Finding the American Dream – in China

US Secretary of Commerce Gary Locke and Energy Secretary Steven Chu returned from China last July with a sober understanding of the degree to which China had advanced in green technology. Sino-US clean energy cooperation reached a milestone later in 2009, when the two presidents signed various bilateral agreements, including the establishment of the US- China Clean Energy Research Centre in Beijing to improve research and development in the field. But clean energy was caught in the political firestorm of the health care debacle. As the recent New York Times article on China’s advancements in green technology reinforced, the Chinese have made exceptional progress in this field and are the leaders of our green revolution.

But more than a desire to compete with the rest of the world, China is looking for collaboration with foreign powers like the United States. In the few weeks I spent in Shanghai speaking with various individuals in academia and renewable – mainly solar – energy, I discovered that expats of various professional backgrounds and nationalities have become ensconced into the Chinese green economy. Solar, more so than other energy sources – hydro, wind, nuclear, biomass – has attracted not only high-salaried expats to serve as executives for Chinese companies, but also eager entrepreneurs who presciently identified the market potential in China during the financial crisis.

As the reality of China’s prowess continues to worry some and impress all, we may have to embrace China as a centripetal force in green energy and find our point entry for further collaboration in the coming years. What needs to be understood is that China’s energy goals are simple: to secure energy supplies for its burgeoning population while trying to ease the carbon emissions. And to realize this goal, the country has a strategic interest in collaboration, rather than competition, with the rest of the world.

Here Comes the Sun – Why Solar

The entryway to the Portman Ritz Carlton is deceptively subtle. But upon venturing into the dimly lit semicircular, cobblestone driveway, the hotel quickly reveals its true grandeur. Known by the cab drivers as Pohtahman and home to everything from a California Pizza Kitchen to the US Consulate, the Portman Ritz Carlton is the expatriate heaven of Shanghai.

I met with Yaron Glazer, Director of the solar advisory firm Clean Energies at the Paul Café, a Victorian style restaurant wedged in the corner of the rectangular Portman exterior. The Israeli-born Yale and Harvard Law graduate has been involved in the energy sector for many years, but only recently – for the past 8 months – in solar. Glazer explained that “China is at a nexus in the solar industry, with already 30% of the market is here, because the cost of producing in China is so competitive.” Because the government has been generous with subsidies, he said, “There now is also a domestic market [since the government] knows subsidies and wants to protect manufacturing.” According to Glazer, other forms of renewable energy, especially wind and hydro, are near or have reached full potential, while solar and nuclear have room to grow. Wind energy must be harnessed and used in a given radius, but solar can be integrated smoothly into rural areas – especially the underdeveloped Western region – that are otherwise predominantly non-electrified. The other advantage of solar is that it produces electricity during the peak time of consumption – from about 11 am to 5 pm – while wind energy is harnessed as the wind comes, throughout the day.

Coal dominates China’s energy mix, at about 70% of the total, while oil and gas make up a more modest 20%. The Chinese government outlined in its 2006 renewable energy law, and the recent amendments in December 2009, its goal to increase energy from renewable sources to 15% through a gradual investment of about $180 billion until 2020. This investment is not limited to state-funded projects, but has been designed as well to promote growth in the private sector. Even so, some analysts are not optimistic about China realizing these goals. According to the Business Monitor International oil and gas report on China, the country will still be 69% dependent on coal with solar and other non-hydro renewable responsible for only .5% of consumption in 2013.

Solar’s long-term growth depends on two factors: cheap maintenance costs and a huge capital investment. Dylen Liu, the Vice President of JLM Pacific Epoch, a research firm centred around Chinese economic issues, worked for a non-profit before joining JLM, to do, predominantly, equity research on solar in China. Liu explained that “China has a huge cost advantage for producing solar power. So in terms of cost, there is no need to expand capacity in the USA. But [Chinese companies] can benefit from local policies [in the US]…by setting up a branch in the US, or creating a subsidiary.” Solar is an unexplored territory for the Chinese government. “Currently there are no constraints on the industry,” Liu said to me, “since it is pretty new for the government and they still don’t understand the costs. They need some time to understand the real cost and return of solar.” And what makes China distinctive from the other countries that are unsure of how economically unviable technology is, of course, the ease with which they can put forth the initial capital.

Foreign Opportunities: Expat Entrepreneurs

“In 2006 and 2007,” CEO of Senergy Corp Alexandre Minuzzo explained to me in his sun-soaked office in downtown Shanghai, “there were only about 7 major manufacturers [of polysilicon] in the solar industry. There was a huge demand which led to a shortage. Prices of polysilicon went up 600-800%.” With the financial crisis came quick-thinking entrepreneurs like Minuzzo who were eager to influence the costs of the parts of the value stream where government subsidies could not help or did not suffice. Minuzzo had been employed by one of the largest Chinese solar companies, Trina Solar, but left to start his own company to cut costs in the first part of the value chain: polysilicon, the core ingredient in a solar module. “There are very low barriers to entry. And it’s not that complicated to handle,” he told me, which is why there were people like him who had a solar background, but also individuals who, for example, had worked for textiles before they spotted a good market opportunity with solar.

Minuzzo is approving of the initiatives the Chinese government has taken, but is not particularly impressed by the way in which regulations are enacted and modified capriciously. One piece of legislation that has had marked impact on Minuzzo’s company was a ban on about 300 materials deemed harmful to the environment, including a particular type of silicon upon which several of his customers rely. How the customers reckon with this ban can range from compliance to bribery at customs. Minuzzo explained that in order to ensure that his customers stay within the boundaries of the law, his company maintains an open line of communication with its clientele. He reflected for a moment on business deals gone awry and said, “You really go by the saying ‘seeing is believing’ here. You don’t trust anyone.” The native of France touched upon a seemingly banal reality for any businessman: any technology – no matter how green – is only as good as its profit margin. And like oil, gas, and coal, renewable energy is first and foremost a business, as susceptible to corruption and collusion as are fossil fuels, especially when laws are involved.

China’s cheap labour can be disheartening to aspiring green energy entrepreneurs in other countries. While Minuzzo’s company operates on a much smaller scale for only one aspect of the value stream, Suntech, China’s largest solar company handles large-scale production of solar modules. Rory McPherson, Suntech’s Director of Investor Relations, met with me in the company’s Shanghai office. We sat across from each other at a glossy mahogany table in the middle of a conference room with a view of the city by night. McPherson explained to me, “Everything that goes into a panel can be made in places all over the world. It’s a very interdependent system; various countries have strengths in different areas,” he explained to me. Solar offers a plethora of job opportunities throughout the value stream. And while it is cheapest to produce in China, because of its financial might, Suntech involves other countries in the production process. In fact, they get polysilicon from the US, among other countries, including Korea, the United Kingdom, and Japan. To this end, “protectionism would be counterproductive for the industry and countries,” Sydney native McPherson made clear. The solar industry is highly integrated, but China is still the centripetal force and protectionism will have severe repercussions for all parties involved.

Looking Beyond the Transparency Issue

Copenhagen was a recent testament to China’s ongoing reluctance to risk losing its power over information by becoming more transparent. But transparency issues aside, prioritizing economic transformation has worked for the Chinese government. “One of the benefits of a strong government,” a Shanghai native and employee of a Swiss company operating in China explained to me over lunch at the Royal Meridian Hotel, “is that things just get done.”

And get done they do. A major success story of the Chinese government is their urban infrastructure. Immaculate, wide roads and an extensive subway system have emerged in a matter of a few decades, making the gravelly dirt roads and unwieldy railways of Mumbai, for instance, pale in comparison. Of course, Beijing had the Olympics and Shanghai, the upcoming Shanghai Expo, for which the two major cities have undergone makeovers to impress tourists and investors.

Regardless, the essence of the debate over China – and thus US foreign policy towards China – is whether the questions over transparency and censorship will at some point become an obstacle instead of a facilitator for its growth. In China, rapid economic growth has alleviated poverty but also increased social inequality over the past decades. Yet slums are few in the major cities and social protests are stifled far too quickly to mar the carefully upheld image of Chinese stability.

China’s growth cannot be unbounded and the next few years will reveal whether or not concerns over China’s potentially bubble economy are justified. Still, those in the green sector may have a more tempered perspective toward long-term investment in China, like an American lawyer and vice president of a medium-sized solar company in Shanghai with whom I spoke, who foresees himself staying in China for the rest of his professional career. For, beyond the low production costs, China has state-driven incentives, motivated by long-term concerns like reducing the dangerously pervasive air pollution and securing energy for the wellbeing of its citizens, which promise to nurture a strong market in green energy.

Next Steps: Sino-US Cooperation

A doctoral candidate, Fuzuo Wu, at Fudan University’s Centre for American Studies in Shanghai, Fuzuo Wu recently submitted her dissertation on Sino-Indian and Sino-Japanese cooperation as regards energy security. She talks with a rapid fervour and is irked by the demonization of China as a “red dragon” on the pursuit for global dominance. But, I asked, what about transparency in the government and being accountable for its actions? “I don’t think China will ever be transparent to the whole world…and I’m not sure about whether the USA will be transparent to the whole world,” Fuzuo said emphatically.

She pointed out that China is not a developing nation, nor is it a developed nation that can be equated to the United States. “There are parts of this country where most people are living on under a dollar per day. My parents were farmers; I have seen this poverty.” With more than a billion people to support, she reasons, “Of course the country has to travel the world and look for energy resources, but it is not seeking to replace the United States.”

China is able to evade the moral and ethical questions of partnering with politically questionable governments for two main reasons: it has a massive population to sustain and it has $2 trillion in reserves. While the transparency issue is a valid concern among the international community, in particular when trying to assess the efficacy of policies on the local level, China is the fastest growing economy and has in place economic policymakers that have proven their desire and commitment to continue this trend. Thus, when it demanded external verification from China at the climate summit in Copenhagen last December, the USA touched a nerve and may have further paved the way for China to become the voice for developing nations.

“China does not need the world. The world needs China,” Mario Artaza, the vivacious Trade Representative for China in Chile told me over a phone conversation; we were discussing the role of Chinese investment in Latin American hydrocarbons. But the exception to his axiom may indeed be clean energy. Pan Rui, the Director of the Centre for American Studies and former government official at the Shanghai Municipality’s Foreign Affairs Office, admitted to me that the USA already has a strategic advantage over China with energy security – when it comes to oil and gas – since it has already established partnerships throughout the world. Seeing as energy efficiency in China is among the worst in the world and that the United States has the technology to help them improve it, China wants United States to capitalize on this market opportunity, for the benefit of both countries.

It will take time to assess whether the Chinese government’s seemingly hardball approach – with its massive investment and legislative measure – to renewable energy will be a success. While the governmental policies are largely in favour of developing the renewable energy industry, China will continue to secure traditional sources of fuel as well, as seen through the Turkmenistan – China pipeline and ongoing investment in offshore hydrocarbons, as in Latin America. When it comes to energy security, China is leaving no stone unturned, while ostensibly ensuring economic viability, but China aspires towards a greener future, and they cannot – nor do they want to – realize this goal alone.

Ashwini Srinivasamohan is a student at New York University completing her Bachelor of Arts in Environmental Studies, with concentrations in Anthropology and Latin American Studies. Her research is focused on energy issues in developing countries and she works as a research intern at the think tank Centre on Law and Security. She has travelled to several countries, including India – where she has volunteered as an English and Tamil tutor – China, and Russia. Ashwini is also the founder of a non-profit organization, HEAL Foundation, which encourages healthy and sustainable living through advocacy and community events, and maintains a blog on the website.