US
risks emotion on China's clean
energy By Benjamin A Shobert
BEIJING - Across China fewer cities make
the country's aggressive pursuit of clean
technology more obviously needed than in Beijing.
The air, with its omnipresent and bedeviling dust
from the Gobi Desert, can be challenging enough;
beyond nature's contribution are the manmade
pollutants from coal-burning power plants, cement
factories, industry of all manner and the
ubiquitous logjam that is traffic in China's
sprawling capital city.
The elevation of
Beijing's problem with micro-particulate pollution
that became public knowledge in late 2011 has
drawn into even sharper focus the need for China
to find clean energy alternatives that will allow
the country to modernize without further damaging
its environment.
Clearly, the need to
offer new green sources of power to China is
a compelling business
opportunity that many Western companies are eager
to leverage; however, clean technology is also
quickly becoming a highly politicized issue that
sheds light on the evolution of US-Sino relations
and the economic competition that exists between
the two.
The recent solar panel complaint
filed by the American government is likely to be
met by a similar response from China. On Tuesday,
the US Department of Commerce said preliminary
investigation found that Chinese solar panel
makers had received government subsidies of 2.9%
to 4.73%, and decided to levy the same amount of
tariffs on Chinese imports. The decision neglected
the "real facts" of the production and export of
Chinese solar panel products and was "unjust",
Xinhua reported, citing a statement from the China
Chamber of Commerce for Import and Export of
Machinery and Electronic Products.
As this
disagreement escalates, the clearest question it
poses to those within America is whether the
country will embrace protectionism or competition
as a means of dealing with China's strategy for
dominating the clean technology space.
In
many ways, China's emphasis on clean technology
offers a clear opportunity to see how Beijing
aligns its top-level strategy with more practical
matters of implementation. Certainly China has
over-invested in clean technology, as the gross
overbuilding of photo-voltaic (PV) solar cell
manufacturing and the resulting price drops have
shown.
This overinvestment by China in
some ways is a natural by-product of the severity
of the domestic need coupled not only to the
amount of money the country has dedicated, but the
additional policies it has put in place to ensure
China is the best place in the world to develop,
trial, scale-up and implement new clean technology
technologies.
China certainly has
commercial interests at play in this dance. Its
Twelfth Five-Year Plan does call out clean
technology as a strategic sector not just to
better the country's environment, but also to
create domestic companies higher up the value
chain that can reposition China's manufacturing
prowess into higher-technology opportunities.
It is equally important to remember that
while better jobs and more strategic industry
development form a central part of Beijing's
plans, so to does a realization that the country's
power needs cannot be met through conventional
technologies without doing extravagant damage to
China and the world's environment.
While
the clean technology industry in the United States
is populated by savvy technologists and investors
who have a real passion for clean and renewable
energy, the culture they operate in remains
somewhat uncertain and even worse, in many places
insensitive to, the environmental realities that
drive China's leaders to make clean technology
such an area of focus.
This insensitivity
extends all the way to Washington DC's highest
levels, where it has become part of the modern
GOP's orthodoxy to question man-made climate
change, a reality few who have spent much time in
Beijing would be likely to question ever again.
As a consequence of this, American clean
technology companies face a domestic policy agenda
that is inconsistent at best, and self-defeating
at worst.
But, the one string these
companies may be able to pull on is fears on
Capital Hill that China is out-competing America
in a potential area of the new economy. Where
American politicians and policy makers may not
agree on the necessity for clean technology, they
do tend to coalesce around the idea that China
should be seen as an economic competitor American
industry must compete against and, where possible,
beat.
If these same companies and
congressmen feel China is not competing fairly,
then the specter of protectionism will raise its
head.
American industry and policy makers
face a clear choice: if, as the recent solar cell
trade dispute alleges, American manufacturers
cannot compete against China's, Washington can
either adopt a more protectionist stance, seeking
to shield American companies from predatory
Chinese firms or, Washington can seek to beat
Beijing at its own game.
The latter choice
would involve congress and the executive branch of
American government sitting down and deciding what
it can do to reposition the United States as the
best place for clean technology companies to
deploy their ideas.
Such a decision would
undoubtedly still place high emphasis on the role
of the free market in valuing new clean technology
businesses, but it would also seek to make America
the most hospitable location on the planet for a
new clean technology entrepreneur to do business
through strategies only made possible by concerted
government action.
In most ways, this is
the harder of the two choices. Going back to the
American people and arguing for more government
spending to fund core research and development, or
to provide the sort of bridge financing that clean
technology entrepreneurs can find in China but
cannot access in the United States, are not viewed
by most politicians as politically saleable.
Protectionist measures are more palatable,
in particular in the midst of an election cycle
with an electorate eager to see less government
involvement with the nation's economy and even
less government spending overall. Duties and
tariffs offer an easy and emotional answer, but
they are deeply unsatisfying and unlikely to make
the sort of fundamental changes to America's
competitiveness that this moment requires.
Unless America's political leadership
de-emphasizes protectionist responses to China's
clean technology policies, it is very likely that
the Chinese and American clean technology markets
will decouple from one another.
Because
China's economy is driving such an enormous need
for new power sources, and because the government
understands that these needs must be met by
cleaner and renewable forms of energy, a much more
powerful vacuum for clean technology exists in
China than in the United States.
Few argue
that the market in China for clean technology will
remain much, much larger than the equivalent
market in America. As a result, if protectionist
responses are all that Washington is capable of
enacting, Chinese clean technology firms will have
access to its own burgeoning market while American
clean technology firms will have access to its
more mature, financially rationalized, and heavily
regulated market.
If the only market
American clean technology firms can sell into is
theirs, it is only a matter of time before
American manufacturers will begin to fold.
American clean technology needs access to China's
markets, and it needs the American government to
make a concerted effort not to protect American
clean technology manufacturing, but to make
America the preferred location for clean
technology to be developed and deployed.
Once the dust settles, the American clean
technology industry could find that its desire to
see the American government respond with
protectionist measures against China could well
set in motion a series of events that will lead to
their own demise.
As these companies are
forced out of business their technology will go
onto the open market. Few would be surprised to
see Chinese companies eager to jump on this,
adding further frustration over how American
policy makers so badly misjudged the right way to
compete against China.
While there are
certainly good questions that need to be asked
about China's clean technology policies and
whether they adhere to World Trade Organization
(WTO) standards, these questions should be viewed
as a distant second to whether the American
government has a coherent, non-protectionist
response that will help ensure it - instead of
China - remains the preferred destination for
clean technology companies to develop, raise
capital, and manufacture from across the world.
In clean technology, as in many other
parts of today's global economy, America must
decide whether to protect itself against China's
ascent, or to embrace it as a competitor. The
latter will require a sort of self-reflective
capacity tied to meaningful political unity and
alignment between strategy and tactics that has
not characterized American politics for decades.
Unless America sets its mind to getting
better at competing with China, the easier and
emotionally satisfying answer of protectionism
will likely and unfortunately be the one chosen.
Benjamin A Shobert is the
Managing Director of Rubicon Strategy Group, a
consulting firm specialized in strategy analysis
for companies looking to enter emerging economies.
He is the author of the upcoming book Blame
China and can be followed at www.CrossTheRubiconBlog.com.
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