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Volume 2, Number 3 in Global TECHtonics: U.S./China Fault-line series

A U.S.-led initiative to reach out to China and to welcome it into the community of Western nations began with President Nixon trip to Beijing in February 1972.  Orchestrated by Henry Kissinger, Nixon’s National Security Advisor at the time, the trip was a brilliant Cold War gambit to exploit the growing rift between Moscow and Beijing. The trip kicked off a seven-year process of “normalizing” relations between the West and “the sleeping dragon” of Asia and, in so doing, divided the Soviet bloc. Through almost half-a-century and a bipartisan succession of Presidents, the effort to engage with China continued as that country woke from its Cultural Revolution nightmare and began to rise up, shaking the world as it did so.

February 1972 was the Year of the Rat (Water Element) in the Chinese zodiac.  Forty-eight years later we are again in the Year of the Rat under the Metal Element.  In Chinese traditional thinking, we have gone from a time of suppleness and fluidity to a time of hardness and intransigence.  In the minds of most Western observers, we have passed from a strategic engagement with China to, under President Trump, a time of open competition on the world stage and strategic disengagement (“de-coupling”) in the technology arena.

This post will save for another time the broader discussion about how and why this shift came about other than to make three general, even obvious, points.  First, there was undoubtedly a measure of optimistic naïveté in the West in assuming China’s willingness to dutifully assume the role of a ‘responsible stakeholder’ in the post-WWII world order.  If the Chinese had conceived of their nation as only having been born in 1949, assuming the mantle of responsible Pax Americana stakeholder might have fit more comfortably. As it was, Chinese conceived the People’s Republic of China as the heir to a Chinese polity which had been the dominant economy in the world for sixteen of the previous eighteen centuries.  They weren’t predisposed to simply adopting some newcomer’s rules and norms as to how China should conduct itself on the world stage. Second, there has undoubtedly been tactical overreach and ill-advised swaggering by President Xi Jinping since his triumphalist speech at the 19th Party Congress in September 2017.  U.S.-China relations would undoubtedly be on a more stable track today had Xi Jinping played his cards differently, following suit more with Deng Xiaoping’s opening bid of “keeping a low profile (hiding one’s capacity) and biding one’s time” (韜光養晦、有所作為) rather than flashing his Made in China 2025 card so conspicuously. It can be argued that it’s better from the U.S. standpoint for this “world order competition” to be out in the open. Third, the horse is definitely out of the barn.  No U.S. Administration is going to try to get that horse back on the 1972-2017 normalization track. The world has changed and what is needed is a U.S. Administration which recognizes real challenges from China but does not exaggerate them and which marshals the resources to address those challenges in an efficient and effective way, rather than wastefully and non-productively.

The remainder of this post uses last week’s The Four Levels of Risk post as a backdrop to a quick sketch outlining just how wasteful and ineffective the Trump Administration’s policy of technology de-coupling from China is becoming.  I’ll do this sketch with three brushstrokes – the view from U.S. boardrooms, the view from the cultural sidelines and the view from history.

 

The View from U.S. Boardrooms

A CNBC.com article by Arjun Kharpal published on June 4, 2019 made no reference to the Tiananmen anniversary but did point out that the Trump Administration’s Huawei policy was quickly hoisted on its own petard  – failing to get allies to broaden the campaign but leading to a marked acceleration of China’s efforts to develop its own semiconductor industry to supplant U.S. semiconductor supply in the Chinese market and, eventually, in world markets.  “The Huawei incident has indeed stimulated the development of China’s domestic chip industry,” Gu Wenjun, analyst at China-based semiconductor research firm ICWise, told CNBC by email” wrote Kharpal at the time. Now, one year later, Trump Administration policy is digging this hole deeper and at a faster pace:

  • Qualcomm is reported to have lost current orders worth as much as $8 billion as a result of the Trump Administration’s May 2020 tightening of trade restrictions imposed against Huawei. The new regulations block all chipmakers that use U.S.-made equipment or software from producing chips for Huawei (though companies can apply for a license to continue supply)
  • Following the Trump Administration’s August 6th signing of an Executive Order banning transactions by U.S. companies with Tencent, the owner of the WeChat app, market research firms scrambled to assess the impact on Apple and its installed base of iPhones in the strategically vital Chinese market. The surveys all pointed to the same result – as many as 90% of iPhone users in China would drop the Apple product and switch to Android devices if the WeChat app were no longer available on their iPhones.
  • The same August 6th Executive Order targeted Bytedance, parent company to the massively popular TikTok app. Seasoned observers who are able to gauge the U.S.-side push-back against this action and know the sloppiness with which the Executive Order was drafted, expect an eventual climbdown by the Administration – if not before the November 3rd election, then shortly after it.

 

The View from the Cultural Sidelines

There are two culture wars raging – a partisan one in U.S. domestic politics and an international one between a suddenly tarnished U.S. model and a much-hyped “bright and shiny” new Chinese model.  The same dynamics at play with the COVID-19 pandemic are at play in the technology sphere.  Domestically, Trump works to energize his base with claims that China is the enemy and that his Administration’s COVID response and China de-coupling response are “the best” that any President could possibly do.  Front-line health workers and tech experts know that, in both cases, the claim lies far afield from the truth.

In China, the popular view cuts to the bone of Trump Administration posturing.  His new nickname is 建国 (Jiànguó), a popular name given by parents to their infants especially during the nationalistic years of the Cultural Revolution.  It means “Build the Country.”  In other words, Trump Administration policies are widely seen as accelerating the same nationalistically-driven Sputnik-type race to advanced semiconductors, artificial intelligence, robotics and the tech future which the policies ostensibly are meant to forestall.  Trump’s impulsive “Only I Can Fix It” approach playing to a grandstand of partisan supporters has made the challenge which Xi Jinping’s China presents the U.S. more acute.   An approach which takes measured and deliberate stock of that challenge and which aligns interests and works closely with the U.S. business community and international partners would be far more effective.  Pumping up nationalist sentiment in both the U.S. and China serves only to narrow options and increase risks of conflict spiraling.

 

The View from History

A pithy take on Trump’s approach to the U.S.-China technology challenge comes from a widely-respected former colleague who has decades of high-level experience with China from political, national security, economic and think-tank perspectives.  He writes “(Trump is like) King Canute trying to fight, instead of the ocean tides, the tides of technology.”

I’ll conclude with another, somewhat longer historical reference which illuminates Trump’s campaign of China-bashing as a central element of his re-election strategy.  It is drawn (almost) verbatim from Episode 66 of The History of Rome podcast series by Mike Duncan:

“Conscious that his standing with the people was taking a hit, the Emperor decided he needed to find someone to take the fall for the fire.  Someone he could point to and say it was them, not me, I didn’t have anything to do with it.  But he couldn’t just grab someone off the street because, with his popularity sinking like a stone, that would just engender the further charge that he was setting up some innocent to take all the blame.  What Nero needed was someone, some group that the people disliked even more than him, someone that the people were ready, willing and able to believe had done this horrible thing if for no other reason than that the people were looking for an excuse to round up and punish them. Enter the Christians. In the thirty odd years since the death of Christ, nascent Christian communities had begun cropping up throughout the Empire.  At first, they were primarily Jewish in character but through the missionary work of St Paul, known later as the Apostle to the Gentiles, this new religion began to spread into the Greco-Roman world.  By the Emperor’s reign, a tiny community of believers, led according to tradition by St. Peter, had established a religious beachhead in Rome itself. The problem the early Christians faced in Rome, though, was not just that their religion, in comparison to the wider pagan world, struck the average Roman as downright weird, but also that at this point most Christian adherents were non-citizen resident aliens in the city who spoke primarily Greek or Hebrew. So the Christians in Rome looked different, spoke a different language, usually came from the lower rungs of the social ladder, and belonged to a strange monotheistic cult that seemed to have cannibalistic overtones. All in all, they were capital O Other in every sense of the word. And as has been proven over and over again by history, whenever terrible things happen to a community – economic problems, floods, plagues, fires – it is the capital O Others who usually get blamed. So desperate to shift responsibility for the great fire away from himself, the Emperor looked at these Others and decided to lay it all on them.”

The only change I have made to this podcast text, recorded in August 2009, was my substitution of the central character’s title instead of his name.  Even with that switch, there’s little surprise who that Emperor was.

Nero.

 

 

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).

Book Cover

More 2012/3 updates to follow in rapid sequence.

Thanks for hanging in there,

This is the second in the 2012 series  of  Cooketop News commentaries and news recaps.

By reviewing the previous week’s top stories involving — broadly speaking —  U.S./China clean energy, the commentary section isolates one trend/dynamic which points forward and can help illuminate news-in-the-making for the week(s) ahead.  Following the commentary is a summary of the week’s top stories.

This week? We look at the headline  (Cooketop News, Friday, January 13th) that, after four years, the U.S. re-took the lead from China as the front-runner in global clean energy investment.

     *     *     *     *     *     *     *     *     *     *     *     *     *     *     *     *     *

From 2008-10, the U.S. visibly lost pace – and, in some instances, lead position – to China as the world’s top investor in clean energy.  In 2010, China – then just over one-third the size of the U.S. economy – invested twice the absolute amount in clean energy as the U.S.  Yet, in 2011, the U.S. bounced back, reclaiming top-spot for the first time in four years:  U.S. investment increased 33% to US$56 billion while Chinese investment remained flat at $47 billion, according to Bloomberg New Energy Finance.  What does it mean? Less than the headlines might suggest.

Here are three key points to keep in mind while tracking current results – and handicapping future results – in the global clean energy arena:

(1) It’s not a sprint, it’s a marathon.  The bragging-rights prize will ultimately go to the economy which manages the best combination of technological innovation, political support, and financial sustainability over many years.  Germany and Spain have seen political support for their heavily subsidized systems erode with the euro.  The U.S. is in near political grid-lock over how to set that balance.  China’s position looks strong on the surface but is hobbled by lack of technology innovation, political accountability and financial transparency.

(2) How high’s the bounce?  The U.S. resurgence is due to short-term programs due to expire soon, such as biofuel support programs and energy efficiency measures.  Absent a broad national consensus, there is no strong reason to expect the U.S. “bounce” to remain strong throughout 2012, an election year.

(3) The bottom-line is this is a race is against time, not a Sputnik-type competition.  For either nation’s efforts to pay off, investment will need to be scaled to a global level by investors, public and private.  That won’t happen unless there is a clear middle-way between the extremes which tend to bedevil U.S.-China relations – zero-sum, highly-nationalistic competition on the one hand vs. unrealistic and unsustainable ideas of cooperation on the other.

While the metric of renewed investment vigor in the U.S. is encouraging, the real challenge for the future will be to define and align complementary ‘skill-sets’ in both the U.S. and China so that capital can be attracted and deployed on a global scale through these two massive markets accounting for 40% of the global GHG emissions problem.  We’ll need a discerning eye for the different strengths which our two countries can bring as complementary partners in this effort as well as a realistic understanding of our enduringly different systems and values.   Regardless of who has the momentary lead in investment level, we need to recognize that there is no path to a sustainable future for either country without  clear-eyed, realistically-based and sustained cooperation between the two.

                                              Monday, January 9, 2012

Africa & China: How it all Began

China to Tax Carbon Emissions by 2015

China Vows Backing for Firms Abroad

China Spring Festival Migration Begins

Tuesday, January 10, 2012

Hottest Solar Markets in Early 2012

12 Challenges for China in 2012

China’s Reform Irresolutions

DoE Heads Off Cleantech Materials Shortages

Wednesday, January 12, 2012

China’s Export Engine Downshifts

China Pumps In $10bn to Water Project

The Case Against Big Dams

Brand Make-Over for Philly Energy Hub

Thursday, January 12, 2012

Does the U.S. Prefer a Ma Victory in Taiwan?

The Perils of Cleantech Investing

China’s Cyber Deterrence

China Braces for Turbulent Year

                                            Friday, January 13, 2011

China’s Forex Reserves Decline

China Cedes Lead to U.S. in Cleantech Investment

China Idling New Aluminum Smelting Capacity

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.”.

Premise

Participation in China’s fast-growing nuclear market offers promise and peril for global market-leaders.  A model coupling U.S. innovation with Chinese scale and speed of deployment offers the best path forward.

Discussion

The development of China’s nuclear market has been driven by a governmental elite, many of whom were trained as engineers. Their strategic thinking appears to be motivated in part by the challenges of climate change – to adopt lower carbon sources of electricity generation. As the vice president of the China Nuclear Energy Association has pointed out, nuclear power – rather than solar, wind or biomass – is “the only energy source that can be used on a mass scale” to achieve clean, low-carbon energy.

Just as significantly, though, China’s rapid expansion of nuclear power appears motivated by a desire to upgrade the Chinese nuclear industry by enticing foreign suppliers who want to participate in China’s market growth to share their technology with Chinese partners. The profit potential is vast in China, but other big emerging economies, such as India and Brazil, will be exploring nuclear installations in coming decades. To wrest some of that business away from established incumbents –such as France’s Areva and Japan’s Westinghouse – China is leveraging its low-cost labor and deep experience with major infrastructure projects. A Western-designed reactor can be built in China for 40% less cost and 36% faster than that same installation in Europe.

For China to become globally competitive its two major nuclear power companies — China National Nuclear Corporation and China Guangdong Nuclear Power Group — will need to improve in the knowledge-intensive end of the business. Of the 13 nuclear power plants currently operating in China, only three — all at the Qinshan site — rely on an indigenously developed design. Likewise, China has only limited experience selling its reactors in export markets; Pakistan is the only known foreign buyer to date. Finally, to compete globally, China will need to manufacture specialized components, for which it is currently dependent on foreign suppliers.

As for U.S.-China strategic cooperation in the nuclear field, there have been important undertakings but, to date the governments have not attempted anything on a broad strategic basis. There are interesting opportunities on the horizon. Former U.S. Ambassador to China, Jon M. Huntsman Jr., has reported discussing with Bill Gates a new kind of reactor “that runs for decades on a single fuel load, making and destroying plutonium as it runs,” thereby reducing the hazards of reprocessing and the dangers of proliferation. According to Huntsman, strategic cooperation between the U.S. and China to develop this American-pioneered technology could bring shared benefits. The technology could, for example, be certified and brought to commercial scale faster in China. A partnership effort could be envisioned where a joint American-Chinese company leads the construction, with co-development and commercialization rights apportioned between the partners. The end-result could be a cleaner and (marginally) safer form of energy brought to consumers quickly and at scale.

(This piece has been reprinted from G+ Insights, a publication series of the Gerson Lehrman Group at www.gplus.com.  The G+ piece, in turn, has been adapted from Sustaining U.S.-China Cooperation in Clean Energy,  a book publication authored by Terry Cooke forthcoming from the Kissinger Institute of the Woodrow Wilson Institute in November 2011).

Premise

The Fukushima disaster in March has prompted all major nuclear powers to pause and reexamine their nuclear development programs. Germany and Italy reached decisions to phase out their nuclear programs.  In the U.S., stirrings of interest in a nuclear revival were silenced.  In China, however, all indications are that a national program to establish China as a global leader in nuclear power remains on track.

 Discussion

The first commercial nuclear power plant in the U. S. was installed in 1958. Today, 104 commercial reactors produce almost 20% of the nation’s total electric generation. By comparison, China’s first nuclear plant, Qinshan, near Shanghai, became operational in 1991. Today, 13 plants are in operation supplying just over 1% of China’s total electricity. However, this freeze frame comparison misses the contrast in momentum for the nuclear industry in the two countries. Of the 52 nuclear power plants that were either under construction or in advanced planning in America and China in late 2010, months before the Fukushima disaster, 50 of those plants were being planned and built for the Chinese market.

source: U.S. Energy Information Administration

As the above chart from the U.S. Energy Information Administration shows, nuclear generation has plateaued  in the U.S. and Europe but is rapidly growing  in China, India and the rest of the developing world. While active plants in the U.S. are approaching the end of their licensed lifetime without planned replacement,  new nuclear installations in China are set to increase roughly ten-fold over the next ten years.

Following 1979’s Three Mile Island incident, the experience for the U.S. nuclear industry has been new order cancellation, new construction abandonment, premature shutdown of plants or extension without plans for replacement. Although improved design and technology advances have brought about significantly improved safety performance, public opposition to nuclear power — periodically galvanized by highly publicized international incidents such as Chernobyl and Fukushima and persistently bedeviled by the nuclear waste disposal problem– has kept the U.S. market virtually off-limits to new nuclear installations for three decades. China, by contrast, is the world’s most active site for new plant installations. National planning calls for nuclear power to provide 6% of China’s total electrical generation by 2020. This will require a net increase in installed capacity of 60-70 GW, comparable to the entire 63GW of currently installed nuclear capacity in France, one of the world’s most active users. By 2030, China plans to match the nuclear output currently provided by all 104 U.S. installations.

The bottom line:  Chinese authorities clearly know how to throttle back a prestige industrial development project, as shown after July’s high-speed train collision in Zhejiang Province.  After the Fukushima nuclear disaster, however, no such bureaucratic braking of China’s nuclear program has been apparent.  Additional safety reviews have been instituted, but the scale and speed of China’s nuclear program remains essentially unchanged.

 

(This piece has been reprinted from G+ Insights, a publication series of the Gerson Lehrman Group at www.gplus.com.  The G+ piece, in turn, has been adapted from Sustaining U.S.-China Cooperation in Clean Energy,  a book publication authored by Terry Cooke forthcoming from the Kissinger Institute of the Woodrow Wilson Institute in November 2011).

 

What are eco-cities in China? Why are so many popping up in China’s second-tier urban locations? What are the main drivers for this trend and what makes a sound eco-city development project or zone? Finally, what opportunities exist for foreign companies? TCBN Green Channel Editor Terry Cooke interviews Piper Stover, strategic advisor of China Dynamics, LLC, on China’s eco-cities initiative.

Background

China policy on eco-cities:
• The 11th 5 Year Plan included goals of lowering energy consumption per unit of GDP, specifically, energy consumption per unit of GDP should have decreased by 20 percent in 2010 compared to 2005.

•The draft for the 12th Five-Year Program (2011-2015), with additional policy overseeing eco-city development, will be finalized by China’s National People’s Congress in March, 2011.

China Eco-cities in the news:
Eco-city development projects have been announced in over 100 cities across China, however not all have been officially endorsed by China government regulatory authorities. Tongi University has conducted research citing nearly 170 self-proclaimed eco-cities.

China’s National Development and Reform Commission (NDRC) launched a national low-carbon province and low-carbon city experimental project in Beijing in August, 2010. The project is being implemented in five provinces: Guangdong, Liaoning, Hubei, Shaanxi and Yunnan, and in eight cities: Tianjin, Chongqing, Shenzhen, Xiamen, Hangzhou, Nanchang, Guiyang and Baoding.

Notable China Eco-city or Sustainable Community projects also include:
• Tangshan Caofeidian International Eco-city

• Sino-Singapore Tianjin Eco-city

• Chongming Dongtan Eco-city (currently inactive)

• Shenzhen Guangming Eco-city, Guangdong Province

• Yangzhou Eco-city, Jiangsu Province

• Nanjing Eco-city, Jiangsu Province (several eco-cities and eco-business parks are under development)

• Huaibei Eco-city, Anhui Province

• Langfang Eco-city, China (outside of Beijing)

• Mengtougou Eco-city (outside of Beijing)

• Meixi Lake Eco-city, Changsha, Hunan Province (there are several additional eco-cities planned for this region)

• Rongcheng Eco-town and Weihai City, Shandong Province

• Huangbaiyu (currently abandoned)

• Chengdu, Sichuan

• Xiamen Eco-city “retrofit”

• Guiyang, Guizhou

• “US-China Eco-city Initiative” between the US Department of Energy (DOE)and China’s Ministry of Housing and Urban-Rural Development (MOHURD). Both sides are developing guidelines and policies to support the integration of energy efficiency and renewable energy into city design and operation. January, 2011.

Research and policy development
• Tongi University has conducted research citing over 160 eco-cities in China. UNEP-Tongji University Institute of Environment for Sustainable Development

Useful Eco-city Case Studies:
• Sino-Singapore Tianjin Eco-city Project, released by World Bank on January 11, 2011

• Asian Development Bank’s overview on Eco-cities in China, “Eco-City Development: A New and Sustainable Way Forward?: November 2010

2011 Eco-city Events:
• The World Eco-city Summit, Montreal 2011, held August 22-26, 2011
www.ecocity2011.com

Interview Transcript

Terry Cooke: This is Terry Cooke, editor of TCBN’s Green Development Channel. I’m here with Piper Lounsbury Stover. Piper’s been active in China for the last 20 years working with companies on the ground. On recent years she’s had involvement with a number of eco-city projects. Piper, welcome.

Piper Lounsbury Stover: Thanks, Terry.

TC: We’re talking about eco-cities in China. For starters, can you just let us know what eco-cities are and why they seem to be popping up at a fast rate?

PLS: Sure. “Eco” – meaning ecologically sustainable cities. I think in the late – well, early to mid-90s, the Chinese Ministry of Environmental Protection started to develop these ‘eco-city’ guidelines, which were really a series of key performance indicators (KPIs) to try to reduce greenhouse gas emissions and to conserve energy and water resources in several cities across China, starting as pilot project, and now expanding to hundreds of cities.

The main drivers to this development – China is facing massive migration right now. Almost 50% of China’s population currently lives in over 600 cities in China. Nearly 300 million will move from rural areas to Chinese cities in the next ten years, so this is a massive influx of people and China’s going to have to invest up to $3.6 trillion in urban infrastructure to handle that migration by 2020.

So with that, there’s going to be a growth of 2nd tier cities to handle the migration. And with that growth there is going to be continued strain on resources. So to conserve energy needs China’s has to implement policies. China will be increasing energy needs by 150% by 2020 and will have water issues. Water reclamation and water policies are going to be important because China, for its populations, has only a fourth of the world’s average water per capita. So it’s a big issue that the China Daily started reporting on in 2005 or 2006; we are seeing more and more domestic reports on water issues.

TC: And currently there’s a drought right now.

PLS: Exactly. So to address this from a policy perspective, the 11th Five Year Plan and the 12th Five Year Plan have advocated objectives to promote sustainability in these eco-cities. And that means opportunity – opportunity for companies, and certainly land and real estate developers to try to meet the challenge.

TC: Well we’ll get to that investment and commercial opportunity in just a moment. Before we do, Piper, could you just say a word about where these eco-cites are which are the biggest?

PLS: Sure. I mentioned the 2nd tier cities earlier. I think it’s important because when we think of the 1st tier cities in China we think of Beijing, Shanghai, Hong Kong, areas, but these 2nd tier cities are growing, and provides opportunities for real estate development that did not exist previously. The biggest ones right now are occurring in these 2nd tier areas. We have two greenfield projects that are the largest – 30 sq km areas. One in is Tangshan, called the Caofeidian International Eco-city. I believe that is an eco-city in coordination with the government of Sweden. There is the Sino-Singapore Tianjin Eco-city – that’s a 30 sq km also sq area in Tianjin. And then there was the Kingdom Chongming Dongtan Eco-city. That was a really big eco city planned for an island off of Shanghai that hasn’t really gone anywhere, as I do not think the investment and the original plan worked out. While those are the obvious biggest, I have a whole list of others that I’d be glad to post after the call, including some in Shenzhen, in Jiangsu Province, in Anhui Province. There are many.

TC: Ok Piper. And you were just talking about the real estate development angle. You mentioned three premier projects, two of which seem to be moving forward well and one that seems to be stalled. From a project development and investment standpoint, what makes a sound eco-city project? What are the signs investors should look for?

PLS: Sure, there are probably five signs that I would look for if I were looking at a project. One would, obviously, be significant local and central government level support. You want to make sure the Ministry of Environmental Protection (MEP) or the Ministry of Housing and Urban Development (MOHURD) are backing these projects with key performance indicators approved by these two organizations to make sure they’re on track with national standards.

And of course the land acquisition. That’s important. You want to make sure that these projects are not encroaching on farmland or other areas where inhabitants are living, and certainly converting non-arable wasteland has been one way to look at better utilizing land.

TC: Just to clarify that one, Piper, there’s a risk that if the local government has misappropriated land there would be political risk attached to that.

PLS: Certainly. That is one key issue, but also it is a higher cost in some areas to actually to move people. It’s very costly. So for those two reasons it is important to find out how the land was acquired and how it will be used (for the whole system).

And then there is location. You want to find out how far away these eco-cites are from an old city center – whether transportation is going to be convenient or not. Some of these eco-cities are located very close to rail lines or high-speed rails planned for the future, so that of course would be of interest to me.

The fourth and fifth would include: at what speed would the purchasing power of these cities develop? I know for 2nd tier cities this can be questionable. You want to make sure the economy will continue to grow, and you want growth predictions to be based on sound plans.

The fifth would be competition in the same area. If your company is looking at either investing or moving into one of these eco-cities, what is the competition around you? What human capital talents exist? And what are either other cities nearby or neighboring counties also doing to attract similar industries, or even your own competitors?

TC: Good. Those are key points for an investor to keep their eye on. What about the opportunity more broadly, for foreign businesses across the board to participate in and benefit from this trend of eco-cities throughout China?

PLS: Certainly with an opportunity to pursue either a green field investment or rehabilitation of some cities, opportunities exist for green building, green technology companies, green energy – renewable wind, solar, CHP, and other types of renewable energy technologies, as well as water and waste technologies. For all of these eco-cities. With already nearly 170 of these so-called eco-cities popping up around China, imagine the opportunity for green technologies in each of these cities.

So that is one area: products and services in the sustainable building sector. The other would be finance and investment opportunities – for R&D and start-ups. I could imagine incubators/ R&D facilities established in some of these areas outside of larger cities, depending on the location in China.

And then third – knowledge-based economy opportunities: in new media, computer networking, IT/ back office outsourcing-types of IT services, and problem solving and consulting. Certainly with the growing concern that China has scarce resources, there is a natural and understandable inclination to try to move from industrialization and heavy machinery/heavy energy and water-using industries to higher-value, knowledge-based services. The eco-cites would be targets to offer or create such knowledge-based service opportunities for companies looking for such.

TC: Piper you commented on the investment outlook and also the commercial opportunities. What about the durability of this trend in China from a business standpoint?

PLS: I would say that certainly we all understand the top-down policies either promulgated from the 11th or 12th Five Year Plan (to be reviewed in March 2011), are central to understanding where growth will happen, and that funding will be diverted to these eco-cites to make them a success, so can trust in that. However, at the same time we need to think about the greater economy and health at the local or regional level where these eco-cites are located, as well as the national level.

And because eco-cities are a more expensive operation to create (to meet stringent KPIs), you’ve got some very sensitive systems that do need management and attention. There is a danger that some shortcuts would be made to save money. I’ve heard one story in the past couple years where in an eco-city in a more remote location, the energy was considered expensive and so the lights were basically turned out during the winter to meet KPIs. In general, looking at the five or six points I mentioned earlier about making sure you’re researching the right eco-city and ensuring it is in a location that is sound and associated with strong economic growth, things should be okay.

TC: Piper earlier in our talk you identified three particular projects and then ticked off the names and a couple others that you will post to the TCBN website. One project that I did not hear you mention was the Chicago-Shanghai Eco-city agreement. Could you tell us a little bit about that particular agreement?

PLS: Well it’s a bit of a different animal, but I’m glad you mentioned that. I think, dating back to the Clinton administration, there was an effort to create a more cooperative information exchange, particularly between the DOE and China’s counterparts. I think that in the 2010 September timeframe, the DOE announced a new Chicago-Shanghai Eco-city. It’s basically a way for the two cities to trade best practices and to work together to develop standards and to help each other understand what could be possible in cities located throughout not only China but also the United States. So I think in this effort, if I’m not mistaken, there are 7 or 8 cities in the US and in China that may be paired together in this US-China-India Integrated Cities Initiative that is being coordinated by the US Department of Energy via the Brookhaven National Lab. It will help not only create more transparency and understanding of some of the standards that could evolve, but also to provide more of a quality control so that companies can have a bit of political cover in understanding which eco-cites are going to be considered sound and which are not.

TC: All right, well time’s drawing to a close, but in closing, Piper, let me just ask whether there’s just one project you’d like to highlight as a case study?

PLS: You know, in some of the research that I’ve done, I found one report to be very useful, which has made me think that this particular eco-city could be a success: the Sino-Singapore Tianjin Eco-city. A case study written by the World Bank, or I believe prepared based on a grant application that the Tianjin Eco-city had submitted to the World Bank. It is on the web and available to the public, and I think the study is the most recent comprehensive report I’ve found on eco-cities in China.

TC: Well great! Piper, thank you for your thoughts and your insights. We’ll possibility try to get back to you in a year or so and see how the progress with eco-cities has been.

PLS: Sounds great, Terry. Thanks. And I will post those cities for everyone to take a look at.

TC: Thank you. Bye bye.

TCBN’s Green Development Channel Editor Terry Cooke is the Founder of GC3 Strategy Inc., helping U.S. technology and investment firms since 2002 to create and sustain commercial partnerships in Greater China and India. >>See more on his profile>>

Piper Lounsbury Stover is the Principal for China Dynamics LLC, based in Vermont. She has nearly 20 years of experience in China business and policy.

We’re pleased to share here an invited submission by James Wheatcroft,  picking up and advancing the conversation from the previous post about rising levels of Chinese clean energy investment in various regions of the U.S. (as well as from the Jan 3rd  BusinessWeek article cited in that post).  Here’s the expert sounding which James takes on the rising level of Chinese investment. My conclusion? We’re in the trough of a wave.

China’s Suntech in Arizona — Reflections on Real-world Globalization by James Wheatcroft

“The move by Suntech to invest in a US manufacturing facility is positive news for Phoenix and a triumph for Barry Broome, CEO of the Greater Phoenix Economic Council. Barry like thousands of regional business development organisations in the West are trying to figure out how to attract Chinese money into their area, and are prepared to offer grants and incentives to do so.

So: why have the Chinese done this?

Cynics would say that this is a move by the Chinese to circumvent US “Buy American” trade clauses. They would also say that this facility is tiny compared to the vast plants that Suntech and other Chinese PV manufacturers have in China. I say this is an emerging trend that will continue; in fact I know of another very large Chinese State Owned energy company that is seriously considering a European plant.

To me this is more about nationalism, carbon footprint and true globalisation.

Nationalism

There is a real national fervour in China these days. People and businesses are more confident and look to demonstrate this confidence abroad. China has long had a “go abroad” policy in many industries, and this reflects the fact that many State Owned Enterprises are awash with capital and are seeking to balance their portfolio of investments-  by investing outside China.

The logic is very obvious. If “Buy American” becomes a serious purchasing standard, the bar is raised in terms of price, allowing US wage levels to be built into the cost base. Therefore a small facility in the US becomes well worth the risk for Suntech.

Carbon Footprint

There is much talk in Europe about a possible tariff system based on carbon footprint. Certainly in the UK market, where I operate, regional councils and housing associations (who are all looking at installing panels), are beginning to include carbon footprint as a purchasing criterion. It is not a legal requirement but it is increasingly  being seen as a form of ‘best practice.’ In the long term, carbon footprint taxes on a Pan-European basis are possible. From a Chinese perspective therefore there  is now a good argument  that if you wish to win public sector business in the EU, you need to have a base in the EU..

Globalisation

Globalisation is no longer, as we saw in the late 20th – early 21st centuries, only about US and European companies either tapping global markets or sourcing from them. Chinese and Indian companies are already leading this investment trend. US PV makers that are feeling the pinch from Asia are building PV plants in China. This turnaround – where Chinese companies are feeling the pinch  from ‘Buy American’ clauses and building plant in the US,- is merely the next step in true globalisation, and if you ask Barry Broome or the 75 people working at Suntech Phoenix- they would tell you that they’re pretty happy about it.

James Maclean Wheatcroft, based in the UK is a consultant in the Chinese green energy, media and communications markets. His team of consultants on the ground in China has delivered more than $80 million per year in energy joint ventures. James is currently working with both Chinese and European companies and governments to benefit from the current boom in Chinese energy

The headline to watch during China President Hu Jintao’s  State Visit to the US later this month? His itinerary.  Rather than the standard shuffle between DC and NYC, this itinerary  includes a stop in the ‘real America’ outside of  the ‘bubbles’ of Washington DC and New York City.  For the purposes of this trip, ‘real America’ is Chicago.

This represents, of course, a polite and deft gesture of respect to the hometown of Hu’s host at the State Dinner in Washington.  But the itinerary signifies far more:  a shift in China’s outward focus from Wall Street to Main Street.

In the post-GFC landscape,  this is a tectonic tremor worth heeding.  Expect a visit to a Main Street company with Chinese ownership and lots of U.S. employees in an embattled industry sector. Expect the U.S.-China storyline in 2011 to shift in degree from currency rates and the U.S. bond market toward rates of Chinese foreign direct investment (FDI) and in-bound support of the U.S. job market.

For USA regions angling for Chinese FDI to support their local jobs & their regional economic development, the key to success will be aligning regional assets with US-China national level priorities  — whether in clean energy or in other strategic sectors.  Several key vectors of national/regional alignment were created this fall when the U.S. Department of Energy and other Federal agencies awarded:

  • Detroit and the University of Michigan with a U.S.-China Clean Energy Research Center (CERC) for Clean Energy Vehicles;
  • The University of West Virginia lead role in a consortium for a U.S.-China CERC for Clean Coal;
  • The Lawrence Berkeley Lab with a U.S.-China CERC for Building Efficiency;
  • Greater Philadelphia and Penn State University with a national Energy Innovation Hub for Building Efficiency —  the Greater Philadelphia Innovation Cluster (GPIC) — at the Navy Yard.

The first half of the Obama Administration’s engagement with China to tackle the challenge of 21st energy took place in Washington and New York.  The next chapter will take place in Detroit, the Bay Area, Philadelphia and other regional markets around the country.  As China reinvents itself, it will partner with regions that step forward to reintroduce themselves on the global dance-floor.

It will be an awkward dance at times.  But not a dance that will pay to sit out.  The dance ticket is to tomorrow’s world.

BusinessWeek took an excellent snapshot of this moment’s step in the global pas-de-deux with its January 3, 2011 piece on “Chinese Plants Grow on U.S. Turf.”

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