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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,

Yesterday’s mini-slide show focused on the five principal clusters in the northeast Clean Energy super-corridor:

  • Albany -Schenectady-Troy, NY
  • Boston-Cambridge-Quincy, MA-NH
  • New York-Northern New Jersey-Long Island, NY-NJ-PA
  • Philadelphia-Camden-Wilmington, PA-NJ-DE-MD
  • Washington-Arlington-Alexandria, DC-VA-MD,WV

Today’s mini-deck focuses on how the clusters in this super-corridor are creating the right kind of jobs for today’s globally-connected economy:

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The findings presented above and in posts throughout the week come from Brookings’  Sizing the Clean Economy: A Green Jobs Report  released in July 2011.  The PowerPoint slides are courtesy of Mark Muro, Deputy Director of the Metropolitan Policy Program of the Brookings Institution.  The video clip is extracted from Philadelphia’s 21st century Clean Energy Opportunity from Regional, National & Global Perspective, a program I organized in cooperation with the Academy of Natural Sciences of Drexel University and the T.C. Chan Center for Building Simulation & Energy Studies on October 11, 2011).  I am grateful to Mark Muro and Brookings for permission to share these slides with the readership of U.S./China Clean Energy.

If you want to help push for the emergence of any of these five cluster regions as national and global clean energy leaders, please consider tweeting us on Twitter, liking us on Facebook or +1’ing us on G+, using the sharing tool below.  Thanks.

This week, I’ll be providing five mini-slideshows to add context and substantive detail to last week’s post and video clip on Brookings Touts Philadelphia’s Top 5 Strengths in U.S. Clean Economy.
Number 1 in the docket is the Cleantech Mega-Cluster stretching from New England though the southern Mid-Atlantic — with Philadelphia at its center.

This slideshow requires JavaScript.

The findings for today’s slideshow, as well as those for the remainder of the week, come from Brookings’  Sizing the Clean Economy: A Green Jobs Report  released in July 2011.  The PowerPoint slides are courtesy of Mark Muro, Deputy Director of the Metropolitan Policy Program of the Brookings Institution.  The video clip is extracted from Philadelphia’s 21st century Clean Energy Opportunity from Regional, National & Global Perspective, a program I organized in cooperation with the Academy of Natural Sciences of Drexel University and the T.C. Chan Center for Building Simulation & Energy Studies on October 11, 2011).  I am grateful to Mark Muro and Brookings for permission to share these slides with the readership of U.S./China Clean Energy.

If you want to be sure you see this week’s series of posts, 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.

 

I was asked today what accounts for China’s outsized role in solar PV , amounting currently to roughly 50% of global share of production despite having a Lilliputian share of global consumption.  It comes down to three inconvenient truths.   That said, the degree of inconvenience of each truth varies with the point of view (e.g., ‘panda hugger’ vs ‘dragon slayer’ in the U.S. vs  ‘patriotic netizen’ in China) of who you happen to be talking with :

(1) Post-WWII, Asia (and notably China since 1982) has had clear advantages of cheaper land, cheaper labor and cheaper facilities relative to manufacturers in higher per capita income markets in the West. Since solar panel production has some basic similarities to the manufacturing process for computer memory chips (which in the 1990s were the basic ‘rice’ commodity of the IT boom in Asia), solar manufacturing has benefited from the natural ‘cluster effect’ of decades of chip manufacturing know-how of Chinese, Taiwanese and other investors on the mainland.

(2) The barriers to entry for solar manufacturers are lower than the earlier tech waves of integrated circuits and bio-technologies so national and local
government in China has seized on it to bootstrap their economies to a higher rung of the global value chain. This has meant various government subsidies (on the producer side) to the point of a casino mentality — more than 100 solar manufacturers in the single town of Dezhou in Shandong Province. (The Chinese government also rounded up and ramped up polysilicon supply when that key input for solar PV production tightened in 2010/11);

(3) There’s not yet an established market for solar products in China so almost everything is exported to Western markets — especially to those national
markets like Germany and Spain and state markets in the U.S. such as New Jersey that have been subsidizing the industry (on the consumer side). [Note: World Trade Organization rules tend to allow/encourage consumer-side subsidies and to sanction producer-side subsidies, hence the recent trade action by the 7 Western solar firms against China. However, these actions take time to work their way through the ‘python’ of WTO process).

As a wrote almost a year ago ( click here for link ), there’s a global boom/bust going on in PV solar and China is in the thick of it.

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.

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

There’s a curious disconnect in discussions about China’s ability to innovate. Yes, there’s no question that China lacks the chemistry to produce tomorrow’s Google — rigid educational system, lack of intellectual property rights protection, constricted flow of ideas, top-down control of ‘right thinking,’ etc. But what tends to get overlooked in this discussion is China’s headlong embrace of the future, the attitudinal openness to change. It perhaps took the searing experience of the Cultural Revolution to burn into the consciousness of present-day China where never to return and thereby to point the way to where to head — a modern and global future. We should be able to respect China’s focus on the future and, in doing so, avoid getting too comfortable in our present.

This article by James Allworth at at the Forum for Growth and Innovation at Harvard Business School puts this issue into clear perspective.

How the U.S. Could Avoid Being Disrupted by China by James Allworth, Harvard Business Review, 1:12 PM Tuesday December 21, 2010,

Last week, President Obama met with the CEOs of 20 of the largest corporations in the U.S. It was a widely praised meeting. But given what the President is hoping to achieve — creating sustained economic growth, which in turn leads to jobs — listening to much of what these guys have to say is the wrong approach. And asking them to start hiring misses the point. Obama is talking to the wrong people.
The U.S.’s position as a global economic leader has been based on one thing more than anything else: its ability to innovate. From Detroit to Silicon Valley, America has always been at the center of the “next big thing”. Each of the industries that have sprung up around these innovations has become an engine for America’s economic growth. Amazingly, each time as one has begun to slow down, the next one has picked up.
But this cycle is being jeopardized… [and in danger of] falling into the trap that leads to disruption — the same one that snares executives in many successful companies. Just as talented corporate leaders gradually shift their focus further and further upmarket in service of their best customers, the U.S.’s political leadership is increasingly doing that, too, by catering to the largest American companies… These are companies at their zenith. They have been through periods of exponential growth, but now they’re mature. America’s economic future is not dependent on the companies that are peaking now; the future is going to depend on the companies and industries that will peak in ten or 20 years time from now, the companies that are about to go through a period of break-out growth.
Unlike the startups that represent America’s future, the big players have an inherent bias toward protecting the status quo. They play a defensive game and face a different set of issues to their smaller brethren; fixing these issues is their priority when talking to politicians. The problem with this is that America’s economic competitiveness has always been built upon its ability to disrupt what it already has with something better. That’s a game played by smaller — not larger — companies.
Tilting the power balance in favor of large companies changes America’s winning formula. Here are just a few examples of where the big players and their undue influence in the political process have hurt America’s competitiveness, particularly relative to the U.S.’s emerging economic competitor, China:

• Big oil and big coal have stymied the growth of green energy within the U.S. Their lobbying and advertising have made it practically impossible to form political consensus. Putting aside the debate about the science, if the rest of the world believes global warming is real and is committed to stopping it, they’re going to want to get clean energy from somewhere. Right now, that’s not going to be the U.S. — it’s going to be China. What should be even more concerning to the U.S. is that while it remains too early to call, the green revolution looks like it’s going to be “the next big thing”, and the U.S. is set to miss out.

• The builders of every technical revolution — engineers — are being turned out at incredible rate in China. Compare the Chinese government’s attitude to that of the U.S. government. American politicians (at the behest of big content businesses) have tied federal funding of universities to anti-piracy efforts on campus. Do you think it makes sense to tie a country’s ability to innovate to protecting a business model that’s in the process of being disrupted?

• Intellectual property protections — frequently cited by big companies as being critical to innovation — are lacking in China. Ironically, this lack of IP is making China a more innovation-rich environment. The reason? The only protection you get in China is being able to innovate at such a rate that nobody else can catch you. Compare this to the U.S., where you create your IP and then rely on the legal system to keep your competitors at bay. This approach doesn’t work if your competitor doesn’t respect your IP laws. Further compounding the issue for America is that its current system strongly favors the big players. If a startup becomes a threat to a large company, then a common tactic is to rely on a long, drawn-out IP infringement lawsuit. Most startups don’t have the resources to fight back.

Over the past 20 years, America has gotten away with this shift in attitude, simply because it has had no competition. China changes that. The Chinese are determined to become a global hub for innovation, so America will have to compete to be the best environment in which to create the “next big thing” If the U.S. doesn’t want to lose its position and threaten its future prosperity, it’s going to need go back to its roots. The starting point is getting our political leaders to stop talking to the CEOs of large corporations and talk to entrepreneurs instead.

James Allworth is a Fellow at the Forum for Growth and Innovation at Harvard Business School.
Find the complete article at http://blogs.hbr.org/cs/2010/12/how_the_us_could_avoid_being_d.html

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