Public lecture: Is China too big to fail? An Economic and Environmental Perspective

Speaker: Professor Rob Elliott (me), Date: 23rd October, Location: University of Birmingham, cost: free.

I will be giving a public talk for my inaugural lecture at the University of Birmingham tomorrow afternoon at 4.30.

All welcome.  Just sign up by following the link below.  Apologies for the extremely short notice (only just occurred to me to publicise this event more widely).  The lecture title is self explanatory and although a very large topic it has been crammed into a concise one hour event.

The event is jointly hosted with the University of Birmingham China Institute.

'Is China too big to fail? An economic and environmental perspective' 
 
Speaker: Professor Rob Elliott - Department of Economics

Time: Wednesday 23rd October at 16.30-17.30 followed by a drinks reception

Location: G15, Main Lecture Theatre, Muirhead Tower, University of Birmingham

Places are limited so registration is necessary.

To reserve your place or for further details visit Professor Rob Elliott inaugural lecture
 
Professor Rob Elliott joined the Department of Economics at the University of Birmingham in September 2003. Having obtained a BA (Economics) and MA (Economics) at the Universities of Leicester and Essex, he studied for a PhD with Professor David Greenaway, Dr. Peter Wright and Robert Hine at the University of Nottingham.

Professor Elliott is currently Director of Education and Director of Admissions and Recruitment.  Prof. Elliott’s main research covers empirical international trade, environmental, development and labour economics under the broad umbrella of "the Economics of Globalisation".

China and intra-country environmental outsourcing

Do firms move location to take advantage of lower environmental regulations?  It is a question that many of tried to answer including myself for numerous countries, time periods and regulatory regimes.

A recent guardian newspaper article looks at what is happening within China.  When it comes to the impact of the environment on an economy China is the place to do the research. 

The question the Guardian asks is whether the rich coastal provinces are "outsourcing" their production of greenhouse gases elsewhere in China.

This links to a recent paper of mine called "Environmental Outsourcing" (we look at Japan outsourcing its pollution to China funnily enough).  The paper can be seen HERE.

So what does the Guardian paper report on:

China's rich provinces outsource emissions to less developed areas [Guardian]

Rich coastal provinces of China are outsourcing their greenhouse gas emissions by importing goods from less developed provinces, according to scientists. The practice makes it far less likely that China – the world's biggest emitter – will reach its climate goals, the study published in the Proceedings of the National Academy of Sciences said.

"Recent studies have shown that the high standard of living enjoyed by people in the richest countries often come at the expense of CO2 emissions produced with technologies of low-efficiency in less affluent, developing countries," the study said. "Less apparent is that this relationship between developed and developing can exist within a single country's borders."

It is worth reading the academic paper.  It is interesting that they decided to publish in PNAS.

Abstract

Recent studies have shown that the high standard of living enjoyed by people in the richest countries often comes at the expense of CO₂ emissions produced with technologies of low efficiency in less affluent, developing countries. Less apparent is that this relationship between developed and developing can exist within a single country’s borders, with rich regions consuming and exporting high-value goods and services that depend upon production of low-cost and emission-intensive goods and services from poorer regions in the same country. As the world’s largest emitter of CO₂, China is a prominent and important example, struggling to balance rapid economic growth and environmental sustainability across provinces that are in very different stages of development. In this study, we track CO₂ emissions embodied in products traded among Chinese provinces and internationally. We find that 57% of China’s emissions are related to goods that are consumed outside of the province where they are produced. For instance, up to 80% of the emissions related to goods consumed in the highly developed coastal provinces are imported from less developed provinces in central and western China where many low–value-added but high–carbon-intensive goods are produced. Without policy attention to this sort of interprovincial carbon leakage, the less developed provinces will struggle to meet their emissions intensity targets, whereas the more developed provinces might achieve their own targets by further outsourcing. Consumption-based accounting of emissions can thus inform effective and equitable climate policy within China.

I have many comments on this paper but will not go into detail here.

As an aside, academic economists need to take a close look at how their journals work compared to those in the Physical sciences.  Economists have a lot to learn.

How We Gain From China's Advances

I have always had a lot of time for Matt Kahn (UCLA) on his environmental blog and his New York Times piece makes a lot of sense.

As someone who works in trade and IO it is good to see Ricardo and spillovers making an appearance. Kahn is absolutely correct in this small piece.

I will be back as a blogger now after a period of laziness (and too much work).

How We Gain From China's Advances

Updated January 18, 2011, 08:14 PM

Matthew E. Kahn is a professor of economics at U.C.L.A.’s Institute of the Environment and Sustainability. He is the author of "Climatopolis: How Our Cities Will Thrive in the Hotter World."

Last September, the Times published an article sketching out the details of how China plays “dirty” in green tech as it offers cheap land and cheap loans to its nascent renewable energy sector. But new ideas are public goods that spread across continents.

Facebook started with the simple idea of connecting individuals, but now businesses use the Facebook platform to spread “buzz” and word of mouth about their products. In a similar spirit, China’s investments offer spillover benefits to the rest of the world.

The United States will gain from the green tech push taking place in China. Because of specialization and learning-by-doing, the cost of producing solar panels and wind turbines will decline. This is very good news for all sorts of firms ranging from Wal-Mart to Google to the defense department. Each of these “non-green” entities will be increasingly likely to be able to “go off the grid” thanks in large part to China’s investments. In this sense, the United States will experience a “greening” of our industries because we are a net importer of China's renewables technology exports.

In 2011, our green tech comparative advantage rests with our leading universities. The nerds at our universities know that if they discover a game-changing breakthrough their idea can be mass produced in China. China knows that U.S universities are likely to continue to come up with great ideas and thus it makes sense to have the nimble factories and workers ready to go.

How does the American middle class gain from this trend, even if the clean energy equipment isn’t manufactured here? One perhaps unsatisfying answer is, air quality will improve and greenhouse gas emissions will decline.

I realize that such long-term benefits do not equal a job right now. But, consider a real world example from U.C.L.A. Just the other day, I was talking to my colleague Michael Jura about the possibility of the university installing solar panels on the graduate housing complexes, but high capital investment costs are blocking this move. When China makes green tech progress, this cost will fall and U.C.L.A. will be able to go forward on this project.

This will create “green jobs” for installation and maintenance workers and the campus’s carbon footprint will fall. David Ricardo would smile as the gains to international trade will be reaffirmed again.

Water pollution in China - 1/4 gone, 3/4 left (for now)

In China's thirst for growth it is in danger of having the breaks applied very sharply from environmental contraints none more important that a lack of clean water.

China might, just might, be getting on top of air pollution but water pollution remains a serious problem. The sheer scale effect of China's growth will mean the battle against PM10 and air pollution is far from over.

Pollution Makes Quarter Of China Water Unusable: Ministry [PlanetArk]

Almost a quarter of China's surface water remains so polluted that it is unfit even for industrial use, while less than half of total supplies are drinkable, data from the environment watchdog showed on Monday.

Inspectors from China's Ministry of Environmental Protection tested water samples from the country's major rivers and lakes in the first half of the year and declared just 49.3 percent to be safe for drinking, up from 48 percent last year, the ministry said in a notice posted on its website (www.mep.gov.cn).

China classifies its water supplies using six grades, with the first three grades considered safe for drinking and bathing.

Another 26.4 percent was said to be categories IV and V -- fit only for use in industry and agriculture -- leaving a total of 24.3 percent in category VI and unfit for any purpose.

Despite tougher regulations over the last decade, the ministry has struggled to rein in the thousands of small paper mills, cement factories and chemical plants discharging industrial waste directly into the country's waterways, and the overuse of fertilizers has also left large sections of China's lakes and rivers choking with algae.

The ministry said there were noticeable improvements in air quality throughout the country's cities in the first half of 2010, with sulphur dioxide emissions declining 30.2 percent compared to last year.

Airborne particulate matter in China's cities fell 12.1 percent and nitrogen dioxide declined 5 percent, the ministry said.

However, 189 out of 443 cities monitored suffered from acid rain in the first half of the year.

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Climate and war in China

As an academic with an interest in the fascinating history of China the following article on the impact of climate change on war and civil unrest is very interesting.

There is no doubt that droughts will cause future unrest. The government will need to be prepared.

Cooling Caused Wars And Drought In China [PlanetArk]

As Chinese policymakers grapple with an expected increase in extreme weather due to global warming, a study has found that periods of cooling between AD 10 to 1900 also caused a wave of disasters, war and upheaval.

Droughts and locust plagues caused by cooler spells probably triggered internal wars, the authors said.

In a modern day parallel, China, the world's top emitter of greenhouse gases blamed for heating up the planet, has taken steps to curb emissions growth fearing growing social unrest from environmental degradation.

Zhibin Zhang of the Chinese Academy of Sciences and his team used historical records and paleoclimatic reconstructions covering nearly 2,000 years.

They found that the frequency of wars, droughts and floods, price of rice, locust plagues and temperatures in China were positively associated within time bands of around 160 and 320 years.

The study was published in the latest issue of the journal Proceedings of the Royal Society.

"Our study suggests that the food production during the last two millennia has been more unstable during cooler periods," the authors said.

This resulted in more social conflict owing to rebellions within dynasties and/or aggression from northern pastoral nomadic societies in ancient China, they said.

The collapses of the agricultural dynasties of the Han (206 BC-AD 220), Tang (681-906), Song (960-1279) and Ming (1368-1643) were more closely associated with low temperature, they said.

DRIVING FORCE

"It is very probable that cool temperature may be the driving force in causing high frequencies of meteorological, agricultural disasters and then man-made disasters (wars) in ancient China," they said.

In particular, the results suggested that periodic low temperatures could have increased the frequency of internal wars mainly indirectly through increasing drought and locust plague frequencies between AD 950 and the 1900s.

They said external aggression wars mostly occurred between Chinese dynasties and the pastoral nomadic societies to their north, such as the Manchus who overthrew the Ming dynasty.

A cooling of a few degrees Celsius can shorten the northern growing season of grass by 40 days, adversely affecting grasslands and causing huge losses of domestic livestock. This pushed northern tribes south.

The authors found two predominant periodic bands of around 160 and 320 years during past two millennia.

"These periods may be related to cyclic variations of solar activity, or cyclic changes of orbit position of the Earth," they said, pointing to 87 and 210-year cycles of solar activity based on observations of sunspots.

"It is generally believed that global warming is a threat to human societies in many ways. However, some countries or regions might also benefit from increasing temperatures in some ways," the authors said.

The global climate has natural variations in temperature and rainfall but scientists fear the rapid accumulation of greenhouse gases since the Industrial Revolution could lead to catastrophic climate change unless emissions are sharply reduced.

"However, the present on-going global warming may produce different effect on our industrialized societies which own much higher capacity of dealing with natural disasters than pre-industrial societies," they say in a pointer to China's rapid rise to become the world's number 3 economy.

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The giant sucking sound of resources heading to China

Interesting VOX piece of the debate surrounding China's attempt to seemingly suck in huge quantities of the world's resources. China is trying and has the will to succeed.

I guess the answer to the question is "yes". The real question is whether they will succeed.

Is China trying to “lock up” natural resources around the world? [Vox]

The rapid emergence of China as a major industrial power poses a complex challenge for the world’s natural resources. This column argues that the Chinese government-backed investments in natural resource supplies are predominately in areas that will help expand, diversify, and improve competition in the global supplier system. But potential geopolitical consequences remain a reason for concern.

Backed by the Chinese government, Chinese companies have been acquiring equity stakes in natural resource companies, extending loans to mining and petroleum investors, and writing long-term procurement contracts for oil and minerals. These activities have aroused concern that China might be “locking up” natural resource supplies, gaining “preferential access” to available output, extending “control” over the world’s extractive industries (Silk 2006).

The empirical question

The empirical question I address here is whether Chinese equity acquisitions, loans, and long-term procurement contracts help consolidate a tightly concentrated supply base while securing preferential access for Chinese buyers? Or do these actions help multiply sources and diversify the supply base, thus making the provision of output more competitive for all buyers?

This investigative focus is deliberately narrow and precise. It assesses the impact of Chinese resource procurement on the structure of the global supply base. The broader policy discussion in the concluding section raises other separate important issues, including the effect of Chinese resource procurement on rogue states, on authoritarian leadership, on civil wars, on corrupt payments and the deterioration of governance standards, and on environmental damage. Such effects may make patterns of Chinese resource procurement objectionable, on grounds quite apart from the debate about possible “lock up”, “tie up”, and “control” of access on the part of China and Chinese companies.

Business School strategic management literature identifies four fundamental types of natural resource procurement structures for a large buyer.

1. Take an equity stake to create a “special relationship” with a major producer. Buyers and/or their home governments take an equity stake in a “major” producer so as to procure an equity-share of production on terms comparable to other co-owners.
2. Take an equity stake to create a “special relationship” with the competitive fringe. Buyers and their home governments take an equity stake in an “independent” producer so as to procure an equity-share of production on terms comparable to other co-owners.
3. Loan capital to be repaid in output to a major producer. Buyers (and/or their home government) make a loan to a “price maker” producer in return for a purchase agreement to service the loan.
4. Loan capital to be repaid in output to the competitive fringe. Buyers (and/or their home government) make a loan to a “price taker” producer in return for a purchase agreement to service the loan.

These four categories provide the basis for giving operational definition to “tying up” or gaining “preferential access” to supplies. If the buyer-seller arrangement simply solidifies legal claim to a given structure of production (categories 1 and 3), “tying up” or gaining “preferential access” to supplies has zero-sum implications for other consumers. What is noteworthy, however, is that if the buyer-seller arrangement expands and diversifies sources of output more rapidly than growth in world demand (categories 2 and 4), the zero-sum implication vanishes as other consumers have easier access to a larger and more competitive global resource base.

Figure 1 presents the scorecard of the sixteen largest of China’s procurement arrangements showing a few instances in which Chinese natural resource companies take an equity stake to create a “special relationship” with a major producer. But the predominant pattern is to take equity stakes and/or write long-term procurement contracts with the competitive fringe.

A brief review of five smaller Chinese procurement arrangements does not suggest that there is significant selection-bias in looking at these sixteen largest projects.

The rapid emergence of China as a major industrial power poses a complex challenge for global resource markets. On the demand side, Chinese appetite for vast amounts of energy and minerals puts tremendous strain on the international supply system. On the supply side, Chinese efforts to procure raw materials can exacerbate the problems of high demand, or help solve the problems of high demand. Which outcome Chinese procurement arrangements generate depends upon whether those arrangements solidify a concentrated global supplier system, or expand, diversify, and increase competition in the global supplier system. The evidence presented above shows that Chinese efforts – like Japanese deployments of capital and purchase agreements – fall predominantly into categories that help expand, diversify, and make more competitive the global supplier system.

Chinese attempts to exercise control over “rare earth elements” mining may constitute a significant exception, however. The term “rare earth”, according to the US Geological Survey, “is a historical misnomer; persistence of the term reflects unfamiliarity rather than true rarity.” The US was self-sufficient in rare earth production until the mid-1980s, now more than 90% is imported from China ($127 million in 2008). Rare earth minerals are crucial for a growing an array of civilian and military products. Historically the rare earth mining industry has been characterised by excess capacity, and oversupply. In August 2009 China’s Ministry of Industry and Information Technology issued a draft policy to set an annual export quota of 35,000 tons, a potential ban on exports of at least five types of rare earth elements, and a series of steps to control mining and improve environmental practices. These actions may be directed at securing control over international markets; at the same time, they are being deployed as a tool to compel more foreign investment and more value-added in associated in industries in inland China. Concerned about access to supplies, mining companies and buyers have shown interest in developing new sites in Vietnam, Kazakhstan, Sweden, and Canada, as well as restarting production in the US. China meanwhile has pursued an aggressive policy of acquiring equity stakes in new producers, in particular in Australia.

Deng Xiaoping once noted that while the Mideast has oil, China has rare earth elements. How should national authorities react to the prospect of Chinese investment in offshore rare earth elements companies? The foreign acquisition analytics in the rare earth sector fit well within the broader framework laid out here; Chinese investment in a small independent producer whose impact can do nothing except help expand supply and make the industry more competitive should be encouraged; Chinese investment in a more major producer that perhaps puts the Chinese owners (and Chinese government) in a position to control or constrain production should be viewed with circumspection.

The impact of Chinese procurement activities on the structure of supplier industries, however, is only one dimension of the challenge posed by Chinese natural resource acquisition. The natural-resource-strategist-from-Mars might well applaud China’s vigorous support for oil production in the Sudan or Iran, and for oil transport, natural gas, and mineral production in Myanmar. But the US and other allies are rightly appalled at the consequences for regional conflict, support for terrorist groups, violation of human rights, and oppression. Finally, provision of equity capital and loans in return for natural resources form part of larger Chinese strategy toward Central Asia, the Middle East, Africa, Latin America, and the South Pacific.

References

Moran, Ted (2010), “Is China trying to “lock up” natural resources around the world?”, This study is being prepared as a Working Paper for the Peterson Institute of International Economics. The draft study may be received via a request to morant@georgetown.edu.

Silk, Mitchell (2006), “Are Chinese Companies Taking Over the World?” Chicago Journal of International Law.

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Did China kill hope and the planet at Copenhagen?

Copenhagen was never going to up with a decent environmental agreement. The result is better than nothing but only just. Are China really the bad guys in all this?

The left leaning Guardian puts the boot in. It is a surprise that they think it is a surprise that China would act in this way.

China are flexing their muscles and toughing it out - they can afford to do so without voters and upcoming elections. China's stance has internal and external logic. China will cut emissions and they will probably do a lot better then the West at hitting them but will do so on their own terms.

At least the Guardian accepts Copenhagen was a disaster. It always was. If you read previous posts on this blog such a disaster was inevitable. Can I provide a solution? No.

Did China wreck the deal? Very possibly. I will say again, the West never ceases to amaze me how it underestimates China's leaders and the level of political acumen that the government is happy to employ when the time is right. To get to a position of political leadership in China requires great skill (and some luck) not just a lot of money as in the US (although that also helps).

The West will learn some expensive mistakes in the meantime. Tguis good article is from Mark Lynus. The story they tell of the meeting and China sending a 2nd tier official is standard practice - has Mark Lynus not read his Chinese history? Why would they expect anything less? Why was Mark shocked?

The one point that they do get "China does not need a deal". Once one understands that the rest falls into place.

Mark Lynus was depressed at the result of Copenhagen. My reply is that he should never have been so optimistic in the first place.

Being an economist helps keep things into perspective. Rant over.

How do I know China wrecked the Copenhagen deal? I was in the room [Guardian]

Copenhagen was a disaster. That much is agreed. But the truth about what actually happened is in danger of being lost amid the spin and inevitable mutual recriminations. The truth is this: China wrecked the talks, intentionally humiliated Barack Obama, and insisted on an awful "deal" so western leaders would walk away carrying the blame. How do I know this? Because I was in the room and saw it happen.

China's strategy was simple: block the open negotiations for two weeks, and then ensure that the closed-door deal made it look as if the west had failed the world's poor once again. And sure enough, the aid agencies, civil society movements and environmental groups all took the bait. The failure was "the inevitable result of rich countries refusing adequately and fairly to shoulder their overwhelming responsibility", said Christian Aid. "Rich countries have bullied developing nations," fumed Friends of the Earth International.

All very predictable, but the complete opposite of the truth. Even George Monbiot, writing in yesterday's Guardian, made the mistake of singly blaming Obama. But I saw Obama fighting desperately to salvage a deal, and the Chinese delegate saying "no", over and over again. Monbiot even approvingly quoted the Sudanese delegate Lumumba Di-Aping, who denounced the Copenhagen accord as "a suicide pact, an incineration pact, in order to maintain the economic dominance of a few countries".

Sudan behaves at the talks as a puppet of China; one of a number of countries that relieves the Chinese delegation of having to fight its battles in open sessions. It was a perfect stitch-up. China gutted the deal behind the scenes, and then left its proxies to savage it in public.

Here's what actually went on late last Friday night, as heads of state from two dozen countries met behind closed doors. Obama was at the table for several hours, sitting between Gordon Brown and the Ethiopian prime minister, Meles Zenawi. The Danish prime minister chaired, and on his right sat Ban Ki-moon, secretary-general of the UN. Probably only about 50 or 60 people, including the heads of state, were in the room. I was attached to one of the delegations, whose head of state was also present for most of the time.

What I saw was profoundly shocking. The Chinese premier, Wen Jinbao, did not deign to attend the meetings personally, instead sending a second-tier official in the country's foreign ministry to sit opposite Obama himself. The diplomatic snub was obvious and brutal, as was the practical implication: several times during the session, the world's most powerful heads of state were forced to wait around as the Chinese delegate went off to make telephone calls to his "superiors".

Shifting the blame

To those who would blame Obama and rich countries in general, know this: it was China's representative who insisted that industrialised country targets, previously agreed as an 80% cut by 2050, be taken out of the deal. "Why can't we even mention our own targets?" demanded a furious Angela Merkel. Australia's prime minister, Kevin Rudd, was annoyed enough to bang his microphone. Brazil's representative too pointed out the illogicality of China's position. Why should rich countries not announce even this unilateral cut? The Chinese delegate said no, and I watched, aghast, as Merkel threw up her hands in despair and conceded the point. Now we know why – because China bet, correctly, that Obama would get the blame for the Copenhagen accord's lack of ambition.

China, backed at times by India, then proceeded to take out all the numbers that mattered. A 2020 peaking year in global emissions, essential to restrain temperatures to 2C, was removed and replaced by woolly language suggesting that emissions should peak "as soon as possible". The long-term target, of global 50% cuts by 2050, was also excised. No one else, perhaps with the exceptions of India and Saudi Arabia, wanted this to happen. I am certain that had the Chinese not been in the room, we would have left Copenhagen with a deal that had environmentalists popping champagne corks popping in every corner of the world.

Strong position

So how did China manage to pull off this coup? First, it was in an extremely strong negotiating position. China didn't need a deal. As one developing country foreign minister said to me: "The Athenians had nothing to offer to the Spartans." On the other hand, western leaders in particular – but also presidents Lula of Brazil, Zuma of South Africa, Calderón of Mexico and many others – were desperate for a positive outcome. Obama needed a strong deal perhaps more than anyone. The US had confirmed the offer of $100bn to developing countries for adaptation, put serious cuts on the table for the first time (17% below 2005 levels by 2020), and was obviously prepared to up its offer.

Above all, Obama needed to be able to demonstrate to the Senate that he could deliver China in any global climate regulation framework, so conservative senators could not argue that US carbon cuts would further advantage Chinese industry. With midterm elections looming, Obama and his staff also knew that Copenhagen would be probably their only opportunity to go to climate change talks with a strong mandate. This further strengthened China's negotiating hand, as did the complete lack of civil society political pressure on either China or India. Campaign groups never blame developing countries for failure; this is an iron rule that is never broken. The Indians, in particular, have become past masters at co-opting the language of equity ("equal rights to the atmosphere") in the service of planetary suicide – and leftish campaigners and commentators are hoist with their own petard.

With the deal gutted, the heads of state session concluded with a final battle as the Chinese delegate insisted on removing the 1.5C target so beloved of the small island states and low-lying nations who have most to lose from rising seas. President Nasheed of the Maldives, supported by Brown, fought valiantly to save this crucial number. "How can you ask my country to go extinct?" demanded Nasheed. The Chinese delegate feigned great offence – and the number stayed, but surrounded by language which makes it all but meaningless. The deed was done.

China's game

All this raises the question: what is China's game? Why did China, in the words of a UK-based analyst who also spent hours in heads of state meetings, "not only reject targets for itself, but also refuse to allow any other country to take on binding targets?" The analyst, who has attended climate conferences for more than 15 years, concludes that China wants to weaken the climate regulation regime now "in order to avoid the risk that it might be called on to be more ambitious in a few years' time".

This does not mean China is not serious about global warming. It is strong in both the wind and solar industries. But China's growth, and growing global political and economic dominance, is based largely on cheap coal. China knows it is becoming an uncontested superpower; indeed its newfound muscular confidence was on striking display in Copenhagen. Its coal-based economy doubles every decade, and its power increases commensurately. Its leadership will not alter this magic formula unless they absolutely have to.

Copenhagen was much worse than just another bad deal, because it illustrated a profound shift in global geopolitics. This is fast becoming China's century, yet its leadership has displayed that multilateral environmental governance is not only not a priority, but is viewed as a hindrance to the new superpower's freedom of action. I left Copenhagen more despondent than I have felt in a long time. After all the hope and all the hype, the mobilisation of thousands, a wave of optimism crashed against the rock of global power politics, fell back, and drained away.

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"Open cities", pollution and FDI in China

Matthew Kahn and co-authors have published an interesting paper in Regional Science and Urban Economics. Matt Khan is a fellow blogger and does very good work on the urban-environment nexus (he is also the author of the excellent "Green Cities".

To cover FDI, pollution and house prices in one 10 page paper is impressive.

I am skeptical that migration patterns will be influenced by pollution at this stage of China's development. The paper does point out the impediment caused by the "Hukou" system. I think they underestimate the importance of hukou as a distortion on migration and the speed by which cities can develop.

The "housing bubble" during this period also distorts the market especially in Beijing.

Finally, this paper is related to the standard Kuznet's curve literature (as acknowledged in the paper). This literature suggests that China has yet to reach the turning point for many pollutants. The conclusions of this paper are optimistic although I am not sure I share this optimism. It is unlikely that any Chinese city in the next 10 years will move from a "producer" to a "consumer" city. The authors are right to state in the last line of the paper that any improvement will be part of a "long term trend".

Towards a system of open cities in China: Home prices, FDI flows and air quality in 35 major cities

Siqi Zheng, Matthew E. Kahn and Hongyu Liu

Abstract

Over the last 30 years, China's major cities have experienced significant income and population growth. Much of this growth has been fueled by urban production spurred by world demand. Using a unique cross-city panel data set, we test several hypotheses concerning the relationship between home prices, wages, foreign direct investment and ambient air pollution across major Chinese cities. Home prices are lower in cities with higher ambient pollution levels, and the marginal valuation for green amenities is rising over time. Cities featuring higher per-capita FDI flows have lower pollution levels. These findings may indicate that major Chinese cities are making the transition from “producer cities” to “consumer cities”, which raises the prospects of sustainable economic development in China.

Keywords: China; Urban growth; FDI; Air pollution; Quality of life

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Copenhagen: "Neither a lender nor a borrower be"

I have kept my Copenhagen coverage to a minimum given that I have covered these issues throughout the year.

However, it is interesting to note the recent spat between the US and China. First, or was it second, we have the US saying that they will not give money to China to combat climate change and then we have China saying that they do not want any money anyway or did they say they didn't want it first.

It could be argued that this is just both countries playing to their domestic audience as part of the negotiations but it marks a significant change in China's stance. China is still very poor in terms of GDP per head but it has grown up fast and is not prepared to flex its muscles on the international stage.

I am impressed by China's position. It shows China makes a major concession and yet appearing more powerful on the international stage. Top marks.

The arguments have been rehearsed in many other articles but the fact remains:

1. Developed nations caused the current high CO2 levels
2. Developing countries will suffer the most from climate change
3. Developing countries have the same right to grow and to develop as the West did
4. Developing country pollution levels are increasing rapidly (due to the scale effect).
5. A proportion of the pollution in developing countries is caused by Western multinational companies producing to export back to the West or domestic firms producing to satify the consumerism of the West.

Any solution will be very difficult to find. The environmental problems in China are severe. China is acting and acting quickly in terms of regulation and enforcement but a lot remains to be done.

The world needs an agreement but I have very low expectations.


China signals climate funds shift [FT]

China signalled on Sunday that it had abandoned its demand for funding from the developed world to combat climate change, the first apparent concession by one of the major players at the Copenhagen climate talks.

However, in the same interview with the Financial Times, the most senior Chinese negotiator accused rich countries of preparing to blame a failure at Copenhagen on Beijing.

As the talks entered their critical final week, He Yafei, Chinese vice-foreign minister, said financing from rich countries should be directed to poorer countries.

“Financial resources for the efforts of developing countries [to combat climate change are] a legal obligation,” he said. “That does not mean China will take a share – probably not.

“We do not expect money will flow from the US, UK [and others] to China.”

China has committed itself to cut emissions per unit of gross domestic product by 40-45 per cent by 2020 but had demanded financing from the developed world to take further steps to tackle climate change.

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Chinadialogue does Copenhagen

Instead of endless Copenhagen coverage I point readers to Chinadialogue who are providing excellent coverage from a "China perspective".

CHINA AND THE WORLD DISCUSS THE ENVIRONMENT [ChinaDialogue]

Hello from Copenhagen, Beijing, London and San Francisco and welcome to The Daily Planet chinadialogue’s unique bilingual blog of the Copenhagen climate change summit. Over the next two weeks we will post blogs, video and links to the best articles on the talks in Chinese and English.

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Pictures of Pollution in China

The blog post title says it all. These are great pictures that should be seen to be believed.

Some make for very depressing viewing and are very far from the hotel in central Beijing that I recently stayed at.

Amazing Pictures, Pollution in China [China Hush]

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Overcapacity to be curbed

The China stimulus package has been something to behold. Massive compared to other countries and a massive distortion.

Whilst is may have saved the global economy (in the short term) it is/has stored up a whole lot of trouble. Bubbles in the stock market and property market to name the obvious ones. Actually they are not technical bubbles, simply rises that are not supported by economic fundamentals.

Today the FT reports on the overcapacity of the industrial sector. Basically firms that should have gone bust didn't leading to more inefficient firms than there should be (although a lot more people in jobs that there would have been).

Also of relevance given Copenhagen is that the stimulus package meant the survival of highly polluting firms that would otherwise have gone under leading to higher emissions than would otherwise have been the case. These are the sectors that should be targeted (although they can also be large employers).

These jobs will be lost eventually - how China manages this will be interesting to watch.

China moves to curb industrial capacity [FT]

China on Wednesday announced details of plans to curb severe overcapacity in industrial production that has been made worse by the country’s Rmb4,000bn ($585bn) stimulus package.

The State Council, China’s cabinet, said in a strongly worded statement that highly polluting sectors including steel, coke, cement and plate glass must cut capacity, while silicon and wind power producers should pursue more orderly development.

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The details came after the State Council first said in late August that it would ask local authorities to “resolutely [curb] overcapacity and redundant construction”, after the country’s massive stimulus measures and excess bank lending led to unbridled expansions.

It said industrial overcapacity could cause intense competition and derail the country’s economic recovery if no action was taken.

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China, Iraq and the collapse of the dollar

A title to chew over that is for sure.

This is an interesting New York Times article. The implications are potentially very serious. Imagine China selling up it's US paper - work it through and the dollar is in deep trouble. Will China risk it? Perhaps it will for oil.

As Iraq Stabilizes, China Bids on Its Oil Fields [New York Times]

HONG KONG — Oil companies from China, the world’s second-largest and fastest-growing consumer of oil, bid aggressively on Tuesday as Iraq began auctioning licenses in six large oil fields.

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It is common in the oil industry for initial auction results to be followed by weeks of dickering over details. But the bidding in Baghdad on Tuesday was particularly contentious, as multinationals demanded that the Iraqi government allow them to keep more of the revenue from each extra barrel of oil they pump beyond levels previously sustained by Iraq’s chronically corrupt and technologically weak national oil industry.

Few Americans or Iraqis may have expected China to emerge as one of the winners in Iraqi oil, particularly after six years of war. But signs of stability in Iraq this year, and a planned American military pullout from Iraqi cities on Tuesday, happened to coincide with an aggressive Chinese push to buy or develop overseas oil fields.

The Chinese companies “have been interested in Iraq,” said David Zweig, a specialist in Chinese natural resource policies at the Hong Kong University of Science and Technology. “They were interested in Iraq before the war, and now that things have improved somewhat there, it’s on their agenda.”

Some experts contend that the West should not be concerned about a substantial Chinese presence in Iraqi oil fields, because it gives China greater stake in improving stability in the region.

“If you want China to be a responsible stakeholder in the world, you need to let China buy stakes in the world,” said Mark P. Thirlwell, the program director for international economics at the Lowy Institute for International Policy in Sydney, during a speech in Hong Kong on Tuesday.

The Iraqi government originally tried last year to award oil fields to Western companies through a no-bid process. That prompted objections from a group of United States senators, who wanted greater transparency, and the plan was replaced with the auction, which had the effect of letting Chinese companies play a much larger role.

China’s leaders were surprised by the steep rise in commodity prices early last year, which exposed the vulnerability of their country’s huge manufacturing sector to high raw material prices. When oil prices plunged in the autumn, China began buying, importing and storing oil in huge quantities, helping to drive a partial rebound in world oil prices in spring. And China stepped up its hunt to acquire foreign oil.

Chinese officials, economists and advisers have been almost unanimous in recent weeks in saying that their country needed to invest more in natural resources, while also voicing concerns about the long-term creditworthiness of the United States and the buying power of the dollar.

China has $2 trillion in foreign exchange reserves, mostly invested in dollar-denominated bonds, and has been looking for ways to diversify gradually into other assets like commodities, said a Chinese government adviser who spoke on the condition of anonymity because of the secrecy of Chinese reserve policies.

China’s central bank, the People’s Bank of China, called Friday for the development of an international currency other than the dollar that would be a safe repository of value, in the latest sign of China’s search for other ways to invest its international reserves.

Philip Andrews-Speed, a specialist in China’s oil industry at the University of Dundee in Scotland, said Iraq was clearly attractive for China and its oil industry.

More on the second page.

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"Unfair West" threatens climate change progress

Apologies for a lack of recent posting. My senior academic management role is taking up more time that I initially expected. Fire fighting is almost under control now though so hopefully normal service can resume. I have missed some big stories but hope to recap some of them soon.

We begin with a return to the climate change problem. China has a lot to do but the government will is there. Of course this is largely a result of self interest - China is a country that is likely to suffer the brunt of climate change on its economy and environment.

Whilst the EU is doing a fair amount the US is still dragging its feet. Obama is trying but facing the brick wall of congress who are paid by the large lobby groups. Is this how democracy is supposed to work?

Yu is correct to state that it is a matter of political will in the West. The recession and current crisis (that will surely get worse) means this "will" will be in short supply.

INTERVIEW-China to act on climate, warns of "unfair" demands [Reuters]

BONN, Germany, June 2 (Reuters) - China promised on Tuesday to step up actions to fight climate change and cautioned that "unfair" new demands by rich nations could sabotage a new U.N. treaty due to be agreed in December.

"We will continue to focus on the improvement of energy efficiency, expansion of the use of renewable energy, more use of nuclear power and on reforestation," China's climate ambassador Yu Qingtai told Reuters of long-term plans beyond 2010.

And he said China was already doing a lot.

"We are pretty certain that our track record would not pale against anybody else in the world," he said on the sidelines of June 1-12 U.N. climate talks among 181 nations in Bonn.

He said China, for instance, was seeking to raise efficiency by cutting the amount of energy burnt per unit of economic output by 4 percent a year.

Washington says that China, which by most estimates has overtaken the United States as the top emitter of greenhouse gases, must do more to fight climate change under a U.N. pact due to be agreed in December in Copenhagen.

But Yu accused rich nations of introducing proposals that go beyond a roadmap for U.N. negotiations agreed in Bali in 2007.

"Copenhagen is only six months away -- instead of introducing new concepts, controversial concepts, unfair concepts, the world would be better served if we could focus on what is already agreed upon in the Bali roadmap," he said.

"If you start (questioning agreed principles), that can only meant that countries are not serious about future international cooperation. They are trying to create problems to sabotage the whole process," he said.

SINGAPORE Many developed nations, for instance, want a new yardstick that would redefine the existing group of 130 developing nations and demand more actions by the wealthier developing countries in slowing global warming.

Countries in the group of developing nations at the U.N. talks such as Singapore or the United Arab Emirates are wealthier per capita than many countries which have to cut emissions under the existing Kyoto Protocol.

"That would definitely not succeed," Yu said of an effort to redefine developing nations.

He said a 1992 U.N. Climate Convention made a basic split between nations that have caused climate change since the Industrial Revolution 200 years ago and victims -- including those that have recently become rich or major emitters.

Yu said that China's rejection of a new sliding scale did not mean however that all developing countries were able to do the same to slow climate change, such as more droughts, floods and rising seas. Under a separate principle, national circumstances vary. "We are aware that, as a country of 1.3 billion people, as a country that has enjoyed an impressive growth rate, we can do a lot more than a least developed country with a couple of million population," he said.

He said rich nations should focus on keeping pledges to curb greenhouse gases rather than place new demands on the poor. China wants the rich to cut emissions by at least 40 percent below 1990 levels by 2020 -- far deeper than cuts on offer.

A study by the Potsdam Institute for Climate Impact Research on Monday showed that promises by the rich so far amount to cuts of between 8 and 14 percent by 2020.

Asked if 40 percent was realistic when many nations say it would cripple their recession-racked economies, Yu said, "If there is political will...they can certainly do better than 8 or 14 percent. It is basically a question of political will."

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China as a Christmas tree?

Sometimes the title of a paper is enough to generate a blog post. This one is particularly eye catching. I suspect a translation malfunction.

The content of this unpublished paper concerns an important topic - China does need to be fully engaged in the global fight against climate change. Whilst China is the largest emitter of CO2 it will also suffer some of the largest negative impacts so it has every incentive to work with the West to come up with a solution.

Is it fair to treat China as a Christmas tree to hang everybody’s complaints? putting its own energy saving into perspective

Zhang, ZhongXiang (2008)

Abstract

China has been the world’s second largest carbon emitter for years. Recent studies show that China had overtaken the U.S. as the world’s largest emitter in 2007. This has put China on the spotlight, just at a time when the world community starts negotiating a post-Kyoto climate regime under the Bali Roadmap. China seems to become such a Christmas tree on which everybody can hang his/her complaints. This paper will first discuss whether such a critics is fair by examining China’s own efforts towards energy saving, the widespread use of renewable energy and participation in clean development mechanism. Next, the paper puts carbon reductions of China’s unilateral actions into perspective by examining whether the estimated greenhouse gas emission reduction from meeting the country’s national energy saving goal is achieved from China’s unilateral actions or mainly with support from the clean development mechanism projects. Then the paper discusses how far developing country commitments can go in an immediate post-2012 climate regime, thus pointing out the direction and focus of future international climate negotiations. Finally, emphasizing that China needs to act as a large and responsible developing country and take due responsibilities and to set a good example to the majority of developing countries, the paper articulates what can be expected from China to illustrate that China can be a good partner in combating global climate change.

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Hidden costs of coal - $250 billion?

China's reliance on coal is a major contributor to global warming. However, there are also other costs that are incurred closer to home.

What this article does is to highlight the real problems that result from China's reliance on coal. What is also abundantly clear is that there is no simple solution. Demand will keep growing despite any global slowdown and there are few alternatives.

A global solution to the emissions of greenhouse gases is still a long, long way off and this article provides a clear illustration of why.

Hidden Cost Of China's Coal Is $250 Bln – Survey [PlanetArk]

BEIJING - China's dirty and dangerous coal mining industry cost the country a hidden $250 billion last year in lost and damaged lives, wasted energy and environmental devastation, according to a survey launched on Monday.

Pollution affected water, land and air around mines, thousands died and many more were hurt in mining accidents, and acid rain-causing sulphur dioxide and mercury were among dangerous emissions when coal is burnt in factories and power plants.

None of this is reflected in low coal and power prices, according to "The True Cost of Coal", researched over three years by Chinese economists and environmentalists.

"Behind China's large production and consumption of coal ... lie expensive and worrying environmental and social costs," their report warns.

Tariffs would need to rise by around a quarter to reflect the real burden for Chinese society, which in 2007 was 1.7 trillion yuan (US$254.9 billion), they say.

"Currently these costs are paid by the people in China suffering from the damage," Mao Yushi, one of the report's authors and chairman of the Unirule Institute of Economics, told a news conference at the launch of the report.

Experts from the coal heartland of Shanxi province, Peking University, the government's top energy think-tank and the Chinese Centre for Disease control also contributed research.

Last year nearly 3,800 miners died in explosions, flooding and other underground accidents. Although that marked a 20 percent decrease from 2006, it is still the most dangerous mining industry in the world.

For a country short of water and struggling to keep its food and air safe, it is also an environmental liability, said Yang Ailun from Greenpeace, who helped coordinate the report.

Each tonne of coal produced means 2.5 tonnes of water are polluted, while coal mining waste makes up some 40 percent of the country's solid industrial waste, she said.

NO END TO COAL

The key problems identified by the report are government regulations that distort prices and weak oversight that allows miners to get land cheaply, dodge safety and environment laws and ship their coal in dirty, dangerously overloaded trucks.

Extra taxes, stricter enforcement, and an end to the price caps that have kept electricity temptingly cheap would make coal prices more realistic and curb waste, deaths and the worst pollution, the report said.

The good news for a country that relies on the dirty fuel for more than two thirds of its energy is that the big price increase it calls for in the long term would mean only a tiny hit to the economy as efficiency soars and green energy firms prosper.

But for those who dream of a future powered only by windmills and dams, they warn that coal will not lose its dominance in China for decades. The report says the 23 percent price rise it recommends would cause only a 7 percent fall in consumption.

China is already the world's biggest producer and consumer of coal, which provides a cheap, domestic energy source at a time when volatile global oil markets have exacerbated worries about tight supplies.

Demand is growing so fast that its miners have to produce an extra 200 million tonnes a year to keep up, or the equivalent of the entire coal mining industry of major producer Indonesia.

A slight decline in consumption, in place of this frantic expansion, might give the industry room to improve their standards without starving the country of energy.
(US$1=6.845 Yuan)

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Globalist: A month on China

The recent issue of "The Globalist" has a number of interesting China articles continuing a month of China related articles.

Also on The Globalist this week:

Coming on Friday
Australia: The Power Behind the Scenes at the Beijing Olympics
How has Australia been involved in the 2008 Olympics?
By Tim Harcourt

Thursday
Chinese Lessons
As compared to the China of a quarter century ago, what has since changed — and what remains the same?
By John Pomfret

Wednesday
China Reinvents the City
What are the long-term effects of hasty urban planning and questionable construction standards in China?
By Thomas Campanella

Tuesday
China Goes Green
How can China’s characteristic speed and innovation be applied to finding sustainable energy solutions?
By Thomas Campanella

Monday
The Chinese Brand of Democracy
Can China produce its own model of democracy separate from Western ideals?
By Mark Leonard

Cars in China - more research

The rapid growth of China and India is already having profound effects on the economies of the west and of course on the environment. This paper presents an interesing insight into mass car ownership in China.

"Mass Car Ownership in the Emerging Market Giants"

Economic Policy, Vol. 23, Issue 54, pp. 243-296, April 2008
MARCOS CHAMON, International Monetary Fund (IMF) - Research Department
Email: mchamon@imf.org
PAOLO MAURO, International Monetary Fund (IMF)
Email: PMAURO@IMF.ORG
YOHEI OKAWA, University of Virginia - Department of Economics
Email: yo3t@virginia.edu

Marcos Chamon, Paolo Mauro and Yohei OkawaThe typical urban household in China owns a TV, a refrigerator, a washing machine, and a computer, but does not yet own a car. In this paper, we draw on data for a panel of countries and detailed household level surveys for the largest emerging markets to document a remarkably stable relationship between GDP per capita and car ownership, highlighting the importance of within-country income distribution factors: we find that car ownership is low up to per capita incomes of about US$5000 and then takes off very rapidly. Several emerging markets, including India and China, the most populous countries in the world, are currently at the stage of development when such takeoff is expected to take place. We project that the number of cars will increase by 2.3 billion between 2005 and 2050, with an increase by 1.9 billion in emerging market and developing countries. We outline a number of possible policy options to deal with the implications for the countries affected and the world as a whole. Marcos Chamon, Paolo Mauro and Yohei Okawa.

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Can China feed itself?

Today the FT has a front page article on China's attempt to guarantee food supplies.

This article dovetails nicely with a recent World Bank paper looking at the role of climate changes on China's ability to feed itself.

The economics of this move and quite profound. So profound in fact that I need to think about it a bit more. Capitalism should not object to vast tracts of Africa being farmed by the Chinese or for the Chinese if they pay the market rate. But what happens when the host country needs to feed its own people? I suspect property rights will be worth very little then. The other aspect is the classic tragedy of the commons externality with land being cleared for farm land with the usual environmental consequences.

This "factoid" surprised me initially:

China has about 40 per cent of the world’s farmers but just 9 per cent of the world’s arable land.

It is important to remember that China is not all about exports and skyscrapers. Underneath the new wealth is a large underbelly of the population still living a hand to mouth existence.

China eyes overseas land in food push [FT]

Chinese companies will be encouraged to buy farmland abroad, particularly in Africa and South America, to help guarantee food security under a plan being considered by Beijing.

A proposal drafted by the Ministry of Agriculture would make supporting offshore land acquisition by domestic agricultural companies a central government policy. Beijing already has similar policies to boost offshore investment by state-owned banks, manufacturers and oil companies, but offshore agricultural investment has so far been limited to a few small projects.

If approved, the plan could face intense opposition abroad given surging global food prices and deforestation fears. However an official close to the deliberations said it was likely to be adopted.

“There should be no problem for this policy to be approved. The problem might come from foreign governments who are unwilling to give up large areas of land,” the official said.

The move comes as oil-rich but food-poor countries in the Middle East and north Africa explore similar options. Libya is talking with Ukraine about growing wheat in the former Soviet republic, while Saudi Arabia has said it would invest in agricultural and livestock projects abroad to ensure food security and control commodity prices.

China is losing its ability to be self-sufficient in food as its rising wealth triggers a shift away from diet staples such as rice towards meat, which requires large amounts of imported feed.

China has about 40 per cent of the world’s farmers but just 9 per cent of the world’s arable land.

More FT comment here:

New eating habits force revolution on China's farms [FT]

China, a small net exporter of rice and largely self sufficient in wheat, has been something of a spectator in the global food crisis of recent months, with Beijing's role confined to tightening scrutiny of exports to prevent profiteering.

"There is no grain crisis in China at the moment, and there won't be for some time into the future," says Cui Xiaoli, a researcher at the development research centre, a think-tank under China's cabinet.

The country's inflation hit 11-year highs in recent months, almost entirely because of an increase in food prices, but the government and many economists argue that these rises are a temporary phenomenon.

The above line depends on the classic "supply and demand" diagram. There has been a demand shock or supply should increase right? Prices will then fall. In the long term this should work but as the first article notes, supply, at least in China, is constrained.

Here is the academic article.

Can China Continue Feeding Itself? The Impact of Climate Change on Agriculture

JINXIA WANG
Chinese Academy of Sciences - Center for Chinese Agricultural Policy
ROBERT O. MENDELSOHN
Yale University - Department of Forestry & Environmental Science
ARIEL DINAR
World Bank - Agriculture and Rural Development Department
JIKUN HUANG
Chinese Academy of Sciences (CAS)
SCOTT ROZELLE
University of California, Davis - Department of Agricultural and Resource Economics
LIJUAN ZHANG
Affiliation Unknown January 1, 2008

World Bank Policy Research Working Paper No. 4470

Abstract:
Several studies addressing the supply and demand for food in China suggest that the nation can largely meet its needs in the coming decades. However, these studies do not consider the effects of climate change. This paper examines whether near future expected changes in climate are likely to alter this picture. The authors analyze the effect of temperature and precipitation on net crop revenues using a cross section consisting of both rainfed and irrigated farms. Based on survey data from 8,405 households across 28 provinces, the results of the Ricardian analysis demonstrate that global warming is likely to be harmful to China but the impacts are likely to be very different in each region. The mid latitude region of China may benefit from warming but the southern and northern regions are likely to be damaged by warming. More precipitation is beneficial to Chinese farmers except in the wet southeast. Irrigated and rainfed farmers have similar responses to precipitation but not to temperature. Warmer temperatures may benefit irrigated farms but they are likely to harm rainfed farms. Finally, seasonal effects vary and are offsetting. Although we were able to measure the direct effect of precipitation and temperature, we could not capture the effects of change in water flow which will be very important in China. Can China continue feeding itself if climate changes? Based on the empirical results, the likely gains realized by some farmers will nearly offset the losses that will occur to other farmers in China. If future climate scenarios lead to significant reductions in water, there may be large damages not addressed in this study.


Keywords: Climate Change, Crops &Crop Management Systems, Global Environment Facility, Common Property Resource Development, Rural Development Knowledge &Information Systems

China and the Environment: LINKS

The bibliogrpahy for Pollution in China from Geopedia.

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Cho, Jung-Myung and Suzanne Giannini-Spohn. Environmental and Health Threats From Cement Production in China.
China Environmental Health Brief (2007).

Ellis, Linden and Jennifer Turner. Surf and Turf: Environmental and Food Safety Concerns of China's Aquaculture and Animal Husbandry. China Environment Series (Issue 9, 2008).

Economy, Elizabeth. The Great Leap Backwards.
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Survey of Rural Pollution to Start Next Year. China Daily, December 14, 2007.

Taylor, Jerome. Air Pollution Forces Star to Pull Out of Olympic Marathon.
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Turner, Jennifer and Juli Kim. China's Filthiest Export. Foreign Policy in Focus (February 2007).

Other Resources
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China to Set Resource-Based Cities on Path of Sustainable Development. Xinhua, November 28, 2007.

China's Environmental Chief Reiterates Measures to Combat Water Pollution. Xinhua, November 20, 2007.

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Harvard Business Review (June 2007). (Summary.)

Economy, Elizabeth. The Great Leap Backward?
Foreign Affairs (September/October 2007).

Bolin, He and Wu Jiao. Survey of Rural Pollution to Start Next Year. China Daily, December 14, 2007.

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