Tag: China

Progress in Climate Negotiations, But The Damage is Done

Posted on by Carlos Enrique
A child walking near her home with a coal-fired power plant in the background in Beijing, China. Credit Kevin Frayer/Getty Images

The recent agreement between China and the United States removes a large stumbling block for a more widespread climate change treaty. Without the two largest polluters, any other agreement was bound to have a limited effect, no matter how stringent the requirements or severe the cuts in emissions. Now that both China and the United States have agreed bilaterally to tackle the issue, it eases the process going forward.

Unfortunately, significant damage is done already done, and the best we can hope with existing technology is mitigation and adaptation to damage. The only way to reverse some of the damage is to actively remove more carbon from the atmosphere then we emit. This is a monumental task, and technology to do this is at its most nascent stages.

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Optimism Faces Grave Realities at Climate Talks

“I was encouraged by the U.S.-China agreement,” said Michael Oppenheimer, a professor of geosciences and international affairs at Princeton University and a member of the United Nations Intergovernmental Panel on Climate Change, a global body of scientists that produces regular reports on the state of climate science. But he expressed doubts that the threshold rise in global temperature could be prevented.

“What’s already baked in are substantial changes to ecosystems, large-scale transformations,” Mr. Oppenheimer said. He cited losses of coral reef systems and ice sheets, and lowering crop yields.

Still, absent a deal, “Things could get a lot worse,” Mr. Oppenheimer added. Beyond the 3.6 degree threshold, he said, the aggregate cost “to the global economy — rich countries as well as poor countries — rises rapidly.”

OPEC’s inaction prompts Chinese action

Posted on by Carlos Enrique
Motorists fill their tanks at a China Petroleum & Chemical Corp. gas station in Beijing, China. The world’s second-biggest economy consumed the largest volume of oil on record in October, according to data compiled by Bloomberg. Photographer: Nelson Ching/Bloomberg

As the price war between the United States and OPEC begins in earnest, China stands to gain substantially. Developing at a still rapid 7.5%, China’s expansive development projects are necessary to keep unemployment numbers down and local economies thriving. Unfortunately, a lot of these projects are inefficient and necessarily energy intensive, so China will continue to purchase coal and petroleum wherever there is a cheap price to be had.

Interestingly, China is also taking in additional supplies of petroleum to expand their Strategic Petroleum Reserve. Current Chinese leadership aims to expand their reserves from 30 to 100 days. This is a significant increase, and this is an excellent time to buy lots of petrol at a bargain price. If demand from developing countries continues to increase, existing explored oil/shale/coal deposits are exhausted, and exploration for new deposits goes into geologically or politically dangerous regions, the prices China will purchase at today will seem like a bargain in a few years.

This development, along with the favorable energy deals China has struck with Russia within the last few months, will allow China to continue developing at a moderate cost. Whether this is is a good thing in the long-run is questionable. Loose fiscal discipline enabled by cheap credit and cheap energy allows for projects that, under normal circumstances, would not net a sufficient return on investment. Additionally, cheap fossil fuels slow the adoption of alternative energy sources, causing further environmental damage at a time when health and the environment are growing concerns with the Chinese citizenry.

P.S. It’s rather telling how much petroleum the United States consumes when comparing strategic reserves. 570 million barrels is equivalent to 100 days in China, where 691 million is equivalent to only 37 days in the United States.

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China Winning in OPEC Price War

Xi Jinping and a more active China

Posted on by Carlos Enrique
(Kimi Kyung-Hoon / Courtesy Reuters)

China’s current President, President Xi Jinxing, is promoting a much more robust, energetic Chinese government, both domestically and internationally. There is nothing wrong with a more active government, but Xi’s approach to China’s problems and his usage of Chinese institutions have caused much change and turmoil.

Xi is determined to steer China back towards its role as one of the world’s great powers (and arguably, it’s rapidly getting there), through a more muscular foreign and military policy. Whether it is Confucius Institutes around the world or expanding maritime borders, Xi is determined to translate China’s newfound economic strength into global Chinese influence while cementing the power and centrality of the Chinese Communist Party.

Surprisingly for China’s venerated mandarins, Xi’s efforts are heavy handed. His anti-corruption campaign is seen as a tool for party discipline, not a genuine, impartial uprooting of corrupt officials even as it does reduce corrupt practices. Regional multilateral political and financial cooperatives are undermined by a more aggressive military stance. Vast projects intended to physically connect China with other major countries and regions are met nervously by smaller countries with smaller economies who would be overwhelmed with Chinese economic largesse.

Xi saw his predecessor, Hu Jintao, as a do nothing President, and thus aims to form a dramatic contrast by taking untapped Chinese potential and pushing it to its limits. While some of Xi’s political and economic reforms will bear fruit, so long as there remains insecurity about the CCP’s legitimacy to govern the political, civil, and economic environment required to retain and recruit China’s best and brightest that will create will never be realized.

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China’s Imperial President

China’s Economic Growth – Water can float a boat, but also sink it.

Posted on by Carlos Enrique
Are sunny skies permanently in China's future, or are they merely a brief reprieve?
China’s investments are building out massive infrastructure, but to what end? Credit:ImagineChina/CORBIS

China’s debt and corruption are certainly going to be large drags on their economy, but the question both in China and in the China-watching community is if those two forces will eventually sink China’s economic miracle.

Massive ghost cities built at the periphery of China’s 2nd and 3rd tier cities threaten the economic health of China. With untold millions poured into construction and few tenants, the sustainability of China’s growth is in question as exports weaken and debt drives demand for real estate domestically. While millions of Chinese citizens are poised to move into metropolitan areas, there is no guarantee they will move to these ghost towns or that these ghost towns will be in habitable condition when that time comes.

The Chinese government now has the task of both slowing construction of these buildings and unravelling millions, if not billions, of bad debt. It faces numerous obstacles, first being the method used to rank local bureaucrats; GDP growth. Whether through useful infrastructure or useless buildings, construction work is a quick and easy way to boost economic growth and provide quick jobs for the uneducated. Local bureaucrats are loathe to renounce this method of goosing their numbers, and will require strict and frequent oversight if further needless buildout is to be prevented. The other solution would be to change the metrics upon which bureaucrats are judged, but that is unlikely in the short-term.

The second obstacle is related to the debt. Bad debt is often wound through the Chinese banking system in such a way as to make it exceedingly difficult to track. Shadow banking is quite common, and local bank branches are pressured into making bad loans in order to support the local economy. China’s banking system is surprisingly fragmented and would require a great, concerted effort to bring into line. This problem also plagues the Chinese solar energy industry.

While I am not as pessimistic as the author of the piece, I am wary of China’s future. It no doubt has a place amongst the major world powers, but the question is if China’s civil institutions are up to the task of getting China there.

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The End of China’s Economic Miracle?

But even powerful Chinese leaders have trouble enforcing their will. I reported earlier this year on the government’s plan to handle one straightforward problem: reducing excess steel production in Hebei, the province that surrounds Beijing. Hebei alone produces twice as much crude steel as the U.S., but China no longer needs so much steel, to say nothing of the emissions that darken the skies over Beijing. Mr. Xi weighed in by warning local officials that they would no longer be judged simply on increasing GDP; meeting environmental goals would count too.

In late 2013, Hebei staged an event called “Operation Sunday.” Officials sent demolition squads to destroy blast furnaces, and imploding mills made great TV on the 7 p.m. news. But it turned out that the destroyed mills had long been out of production, so blowing them up didn’t affect output. Indeed, China’s steel industry is on track for record production this year.