Exporting China’s green growth to the world

Green development has been 'the inevitable choice for China' – which shrewdly built a renewables industry ahead of a domestic market – but can it be a model for the rest of the world?

The Chinese scholar Hu Angang, a member of the Chinese Academy of Social Sciences and highly influential with the Chinese leadership, has been arguing for several years that green development is "the inevitable choice for China". He argues that China is being forced to adopt an alternative to the model of industrialisation that the West was able to pursue because:

– China is a latecomer and faces an international energy situation that is already crowded,

– It is lagging in conventional fossil-fuelled technology, but can leapfrog to the lead with green technology,

– It has such a huge population for which the traditional model will not scale,

– It cannot pursue resources abroad through colonialism and armed conquest – unlike its Western predecessors, and

– Basing its development model on increasing resource intensity will come up against inevitable resource constraints (for example, the peaking of oil and coal supplies).

Any one of these reasons alone would suffice as a reason to search for a development alternative. Taken as a group – and combined with the prospect of facing increasing international pressure on carbon emissions – these reasons are overwhelming in their power.

Indeed, they make green development “an inevitable choice for China” – and, by extension, for Brazil and India as well. Green development has to be seen, then, as the necessary industrialisation path forward for the BICs.

The alternative is relentless resource wars, terrorism, increasing insecurity, and dependence on fuel imports whose price will inevitably rise. By contrast, a green development strategy offers several advantages, including:

– It taps into energy resources that are abundant, and calls for the development of sophisticated technologies that can then serve as the core of new export-oriented industries.

– Renewable energy resources are abundant and widely dispersed, so that the BICs cannot be held to ransom by fossil fuel powers and can generate abundant power to drive their industrial strategy without concern for fuel costs.

– The renewable resources are dispersed across all countries (but particularly tropical countries) and so international tensions are reduced.

– The possibilities for leapfrogging in renewable energies and low-carbon technologies are there to be captured, particularly if implemented with strategies that exploit indigenous standards and the domestic market.

– The development of green industries can generate rural employment and livelihood as much as urban, thus contributing to balanced development.

– Green development through circular economy initiatives (linking outputs to inputs) offers the best prospect for reducing dependence on resource imports and strains on the balance of payments.

This list does not even mention the advantages that green development offers in terms of reducing carbon emissions. In this sense, green development is a 'no regrets' strategy. It offers a range of tangible benefits apart from its savings in terms of carbon emissions.

When it comes to raising the profile of green development from a curiosity to a globally competitive new industry, China is a game changer. It is proof that this new industry is capable of powering a giant economy along a development trajectory that will 'scale' to needed dimensions – without costing the earth.

The only question is whether China – along with Brazil, India and other developing countries – can adopt the green development model comprehensively enough to keep carbon emissions and resource spoliation within acceptable limits.

Nevertheless, the green development model is an emergent entity whose character is best discerned in the strategies and initiatives being taken in China. The model is 'emergent' in the sense that its outlines are becoming clear, but its actual implementation is clouded by policies that favour fossil fuels and nuclear power, either through vested interests or through fresh initiatives mandated by these interests.

Advanced countries are already paying China the compliment of emulating its approach to seriously building up its renewable energy industries. Germany was the first, announcing in June 2011 an astonishing about-face with regard to its reliance on nuclear power, which had been retarding the renewable energy option for decades. (Germany’s action was triggered by Japan’s Fukushima disaster.) Its initial announcement was followed up by successive announcements of plans to build up its renewables industries.

Thus, Germany moves on from its heavy promotion of renewables markets, via its feed-in tariff system embodied in the Renewable Energy Sources Law of 2000 (and earlier incarnations), to the far more significant promotion of renewables industries themselves.

That is exactly what China has done. German wind-power systems and solar photovoltaic systems, as well as German backing for desert-based concentrated solar power systems in North Africa (such as the ambitious Desertec project), can all be expected to become stronger and offer real competition for the Chinese industries.

It might seem odd to say that Germany is “emulating” China – when clearly Germany was a leader in the field of solar PVs and wind power. Yes, it's true that China has adapted technologies developed elsewhere. That has been the key to China's success across the board, in one technology after another. It's called the latecomer effect, and it means that a smart country can draw technologies from the wider pool and utilise them with advantages such as lower costs and possibilities of leapfrogging to the most advanced versions, without being constrained by technological inertia. We now see China applying these well attested strategies to the new case of green technologies – with stunning success.

Germany certainly developed the market for solar PV, and to some extent wind power, earlier than other advanced industrial countries. But the mindset that is hostile to "industrial policy" constrained Germany from building a world-conquering industry producing solar PV and wind turbines. It was more or less assumed that if the market were there, the industry would follow.

China on the other hand built the industry first – rather than the market – in a quite conscious and deliberate exercise in 'industrial policy', to create export platforms well before it had a large domestic market for PV and wind power. The Chinese took advantage of others creating the markets and then invaded these markets with their low-price devices (capturing the latecomer effect).

The Chinese utilised the 100-year old mass production principles pioneered by Henry Ford: drive down the costs (in Ford's case, by standardisation) and the market will expand. This is what has happened with solar PV and wind: China has built the manufacturing industry, driving down the costs as the market has expanded, which enables further cost reduction in manufacturing, and so on in a virtuous circle known as circular and cumulative causation. Once the costs had come down far enough China embarked on expanding its own domestic market, which it is now doing. 

Of course China’s catch-up efforts have had mixed success. In wind power there has been slower Chinese build-up and dominance. But Rome wasn't built in a day. The Chinese wind power firms like Ming Yang and Goldwind are already formidable competitors, after only a decade of real engagement. They both employ the strategy of 'resource leverage' to target and acquire critical technologies needed for their continued expansion. GW in particular is becoming a world leader in the new technology of Permanent-Magnet Direct Drive, or PMDD, which is a gearless technology and promises major advantages, particularly in offshore wind power installations. Goldwind acquired the technology from its European developers, but is now (in typical Chinese fashion) scaling it up to world dimensions, and moving from being an imitator to an innovator as it pushes to make PMDD a new "dominant technology" in wind power.

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It bears repeating that the world is currently involved in a vast “uncontrolled experiment” as we hurtle towards catastrophe with the fossil-fuelled industrial revolution and a new pathway based on renewables and resource recirculation as an alternative. Of course, success in this vast experiment is far from guaranteed. The forces of industrial inertia or of 'carbon lock-in' may well prevail and obstruct further greening initiatives. China may suffer a huge economic setback at some point and allow a less farsighted leadership to take over, scaling back investments in renewables and the circular economy.

Similar scenarios and processes might unfold in Brazil and India, or in Germany and Japan, bringing these countries to compete directly with the United States in the quest for more access to fossil fuels. If this were to come to pass, they would be drawn into uncontrollable resource wars in the Persian Gulf, the Caspian Sea basin and other fossil fuel theatres.

*This was the final part of a four-part series. Part one discussed China's genuine green revolution. Part two discussed China's new strategies of industrialisation. Part three discussed the realpolitik behind China's renewables push.

John A. Mathews is professor of strategic management at the Macquarie Graduate School of Management, Macquarie University, Sydney.