhibition Center Station in Chaoyang District 16 44 30
    Wanliu Station in Haidian District 11 46 27
    North Developping Area Station in Haidian District 9 51 8
    Botanical Garden Station in Haidian District 8 41 16
    Fengtai Town Station in Fengtai District 9 56 39
    Yungang Station in Fengtai District 9 51 8
    Gu Cheng Station in Shi Jingshan District 15 56 23
    Station in Yizhuang Developping Area 10 55 19
    Longquan Town Station in Men Tougou District 5 50 13
    Liangxiang Town Station in Fangshan District 8 53 31
    Tongzhou Town Station in Tongzhou District 5 54 13
    Renhe Town station in Shunyi District 5 39 7
    Dingling Station in Changping District 6 31 3
    Changping Town Station in Changping District 7 38 9
    Yellow village Station in Daxing District 17 58 18
    Yufa Station in Daxing District 5 61 14
    Pinggu Town Station in Pinggu District 5 48 5
    Huairou Town Station in Huairou District 5 29 5
    Miyun Town Station in Miyun County 7 28 4
    Miyun Reservoir Station 6 19 12
    Yanqing Town Station in Yanqing District 11 37 13
    Ba Daling Station in Yanqing County 7 24 19

 Particulate Matter Chart for Beijing: http://news.bbc.co.uk/2/hi/asia-pacific/7498198.stm

From the BBC

25 August, 2008 Posted by | China Environment/Health | , , , , , , , | 4 Comments

China Energy Efficiency

China faces energy shortages. There has been power rationing in Shanghai, Hubei, and elsewhere this year. “China has forecast a power shortfall of 10 gigawatts for the summer, about 1.4 percent of installed capacity” (Reuters). Concurrently while boosting capacity, the country is struggling to achieve its stated goal of a 20% increase in energy efficiency from 2005 through 2010.

Steps have been taken to ensure that China’s energy efficiency goals are reached, but ultimately, it appears the Chinese will fall short of realizing their goal. Still, in striving, the Chinese government may realize that placing price caps on energy producers can actually harm the environment. As a result, China may come to allow market forces to dictate energy pricing- to a point. By doing this, China could finally succeed in chasing inefficient factories to other countries.

Energy Goals

In 2005, China drafted a plan to increase energy efficiency per unit of economic output 10% by 2010. “In 2006, the first year of the plan, the country’s reduction in energy intensity… was a mere 1.23%. For the first half of 2007, this figure was close to 3%… but that’s still short of the 4% reduction needed each year from 2006 to 2010 to achieve the goal” (Forbes).

Energy Consumption

“In 2005, China’s energy consumption per unit of GDP was… more than three times the level of the United States, more than five times that of Germany and eight times that of Japan” (Xinhua); specifically, “the energy intensity of China in 2005… was 35,766 British thermal units per U.S. dollar. In the U.S., the Btu/dollar ratio was 9,113. In the U.K. and Japan, the figures were even lower, 6,145 and 4,519 respectively” (Forbes).

Interestingly, unlike the US, which utilizes energy on a massive scale- about 7.794 kgoe/person as of 2003, China’s consumption per capital energy consumption is still only 1.1 kgoe/capita in 2003, which rose from 0.946 kgoe/capita in 2000, and 0.791/capita in 1990.

Also, “in 2005, China’s per capita commercial energy consumption was about 1.7 Mtce, only two thirds of the world average” (People’s Daily).

Since China currently uses such low amounts of energy per capita despite being vastly energy inefficient, it will be crucial for China to modernize its energy efficiency before more people become affluent and begin using larger amounts of electricity.

By starting from such a low base in per-capita energy usage, China has the potential to easily build state-of-the-art power transmission grids, to dictate strict regulations, and to build a culture based on energy conservation first, rather than reverse-engineering its energy regulations and energy consumption culture like other countries need to do.

kgoe- kilograms oil equivalent

mtce- metric tons carbon equivalent

Energy Expansion

China’s power generation capacity in 2002 of 356.6 GW was 9.6% of the world’s total power generation capacity, second only to the United States’ capacity of 979.6 GW. By 2005, China’s power generation capacity had risen to 508 GW (statistics from HERE). In 2006, China added over 114 GW of power generating capacity, and is continuing to expand generously.

If China is to satisfy its energy demands, it will need to increase energy efficiency. Otherwise, world energy prices, which recently saw oil rise to over $140/barrel, could check Chinese economic growth.

“Green” construction alone will not ameliorate China’s energy situation, since even construction of over 30 efficient nuclear power plants in the next 10-20 years will only add 60 GW of power. Wind and Solar electricity will account for much smaller increases in Chinese energy capacity at a little over 30 GW of power by 2020.

Considering China’s ambitious goal to improve energy efficiency, it appears the Government does realize the challenge. But what reprecussions might happen as the country struggles to meet this challenge?

Why Price Caps Harm the Environment

By putting price caps on how much energy can sell for and concurrently subsidising SinoPec and other energy companies, China encourages inefficient, polluting companies to remain in business or delay upgrading technologies. When subsidies and price caps are eliminated, prices rise and factory producers have to survive in a more Darwinistic competition model where the most efficient companies are rewarded for infrastructure investments.

Instead, partially due to the price caps, factories both efficient and inefficient have to endure power rationing.

Of course, too-low-set price controls sometimes encourage producers to produce less power. Or producers may decide to do things on the cheap and produce dirty coal instead of less environmentally destructive, but more expensive options (NYT discusses high-tech coal plants).

Results: Higher Quality Companies, Freer Energy?

It appears that regardless of its ultimate decision on price controls, China will maintain some sort of government intervention so its poor will be able to afford energy. Considering the widening GINI coefficient of wealth inequality in China, such supports will be necessary. And price assistance will be especially needed in rural regions, since urban income still outpaces rural income by at least 3.28:1.

Future government intervention, however, may be more in the form of direct subsidies to people rather than price caps on companies. 

Freeing energy markets will allow the market to incentivize energy efficiency, and continue the trend of driving away inefficient industries. For China to most efficiently continue its energy capacity expansions in an era of high oil prices and expensive energy, it makes sense that the country will move to price liberalization. When might this happen? To take a wild guess, I’ll predict it’ll happen whenever oil hits $200/barrel. Barring war or shortages due to a major conflict such as a Iran-US war, I don’t see that happening until at least 2012, so the move toward Chinese energy price liberalization might take some time– but since China’s power demands are so great, said liberalization will eventually happen.

Miscellaniety

* Official figures on energy efficiency increases in the first half of 2008. (2.88%).

* Erica Downs of Brookings is even more pessimistic about China’s eventual move toward energy efficiency and modernization, arguing that “China’s new energy administration is unlikely to substantially improve energy governance.”

* China Daily had evidence of a perhaps laudable, but perhaps disturbingly only stop-gap fix for solving China’s energy efficiency and “green” problems. By ranking 60% of cadres’ career evaluations on energy efficiency and pollution solutions, China’s government pursues a bureaucratic incentivistic solution to what appears to be mostly a market problem. 

* More reading on China’s progress toward greater environmental and energy efficiency care can be found at China Environmental Law.

19 August, 2008 Posted by | China Economy, China Energy, China Environment/Health | , , , , , | Leave a comment

Kuznets & China’s Pollution

Prognostications are often suspect, but here’s an alternative view in juxtaposition to the usual gloom and doom regarding the threat posed to China by its air and water pollution.

Still, pollution in China is definitely a problem. It leads to over 750,000 premature deaths each year in China, according to a World Bank report. (656,000 air pollution-related deaths, and 95,600 water-related deaths.) “Of the 1,300 Chinese rivers surveyed in 2004, 40.6% received a quality rating of grade IV or V, and 30% of the river water monitored by the Chinese government is grade V.” A rating of IV indicates that the water is unfit for human consumption. Grade V is not even acceptable for agricultural or industrial use (Anna Brettell, 158. In Guo, Challenges Facing Chinese Political Development, 2007).

However dire the current situation is, it is similar to the troubles suffered by America and other countries during the Industrial Revolution and in its wake. But, the problems exist on a much larger scale, since China has more people.

For comparison purposes; as of 2007 in the United States over 41,000 people a year  (0.00014 % of 300M) are estimated to die prematurely due to air pollution (Also see WHO comparisons for 2002). (Other estimates place the 2007 US mortality rate at between 22,000 to 52,000 and speculate that this amount must have dropped significantly in the past 30 years since “the US Environmental Protection Agency reported a decline of 25% from 1970 to 2001 in 6 principal air pollutants: carbon monoxide, lead, ozone, nitrogen dioxide, sulfur dioxide, and particulate matter.” The best data I could find on prior US mortality rates was cited HERE, and argued that in 1991, 60,000 a year in the US succumbed to early death due to air pollution. (1990 US Population=250M, so 0.00024%) (* See End of Article for full citation). This past higher number implies that improvements in pollution mortality rates can be made in a relatively short period of time

In India, 527,700 perish each year due to air pollution. (0.00044% of 1.2B) In China, the amount is 656,000 (0.00050% of 1.3B). 

The US (1948), UK (1952), and Japan, with its Minamata disaster, suffered environmental problems in their manufacturing boom-eras with higher percentages of pollution-related deaths than they currently sustain. What changed in these countries? The passage of legislation such as Clean Air acts in the United States (1962) helped regulate pollution. As people became more aware of pollution’s deleterious effects, they became more motivated to regulate and end it.

Through an abstract theory, it can be argued that China has good precedence for being able, like the US, Europe, and Japan, to mitigate its pollution problems. The “Kuznets Curve Theory” states that as societies modernize, “Pollution will begin to decrease after a country reaches a per capita GDP of between US $3,000 to US $5,000″ (Anna Brettell, 155 in Guo Challenges Facing Chinese Political Development, 2007) (other articles state $8,000) . This decline in pollution can be attribuitable to 1.) Awareness, 2.) Improvement in technologies for energy efficiency, 3.) A shift away from manufacturing to cleaner industries.

China’s GDP per capita, in Purchasing Power Parity, for 2007 was ~$6,700 according to the UN Human Development Reports, but according to the CIA it was $5,300. (I believe the CIA may be using the updated numbers after China’s PPP was readjusted around December.)  

In constant dollars, China’s GDP per capita in 2000 was $846 US… by 2007 it had grown to $2,200 US. The Chinese expect to reach $3,000/capita around 2010 (China Daily). If China maintains current +10%/year growth rates, per capita GDP could reach $6,000 by 2020 (It should be noted that China’s GDP statistics are often called into question for being over-estimated; for ease of discussion, I’ll take the official stats at face value.)

Once basic necessities are provided, and economic growth secure, people can afford to deal with pollution externalities that threaten their long-term health.

Environmental NGOs and Environmental Activism in China

In 2001, there were only 39 registered environmental NGOs in China. By 2005, there were over 2000, according to Elizabeth Economy at the CFR (Council on Foreign Relations).

Environmental consciousness is rising, and the State is allowing it to perpetuate. In 1990, citizen environmental complaints were a “mere” 140,681. By 2004, over 726,192 instances of people sending letters and visiting the Environmental Protection Bureau were recorded; a 410% rise over 1990. The number of incidents leading to those visits and letters rose from 111,359 in 1991 to 682,744 in 2004 (Brettell in Guo, 156).

And these letters and groups are having some effect; “The decision in late January 2005 by SEPA Vice Director Pan Yue (with the support of Premier Wen Jiabao and the State Council) to bring to a halt 30 large infrastructure projects including 26 power-related projects on the grounds that environmental impact assessments were not properly completed suggests strong support within the top reaches of Beijing for NGO activity in this realm” (Economy).

 What Does This Mean?

China is in the midst of a pollution crisis. But if its situation is similar to that faced by countries elsewhere around the world, its amount of pollution is nearly at an apex, after which, in China’s wealthier and better-developed coastal provinces, pollution will decrease.

By examining the situation through the lens of the Kuznet’s Curve, it appears that China’s has nearly reached the ~$6000 per capita/PPP amount necessary to facilitate development toward cleaner industries and technologies. China’s recent expansion of its Environmental Ministry represents a step in the direction of a cleaner environment and less pollution.

I prefer to use PPP (Purchasing Power Parity) for comparisons since PPP presents a good way to compare costs of living in different countries. Therefore, I argue China is due for a major anti-pollution push. In a few years, with the assistance of its new Environmental Ministry, and barring any extreme energy crisis necessitating sustained reopening of unclean coal mines, China will get even more serious about enforcing its pollution laws. So, from 2010 and through 2012, prepare to see some major improvements to China’s environment– for the better.

ALSO; The Economist talks about China and India’s differing approaches to dealing with pollution.

World Bank 2007 comparative charts on pollution in countries and cities around the world.

Extra Notes: (see above *) * according to an “Air Pollution in Typical U.S. Cities Increases Death Risk,” press release dated May 13, 1991, from the Harvard School of Public Health, Boston, Mass. describing findings later reported in Joel Schwartz and Douglas W. Dockery, “Increased Mortality in Philadelphia Associated With Daily Air Pollution Concentrations,” AMERICAN REVIEW OF RESPIRATORY DISEASE Vol. 145 (1992), pgs. 600-604.”)

and  [Brettell, Anna. "China's Pollution Challenge." 155-193. In Guo. Challenges Facing Chinese Political Development, 2007.]

* AEI did an excellent article on China and the Kuznet’s Curve.

13 August, 2008 Posted by | China Environment/Health, China Future | , , , , , , , , | 1 Comment

Beijing Smog

Every winter, Beijing skies darken with pollution’s gray fog. Exercising becomes dangerous to the health since too much bad air is drawn in and and not enough good. Soot merges with Beijing’s snowfalls, solidifying the snow and making these dense packed black and white masses last.

Beijing’s foul air contrasts greatly to air quality elsewhere. Good air, which rates a 50 on the AQI (air quality index) means air absent of “ground-level ozone, particle pollution, carbon monoxide, sulfur dioxide, and nitrogen dioxide,” according to airnow.gov. When air rates over 150, it is considered unhealthy and a red pollution day is declared. Several American cities experience red, or purple (201-300 AQI values) pollution days a few times per year. Beijing’s index, by contrast, suffers over 110 days each year in excess of AQI 100. Several days in December 2007, air quality hit 500- meriting a hazardous maroon rating (US air quality scale).

In Winter 2006 and 2007, the pollution index also hit 500. On those days, we could not even see buildings less than a block away. Bleakness oozed. Chinese wore white face masks.

“Beijing lung”, our endearing term for hacking up black spittle, became a common sight and ailment among not just foreigners, but also among locals. People felt dizzy, lethargic, and disoriented. Food took on a slightly tinny tinge, and eyes watered.

Is Beijing’s polluted clime livable- yes. As bad as my description sounds, thousands of Beijingers more or less live, and work- hanging 30 stories off construction beams, or carting bales of cardboard and crushed plastic on precariously balanced bikes. According to a New York Times article by Aaron Kuo-Deemer, hospital visits and deaths do rise significantly during high pollution days. But it is amazing how much pollution the human body can withstand. Even though just walking on a 500 level pollution day feels like smoking several cigarettes, one recalls some heavy smokers live long lives. In fact, Jeanne Calment, the world’s oldest lady smoked until she was nearly 117. Other smokers at least live into their sixties.

But living a relatively healthy life among increasing pollution is not sustainable. Pollution cuts into productivity as asthma cases increase and lung diseases strike, creating pressure on China’s health care system. Last year cancer accounted for nearly 20 percent of Chinese deaths, according to China Daily. Estimates state “70 percent of China’s 2 million annual deaths attributable to the disease were pollution-related,” according to China’s State Environmental Protection Administration; also “a World Bank report said about 750,000 Chinese die earlier due to air pollution every year.”

The situation, despite government claims to the contrary, may be worsening. Although Beijing can celebrate an alleged 244 blue sky days where the pollution index remained below 100, part of the reason for the achievement attributes not to greater environmental sustainability, but to movement of monitoring stations to new locations- farther away from highway intersections.

Cleaning up sulfur-spewing factories and particulate-emitting coal plants, Beijing has progressed in reducing airborne particulate matter. However, with over a thousand cars added daily to Beijing’s streets, automotive pollutants are merely replacing industrial pollutants. Although Beijing has made great strides in improving car and bus emission standards and although it has increased mass transportation, opening two subway lines, and a light rail in 2007 and 2008, Beijing’s rapid growth and unfortunate location negate much of its environmental gains. Smog originating from northern provinces’ factories blow into Beijing’s dry mountain-surrounded plateau and is trapped. The dust only dissipates with a rain or strong wind. Otherwise, bleakness looms.

Despite recent environmental advances- the preponderance of cars, influx of people and high energy demands will contribute to increased pollution. Beijing will grow and the government will struggle to limit pollution. People will endure, but as the city grows, so too will the dark clouds looming above.

Economist Quotation

 (This article was originally written in March 2008 )

10 July, 2008 Posted by | China Environment/Health, China Future | , , , , , , , , , , | 1 Comment

Isn’t that Odd?: Plastic Bag Entrepreneurs

China has long been a country of entrepreneurs, from its urine merchants, to the indigents who walk around recycling plastic bottles and aluminum (they are ubiquitous, despite some efforts to remove them, both high and low tech [The former is an electronic recycling machine; the latter, a poignant transcript of a UK special on a "clean up" of homeless who make a living collecting plastic bottles]), to the proprietors of hundreds of mom and pop shops.

What follows is an amusing prediction for this week’s Isn’t That Odd.  If you’re in China and you see this happening, please post here- I’m asking my contacts to look out for this.

I predict that China’s new plastic bag policy is going to create a new wave of self-employment for their urban poor. Why? Well, first, let’s examine the policy:

1.) A National Policy Designed to Reduce Plastic Bag Waste
The policy of charging for plastic bags (at .2-.6 yuan), and phasing out the ultra-thin bags will hopefully decrease waste as people begin toting canvass and bamboo bags to the stores. However, some problems have been realized due to this policy, as a recent Xinhua article examined; ranging from vendors who are still utilizing the ultra-thin bags, to others who are not charging for bag usage.  “At a small grocery near the Carrefour, the shopkeeper still offered customers free plastic bags. As he said: “I sold vegetables worth 0.7 yuan. How can I charge 0.5 yuan for a bag?”

Other problems include:

It is more difficult to tote canvass bags everywhere when one goes outside. Penny-pinching people have to plan before going shopping, instead of previously being able to use free store-supplied plastic bags or to purchase new canvas bags at the grocery.

Also, at markets, fish-sellers now wrap fish in newspapers instead of inside plastic bags. This causes newsprint to leak onto the fish, which makes the food untasty and unsanitary. And places where the plastic bags are still used have suffered problems of people grabbing extra bags to use for private purposes- creating a shortage at some stores, as the Xinhua article goes on to explain.

Consequences: Depending on how much of a price these plastic bags might be oversold at, I wouldn’t be surprised to see some Chinese entrepreneurs standing outside stores, selling and undercutting the stores’ prices for plastic bags. They might grab a few extra bags when they are in the stores, they might repurpose previously-used bags, or they might (if they have some capital) go to a manufacturer and purchase bags in bulk.

If you’ve ever read Carl Crow’s venerable 400 Million Customers, you know how hardscrabble the Chinese can be in seeking out entrepreneurial opportunities.

My favorite tale of Mr. Crow’s (he wrote in the 1930s but his words are still relevant and amusing today- and inspired another informative book- James McGregor’s One Billion Customers.) is how Crow organized an ad promotion with a US manufacturer who wanted to introduce a better brand of soap (I think-I read the book a few years ago so my memory is slightly hazy) in Chinese stores. The manufacturer gave stores free soap samples to hand to their customers.

A month later, the manufacturer was quite upset, because brand awareness hadn’t increased. So Crow went to investigate. He found the stores and discovered several problems.

1.) Many stores were selling the “free” samples; because they figured it didn’t matter if one brand of soap was more popular than another; because they weren’t in the business of selling soap, consumers could buy their soap anywhere so giving soap for free would do nothing for their store! (They didn’t believe they could build store-brand loyalty with customers by giving something away for free- see point 2). And by selling the soap (cheaper than other brands), they could gain extra money that their neighbor stores wouldn’t get and could still win a little customer loyalty since customers would be glad that store A offered better prices!

2.) If something was free, many customers figured, it must be lower quality, or spoiled. So they didn’t want to take free samples. Only the poorest of the poor took the free samples, and they couldn’t afford to purchase this expensive soap anyway, so the marketing tactic fell flat!

 Oh, China- such an Odd and wonderful Capitalistic place.

4 July, 2008 Posted by | Book Review, China Business, China Environment/Health, Isn't That Odd? | , , , , , , , , , , , | 1 Comment

Off The Shelf: Futurecast 2020 (Part I)

Futurecast: 2020 argues that only the United States and China will be considered great economic and political powers in 10 to 20 years. Its author, Robert Shapiro (a former Clinton Administration advisor) reaches this conclusion primarily by arguments based on demographics (aging in countries), obligations (European social safety nets will drain their coffers and ability to produce), innovation (Shapiro argues America can uniquely benefit), and business development (Shapiro argues both China and the United States possess good capabilities and regulatory environments).

I will discuss Shapiro’s most provocative statements in an analysis of what the future holds for China and the United States in relation to the rest of the world.

MILITARY

* Shapiro gives a possible warning of future confrontation between China and the US. “Even deep economic relationships do not preclude wars between the parties, once they’re each other’s near peers in military power.” (20) For example, in the “calm” before WWI, world trade was at an all-time high. and yet that trade led to war, and an arms race rather than peace.

China’s military spending budget has increased by double [percentage] digits for 20 consecutive years, this year rising nearly 18% to at least $59.6 billion (There are many estimates of the precise amount of spending since China does not calculate its military spending the same way that other countries tend to calculate theirs; but the important thing is that China is spending AT LEAST this much.)

However, it is unlikely, even given current levels of assumed spending, that China will be able to challenge the US even on a regional scale until around the year 2020 (Zalmay Khalizad discusses it HERE; but Mulvenon, Cordesman of the CSIS, and others have discussed China’s military force at length in full-length books).

But being directly able to match the US tank for tank may not matter since the Chinese are investing a lot in asymmetrical warfare. The most famous book on China’s asymmetrical and military policy is China Debates the Future Security Environment, by Michael Pillsbury. It’s a little out of date (from 2000), but it’s free on the Internet so it is easy to check out. (A slightly alarmist report on Chinese cyberterror from The Guardian is also available.)

ECONOMIC SUCCESS

Shapiro argues that “demographics and globalization will intensify economic inequality almost everywhere” (22); but that the societies with the greatest inequalities will likely be the richest, like China and the United States, since globalization allows returns on investment to rise (22).

Shapiro discusses how China and the United States are best positioned to take advantage of globalization due to their “freewheeling market capitalism” (16) which allows for innovation and can help the countries escape the burdens of aging and social-welfare systems Shapiro argues will plague Europe and lead to a “geopolitical marginalization” (21)… since “Europe has steadily cut its defense capacities and commitments…[it is] likely to be preoccupied politically with the fierce domestic conflicts certain to erupt when that slow growth collides with the tax hikes and spending cuts requried to keep their pension and health-care systems going (21).

Due to these declines, Shapiro argues, Europe will by necessity grow closer to United States whose military can protect Europe and help ensure its steady flow of raw material resources.

OTHER DEMOGRAPHICS

Shapiro touches on China’s aging; but notes that its large population, if properly educated, can mitigate most of the troublesome effects of a declining workforce. Even if China grays, its population is not expected to begin aging until the late 2010s, and at least through the early 2020s, around 75% of the population will be working-age or younger.

Another factor explaining why China’s aging will not necessarily hobble the country, is that unlike most other aging countries; Japan, the US, and Europe, China has not yet reduced the size of its agricultural industy– it still represents around 43% of their labor force. China still has a long way to go on reducing agricultural employment and retooling that employment into more productive industries. Therefore, in terms of raw productive ability, China will be able to benefit from a continually expanding industrial-production pool as more agricultural workers shift into city employment.

However, Shapiro avoids a detailed discussion on China’s environmental or health problems. Considering how he allots much discussion arguing that China and America are strong countries with strong economies in part because they lack national health care, this is a bit confusing.

China’s environmental problems have gradually worsened; 16 of their cities are listed as the 20 most polluted in the world. The preponderance of pollution will lead to more chronic conditions, and more lost-days at work which can cut into productivity. When I lived in Beijing, every year we suffered a few “purple” level pollution days where the air quality index rated worse than 500 parts particulate matter pollution- the highest level measured.

INFRASTRUCTURE

Shapiro discusses the usual things about China developing massive amounts of infrastructure and still having a long way to grow. As a World Bank Report stated in regards to China’s massive infrastructure investments: “Annual capital expenditures for transport, electricity, piped gas, telecommunications, urban water supply and sanitation increased steadily from US$39 billion in 1994, to US$88 billion in 1998, and to US$123 billion (about 8.7% of GDP) in 2003.”

Infrastructure needs to be constructed rapidly to encourage continual expansion of China’s economy. According to the Economist “logistics costs… amount to 18% of GDP in China compared with 10% in America” and “between 2006 and 2010 $200 billion is expected to be invested in railways alone, four times more than in the previous five years. ” It will be interesting to see if China’s government can maintain those levels of investment, given the current global recession.

DIPLOMACY

Shapiro then explains how China’s growth and increasing relevance in international trade and resource transfers will encourage new diplomatic alignments. Shapiro argues that a China and Europe alliance or a China and Russia alliance could pressure America and cause it and its world financial institutions to alter policies (40).

PART II will discuss Russia and India, Recipies for Success, and Conclusions on the book.

Feel free to sound off in the Comments section of this post for your opinions on the book and my analysis.

Futurecast 2020

by: Robert J. Shapiro (Undersecretary of Commerce 1998-2001, Senior economic advisor to the Clinton, Gore, and Kerry Campaigns, cofounder of SONECON LLC.) 2007.

23 June, 2008 Posted by | Book Review, China Environment/Health, China Future | , , , , , , , , , , | 2 Comments

   

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