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China's Growing Confidence in Its Emerging Renewable Energy Leadership

As the Chinese government puts the finishing touches on its 12th Five-Year Plan (2011-2015), China's increasingly self-assured renewable energy ambitions are on display. Indeed, Chinese policymakers' self-confidence is palpable as they exhibit a conviction that China's renewable energy approach, as further refined in the 12th Five-Year Plan, will demonstrate to the world the value of China's development model.

Beijing also appears certain of its ability to ensure China’s energy security through growing innovation of energy technologies.   In all, on the eve of the launch of the 12th Five Year Plan, the atmosphere in China is exceedingly optimistic; one Chinese observer recently said that by the end of the 12th Five-Year Plan, China’s energy technology may be at the forefront of the world’s energy technology and by then China may well be the key driver of the world’s energy development. 

Recognizing the enormous opportunities for energy companies, Chinese planners express their belief that China is poised to turn away from being a net importer of “old” energy (coal, oil and LNG) in favor of becoming an exporter of “new” energy (energy production and conservation technologies).   At the same time, Chinese energy planners are sober in their view that China’s comparative advantages in renewable energy may be in danger of being lost, if Chinese enterprises are not able to grasp the opportunity, Beijing does not successfully implement key policies and the Chinese government doesn’t maintain high level strategic support for China’s energy transformation. 

One of the comparative advantages that China enjoys is the close link between the activities of Chinese enterprises and China’s public policy formulation and implementation.  Wang Yusuo, the Chairman of the Board of the ENN Group, exemplifies this synergy. In addition to his role leading one of China’s preeminent energy companies, Mr. Wang also serves as a member of the Standing Committee of the National Chinese People’s Political Consultative Conference (CPPCC) and as the vice-chairman of the China Chamber of Commerce. 

Because Mr. Wang not only represents the perspective of one enterprise’s development, but also reflects the “worldwide future” of China’s energy innovation, his outlook typifies the direction of China’s renewable energy industry under the 12th Five-Year Plan. 

The thread that runs through the 12th Five-Year Plan is the transformation of China’s development model and an essential part of that makeover is China’s energy industry. As described by Chairman Wang Yusuo, there will be three trends that characterize the transformation of China’s energy industry, all of which will make manifest a new development model:  from one that imitates the existing foreign models of development to one characterized by Chinese innovation that results in China leading the world’s emerging energy industry trends.

  • Moving from a model in which “natural resources are king,” to one where “natural resources and technology both are king.”  There will be less domestic and international reliance on (and competition for) fossil fuels and an increasing emphasis on technological innovation that combines fossil fuels with solar, wind, geothermal energy and other sources of renewable energy.
  • Moving away from the idea that scale brings value and more toward the notion that efficiency brings value. In the future, while energy companies won’t necessarily be very large, their efficiency will determine their worth, which will mean that the enterprises’ environmental costs will be low.
  • A move toward distributed energy generation and away from large central-station energy generators.  There will be fewer monopolistic mega-enterprises as is there are in the “natural resources are king” era and more, smaller regional energy enterprises. 

The new energy system that the 12th Five-Year Plan envisions no longer is subject to the constraints of fossil fuels; rather fossil fuels will supplement renewable energy utilization, a reverse of the current relationship. 

With respect to production, the present energy system, which is centered on extraction, will give way to an emphasis on manufacturing.    So long as China is able to master the “manufacture” of energy, it will not be an energy deficient nation.   Consequently, the 12th Five-Year Plan respecting energy also anticipates a change in the location of energy resources. 

When the Chairman of the ENN Group states that ENN needs to “concentrate its efforts and resources to promote technological innovation” in order to make themselves more competitive, this point of view typifies what Beijing hopes will be the attitude of the leadership of Chinese industrial enterprises generally. 

In the race to compete internationally, China has both comparative advantages and inadequacies.  Among the comparative advantages is that China has a core of enterprises that have developed a certain industrial foundation and are poised to compete; ENN Group and Suntech are often cited as two examples of this cadre of enterprises.

 The second comparative advantage that China increasingly points to is a systemic comparative advantage; unlike the United States and other countries with a “completely democratic system,” whose policy choices and policy implementation face interest group “obstruction,” China’s system largely does not face those obstacles. 

Yet another comparative advantage that the Chinese cite is the power of government contracting to help create the virtuous cycle of stimulating a market -- having the market push technological innovation, and having technological innovation further grow the market. 

On the other hand, because it is a long, slow and expensive process for energy technologies to become industrialized, it is possible that China will not be able to catch up, say some Chinese observers.  Also, despite rapid increases in Chinese expenditures on science and technology research and development, China continues to lag behind the U.S., particularly with respect to enterprise investment in research and development. 

“Previews” of the 12th Five-Year Plan make clear that China envisions a new energy future with Chinese industry at the center and that through the realization of that future, China’s development model itself will be transformed.  As one Chinese policymaker put it:  “In the future, what China exports will not merely be such low-end goods as shoes, socks and lighters, through the export of equipment that manufacturers energy, we may become exporters of energy.” 

Lou Schwartz, a lawyer and China specialist who focuses his work on the energy and metals sectors in the People's Republic of China, is a frequent contributor to Renewable Energy World.   Through China Strategies, LLC, Lou provides clients research and analysis, due diligence, merger and acquisition, private equity investment and other support for trade and investment in China's burgeoning energy and metals industries. Lou earned degrees in East Asian Studies from Michigan and Harvard and a J.D. from George Washington University.  He can be reached at lou@chinastrategiesllc.com

 

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