You didn’t think The Green Leap Forward would go on to celebrate its first birthday (next week, folks! December 2nd!) without commenting on the recently announced RMB 4 trillion (US$586 billion) pump-priming package did you?
Of course not.
The basics of the package is that a total of RMB 4 trillion will be spent by the central government, local governments and state-owned enterprises in ten major areas, mostly infrastructure related. It is not clear to what extent part of the package is simply a repackaging of already existing budgets or expenditure plans in order to provide a psychological lift to the sagging stock markets. The more important question to readers of this blog, however, is to what extent the package addresses China’s environmental and energy (E&E) needs?
CELB had an excellent post looking at the E&E aspects of the package. There are certainly goodies for wastewater treatment and some overtures to alternative energy, although this includes the build out of ten nuclear plants. This latter observation raises an equally important question is to what extent to other parts of the package work at cross purposes with such E&E needs. This post will not make a comprehensive assessment of the E&E merits of the package, but will instead take a closer look at two of its aspects-grid and transportation infrastructure.
According to CELB the investments in the electric grid will consist of”reinforcement of urban and rural area grids and construction of ultra-high-voltage DC transmission line between Sichuan and Jiangsu.”
The State Grid Corporation, after adding RMB 2.73 billion to its current year’s budget, intends to spend RMB 1 trillion over the next two to three years to build out power grids. On the face of it, this could be a good thing for renewable energy; we’ve previously talked about how many wind farms are located in remote rural areas out of reach of access to the grid. But the devil of the State Grid’s plans are in the details. Other than what is specifically mentioned, what other aspects of the grids are being built out? Are they on the power generation side, transmission side, or distribution side? If on the power generation side, to what generation sources is the grid being connected to? Wind farms, hydro plants, or more coal plants?
Moreover, more grid does not mean a smarter grid. The interconnection issues of renewable sources such as wind farms is not simply an absence of grid connections, but also the inability of the grid operators to effectively manage the intermittent nature of wind power generation. Grid stabilization technology solutions need to be implemented if such interconnection issues are to be addressed, but it is too early to say is such improvements lie in the intentions of the State Grid. In the long term, the development of a more intelligent electric grid will be a significant opportunity for China, as this article suggest.
Implicit in the concept of The Green Leap Forward is the idea of developmental leap frogging; i.e. that China and other developing countries, because it is arriving later at the industrialization party, have the opportunity to avoid the developmental disasters of the west. One such disaster is the design of urban settlements around a century-old invention-the internal combustion engine. According to the Ministry of Transport, some RMB 10 billion from the stimulus package will be used in the construction of a national highway network and construction of rural roads. The carbon footprint will be high:
On an average, 1 km of highway construction will consume about 500 to 1,500 tons of steel, 4,000 to 12,000 tons of cement, and 1,900 tons of asphalt.
But the economics all too enticing:
At the same time, every 100 million yuan investment into highway construction will create about 1,800 direct jobs and 2,100 indirect ones. It is expected that the additional 10 billion yuan this year will multiply the country’s demand for cement, steel, machinery and fuel and drive the cyclic development of relevant industries.
China is not only following the west, but hoping to rely on their capital for this highway outlay.
The wiser aspects of the transportation investments is with respect to railways (read China’s blueprint for railway development here), which represent a more energy efficient solution to moving goods and people around, and could get even greener with the help of GE. (Ironically, the increase in rail capacity would ease rail capacity problems, allow more coal to be moved by rail and ease coal logistical bottlenecks and thus ease coal prices, making coal power more attractive! But that may be a line of reasoning with too many contingent links.) The announced RMB 600 billion investment in urban passenger rail also represents a positive development.
It is worth questioning the merits of the plan even from a purely economic point of view. Robert Scheretta, President of International Investor Corp, in his interview on NTDTV by Dong Xia (see video below) points out that the difference between the US’ $700 billion stimulus plan and the Chinese stimulus plan is that the US plan is little more than a bailout of troubled (and in his opinion “toxic and worthless”) financial assets and an act of desperation to stabilize a fragile financial system, whereas the Chinese plan involves beneficial build out of physical infrastructure that will benefit the citizens and economy. Dong Xiang, differs, expressing his skepticism of the plan’s ability to stimulate economic growth if the strategy is to spur consumer spending (from 7’26 in the video onwards):
Dong Xiang’s basic reasoning is that Chinese have a tendency to save what they earn rather than spend it. Imagine that! Saving what you earn? How terrible, eh? This is the sort of consumption-based GDPism that Annie Leonard appropriately rails against in her now famously viral video “The Story of Stuff“and is clear that Dong Xiang is also questions the merits of such an approach. A revival of some form of Green-GDP index is in sore need, as Professor Chang Miao of Tsinghua University suggests here.
At its core, though, an effective governance system to make sure the stiumulus package funds are being spent as they are promised is paramount, argues You Nuo, one of my favorite columnist at China Daily.