Last week New York Times columnist Thomas Friedman wrote another of his "Wow, China is awesome!" columns. This one is about how the Chinese are on top of climate change while the Americans are so caught up in partisan bickering that they have allowed an opportunity to slip out of their hands.
So far, so good. Nothing to disagree with there, at least as far as his impression of the US is concerned.
But Friedman takes comments by Peggy Liu (of JUCCCE) that the Chinese are running various clean energy pilot projects as a signal that the Chinese are serious about cleaning up their environment.
This is where I have to part ways with Tom. As someone who has, for the past 16 years, lived in or traveled frequently to China -- not just the big cities, but the countryside as well -- I can only verify that things have become worse, not better. There are many things China could have been doing for the past decade or so to clean up its environment or to reduce its carbon footprint, but it hasn't done any of them. I'm sorry, I like China, I love the people, but the place is filthy.
Still Friedman manages to make one valid connection -- that China's clean energy efforts are all about "J-O-B-S". He's pretty close on that one, but while J-O-B-S are certainly a nice side-effect, it's really more about M-O-N-E-Y. I've made these same assertions before on this blog:
Ultimately, Beijing sees great opportunity in the climate change movement. But contrary to outward appearances, the opportunity for China lies, not in cleaning up its environment, but in selling related technologies to foreigners.
Clean technology will be expensive, and a country facing a demographic time bomb in a decade or so cannot afford to waste a single percentage point in GDP growth to clean up its environment. China will, however, be more than happy to sell the necessary technology to those countries that are already on the bandwagon.
But don't take my word for it. Let's see how the Chinese government describes what it is doing. The following is a summary from China's 2009 Auto Industry Yearbook (a government publication) summing up the purpose of China's pursuit of "new energy vehicles":
新能源汽车行业有望为中国汽车提供赶超国际汽车先进国家的机会... 有望在全球新能源汽车产业分工中获取更大收益。
Translated:
The hope of the new energy vehicle industry is that it will provide China with an opportunity to overtake countries with advanced auto industries ... the hope is that, in the division of labor in the new energy vehicle industry, [China] can earn more profit.
While this is just part of the summary paragraph, there's nothing in the the entire section on "new energy vehicles" about climate change or environmental protection. Though the term "energy saving" is used once or twice.
The point here is not to pile on China and accuse it of being duplicitous. China is actually being very clear about what it wants. The problem is when the Tom Friedmans of the world fly into Beijing, stay in five-star hotels and then proceed to interpret Chinese actions through their own worldview.
I think it's great that China is undertaking all of these pilot projects. This work desperately needs to be done, and much more could be done in the US if our political leaders were more focused on the good of the country than they are on their careers (and if voters would punish them for it).
But it is way too early to draw the conclusion that China is concerned about climate change. This is a country that is concerned more about growth than anything else. If things continue on their current course, China will get what it wants: M-O-N-E-Y.
And they'll continue to get it from the US.
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UPDATE:
I came across this article today, from a law professor at Beijing University, that supports this idea. The basic message of "China's green laws are useless" is that, while China's environmental laws are impressive, they have had no effect on the country's environment.
...and nobody's selling.
An article in today's People's Daily (English) says that the auto industry tops the list of industries in which China's State Council wants to see an acceleration in mergers and acquisitions. The article goes further to say that the Ministry of Industry and Information Technology (MIIT) is drafting specific policies on mergers due to be released later this year.
The article is right in that consolidation of this industry is much needed. There are currently more than 100 auto assemblers in China, though only the top 20 or so really really count. Still, if China is to develop a globally competitive auto industry, they will need for a lot of the smaller producers to either disappear or be consolidated into larger producers.
If the article is correct, these new policies that MIIT is working on will do something to accelerate M&A in the auto industry. If those new policies are to do anything to accelerate mergers, however, it will require a pretty drastic change in Beijing's behavior.
Ever since China's government began to take notice of its auto industry around the mid-1980s, there has been an increasing desire to make China's industry globally competitive. And part of every auto policy that has been written to date has focused on a need for consolidation. I know this because I've read all of them.
Early on in the reform era, the auto bureaucracy du jour was always well aware of how other countries' auto industries had developed. For example, they knew that, in the early part of the 20th century, the United States also had more than 100 auto companies, and that number had shrunk to about half a dozen by the late 1950s, and only three by the century's end.
As the US has, until recently, been the one market China most wanted to emulate (since the US was, and still is, the world's largest economy), it seems to have made sense to auto planners in Beijing that the route taken by America's "Big 3" should soon be taken by China's largest auto companies.
And until now no matter how strongly the government has stressed the need for consolidation, implementation has always included allowing the market to determine the outcomes -- just as it presumably did in the US. Yet, while there have been a handful of mergers over the past decade (First Auto-Tianjin, Shanghai-Nanjing, Guangzhou-Changfeng, Chang'an-Hafei-Changhe), there have been nowhere nearly the number one might expect if the market were truly determining the outcomes.
Many of China's smallest auto companies continue to soldier on, year-after-year, cranking out a handful of cars. In a true market economy, these would never have survived on their own, yet in China, they do. Why? Because their local governments want them to. They employ people, they pay taxes, and they also very likely give local leaders a few vehicles to drive around every year.
If not for local governments who stand in the way, the market would have indeed taken care of China's fragmented auto industry. There is no lack of desire on the part of the CEOs of large auto groups to buy others; there's simply no desire on the part of small company CEOs and local governments to sell.
So these new policies that MIIT introduces later this year will probably not look much different from those we have seen to date. Beijing will very likely still want the strongest companies to take over the weaker ones. The question is whether Beijing will put any teeth in its policy. Will it change the incentive structures faced by local governments that keep them from supporting consolidation where necessary?
The tradeoffs are pretty clear. The status quo (little consolidation) helps to prevent social instability that could result from closure or merger of less efficient players. On the other hand, significant consolidation would help China's auto industry to become more globally competitive.
Which is really more important to Beijing?
Maybe, maybe not, but I think there's a far more important story here.
There's a great article by Keith Bradsher in today's New York Times, "On Clean Energy, China Skirts the Rules". Bradsher compares the extent to which clean tech firms in China and in the US receive government support. The upshot of the article is, as has become de rigeur recently, to paint a picture of a China that is getting ready to clean America's clock (pun intended).
Bradsher quotes the CFO of a US-based clean tech company on difficulties:
"You can’t get a penny in the United States, it doesn’t matter who you call — banks, government. It’s awful," he said. "Therein lies the hidden advantage of being in China."
Then he closes with this quote from the head of a Chinese tech company with operations in both China and the US:
"Who wins this clean energy race," Mr. Zhao of Sunzone said, "really depends on how much support the government gives."
Beijing-based lawyer, Stan Abrams, adds some illuminating commentary on this story at his blog, China Hearsay. He looks at it from more of a legal standpoint and concludes that, though China does appear to be skirting the rules, little to none of its behavior appears to be in gross violation of China's WTO commitments.
My sense is the recent rash of "China is kicking America's ass in clean tech" articles is really more about prodding the US government to take a larger role.
What concerns me is, if those who promote such views get their wish for more US government involvement in industry, would the US government know where to draw the line?
At some point government support in the US (and elsewhere) starts to result in diminishing returns. Once you unleash the state, it's hard to put that genie back in the bottle. Once you put in place a new bureaucracy, the people inside it begin immediately to plan for a perpetual existence.
During a recession, it becomes easy to clamor for government help, but when conditions improve, how likely is the government to withdraw?
This, to me, is a fascinating difference between the Chinese and US systems. We know that, over time, democracies bulk up with special interest driven programs that beneficiaries will fight for to the death, and that the rest of the population rarely have the collective will to fight.
On the other hand, China's "special interests" are all pretty much contained within the Politburo. They fight, someone wins, then they move on.
All the hand-wringing about whether the US should help with clean tech, though important, seems to be missing the much broader point (though raising the vital question) of whether the political system that has served the US well for over 200 years is sustainable in its current form.
A comparison of auto industries: China's government supports its auto firms in growth and development while the US government only rescues its auto firms from bankruptcy. (Right?)
For the past several weeks, I have been plowing through this nearly complete set of China Automotive Industry Yearbooks, tracing China's auto policy since the early 1980s.
Toward the end of the 1990s, I began to see references to a supposed US government program the Chinese call "新一代汽车伙伴计划" (literally translated: "new generation vehicle partnership plan"). My first thought was, they have to be making this up to justify their own intervention in the auto industry. The US government does not intervene in the auto industry -- or at least it didn't until it had to rescue GM and Chrysler last year. Before that, the only other time was to rescue Chrysler (the first time) in the early '80s.
After seeing several references to this program and another one they called "自有汽车" (Freedom car? Seriously?), I decided I had to find out what this was all about. What I learned was that the US government has indeed established partnerships with the former "Big 3" American automakers to develop new vehicle technologies.
The first one "Partnership for a New Generation of Vehicles" (PNGV) was started in 1993 under the Clinton administration and, according to this article at Wikipedia, resulted in the development of some useful technologies that made vehicles lighter and more efficient. The program also resulted in diesel-burning cars built by each of the Big 3 that were able to get at least 72 miles per gallon. (You never heard of this? Funny. Neither had I.)
Curiously, this program was ended by the Bush Administration in 2001 (apparently at the request of the Big 3) and replaced with a new program called "Freedom Car". This new program dropped the focus on current technologies and began a push to make fuel-cell vehicles commercially viable.
In more recent times, I have become aware of funds have that been made available under a Department of Energy program to support the development of advanced lithium-ion batteries for electric vehicles, but my assumption had been that this was a one-off program put together under the stimulus program. However, as it turns out, I was wrong about that too. This program started in 2007, well over a year before we started to notice the economic downturn.
US government involvement in the auto industry, as it turns out, is not an aberation; it's quite the regularity. And it's not only about rescue from bankruptcy; the US government has been pushing all along for development of advanced vehicle technologies.
As is typically the case with Wikipedia articles, people with competing agendas are able to edit the pages to which I have linked above, so those articles do contain some bias. Still, it was interesting to discover that China isn't the only country whose government wants to see its automakers develop new technologies.
And I found it especially ironic that I had to learn about these US efforts from Chinese government documents.
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