Is China is Becoming the Leader in Green Energy?

This week, The New Yorker published the best piece I've read so far on China's political-economic seamanship as it moves forward in the new field of green technologies. The piece is a great help in contrasting the US system and the Chinese one as they come to grip with new Energy solutions.

I see the principal themes of the development of new Energy technologies in both countries as follows: the difference between the role of government in China and that in the US; the lead that China is currently getting not only in manufacturing the new green technologies but in augmenting those technologies; and the question of whether China is capable of discovering the next big landmark technological revolution, and thus breaking the current predominant "Apple model" (own the brand, the design, and the intellectual property, and then get China to drive down the costs).

Here's my short version of the article with commentary.


First, it must be established that China is seeking to attain the leadership role in green energy:

As President Hu Jintao, a political heir of Deng Xiaoping, put it in October of this year, China must “seize preemptive opportunities in the new round of the global energy revolution.”

The US will irreparably fall behind if they do not act :

David Sandalow, the U.S. Assistant Secretary of Energy for Policy and International Affairs, has been to China five times in five months. He told me, “China’s investment in clean energy is extraordinary.” For America, he added, the implication is clear: “Unless the U.S. makes investments, we are not competitive in the clean-tech sector in the years and decades to come.”

China's recent experience developing wind powered solutions is discussed: China actually covered ground through protectionism but, at the same time, (temporarily) felt the ills of a command economy:

China has made up so much ground on clean tech in part through protectionism—until recently, wind farms were required to use turbines with locally manufactured parts. The requirement went into effect in 2003; by the time it was lifted, six years later, Chinese turbines dominated the local market. In fact, the policy worked too well: China’s wind farms have grown so fast that, according to estimates, between twenty and thirty per cent aren’t actually generating electricity. A surplus of factories was only part of the problem: local bureaucrats, it turned out, were being rewarded not for how much electricity they generated but for how much equipment they installed—a blunder that is often cited by skeptics of China’s efforts. 

They have a point; many factories are churning out cheap, unreliable turbines, because the government lacks sufficient technical standards.

While the US government is only starting to think about revamping its aging national electricity grid - and being marred by parochial concerns about power line trajectories, etc, the author reports that China is making bigger strides, and more easily:

China is already buying and installing the world’s most efficient transmission lines—“an area where China has actually moved ahead of the U.S.,” according to Deborah Seligsohn, a senior fellow at the World Resources Institute.

Yet, it is worth noting that, just as much in China as in the US, the bigger share of energy generation will continue to come from coal for the foreseeable future:

The prospect of a future powered by the sun and the wind is so appealing that it obscures a less charming fact: coal is going nowhere soon. Even the most optimistic forecasts agree that China and the United States, for the foreseeable future, will remain ravenous consumers. (China burns more coal than America, Europe, and Japan combined.)

Here, China is actually taking the technological lead to make coal cleaner:

“Fifteen or twenty years ago, anyone you asked would have said that Western technologies in coal gasification were superior to anything in China,” Lin said. “Now, I think, that claim is not true.”

Above all else, widespread price control in China has helped its researchers find efficient, cleaner coal solutions by raising the price of coal which forced firms to reduce their costs of production which fosters innovation. In the US, on the other hand, raising prices through taxation is a difficult thing to do due to the powerful interest groups constantly lobbying a congress that is highly polarized and concerned with financing their next campaign.

The article also recounts how China is transforming its cities by adopting green technologies. Measures range from subsidizing low-energy bulbs, to creating programs to swap out old furnaces for new cleaner alternatives such as solar water heaters. In the US, on the other hand, those measures are often seen as infringing upon the right of the american citizen to choose what he consumes.


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The first lesson to be had is that a new dose of political-economy targeted at reshaping and revamping how the US invests and fosters in Energy R&D and manufacturing will be necessary.

He said that its purpose is simple: to spur innovation of ideas so risky and expensive that no private company will attempt them alone. The government is not trying to ordain which technologies will prevail; the notion of attempting to pick “winners and losers” is as unpopular among Chinese technologists as it is in Silicon Valley. Rather, Yao sees his role as trying to insure that promising ideas have a chance to contend at all. “If the government does nothing, the technology is doomed to fail,” he said.

The other reason why government intervention is necessary is because companies natureally serve their own interest before the national interest. There is a good example of that again in the article when Kevin Czinger, an american business man with an interest in developing the first mass produced electric car, finally elected to find chinese partners because he figured american car makers were going to move slowly so as not to undercut their own products.

Perhaps addressing the free-market purists, here's what one chinese engineer describes the competitiveness of the system of the Chinese system for developing new technologies:

“[Competition] is very intense—like a Presidential election,” he joked, and he sketched out the system: “Normally, each project will have five to eight contenders—some less, some more—but there is a broad field of innovators. A lot of companies are doing the same thing, so everyone wants to have a breakthrough.” He went on, “It’s not possible to have a flawless system, but it makes relatively few mistakes. It combines the will of the state with mass innovation.

China is investing in R&D - particularly in Energy, in a huge way.

R. & D. expenditures have grown faster in China than in any other big country—climbing about twenty per cent each year for two decades, to seventy billion dollars last year.

Comparatively, the US has slashed early investments in Energy under the Reagan administration and again in the second Bush term. The latter came after against a growing awareness in the American scientific community that there is a pressing need for investment in new energy technologies. The reasons for the cuts were the usual republican concerns about big government and the belief that the market is the best mechanism for directing economic growth and innovation.

But the fact is, government investment in green energy makes sense both from a liberal point of view and a conservative point of view: it will generate GDP and jobs; it will make the US competitive in the next big technology internationally which will directly translate into national power; and, oh - by the way, it will help to save the planet from climate change. Thus, investing in Energy R&D is the biggest and best job package Obama can make. And, unlike the stimulus, it will outlast his administration.

But there is a second lesson we can draw from this article: in a world where the state will continue to be at the forefront of political change, one advantage China will have over its American competitor is the age old nimbleness of an authoritarian political regime - both in diplomacy and in economic policy.

Congress, please take note.

But the chinese system is not without its fault, and America has a tradition of overestimating its rivals. The Chinese R&D financing programs have experienced their share of scandals:

... it confirmed what many Chinese scientists said among themselves: the Chinese science system was riddled with plagiarism, falsified data, and conflicts of interest.

There is also a tendency by the Chinese bureaucrats to take less risk and fund the projects that will keep the failures low. On the other hand, the tradition of venture capitalism in the west assumes the rate of failure will be high.

... the system that allowed China to master the production of wind turbines and batteries does not necessarily equip China to invent the energy technology that nobody has yet imagined. “Add as many mail coaches as you please, you will never get a railroad,” the economist Joseph Schumpeter once wrote. Scale is not a substitute for radical invention, and the Chinese bureaucracy chronically discourages risk.

Here is perhaps the million dollar question:

As an editorial last year in Nature put it, “An even deeper question is whether a truly vibrant scientific culture is possible without a more widespread societal commitment to free expression."

While the US government is slowly waking up to the need to invest in Energy technology, the differences in attitudes between Congress and the office of the President are telling. While Congress - and in particular democrats, view the issue through the prism of protecting domestic jobs, and preventing China from taking the lead rather than embracing the problem itself, Obama seems to get it:

... in April, Obama vowed to return America’s investment in research and development to a level not seen since the space race. “The nation that leads the world in twenty-first-century clean energy will be the nation that leads in the twenty-first-century global economy,” he said. “I believe America can and must be that nation.”

And this:

The stimulus package passed in February put more than thirty-eight billion dollars into the Department of Energy for renewable-energy projects—including four hundred million for ARPA-E, the agency that Bush opposed.

The conclusion the author draws about the near future seems to be appropriate, and is worth using to wrap this up:

The larger fact, however, is that no single nation is likely to dominate the clean-energy economy. Goldwind, Coda, and the Thermal Power Research Institute are hybrids of Western design and Chinese production, and no nation has yet mastered both the invention and the low-cost manufacturing of clean technology. It appears increasingly clear that winners in the new-energy economy will exploit the strengths of each side. President Obama seems inclined toward this view. When he visited Beijing in November, he and Hu Jintao cut several deals to share energy technology and know-how which will accelerate progress in both countries. This was hardly a matter of handing technology to China; under one of the deals, for instance, the Missouri-based company Peabody Energy purchased a stake in GreenGen, so that it can obtain data from, and lend expertise to, a cutting-edge Chinese power plant.