China Comment

Energy, Environment, and Economy

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

The Other Challenges

Last week, I discussed John Pomfret’s Washington Post article that described challenges China faces to becoming a superpower.

What Is A Superpower?

In comments on my site, and on the China Law Blog, Here and Here, several readers indicated it would be useful to define “superpower” when discussing China’s future propensity for achieving “superpower” status.

The debate about what defines a “superpower”, whether it is a high ranking on the Human Development index, whether it is equivalent or not to “hegemon”, whether it is “force projection”, or merely “military” or “economic” force, is quite expansive.

For the purposes of my post, I’ll take a simplified position. From what I gather, when the hoi polloi (common people… the laobaixing 老百姓) discuss “superpower” or what makes a nation great, they mean an entity that can project its force overwhelmingly and has the ability to influence geopolitical events on a worldwide scale. Other countries need to plan around this country’s policies. In that sense, the United States and the USSR were “superpowers”; to some degree, the economic Japanese juggernaut was a superpower in the late 1980s and 1990s. Increasingly, China is becoming an economic superpower.

While I acknowledge this definition can be debated, I hope to keep the definition simple so I can move into the point of the post.

Another issue perhaps worthy of consideration is that my article and Pomfret’s did not set a timetable on when China might achieve said “superpower” status. I assume Pomfret was taking Keidel’s statement of China surpassing the US in total GDP around 2030 as the date most people assume for China’s arrival at superpower status.

In listing possible challenges facing China, I’ve tried to base statements on the time horizon of 2020-2025, shortly after the sixth generation of PRC leaders comes to power. One inspirational source was the roundtable discussion of Cheng Li, Pieter Bottelier, Fenggang Yang, and David Lampton in “China in the Year 2020.” 

China’s Challenges

To continue its rise to an economic and soft power status that can “shake the world” by 2025, China’s pressing challenges include a need to ensure energy supplies, tame inflation, confront environmental degredation, deal with dissent/protests/petitioning by instituting a rule of law and providing social services.

Below, I briefly cover these ideas. Eventually, I hope to deal with these challenges at length– a lot of good articles and books have been written on all of them and they are all large issues and deserve more treatment.

Energy Supply Maintenance

China will require 11.6 to 12.3 million barrels of oil a day, up from 6.9 million/day in 2005, and around 7.5 million/day in 2007, and allegedly 8 million/day in 2008 (according to IEA-2004 and DOE-2005 estimates, respectively (Kreft, 2) and more recent energy statistics.) Nearly 75% of this capacity will have to be imported since China can only produce around 3.7 million/day domestically.

China could also experience a deficit of 620-770Mt/a of coal in 2020 alone, according to He Youguo in a 2003 report by China Coal Industry Development Research and Consulting Co. Ltd. (7).

If current trends continue, Herculean efforts at ensuring an uninterrupted energy supply will need to be undergone to ensure that the lights stay on at China’s factories.

More on China Energy:  Nuclear Power, Wind Power, Natural Gas.

Taming Inflation

In 1989, part of the impetus for the protests was runaway inflation, rising unemployment and lowering standards of living. And as Pieter Botellier also argued; “the Communists’ defeat of the Nationalists in the Chinese civil war of 1945-1949 was greatly assisted by the run-away inflation of those years, which sharply reduced the popularity of Chiang Kai-shek’s Republic of China (ROC) government. “

China’s economic system today, however, is more sophisticated. Still, this is the highest inflation we’ve seen in China since the mid 1990s, with over 20% price hikes on food and double-digit growth in gas prices.

Currently, policy priorities appear to be toward promotion of economic growth rather than inflation containment. Arguably, maintaining growth could contribute more toward long-term stability. Still, if growth only goes to the middle and upper classes and the poor bear the brunt of inflationary increases, and their lives stop becoming noticably better- and their standard of living stagnates… there may be problems. Every year, China’s ranking on the GINI coefficient, which measures wealth distribution, becomes increasingly unequal. Currently, China’s GINI hovers between .37 and .46 (depending on measurement), either slightly more equal than the US’ GINI rating, or much less equal.  

Environmental Challenges

China faces severe environmental challenges. Pomfret, Economy, and other experts have discussed this in detail. For China to continue 10%+ yearly GDP growth, it will have to clean up its polluting industries. According to China’s Green GDP, in 2004, pollution cost China at least 3% potential growth. The Green GDP numbers for 2005 were never released, and arguably China’s pollution increases every year.

Energy efficiency per unit of GDP improved 3.66% in 2007, and arguably should improve this year as energy-intensive factories are shuttered. But, partially due to rising car ownership, pollution expanded significantly in the 21st Century. China hopes to reduce energy consumption per unit of GDP 20% by 2010, but it is a little behind its goal of yearly reduction percentages. Small coal mines and plants have been shut to ensure compliance, but to avoid power disruptions, many mines have recently been reopened.

Stability and the Rule of Law

China could arrest dissidents en masse, growing more repressive, but this will increase tensions in its relations to the outside world, and might stifle ideas and innovation.

However, as China’s economic influence becomes felt around the world, it is possible that it might set up its own international framework in competition to the West’s APEC, WTO, and IMF. (See the last section of my article on Maslow’s Hierarchy and Rule of Law- Not Human Rights for more info.)

With sovereign wealth holdings of over $1.7 trillion, China has extensive ability to affect the world… Unless of course, that wealth becomes tied down in foreign non-performing assets, declining currencies, and a need to invest in overpriced resource markets.

China is a giant in terms of wealth, so it can take quite a beating in economic losses from its funds, but poorly performing assets can lead to public opinion backlashes.

Without strong development of a domestic consumer economy, China will have difficulty in existing isolated from international economic forces.

Providing Social Services

Pomfret identified China’s demographics, its aging, and its peak of a working age population around 2015 as being a large problem. I rebutted that. However, with China’s GINI coefficient rising (at increases of 6%, the fastest in the world for the past decade), and with a degrading environment, and 350 million smokers, perhaps 1/3 of the world’s total smokers, health care costs will rise and create public tensions if the government fails to aid sick people.

Fear of these tensions could be a reason the Party prevents cross-provincial NGOs from organizing, and is cracking down on Sichuan post-earthquake support organizations and people who threaten to challenge the Government’s handling of the incident.*

Crafting an efficient social safety net, or preventing unrest in response to lack of said net, will be an important challenge for future Chinese administrators.

* Note: I realize this particular person, Huang Qi, has a history of challenging the state which might lead it to be more repressive. However, the point still stands; the state has harassed and/or  paid off families not to complain about allegedly faulty construction that may have caused more schools to collapse than should have if codes were followed.

Conclusion

To solve its many challenges, China could turn inward and become repressive, or turn outward and allow development of civil society, or it could mix the practices. While some commentators might paint China’s future as that of a “negative” (closed-society) or a “positive” (democratic society), both I and the commentators in “China in the Year 2020” tend to see opportunities from many points along the choice continuum.

China could “succeed” in achieving superpower status even in spite of democratization. Or it could fail to achieve said status even despite democratization and liberalization. 

Once again, I welcome your comments regarding challenges China’s development could confront in the coming 20 years.

* On August 25, 2008, The Wall Street Journal presented its own ideas about which challenges China faces. (Inequality, Resources, Population/Aging).

5 August, 2008 Posted by | China Future, China Stability | , , , , , , , , | 5 Comments

A Weak China?

In the Washington Post, John Pomfret, former WP Beijing Bureau Chief and author of Chinese Lessons: Five Classmates and the Story of New China (2006), argues that China is not going to become a superpower. His argument is a bit misleading, however. He demonstrates that China faces challenges, but he admits China’s GDP will outpace the United States’ in size. 

Pomfret’s four challenges, while intriguing, appear to be the wrong challenges to address. Despite them, China will still become a superpower. In this article, I explain why his challenges are not the most apt. Then I suggest four different challenges to China’s growth.

Pomfret calls attention to four challenges; “dire demographics, an overrated economy, an environment under siege and an ideology that doesn’t travel well.”

Dire Demographics… But Room for Expansion

Pomfret successfully argues “that as the working-age population shrinks, labor costs will rise.” In China’s coastal provinces, labor costs have already risen, partially due to reduced migrant labor flows. It is also true that after 2013, China’s labor force will peak at 900 million and subsequently the elderly will be more numerous than adolescents and children. And there are nearly 119 males born for every 100 females, which will create tensions.  

But, it is also true that despite decades of posting productivity gains, China is still underutilizing its human capital. Its workers have not yet realized the full potential of productivity gains that workers in other countries have realized- which means that China still has a vast, untapped potential for growth.

Chinese labor productivity has grown from (in 1995 RMB values) around 5000RMB per worker in 1979 to 21,500 RMB per worker in 2005 (or roughly $3100). (Holz, 166 and He & Kuijs, 6) And productivity grew at around 8.7% per year from 2000-2006. (The OECD defines Labor Productivity as GDP per hour worked) The US Labor Productivity value-added per worker is currently ranked sixth in the world by the OECD, behind Luxemborg, Norway, the Netherlands, Ireland, and Belgium.) 

Japan and South Korea, which similar to China started at a low base for productivity, are currently at 71% and 41% of US productivity ratings. Regrettably, it appears these OECD numbers have not been adjusted for PPP (Purchasing Power Parity). However, the point remains, South Korea had low productivity and a majority of citizens employed in agriculture back in the 1960s. Now, only 7.5% of its population works in agriculture.

China still has up to 43% of its population employed in agriculture (due to the nearly 200 million migrant workers who retain rural residencies, the number is probably more like 30%, but that is still an overly-high number). This underutilization and underemployment of workers demonstrates China still has much room to grow, and many more productivity gains to realize– its rise is not yet finished.

Overrated Economy… But Massive Purchasing Power

Pomfret rightfully criticises Keidel at the Carnegie Foundation for a July 2008 extremely pro-China growth article. Keidel assumes China will maintain over 7% yearly growth rates through 2030. These estimates may prove to be overly optimistic. However, China’s economy is still deregulating and expanding. It may not grow as fast as Keidel assumes, but barring massive inflation and energy shortages, the sheer amount of human capital and potential for development will allow it to expand at a healthy clip.

Pomfret wanders a bit into strange territory when he argues China cannot become a superpower simply because GDP per capita is so low. But why does low per capita GDP preclude development of a strong country? If GDP is high enough, China can finance a modern military, and its state-owned businesses can purchase overseas energy and mineral resources.

With even modest GDP growth, the domestic market can serve a middle class of perhaps 400 million (or 100 million, depending on the estimate), which is larger than almost all Western countries’ populations! If China is a giant in terms of worldwide trade, it can have greater influence in trade contracts with countries like Brazil and the Central Asian nations, marginalizing the United States.

Note: In later articles I hope to explore China’s middle class, its productivity in detail, and how China’s aging might effect domestic policies. I would love to go into greater detail on these items here, but then this post might become thesis-length. 

Environmental Problems… A Legitimate Challenge; But It Can Be Overcome

Pomfret is correct that China faces environmental problems. Elizabeth Economy and other scholars have detailed this in numerous books and articles. And environmental pressures can cause societies to implode, as Jared Diamond famously argued in Collapse.

However, China may be able to make fighting its pollution an opportunity for societal and technological development. China could allow NGOs and private groups greater chances to challenge local development and expose corrupt practices. Or, China could continue to suppress cross-provincial border NGOs, and could fail to develop technological innovation. The future of China and its environment could be dire, as Pomfret believes, or it could be positive should Chinese invent innovative environmental solutions (See Prospects for China’s NGOs for more info on Chinese NGOs).

Bankrupt Ideology… But The Country Is Just Now Developing Its “Mission” (See Maslow’s Hierarchy)

Pomfret’s argument about China’s ideological intellectual bankruptcy is interesting. He makes a good point about how China’s one-party system can stifle innovative thoughts. But China is still developing its mission, and there may come a time when China’s ideology can be successfully exported. (Please see the last section of my article on Maslow’s Hierarchy).

In contrast to the United States’ private think tank minds, and European NGO leaders, China has yet to produce many world-respected political theorists to propogate its philosophy. Its famous discursive-thinking thinkers and personalities; Wu Jinglian (economist), Bao Tong (politician), and Gao Xingjian (author) are either retired, marginalized, or living in exile.

(Note: This is not to say China lacks independent thinkers; CASS (The Chinese Academy of Social Sciences) has been known for producing innovative thought. And University scholars such as Shi Yinhong have done innovative work in regards to foreign policy. But in one example of stifling creativity, the State closed the innovative Journal “Strategy and Management” when they felt its authors strayed too far from the party line; Other thinkers contribute valuable intra-China thoughts on nationalism and how China should relate to the rest of the world, but Chinese views on how the world should be ordered internationally are less often elucidated, and have less of a world-wide impact. China has also long taken a non-voting and non-leadership position on the UN Security Council.)

Conclusion

Pomfret is right, China faces challenges. But these challenges are not dire enough to hobble its rise to global superpower status. Only the environmental challenge appears to be a potentially growth-derailing problem, and it could yet be overcome.

In response to Pomfret’s proposal, I suggest a few different problems China is facing that may delay its rise. To succeed as a superpower, China most needs to ensure energy supplies, tame inflation, deal with dissent/protests/petitioning by instituting a rule of law, and provide social services. (If the last two items are combined, then I would list Pomfret’s “environmental” challenge).

I hope to explore these problems in a future article and would like to hear your opinions on what four problems you believe are most important for China to overcome.

(My further response, based on your feedback, is here).

30 July, 2008 Posted by | China Economy, China Future | , , , , , , , | 11 Comments

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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