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.

Do coal barons deserve to benefit from Capitalism?

I've run into something of a moral problem. As I've mentioned in previous posts, I'm under the impression that state owned enterprises are in the midst of something of an asset grab, particularly in resources sector which is impacted by a nasty conjunction of rising prices for inputs, and price fixing by the government.

 Though the most notable bit of land grabbing is going on in the steel sector which will soon be completely controlled by the government. The government is announcing plans to consolidate the coal mining sector.

Now I'm pretty sure we shouldn't kid ourselves over whether this is anything other than a simple asset grab. But I'm seriously wondering whether I should care in this case. In my experience, while the Chinese government often does questionable things, like any large behemoth of an institution does, its generally a more responsible stakeholder than private entrepreneurs in China. Largely because private entrepreneurs have no protection, and the state has political backlash to think of. And Chinese coal barons probably kill more people than anyone else in China:

From Wikipedia:

China, in particular, has the highest number of coal mining related deaths in the world, with official statistic 6,027 deaths in 2004.^[23] To compare, 28 deaths were reported in the U.S. in the same year.^[24] Coal production in China is twice that in the U.S.,^[25] while the number of coal miners is around 50 times that of the USA, making deaths in coal mines in China 4 times as common per worker (108 times as common per unit output) as in the USA.

So these people might be in need of some regulation.

It's a moral black area that I'm not too fond of.

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.