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Henry “Hank” Paulson — former Chairman of Goldman Sachs, former Secretary of the U.S. Treasury and creator of the U.S.-China Strategic & Economic Dialogue — was in Philadelphia last Wednesday. He came to publicize his new book Dealing With China: An Insider Unmasks the New Economic Superpower.
The media frame for the talk and Q&A which he gave to the World Affairs Council of Greater Philadelphia was: ‘Hank, you’re a real patriot. Why are you helping China?”
In response, Hank Paulson was very clear that his interest in promoting a better understanding of China is rooted in his desire to do what is best for America.
You can read the full article here but, for the purposes of this post, I’m going to focus on one small, but important, piece of the big contemporary China puzzle: Is Xi’s ongoing crackdown (on corruption but also on foreign businesses, NGOs, press freedoms, social media, connectivity to the global knowledge-pool, etc) flashing green, yellow or red for China’s paramount challenge of rebooting its economy on a more sustainable basis?
China’s ‘old software version’ of infrastructure build-out, inbound investment and export of cheap stuff is clearly no longer operating smoothly on the new global hardware system. China’s future – and Xi Jinping’s for that matter – depends on a smooth updating to a ‘new software version’ of consumer-led spending, outbound investment and innovation up the product value-chain. Under any circumstances, that’s a tall-order to pull off in just a few years. For those of us who believe that helping China matters to America’s future, the key question is whether the crackdown on political thought in China is – or is not — inimical to the desperately needed surge of commercial innovation needed to upgrade China’s economy to version 2.0.
It is perhaps not entirely a coincidence that, in the same week that Hank Paulson was wrestling with this question in Philadelphia, so were two other leading experts on the trajectory of China’s globalization elsewhere: Shaun Rein and Tom Friedman in respective articles. If Hank Paulson occupies the pivot point as a U.S. patriot committed to helping China, Shaun Rein is a self-acknowledged China booster and Tom Friedman a “color me dubious” observer of China’s steep road ahead to globalization.
Here’s what each of them has had to say over the past week on the ‘sword of Damocles’ question facing Xi and China: crackdown or start-up? (Click on the name below in order to source the original publication from which the following excerpts are taken):
“Paulson believes the Communist Party has reached a simple accord with the Chinese people: prosperity in return for continued state control. The question, of course, is whether China can have it both ways – economic freedom without cultural freedom, a subject I raised with Paulson at the World Affairs Council.
‘In today’s information economy, I don’t know how economies can innovate and do the sorts of things they do to stay on top without having a free flow of ideas and information,” Paulson replied. “I’ve run a global company, and, boy, you need to be connected. You can’t have an Internet that’s not connected. You need to know what’s going on politically, regulatory systems, economically, in terms of ideas all over the world.’
He added: ‘But understand what’s going on right now. Xi Jinping . . . is focusing on the things that the people care about the most. So, corruption. He recognizes the party won’t survive unless he curbs corruption. So he’s focused on corruption, the environment, dirty air, and water.’
“So . . . managing China, just think what it’s like because they have to deal with the kinds of issues that afflict developed countries at the same time they have to deal with issues that developing countries are dealing with because a big part of the country is still poor. It would be like, . . . looking at Europe, Germany and Slovenia. They are both European, vastly different stages of development, they need different economic policies. So think about managing both of those in a single country under one party, and I mean that’s sort of the challenge.’”
“China´s much needed anti-corruption drive has now put the country into a lock-down mode, and new projects have halted,” tells business analyst Shaun Rein at CNBC. “The cut in the reserve ratio ratio (RRR) this weekend is one way for a kickstart, although nobody know what will really work.”
China Herald: “What does the Chinese market need to stimulate the economy and if this growth continues to disappoint then would you expect an additional benchmark rate cut in the next couple of quarters, something that many experts are now talking about?”
Rein: “I think what we need to look at is not gross domestic product (GDP) growth but we need to take a look at unemployment and the second reason why I am more concerned about the economy is in the last month urban unemployment has been hovering around 5 percent – that’s really a problem. So the unemployment rate in areas of manufacturing are still fairly strong and you can easily stimulate that by forcing state owned enterprises to do heavy investment; train construction, airport construction and you can get jobs there but the issue is urban unemployment is weak and there aren’t a lot of easy remedies. The government is trying to switch from manufacturing oriented economy more towards one of technology and innovation as I outlined in my new book ‘The End of Copycat China’ but it is not easy to do that. You cannot get companies that are producing things all a sudden to become innovators, so there is definitely going to be some weakness, some problems in the economy over the next three-four months and frankly there are no easy answers on how they stimulate the economy.”
“Americans … are asking of President Xi: “What’s up with you?” Xi’s anti-corruption campaign is clearly aimed at stifling the biggest threat to any one-party system: losing its legitimacy because of rampant corruption. But he also seems to be taking out potential political rivals as well. Xi has assumed more control over the military, economic and political levers of power in China than any leader since Mao. But to what end — to reform or to stay the same?
“Xi is “amassing power to maintain the Communist Party’s supremacy,” argued Willy Wo-Lap Lam, author of “Chinese Politics in the Era of Xi Jinping: Renaissance, Reform or Retrogression?” Xi “believes one reason behind the Soviet Union’s collapse is that the party lost control of the army and the economy.” But Xi seems to be more focused on how the Soviet Union collapsed than how America succeeded, and that is not good. His crackdown has not only been on corruption, which is freezing a lot of officials from making any big decisions, but on even the mildest forms of dissent. Foreign textbooks used by universities are being censored, and blogging and searching on China’s main Internet sites have never been more controlled. Don’t even think about using Google there or reading Western newspapers online.
“But, at the same time, Xi has begun a huge push for “innovation,” for transforming China’s economy from manufacturing and assembly to more knowledge-intensive work, so this one-child generation will be able to afford to take care of two retiring parents in a country with an inadequate social-safety net.
“Alas, crackdowns don’t tend to produce start-ups.
“As Antoine van Agtmael, the investor who coined the term “emerging markets,” said to me: China is making it harder to innovate in China precisely when rising labor costs in China and rising innovation in America are spurring more companies to build their next plant in the United States, not China. The combination of cheap energy in America and more flexible, open innovation — where universities and start-ups share brainpower with companies to spin off discoveries; where manufacturers use a new generation of robots and 3-D printers that allow more production to go local; and where new products integrate wirelessly connected sensors with new materials to become smarter, faster than ever — is making America, says van Agtmael, “the next great emerging market.”
“It’s a paradigm shift,” he added. “The last 25 years was all about who could make things cheapest, and the next 25 years will be about who can make things smartest.”
President Xi seems to be betting that China is big enough and smart enough to curb the Internet and political speech just enough to prevent dissent but not enough to choke off innovation. This is the biggest bet in the world today. And if he’s wrong (and color me dubious) we’re all going to feel it.”
Happy Year of the Snake!
I have some major catching up to do so let me begin here with a link to my book which the Wilson Center launched on September 24, 2012. (Note: if you want to download the PDF of the book, just right-click and use the Save As option).
More 2012/3 updates to follow in rapid sequence.
Thanks for hanging in there,
This is the first of regular weekly Cooketop News blog posts (scheduled to appear each Monday).
By reviewing the previous week’s top stories involving — broadly speaking — China clean energy, the idea is to identify and comment on a particular emerging trend/issue which points forward and can help illuminate news-in-the-making for the week(s) ahead.
By radio analogy, the commentary is meant to cut through static in the general coverage of whatever’s the issue at hand and present a clear frequency and better ‘signal-processing’ for helping to tune in on an enduring news issue.
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THIS WEEK’S COMMENTARY — HUNTSMAN, REPUBLICANS & CHINA
Last week was the Iowa caucus and Tuesday of this week the New Hampshire primary. The related questions which these contests have raised are what have Jon Huntsman’s China connections and qualifications done for his campaign effort and what are the implications for China given the current crop of Republican candidates.
Let’s start with the second question. Liz Economy from the Council of Foreign Relations has done a better job than anyone at assessing the remaining field of candidates through the lens of their public positions on China. To borrow liberally from her analysis, here’s what we’re looking at:
Mitt Romney says it’s all about the economy, stupid: Mitt Romney’s China policy is all about trade measures —keeping counterfeits out, protecting intellectual property, levying sanctions against unfair trade practices, pressing China on its currency, etc. The question for an anti-“Big Government” candidate is who does all this work if not the government.
Ron Paul wants to make love, not war: Ron Paul appears to want to “go along to get along” with China: stop intrusive surveillance, reconsider the Taiwan Relations Act, drop the idea of import tariffs in retaliation for Beijing’s currency manipulation, and mute protestations over human rights issues. As Economy has put it, there’s little doubt that “candidate Paul …would be Beijing’s pick for top dog.”
Jon Huntsman is long on experience but short on traction: No surprise that the expertise in China policy is with former U.S. Ambassador to China Jon Huntsman. Huntsman has all his facts in line. You can agree or disagree with his specific positions — opposing a China currency bill or engaging to promote political change in China—but you have to admit he knows his stuff.
Newt Gingrich jettisons balance to keep ship afloat: Gingrich’s initial positions in the campaign were balanced and reasonable, calling on the U.S. to do the right thing and take action on the home front in order to be more competitive. As his electoral options have narrowed though, his positions appear to be veering in a more extreme direction. Stay tuned for his advertising campaign in South Carolina to see if he starts demonizing China.
With Rick Santorum, the question is ‘Where’s the beef?’: Despite having a lengthy book and a Senatorial career in the public record, there’s almost nothing to go on to explain how Santorum would approach China if elected President. He did make a quote about going “to war with China” to “make America the most attractive place in the world to do business.” Huh?.
Rick Perry talks the talk but doesn’t walk the walk: “Communist China is destined for the ash heap of history because they are not a country of virtues. When you have 35,000 forced abortions a day…, when you have the cyber security that the PLA has been involved with, those are great major issues both morally and security-wise that we’ve got to deal with now.” His actions? Courting Huawei, a problematic company, to invest in Texas.
So, on to the related question, what has Jon Huntsman’s Mandarin-speaking ability and Ambassadorial command of the issues meant for his election prospects? The answer, like a Rorschach, depends entirely on who you talk to. His proponents invariably cite it as a positive (see NY Times article) and his detractors cite it as a liability (see story from last Thursday below). Where’s the traction? Answer: there’s maybe some but not much.
Fault-lines have been exposed in the body politic over these questions. There’s no question that one of Ron Paul’s supporters went way, way over the line by insinuating Huntsman was questionably ‘American’ because he and his wife keep their adoptive children from China and India exposed to cultural traditions from those two civilizations, but nonetheless ideological conservatives generally seem to view his competence with China as itself a cause for suspicion.
The first generation of Mandarin competent statesmen drew heavily from the offspring of Christian missionaries who grew up in China, people like the late Ambassador James Lilley. Huntsman represents a second wave of high-level U.S. government officials who have Mandarin-competence through their two years of Mormon service abroad. (Tim Stratford, a former Assistant U.S. Trade Representative for China, is another example of this group of experts). The third wave will come from younger Americans who, in step with China’s opening to the world, have been able to burrow deeper into language and cultural expertise. They are making their way up the ladder of the U.S. government. I can only hope that the American electorate — and the Republican Party — can find a way to value the knowledge they bring to public service. The top rank of challenges which the U.S. faces will simply not be solved without constructive and effective engagement with China — and that requires people who understand, respect, and can operate in the sphere of Chinese language, culture and values.
(Disclosure: I have worked at various points in my career for Jim Lilley, Jon Huntsman, and Tim Stratford.)
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LAST WEEK’S COOKETOP NEWS
Here’s a listing of some of the top stories covered in Cooketop News for Week 1 of 2012 (with hyperlinks):
Monday, January 2, 2012
Foxconn enters solar
Chinavasion’s High-capacity Solar Charger
Protest in China – Ripple or Wave?
Bridge construction as economic development lever
10 Predictions for Cleantech in 2012
Tuesday, January 3, 2012
Top 20 Green Building Innovations of 2011
USDOC Sec. Bryson Faces a China Challenge
Cleantech Start-ups to Watch
Is China’s Solar Industry Entering Eclipse?
Public Housing Key as Export Machine Slows
Wednesday, January 4, 2012
‘Culture Campaign’ Dents Programming
Green Cars & Clean Energy: The China Angle
Cleaner Technology in Global Arctic Oil Race
Chinese Philanthropists Join to Protect Nature
China’s IPOs Top World’s Exchanges Despite Slump
Thursday, January 5, 2011
Air Pollution Hazardous for China’s Economic Health
Drought Drying out Poyang Lake in Jiangxi Province
Rustbelt Cities Go Green to Strengthen Economies
China’s Corporate Debt Issuance Soars in 2011
Huntsman’s China Cred No Boost to his Prospects
Econ Ties to China Key Issue in Taiwan Election
Friday, January 6, 2011
10 Emerging Sustainable Cities to Watch
Solar Turbine Makers Turn to India & China
U.S. Manufacturers of Steel Wind Towers Cite China
LDK Solar Snags $64mm from PRC for U.S. Projects
China Announces Plan to Levy Carbon Tax by 2015
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That’s it for this week. I hope you find this of some value to your own pursuits. Give me a holler — either by leaving a comment below or by email — to let me know what you think, positive or negative. For anyone with a driving passion to get each day’s edition of Cooketop News (minus the summary listing and commentary that I provide in this weekly post), you can subscribe by going to the Cooketop News site at http://paper.li/mterrycooke/1324752421 and clicking on the upper-right Subscribe button. There is also an Archive feature on the site (upper-center) which allows you to look up any previous edition.
Oh, before signing off, I owe you an answer to the question in the title. Jon Huntsman’s name in Chinese? 洪博培. (And by the way, if you try searching for the name on China’s Twitter clone — Weibo — when you’re in China, you’ll likely find the name has been blocked).
On October 11th, Mark Muro, Policy Director of The Brookings Institution’s Metropolitan Policy Program, presented the national-level chapter of the story of ‘Greater Philadelphia’s 21st century Clean Energy Opportunity’ at an event I organized in Philadelphia for the Academy of Natural Sciences of Drexel University and the T.C. Chan Center for Building Simulation & Energy Studies of the University of Pennsylvania.
According to Muro, Philadelphia enjoys key advantages due to: (1) its position as #5 top-performing cluster nationally, (2) its participation in a national trajectory of fast-growing, high-quality jobs, (3) its profile of balance with middle-skill, middle-wage ‘green collar’ jobs; (4) its breadth of clean economy segments (air & water purification, lighting, nuclear, mass transit, professional energy services, solar PV, solar thermal, and wind); and (5) its location in the middle of the most vibrant clean economy corridor in the country (from Albany NY and Boston MA down to Washington DC and northern Virginia).
Future posts will help tell the other chapters of this story, including the City of Philadelphia perspective (Alan Greenberger, Deputy Mayor for Economic Development), the regional perspective (Mark Hughes, Task Leader for Policy, Markets & Behavior at the Greater Philadelphia Innovation Cluster for Building Energy Efficiency (GPIC), the global perspective (Amy Fraenkel, UN Environmental Programme Regional Director for North America) and the U.S./China strategic opportunity (Terry Cooke, Founding Director of the China Partnership of Greater Philadelphia.
Stay tuned for more!
Note 1: If you want to be sure you see each of these upcoming posts reliably and promptly, please click the “Follow” button on the WordPress toolbar immediately above this blog’s heading and an email will automatically be sent to you as soon as each post appears.
Note 2: See Brookings Backgrounder for additional information on: (1) the Brookings Institution’s Metropolitan Policy Program initaitive for clean energy clusters; (2) the intellectual antecedents of this policy work in the work of Michael Porter at Harvard University; and (3) how David Sandalow and Brookings helped translated this thinking into U.S. Government policy through the closely-connected Energy Innovation Hub (EIH) program and the U.S.-China Clean Energy Research Center (CERC) program (via the John L. Thornton China Center at Brookings).
Note 3: If you want to help push for Philadelphia’s emergence as a 21st century clean energy leader, please tweet or Like on Facebook or +1 this on G+, using the sharing tool below. Thanks.
The surest way of knowing where the Chinese national government wants to go is to follow the money they put into mega-projects.
The development of Shenzhen and Pudong over the 6th – 9th Five Year Plans (FYP) showed the government’s attitude toward market-opening in the 1980s and 1990s. More recently, the Binhai project in Tianjin likewise demonstrates the central government’s commitment to clean energy development and the China Medical Center in Jiangsu demonstrates their interest in advanced health technologies to combat cancer and other diseases affecting an aging population.
Cloud Computing is high on the government’s to-do list. Beijing is reported to have committed more than US$150 million (RMB 1 billion) to develop a 10 square kilometer “‘cloud computing’ Special Administrative Region (SAR)” for high-tech and start-up firms in the south-western city of Chongqing. Although the initial financial ante is modest, the stakes being played for are high. Importantly, the cloud computing SAR will reportedly be exempted from the the country’s strict system of internet censorship control, known affectionately as “The Great Firewall (GFW).”
For the issue of how Beijing’s central Five Year planning process translates to mega-projects, I try to tackle this in my book in the chapter called “Managing Hyper-Growth.”.
In 2008 China could be seen rapidly closing the gap with the traditional wind market leaders – the U.S., Germany and Spain. By 2009, China, riding a massive post-GFC stimulus program, became the world’s largest buyer of wind turbine equipment. In that same year, the U.S. managed to maintain its strong pace of wind installations but Spain and Germany started falling off the global pace as post-GFC austerity forced them to drop governmental price supports (so-called “feed-in-tariffs” or FiTs) for wind installations. Finally, in 2010, China surpassed the U.S. in wind-power installations (18.9GW vs. 5.6GW) and emerged as the clear global front-runner for wind-energy purchases and installations.
But three caution flags are now waving for China:
(1) For the moment, there is still a huge asymmetry in the number of installations which GE has made in the Chinese market (over 1,000 in China alone, over 14,000 worldwide ) versus the number of installations Chinese wind-power companies have made in the U.S. market (3 installations, as of December 2010). Moreover, lingering tight credit strongly favors established market leaders when it comes to wind energy projects and, for now at least, financing costs are currently prohibitive for new entrants. This is a substantial market hurdle for Chinese entrants to the lucrative U.S. market, not a government barrier.
(2) In a mid-summer 2011 settlement announced by the Office of the U.S. Trade Representative, the Chinese government agreed to stop subsidizing its wind power manufacturers. This put an end to a six-year, WTO-inconsistent effort known as Notice 1204 and led by National Development and Reform Commission, to favor Chinese suppliers in the manufacture and installation of Chinese wind-turbines.
(3) Earlier this week, China’s government adopted stricter regulations in anticipation of an expected “bloodbath among turbine producers” as reported by the Financial Times on October 24th.
It’s a marathon, not a sprint to the wind-energy future. Far too early to proclaim China the winner.
On Thursday & Friday (October 27-28), the UN’s Environmental Programme brings global focus to the burgeoning field of building energy efficiency in the Greater Philadelphia/Mid-Atlantic region.
See the UNEP’s website for more detail. And let me know if you’d like to take part.
______Assessing China / The TEA Collaborative______ 