Industrialisation, with green characteristics

Recycling resources, growing renewables and eco-finance are at the heart of China's existential - but still early - pursuit of clean industrialisation.

Industrial capitalism has revealed itself to be the most powerful transformative agent in the world today. Its appearance in Britain in the second half of the 17th century, powered by access to fossil fuels, unleashed astonishing gains in productivity associated with rises in income.

This proved so attractive that it was widely emulated elsewhere. The economic historian Karl Polanyi aptly called this the “Great Transformation” in the sense that nothing would be the same again. I have utilised this phrase in the title of my new book, Greening of Capitalism: How Asia is Driving the Next Great Transformation (to be published by Stanford University Press later this year) – placing China at the centre of concerns.

Capitalism was indeed an amazing invention of humankind. Its appearance in cities led to demands for independence and liberties that today we take for granted in the West, and which are now spreading worldwide.

It ushered in the Industrial Revolution – which applied fossil fuels to production – along with new mechanical inventions. This started the world on a trajectory of industrialisation and modernisation that is bringing more and more of the world’s people into its orbit.

Alongside the black skies and filthy rivers created by China’s black approach to industrialisation, there are the green shoots of a different approach. Whereas renewable energies and recycling were pursued as playthings in the West, in China they are being pursued in earnest – as if people’s lives depended on it.

These strategies and arrangements are based around three main components – renewable energies and low-carbon technologies, circular economy initiatives, and eco-finance. In effect, they amount to a new green model of industrial capitalism, and they are being developed at the same time that China is ramping up its black energy and resource supplies.

1) Energy

China’s energy revolution discussed in Part 1 is driven by the country’s desperate bid to raise power levels without intensifying dependence on fossil fuels. By 2010, China was adding more power-generating capacity in hydro, nuclear and 'new' renewables than in conventional thermal power stations – an extremely important milestone, both for China and for the world. Its 12th Five-Year Plan has notable goals of raising these levels.

In terms of electric power, China’s leadership – in the form of its planning body, the National Development and Reform Commission, anticipates that electric power capacity will be rated at 1.6 terawatts by 2020. Of this total, almost a third (500 GW) will be generated from renewable sources – hydro, wind, solar.

Indeed by the year 2013 China had already achieved the goal of building a third of its generating capacity from renewable sources – and at the same time producing no less than 20 per cent of its electric energy from these renewable sources.

Investment figures reveal the same trend. In 2013 China invested RMB 372 billion ($64.7 billion) in new generating capacity, and of this, only 25 per cent or RMB 93 billion, was invested in coal-fired power, while 40 per cent or RMB 149 billion was invested in renewables. What other major industrial country could make a claim that investment in renewables outranks investment in coal-fired power?

2) Resources

At the same time, eco-industrial development is accelerating in China. It now promises to become one of the main industrial development strategies being pursued. Eco-industrial initiatives aim to solve resource problems and waste problems by encouraging firms to source their raw materials from wastes generated by other firms – that is, turning waste into resources. In effect, it transforms the linear economy (quarrying nature at one end, dumping wastes at the other) into what the Chinese call a “circular economy” – based on resource recirculation. Industrial outputs are turned into inputs into other industrial processes – cycling materials in the industrial economy just as they are done in bio-ecological systems.

A number of eco-industrial initiatives have been designed and implemented for the purpose of the 'circular economy' since the concept was first introduced by Chinese scholars in the late 1990s. In 2005, the National Development and Reform Commission, in conjunction with five other ministries, launched the first batch of national pilot demonstration projects. A second batch was launched in 2007. Meanwhile, a program established by the Ministry of Environment Protection, in conjunction of two other ministries, had designated a total of 30 Eco-Industrial Parks across the country as of December 2008.

It cannot be emphasised enough what a radical break the concept of the circular economy is with the conventional linear economy, in which raw materials are mined or extracted at one end and wastes are dumped at the other, with both ends exploiting a sink called 'nature' without thought or restraint.

Finance

Finance is the heart of capitalism – the engine room, as it were. Yet finance has been largely absent from discussions of how to find and fund solutions to global warming, and powering a new kind of green development strategy.

China has been careful to build a finance system (modelled on earlier late industrialisers like Germany and Japan) where development banks like the China Development Bank utilise their strong position to provide Chinese green energy and circular economy firms with long credit lines.

China has also introduced mandatory screening of new debt issues by China’s banks that must pass stringently interpreted green lending criteria. We can envisage a finance sector where trillions will be issued in the form of bonds that label themselves as being dedicated to financing green infrastructure.

They will be so labelled partly because of the demand for such “green” finance or “climate bonds” from the pensions and insurance sector, and partly because they will provide a source of finance that will be cheaper than “generic” finance that can be utilised for any purpose, including the building of fossil fuel infrastructure.

Only if China’s leaders succeed in the task of transforming the country’s energy, resources and finance systems can they deliver the stability, resilience and security that their nation requires to continue on its self-ascribed arc of peaceful development.

*This is the second part of a four-part series on China's green revolution. Part one discusses China's genuine green revolution. Part three –  on what drives China’s energy and resources strategies – will be published on Easter Tuesday.

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