Chinese Box

Weekend Reading

More on the green subject, this time pointing out where China goes (DREADFULLY) wrong:

 But Yvo de Boer, the United Nations’s outgoing senior climate-change official, argues that limits to what can be done are set by the perverse economic incentives that apply in most parts of Asia. Developers, a big part of the solution, will struggle to make a profitable fist of turning green when energy and the costs of pollution are grossly mispriced, favouring old-fashioned utilities. Putting an end to these subsidies would do wonders for bringing about a better night’s sleep, and a crisper, more pleasing view in the morning.

This story is very very important, and I'll write more about it when I'm not going out to dinner. But energy subsidies are a catastrophe for everything involved in China's development.

To paraphrase one of my favorite politicians again, "when you spend more on energy subsidies than education something is wrong."

China and the alternatives to oil

This post was originally published on Roubini's Global Economics

Last year, in the town of Quanzhou, right across the straight from Taiwan, a company you've probably never heard of opened up the world's largest production base for bamboo fabrics (Chinese). People who follow the green blogs have probably heard of bamboo fabrics super-green qualities, or the fact that those super-green qualities are all lies, but the take away I got from that little piece of news is somewhat different. Whether or not bamboo is green, its most important quality to the Chinese is that its not made with oil (as most synthetic fabrics are). As oil quickly increases in price, China is doing everything it can to find other resources that can be used as alternatives. Cotton, and even bamboo, are beneficiaries.

 As ugly as it is outside my window right now, you have to give China credit for its unceasing efforts to cut its demand for petrochemicals. Solar cells are used wherever possible. Most cities run electric buses, and they are pushing into electric taxi cabs. With companies that are among the world's largest battery manufacturers, its only a matter of time before a full electric car push is underway.

Part of the reason why technological solutions are so popular in China is that you only have to look outside to see that pollution is a problem, the country doesn't have the bountiful access to middle-eastern oil that America has and the government is well aware that any solution that depends on rule of law will fail miserably in their country. But solutions that depend on rule of law are failing elsewhere as well, access to middle-eastern oil is getting more and more difficult in the US, and after the BP spill pollution is sure enough visible. It seems like there is more we could be doing.

Climate change and the forgotten India

Journalists in China, often facing quixotic battles with censors or ignorant editors, often are slightly too eager to jump on to the China vs. US, G2, bi-polar world narrative, both on the positive and negative side, often because you're given a good share of talking points and its hard to cover more than one country at a time.

So I want to suggest this rather exceptional article about India's place in the China-US standoff during the Copenhagen talks. Basically making the point that while we are all rather clear on China's intentions (keep growth up, and increase its diplomatic clout), and we all know the developed worlds intentions, though some may think them more machiavellian than others, the reason why India by and large sided with China both here and during the Doha negotiations is largely ignored, not to mention the overall way it has been undervalued both by developed nations and China as a source of potential economic and political cooperation.

This was clear in the way India approached a key Copenhagen sticking point – verification. India had been down this road before with the U.S.-India nuclear deal, where Washington's insistence on external verification was seen by some Indian strategists as undermining India's sovereignty and security and a potential excuse to impose costly sanctions.

India, which was also recently hit with restrictions on even the transit of its pharmaceuticals across Europe, is suspicious that the West will use climate as an excuse to put in place fresh trade barriers. New Delhi sees the proposed "binding verification" of emission cuts as a means for finding justifications for "green tariffs" and even for industrial espionage.

As a result, in Copenhagen external, binding emissions verification was a political non-starter for India. However, the United States continued to push for it, even after the conference ended. For example, according to senior White House Advisor David Axelrod's interpretation of the Copenhagen Accord, the United States would not only "review" the implementation of domestic actions by India and China but also "challenge" them if these goals were not met.

Thoughts on our watery grave

By which I mean I'm a climate change pessimist.

A lot of non-binding targets for greenhouse gas reduction have been thrown out in the past few weeks. The primary news being related to the US's non-binding 17-20% decrease on 2005 levels, and China's announcement that it would decrease "Carbon Intensity" by 40% by 2020.

Pundits have been rather quick to point out that neither of these non-binding resolutions are anywhere in the realm of brave. 17% is on the low end of what's needed by 20, and has been only defended on the pro-Obama side by saying that its the only thing he could reasonably expect from congress. The Chinese target of course calls for an increase in Carbon output, just a relative decrease per-unit of GDP. Of course none of this accounts for the lack of regulation and general tendency to make up numbers that make most official government promises in China meaningless.

The shining light in all this is that it might provide an impetus towards clean-technology development, which is the only thing that could possibly save the world at this point. The economist notes that Obama's "down 83% by 2050" target is a much more important one than the 2020 target, which largely only matters in how much it makes the 2050 target reachable. That and Obama's diplomacy has been rather aggressively oriented towards getting a strong binding resolution in 2010.

We can only hope.

The European Chamber says everything I want to hear

I was at the big release of the European Chamber's 2009 "Position Paper," a 500-page document talking about all the things Europe really hopes China will do over the next year. An event that to my surprise had pretty much every major journalist I could think of there.

 Though I plan on delving into the 500 page document over the next few days (half of it is just a translation of the other half), what really was the most important aspect of the meeting for me was the constant regurgitation of the word "transparency." They took the very correct position, that the Chinese government can do pretty much whatever it wants, as long as its open about it, and discusses it with the business community first. I.e. Green Dam Mandate - they didn't announce it early enough to work out all the bugs. Or the Rio Tinto case - no one has any clue what information is protected by national security laws, so no one knows if they are breaking any laws.

Joerg Wuttke, the president of the chamber, made the simple statement that "corruption is a cancer in any economy," but it can only be fought bey transparency.

There was some other rather fun stuff relating to protectionism in the greentech sector. Particularly the highly publicized wind turbine case. I've noted previously that government intervention in this sector is already an issue, and the chamber implied that having a bunch of people jumping for handouts is seriously distorting the market (the term they used was that the market was "price driven," which is why the State Council said it would cut down on overcapacity soon.

Last thing on the someone saying something I wanted to hear list. Is that Wuttke argued that "SOEs (state-owned enterprises) are the big winners of the financial crisis." Which is what I've been saying all along.

Is there ever a greentech subsidy that isn't protectionist?

Suntech Power <3's subsidies

From JLM McGregor:

Solar cell and module manufacturer Suntech Power Holdings (NYSE:STP) said Monday that it plans to begin manufacturing solar products in the U.S. and will choose a location for a new production and distribution center within the next six months. The initiative aims to take advantage of U.S. demand for large-scale wholesale solar projects, state incentive programs for customer-owned systems and the U.S. government's recent stimulus package, said Suntech Chairman and CEO Dr. Zhengrong Shi.

One of the consequences of countries not having free trade agreements, is that there ends up being a lot of companies founded in low rent areas of the protected countries purely for the purpose of getting a foreign company's products around tariff barriers. The prime example is any Chinese investment in Eastern Europe, which gives them access to European markets at low cost.

What's exceptionally ridiculous about this investment is that a large portion of the cost of solar cells involves production costs. All the people in a factory soldering plates together in fact requires a lot of time and money. So Suntech is actually raising the cost of their production in order to get access to preferential subsides from the US.

Of course the purpose of greentech subsidies is supposed to make it cheaper to cut down on pollution, not more expensive. Suntech is obviously getting a profit margin out of it, but if America was really interesting in helping the environment they would stop caring the residency of the technology that does so.

Suntech power: is China picking champions?

My upcoming stockpicks article is on Suntech Power a follow up from a December article on the same topic. In my opinion Suntech is a great stock (though slightly overbought after the subsidy announcement), because being "really really big" its likely to be in the best place to take advantage of future industry consolidation and ::ahrm:: receive government subsidies.

Though I might be slightly off with the former - Suntech has a big pile of debt which will probably keep it from buying anything anytime soon - I was smack on with the latter. The recently announced Chinese government subsidy for solar projects that has caused sector stocks to skyrocket anywhere between 15 and 70%, has on closer inspection been shown to be mostly targeting Building-integrated Photovoltaic installations (BIPV). And can you guess which company dominates the market. 

While the reason for targeting BIPV installations could be as simple as trying to encourage new construction (BIPV can only be installed on new buildings), USD 30 billion specifically targeted towards a more arcane sort of solar power installation is somewhat sketchy. And giving my silicon valley instincts the creeps. Anyone invested in Solar should take profits while they can, and then buy back after the correction.

Oh, and I'm not invested in any solar. Student loans come first!

Coal Powered Cars!

The big take away from the China Entrepreneurs cleantech forum last night was that electric cars were the future of Chinese transportation, and that China has a very real ability to leapfrog the rest of the world who are still attached to their older product designs.

Two caveats though. One person I was talking to on the sidelines mentioned that electric cars weren't exactly status symbols, and that's really the main reason to have a car in China (I've seen so many fucking Ferrari's in the last month I want to throw rocks at them). The second caveat given by one of the speakers was that since the primary electricity source in the country is coal, we might as well be using liquified coal to power our autos.

China is also a world leader in power technology. Particularly nuclear power, but that hasn't stopped new coal plants coming online daily. And they just keep coming.

Update: After writing this post I discovered that coal powered cars are an actual thing, related to hydrogen fuel cells. Sorry for those who came thinking that's what I was talking about.