Category Archives: Energy

World’s largest solar maker invests in Yunnan

solar

Solar power is shining a renewed spotlight on Yunnan. Last week, Trina Solar announced an agreement with Yunnan Electric Power Design Institute to supply solar cells capable of producing 51 megawatts of electricity. These panels will be the first installment of a larger plan to populate some tea-growing areas in Xishuangbanna with photovoltaic generators.

The proposed solar farm will eventually reach a capacity of 100 megawatts (MW), enough to power roughly 36,000 homes annually. Despite its tremendous size, all of the electricity has been reserved exclusively for large tea plantations within the prefecture. The power will be utilized to run well-water pumps and irrigation systems already in place within the farms.

The Yunnan Electric Power Design Institute (YEPDI), according to an industry press release, will supply “engineering, procurement and construction services for the project”. Representatives from both companies expressed hope the collaboration will revolutionize renewable energy projects in the region. Chang Jichun, deputy manger of YEDPI, congratulated Trina Solar as “an industry leader with a vision to build a greener world…[building] a pioneer project in China to put solar power to work on the tea plantations.” As a result of the endeavor, Chang continued, Yunnan’s “tea plantations can be more efficient with increas[ed] self-reliance and less pollution.”

In the first stage of the multi-pronged project, Trina Solar will deliver approximately 43,000 TSM-255 modules and 154,000 TSM-260 versions. Extremely durable and designed to withstand exposure to pesticides and herbicides, the glass panels represent only half of the solar farm’s eventual size. With each panel measuring one meter by 1.65 meters, the 190,000 panels eventually covering the farm will take up an area of 660,000 square meters.

Put in perspective, that corresponds to 120 American football fields worth of solar modules placed side-by-side — a sea of glittering black. Each TSM-260 panel comes with a 25-year performance guarantee. Tea farmers in the area are thus assured a long-term source of renewable electricity, with each panel replaceable and upgradeable. Already underway, shipments and installation are expected to be completed by the third quarter of 2015.

Trina Solar has proved itself the most lucrative and successful businesses of its kind, often promising shareholders five percent returns on investment. Founded in 1997, Trina Solar today operates mostly in Africa, China and North America and explosive demand for solar energy has allowed the company to grow exponentially since its founding. Last year, the company sold solar panels able to generate 3.66 gigawatts of electricity. With such success, Trina Solar may well push further into the Yunnan market as the BBC reports Beijing has pledged to introduce programs to significantly expand the nation’s solar and wind power industries.

Yunnan province is already home to some of the largest photovoltaic power stations in Asia. Just 70 kilometers southeast of Kunming on the outskirts of the Stone Forest, a 166 MW solar farmis expected to complete construction this year. Once fully underway, the project will generate 188 million kilowatts of energy per hour, eliminating 175,000 tons of carbon dioxide emissions each year. The 9.1 billion yuan (US$1.45billion) project is just one of many reasons Kunming carries the unofficial title of China’s ‘Solar City‘.

Outside of Yunnan, massive endeavors throughout China are underway to reinforce the importance of wind and solar energy while tackling the country’s crippling pollution issues. Although often overlooked, China already leads the world in terms of renewable electricity production, currently spending more than US$80 billion annually on enhancing its green energy sector — funding which has facilitated a 100-fold increase in the country’s use of solar cells since 2005.

This article written by Richard Diehl Martinez, was originally published here on the Gokunming.com website.

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Thinking Outside the Dome

The meteoric popularity of Chai Jing’s “Under the Dome,” attests to the Chinese public’s readiness for stronger environmental policies to tackle air pollution. Despite its banning last Friday, the documentary’s apparent support from certain branches of the bureaucracy, and increasing pro-environment rhetoric coming into this year’s hosting of the National People’s Congress and the Chinese People’s Political Consultative Conference (also referred to as the Lianghui) seem to suggest that change may be in the air when it comes to tackling China’s smog. What is less clear is what the hidden consequences of these efforts to combat urban air pollution will be.

A fresh shipment of coal from western China.

In September 2013, the State Council promulgated the Action Plan for Air Pollution Prevention and Control (APPC), which contained directives addressing China’s air crisis. These included a reduction in coal’s share in China’s energy profile to 65% by 2017, reduced capacity in high polluting industries like steel and cement production, and improved fuel quality standards.[i] The next year, Premier Li Keqiang famously declared “war on pollution,” spotlighting the issue as a top-tier policy concern.

Regionally, the government has banned new construction of highly-polluting industrial projects such as coal power plants and steel factories in key cities on the east coast. However, the push to curb air pollution in Beijing is driving the coal industry westward, where massive coal bases are being established to feed China’s need for energy. Environmental activists are concerned that because of the massive quantities of water needed for coal processing — up to 20% of China’s water resources are used to produce energy from coal[ii]— the additional strain of a larger western coal industry may wreak havoc on water tables and food resources in a region already plagued by desertification.

Distribution of coal reserves in China.

Air pollution activists also have good reasons to be concerned about this trend. Northern China not only suffers from air quality problems arising from pollutants, but also from periodic dust storms that roll in from China’s northwest.  Relocating coal plants, especially coal-to-chemical projects, and other water intensive polluters to these regions is an invitation for ecological disaster. Worse, Inter-governmental Panel on Climate Change (IPCC) projections show a potential for increased desertification in China due to global warming. Increased coal capacity will continue to threaten the ecosystems of northwestern China and thus the health of China’s citizens elsewhere. The specter of intensified dust storms descending on Beijing each spring should give those concerned about air pollution reason to demand strict controls on heavy industry and coal processing in northwestern China, not just in Beijing and its direct environs.

The upshot of the energy development story in China’s northwest is that many of the same areas endowed with rich coal reserves are also blessed with massive wind resources. In the last decade, the central government has actively pushed for the development of wind power, resulting in a 73-fold increase in wind capacity since 2006.[iii] Moreover, the same electricity corridors built to accommodate China’s new coal bases will also serve large wind farms. Much, however, is still up in the air. Will wind power be given priority in power transmission eastward? Will wind power have the funding and support it needs? And what will be the consequences of China’s massive coal development in the west? These are questions that a concerned Chinese citizenry will need to address in order to breathe free.

Charles Vest is a freelance translator and environmental activist based in Beijing. He researches climate change and environmental policy in China

[i] Cornot-Gandolphe, Sylvie, “China’s Coal Market: Can Beijing Tame ‘King Coal’?” Oxford Institute for Energy Studies, http://www.oxfordenergy.org/2014/12/chinas-coal-market-can-beijing-tame-king-coal-2/

[ii] China’s Water-Energy-Food Roadmap, accessible from http://www.wilsoncenter.org/publication/global-choke-point-report-chinas-water-energy-food-roadmap

[iii] Li Xin, “Decarbonizing China’s Power System with Wind Power — The Past and the Future,” Oxford Institute for Energy Studies, http://www.oxfordenergy.org/2015/01/decarbonizing-chinas-power-system-wind-power-past-future/

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Review: Great Gamble on the Mekong documentary

Khone Phapeng falls in southern Laos; photo by Tom Fawthrop

Khone Phapeng falls in southern Laos; photo by Tom Fawthrop

Fishers and farmers have for some time tried to block a proposed dam on the Mekong River in southern Lao People’s Democratic Republic (Lao PDR). Most recently, they made their views known at a public consultation on the Don Sahong dam. In all likelihood, however, they will lose and the dam will be built. Great Gamble on the Mekong, a new documentary from filmmaker and journalist Tom Fawthrop, insightfully details the probable dire consequences of this dam, and the failure this represents for a once-promising extra-legal cooperative structure, the Mekong River Commission.

The Mekong runs from the Himalayas in Tibet through China, Burma, Thailand, Lao PDR, Cambodia, and Vietnam—the latter five forming the Lower Mekong Basin (LMB)—where it empties into the South China Sea. According to Fawthrop, it provides protein and food security for 65 million people in the form of fish for food and trade, and water and nutrients for home gardens and commercial farms. At the same time, the Mekong has long represented a potential source of renewable energy. China has already built six dams on the Upper Mekong, and plans to build at least 14 more.

Dams have been discussed and rejected on the Lower Mekong mainstream since the 1950s, though they have gone up on its tributaries in that time.  In 1995 Thailand, Lao PDR, Cambodia and Vietnam signed the Mekong Agreement and formed the Mekong River Commission (MRC). The goal of the MRC is to facilitate cooperation in managing the resources of the Lower Mekong, but it has no final decision-making power.

The proposed Don Sahong dam at the center of this film would sit squarely across the main channel that migratory fish use to bypass the massive Khone Falls near the Lao border with Cambodia. It would be the second dam begun on the mainstream of the Lower Mekong—construction began on Xayaburi, another controversial dam, in 2012—with as many as 10 more to follow.

 

Cost-Benefit Analysis

The Lao government and the Finnish company Poyry it hired to oversee construction of Xayaburi claim that dam will provide clean energy to three million people in Thailand and one million in Lao PDR. The MRC claims dams on the Lower Mekong mainstream have the potential to reduce the severity of floods and droughts, and thatbuilding all 12 would generate $15 billion in economic activity, create 400,000 jobs, and reduce greenhouse gas emmissions by 50 Mtons CO2/yr by 2030. A study commissioned by the MRC, and completed by the International Centre for Environmental Management (ICEM) in 2010, concluded that the 12 dams could meet 8 percent of the region’s energy needs by 2025.

The ICEM study is clear however that benefits will not be disbursed equally: “Mainstream hydropower generation projects would contribute to a growing inequality in the LMB countries. Benefits of hydropower would accrue to electricity consumers using national grids, developers, financiers and host governments, whereas most costs would be borne by poor and vulnerable riparian communities and some economic sectors…In the short to medium term poverty would be made worse….”  Lao PDR does plan to use the revenues from selling the energy produced by its dams for rural roads, health care, and education, though during the “concession period” (estimated by ICEM at 25 years) after dam completion, the bulk of revenues would go to the dams’ financiers and developers.

According to the academics and nonprofit workers that Fawthrop interviews in Great Gamble on the Mekong, the exact impacts of the dams are impossible to predict, but they will likely be severe. “The Don Sahong dam will only push Cambodia and Vietnam closer to a food crisis,” says Chhith Sam Ath, an employee of the World Wildlife Fund in Cambodia. In addition to flooding gardens along the river, and diminishing the fish stock, they predict that the entrapment of nutrients by the dams will hurt rice production in Vietnam, leading to higher global food prices.

The 2010 ICEM study concluded that building the 11 mainstream dams on the Lower Mekong would reduced “capture” (non-farmed) fisheries by 16 percent. Combined with the built and proposed dams on the Upper Mekong, and on tributaries in the Lower Mekong Basin, this number rises to 26-42 percent. New aquaculture associated with dams would only replace at most 10 percent of this loss. Lao PDR and its developers claim they can mitigate the losses of fish–Poyry claims fish gates will allow 80 percent of migratory fish to pass up and down streams, while MegaFirst, the Malaysian company planning to dam Hou Sahong, claims making adjacent channels wider and deeper will provide fish with a detour route.

Yet the fish gates Poyry plans to use have never been tested on the varieties of fish found in the Mekong, and fish passes need to be designed to take into account individual species’ behavior and sensitivity to factors such as oxygen and nutrient levels. AsPoyry’s senior project manager conceded, “whether the fish get across [the dam], you’ll only see when it is built.” Faulting Lao PDR for not testing the fish gates in the Mekong before building a dam, when you need a dam to test the gates seems unfair. But they could test the technology on a smaller, less impactful dam on a tributary.

 

The Political Process

In the face of this uncertainty, the ICEM report recommended putting off any mainstream dam construction until 2020, using the intervening years to more fully study the impacts of the dams on the Upper Mekong and on the tributaries of the Lower Mekong. In a five-year strategic plan issued in March 2011, the MRC Council also recommended more study, as well as a thorough Procedure of Notification, Prior Consultation and Agreement (PNPCA), the internal procedure of the MRC for member countries to consider and offer feedback on the proposals of other countries. Yet eight months later, Poyry announced that Lao PDR had met its obligations under the 1995 agreement and could proceed with construction of Xayaburi. A year after that, in November 2012, Poyry received an eight-year contract to supervise Xayaburi’’s construction and engineering, and construction began. Poyry claimed at the time that it had updated designs to take into account the concerns of downstream nations. Yet in January 2013, Cambodia and Vietnam vigorously protested that their concerns had not been addressed, and demanded a halt to construction. They were unsuccessful.

A similar drama unfolded around the Don Sahong Dam. Last September, Lao PDR announced the start of the Don Sahong Dam, this time avoiding the PNPCA by claiming the project was not on the mainstream. After diplomatic outrage, the Lao government consented to a PNCPA, which began last July and is only required to run six months. Despite opposition from the governments and civil society in Vietnam and Cambodia, the Lao government has signaled its intention to proceed with the dam.

These dams are the first major test of the MRC’s ability to handle conflict among its members. The MRC tasks members with “aiming at arriving at agreement” on projects that significantly impact water quality or flow but has no voting mechanism or penalties for not reaching agreement. The CEO of the MRC Secretariat, Hans Guttman, states in Great Gamble that if the parties don’t arrive at an agreement, the country proposing such a project can still go ahead with it.

 

Resistance

Citizens of Cambodia, Thailand, and Vietnam have lobbied their respective governments to halt the dam. Hundreds of NGOs, both local and international (including World Wildlife Fund and International Rivers) have been trying to mobilize the opposition. Thai villagers filed a lawsuit against EGAT, the National Energy Policy Council, and three other government agencies in 2012, challenging the power-purchasing agreement they entered into with the Lao PDR government for electricity from Xayaburi. In June 2014, the Thai Supreme Administrative Court agreed to hear the case.

The international response, outside of the press, has been muted. MRC’s international donors issued a joint statement in January 2013 urging further study before beginning dam construction, but have said little else. The UN and heads of state have been notably silent.

Fawthrop’s film does not address how concerned Westerners can respond. The answer certainly feels fraught, given Laos’ historical experience of French colonialism and U.S.military aggression, including the unexploded ordinance that still affects the country. Then there’s the region’s very real need for clean energy as well as the standard argument about the hypocrisy of industrialized nations telling any country to sacrifice growth for environmental protection.

This is the progressive’s dilemma when it comes to foreign policy. Certainly any intervention should come in the form of carrots and not sticks: money and/or technology to develop less destructive sources of renewable energy; promotion of tourism to the region; UNESCO World Heritage Site recognition for Kohne falls, and so on, conditioned on implementing the ICEM report’s recommendations.What Great Gamble on the Mekong makes clear, and what studies of other massive dam projects have proved is that this is a humanitarian issue, and that the poorest will likely suffer the most.

Great Gamble on the Mekong has some distracting elements. The claim that the Thai banks funding Xayaburi are “getting nervous” as a result of letters sent to them by anti-dam activists seems like wishful thinking. For the sake of their own credibility, the filmmakers shouldn’t have included a cartoon set to Pink Panther music. Finally, the filmmakers should have addressed how some species got to be endangered before any dams were built. For example a WWF report says that overfishing was partly responsible for the decline of the great catfish. These critiques aside, this is an important and stirring film.

Nathaniel Eisen is a freelance author interested in the intersections of trade, human rights, security policy, and the environment. Information about the documentary Great Gamble on the Mekong can be found at www.tomfawthropmedia.com. Copies of the DVD can be ordered from eurekacuba@gmail.com.  This post was first published on the Foreign Policy in Focus blog on 12/26/2014.  It is reposted here with the permission of the author.

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Oil pipeline connects Kunming to Andaman Sea

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Map of Sino-Burmese oil and natural gas pipeline. (Image via Stratfor)

 

A 771-kilometer long oil pipeline linking refineries in Kunming to oil fields off the western coast of Myanmar began shipments over the weekend. Built over six years, at a cost of 9.37 billion yuan (US$1.5 billion), the project was marred by controversy in China and, at times, violence and threatened cancellation in Myanmar.

An opening ceremony held in the Burmese city of Yangon on January 29 marked activation of the above-ground crude pipeline. It travels from the Andaman port of Kyaukpyu, through the Chinese border town of Ruili and on to Anning just west of Kunming. The inauguration was attended by Liao Yongyuan, general manager of China National Petroleum Company (CNPC), and U Nyan Tun, vice president of Myanmar, according to a report by website The Nation.

The pipeline is jointly owned by Myanmar Oil and Gas Enterprise and CNPC, with the latter controlling a majority stake of 50.9 percent after having financed most of the construction process. When operating at full capacity, the pipeline is designed to transport 22 million tons of crude oil into China each year, a total nearly double that reported when work on the energy conduit first broke ground in 2009.

Named after seabed fossil fuel deposits off the Myanmar coast, the Shwe pipeline runs parallel with a similar natural gas conduit that went online in 2013. First proposed in 2004, the twin pipelines were conceived in China as a way to bypass oceangoing tanker shipments of crude oil and natural gas from not only Myanmar, but also the Middle East and Africa.

Now that both pipelines are open for business, Southwest China will receive fossil fuels from countries to its west much more directly. Sea-bound shipments not only take significantly longer than those through the pipeline, but must also pass through the nominally United States-controlled Strait of Malacca — one of the busiest ocean shipping lanes in the world.

As with many Sino-Burmese infrastructure projects, the twin Shwe pipelines were not guaranteed to ever be finished. Construction was nearly halted in 2012 when Burmese parliamentarians threatened to mothball the project over environmental concerns, reported labor strife and claims of forced village relocations. On the Chinese side, well-publicized Kunming rallies against a refinery-related petrochemical factory also brought the future of the pipeline into question, at least momentarily.

This article was written by  and originally published in GoKunming.

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Meet the Salween

salween

I heard the name “Salween” before. I didn’t know exactly where it is. I knew it was somewhere close.

Somehow its name portrays a feeling of fearless turbulence. Perhaps, it’s the sound of “S” and the rhyme between “ween” and a Thai word “wian” from the word “wonwian” meaning lingering and wandering which makes me think of the word “namwon” meaning whirlpool.

There is a legend about the two great sister rivers of Southeast Asia: the Salween and the Mekong.

And this is how the story goes:

One day, the two rivers decided to go to sea. They agreed to travel through the mountains together and stopped whenever they wanted to. The Mekong slowly spanned its waterline through the landscape while the Salween hurried its way to claim the frontline.

After rushing ahead, the Salween decided to stop for a quick nap to wait for the Mekong. Days passed and the Mekong was still absent. The Salween thought the Mekong took a chance when it was sleeping to get ahead—to be the first to see the ocean. Angry and feeling betrayed, the Salween rushed through the channels and aimed to destroy any rock that stood in its way. Its wild speed was felt by those living nearby. The Mekong, on the other end, finally arrived at where the Salween was napping. Not seeing its younger sibling did not push it to move any faster. The Mekong continued to crawl and collect waters along the way; it even went off-route to carry fish and water into Tonle Sap before it finally reached the sea.

It is said that many communities believe in this story, though I have only heard it from two people. The anecdote may vary. Though it does resemble the turtle and the hare tale, but stories and legends are much better tools to narrate and describe the difference between the two.

Perhaps, it is the Salween’s anger that makes it the last free flowing river in China and Southeast Asia until 2015.

The Salween is originated from the marshland in the Himalayan Plateau—the same glacial area where the Mekong and the Brahmaputra start their mightiness. It travels over 2,200 kilometres through southwest China, Thailand, and Myanmar. Most of the areas it nourishes are occupied by ethnic indigenous communities. In Yunnan alone, the Nu River  (as the Chinese called the upper Salween) feeds at least 22 ethnic groups. The same reality applies to downstream communities at the border between Thailand and Myanmar and major ethnic states in Myanmar (where Burmese names it “Thanlwin”). I remember someone told me that the Salween’s turbulence is reflected by perpetual ethnic tension in the most recent open country of ASEAN.

The plan to dam the free flowing Salween is not new. 13 cascade dams for the Nu River were proposed in 2003 as part of China’s 10th Five Year Plan. Chinese environmentalists immediately called the government to halt the project. Their voices were listened, but the hiatus is now over and the proposed 13 hydropower projects are back on the table.

Thailand’s eyes on damming Myanmar’s Thanlwin/Salween is also not new. Nearly ten years ago, Thai environmentalists became aware of 7,110 MW Ta Sang Hydropower Project, a Thai national dam at the cost of Burmese environment. The news of Ta Sang Dam has been silent but a recent loosely done EIA report and signed MOA for the 1,360 MW Hat Gyi Dam prove that the intention isn’t going away.

7 is the number of proposed dams on the Thanlwin/Salween. Over 20,700 MW will be generated to Thailand and China. The newly built transmission lines that would come with the new dams would gracefully pass over the electricity and wealth to Myanmar’s neighboring countries. Its people would have to look up to the electricity they are not entitled to use while watching their houses and livelihoods inundated by the reservoir.

But the real battle has only started. In June, 2014 Myanmar government switched on the green light for Chinese Hanergy Holding Group Company to tackle its hydropower project in Shan State. Kunlong Dam will stand tall to hold back the Salween while producing 1,400 MW of electricity to be sent back to China.

Large-scale hydropower projects—along with many other environmentally and socially detrimental projects—never prove beneficial to local communities. “The few should sacrifice for the many” is the excuse project proponents always use to dignify their grand prize. However, in this case, “the few” we’re talking here isn’t small in number but their political voice and power to decide how and who would control the river they rely on.

“We call the Thanlwin, ‘the River of Peace’” said Ko Ye, an activist from Dawei who has been fighting against Thailand-proposed mega development project in his hometown. “Because if this river is dammed or falls under one group’s control, the ethnic war in Myanmar will never stop.

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A Different Global Power: Understanding China’s Rise in the Developing World

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By Xiangming Chen and Ivan Su

China is now the largest trading nation in the world with strong ties to Africa, Latin and America and the Middle East. This once impoverished and isolated nation has lifted several hundred millions of its own people out of poverty and is now reshaping the developing world. This article looks at China’s involvement in four developing regions to assess China’s influence as a rising global power.

The China where the first author grew up through college in the early 1980s was the largest and one of the poorest developing countries. The China where the second author left to attend high school in the United States was about to pass Japan to become the world’s second largest economy, in 2010. Over the past three decades, China has lifted over 500 million of its people out of poverty. Globally, China has just surpassed the United States to become the largest trading nation in the world and is expected to soon overtake the latter as the world’s largest economy (in terms of purchasing power parity or PPP). More importantly regarding the focus of this essay, China is now the largest trader and investor in Africa, with its footprints spreading and seeping into all corners of the developing world.

How did the once impoverished and isolated “Third World” country become a powerful force in shaping a new developing world in the 21st century? What are the positive vs. negative consequences of China’s inroads into developing countries by exporting its urbanism to Africa, for example? These questions highlight China’s global impact that matters a great deal to the everyday life of millions of poor people in developing countries. In this essay, following China’s global footprints in four developing regions, we offer a broad comparison of both the different and consistent economic impacts of China within and across these regions.1 Figure 1 shows China’s investment in energy and infrastructure in the four regions, while Figure 2 breaks China’s investment into four specific sectors of one major country in each of the four regions. Guided by these comparative data and focusing on four developing regions, we present a broad picture of China’s widespread but mixed role in developing countries, thus offering a preliminary assessment of whether China’s influence as a rising global power may differ from the traditional or established Western powers in how they approach the developing world.

 

China in Asia: Exerting Neighboring Influences

Back in the last decades of the 20th century, the drivers and role models for development in Asia and beyond were the “Four Tigers”: Hong Kong, Singapore, South Korea, and Taiwan. The onset of the 21st century began to position China toward the epicentre of the Asian economy, with its influence spreading across the continent through more trade, outward investment, and other outgoing initiatives such as cross-border infrastructure development.

In Southeast Asia, China has been trying to integrate with the Greater Mekong Subregion (GMS), which consists of China’s Yunnan Province, Guangxi Autonomous Region, Cambodia, Laos, Myanmar, Thailand and Vietnam. “China’s trade with each of the GMS countries has grown since 1990, most rapidly since 2000.”2 In addition to increasing trade, China exerts strong influence on the GMS through various development projects. In Myanmar, China has reached a $20 billion agreement to construct an 800-kilometre rail link between Myanmar’s Chinese border and its western coast.3 In addition to investing in infrastructure, China is also helping its neighbors to generate energy. Since 2005, China has invested over $87 billion in the energy sector across Asia, and about one quarter of these investments went to Malaysia. In 2010, an $11 billion energy deal signed between China’s State Grid Corporation and Malaysia Development Company included four hydroelectric mega-dams that are capable of generating up to 28,000 megawatts of power, an aluminum-smelting plant, exploitation of coal mines containing 1.5 billion metric tons of coal, and a 40 billion-cubic-feet natural gas development project. “With Malaysia reeling from an exodus of capital over the past two years, the projects have strong support at the state and federal levels. Officials hope the plan will attract foreign investment to the region.”4

China’s investment in Asia is not limited to Southeast Asia, as countries in South and Central Asia have also been affected by China’s direct investment. In 2013, China established a strong foothold in South Asia when it took over the upgrading and operation of Pakistan’s Gwadar Port from Singapore. The Gwadar project serves China’s “Go West” policy while allowing Pakistan to “look east.” China is building a road from Gwadar all the way north to Kashgar, the westernmost large city in Xinjiang. At the same time, Pakistan and China have also planned to connect the port via the Indus Highway, which will provide China with a land-based supply of oil from Central Asia. Given Gwadar’s geographical location, Gwadar cuts China’s distance from the Persian Gulf, from which China gets 60% of its oil, by thousands of kilometres.5

Compared to the other energy projects sponsored by China, the Central Asian vector of China’s energy policy has become more important due to the region’s abundance of oil and natural gas. While China sees Kazakhstan’s energy supply a key to its “Go West” program, Kazakhstan has used Sino-Kazakh cooperation to balance against Russia’s influence in its energy sector. China is also constructing a 1,800-kilometre natural gas pipeline from one of the world’s largest natural gas exporter, Turkmenistan, which benefits from doubling its energy supply to China and circumventing its biggest competitor – Russia. Beijing wins by securing new gas supplies and thus enlarging its already hefty investment in energy projects in Asia (see Figure 1).

 

infograph-1

 

China in Africa: Reaching Maximum Impact

Through increasing trade and investment, China’s growing presence has reshaped the landscape in Africa. While negligible two decades ago, China-Africa trade reached $200 billion in 2013, which makes China Africa’s largest trading partner today. With only limited investment in Africa before the 2000s, China’s cumulative investment in Africa exceeded $150 billion by the beginning of 2014. Of these investments, close to $100 billion has gone into energy and infrastructure projects.6

China’s unprecedented economic growth requires an increasing amount of oil to sustain it. In 2012, close to one-third of China’s total oil imports came from Africa, and China is looking to expand its energy presence in Africa. Nigeria has received the most Chinese direct investment over the past decade. While many Western energy firms are reluctant, China reached a $10 billion hydrocarbon deal with Nigeria at the beginning of 2014 (see Photo 1). In addition to exploiting crude oil and natural gas, China has been involved in constructing an additional refinery in Baro, Nigeria.7 Although critics have attributed China’s heavy footprint in Africa’s energy sector to its energy and resource demand back home, evidence suggests otherwise. China Africa Sunlight Energy Ltd. recently invested $2.1 billion in developing a 2,100-megawatt plant to help ease electricity shortages in Zimbabwe, which is only capable of generating 1,320 megawatts against a demand of 2,200 megawatts of electricity. “China Africa Sunlight Energy is looking at the possibility of pumping gas to the port city of Beira in neighbouring Mozambique, using an idle pipeline that the National Oil Co. of Zimbabwe once used to bring fuel into the country.”8 This power plant is expected to produce 300 megawatts by mid-2015, and the number is looking to double by the end of the year. While much of the media attention has focused on China’s investment in Africa’s energy sector, China is reshaping Africa’s landscape through large-scale infrastructure development.

photo1

Photo 1: Drilling Oil in Nigeria

Since 2005, China has invested more in Africa’s infrastructure than in any other part of the developing world. More than $44 billion has been spent to build roads, airports, and housing that are essential to the continent’s economic development. In Angola, China is helping the country’s reconstruction effort after the devastating civil war. One of China’s major investments in Angola is the rebuilding of the Benguela Railway, “an 840-mile transcontinental railway that links the Atlantic port of Lobito in Angola with rail networks in the Democratic Republic of Congo and Zambia. The project is expected to cost $300 million, and it will provide a much-needed cheap outlet for Congolese and Zambia copper, tin and coltan.”9 In Nigeria, China is helping to build Africa’s largest free trade zone in its commercial capital, Lagos. “A total of 16,500 hectares of land bordered by the Atlantic Ocean and the Lagos and Lekki lagoons has been earmarked for the whole free zone, which will include a deep-water sea port and a new international airport in close proximity.”10 The Lekki Free Trade Zone is aiming to cut down the country’s reliance on imports, and it will cost $5 billion to complete the first phrase of the project, which will cover 3,000 hectares of land. The construction will also include roads, power plants, and water plants. This evidence reinforces China’s substantial investment in building Africa’s infrastructure relative to the energy sector in comparison with the other developing regions (see Figure 2)

 

infograph-2_1

However, concerns arise on whether Africa is too dependent on China as results of “high commodity prices and investment inflows.”11 With China-Africa trade looking to hit $280 billion by 2015, some worry that African economies depend too much on China. Some urge African countries to diversify their economies and decrease their dependence on China. There are also calls for China to focus more on human rights and community engagement. As such a dominant investor in some African countries including those with an authoritarian government like Zimbabwe, China struggles to balance between the return on its huge investment, helping local development and living up to international norms of engagement.

 

China in Latin America: Extending the Reach

Ever since the 1960s, China has been providing limited development assistance to a small number of Latin American countries such as Chile. Fast-forward to the 21st century, China has considerably expanded its economic ties with Latin America through greater trade and more diverse investment.

“Trade between China and Latin American countries has grown exponentially over the past decade. Although Sino-Latin American trade continues to remain a relatively small share of their respective global trade, growth has exceeded many expectations. From 2000 to 2009, annual trade between China and Latin American countries grew more than 1,200%, from $10 billion to $130 billion, according to the United Nations statistics.”12 In 2012, Latin America accounted for 13% of China’s total outbound investment – about $11.4 billion, a significant increase from the $120 million of 2004.

Like in Asia and Africa, China has favored the energy sector in Latin America (see Figure 1), targeting Venezuela for its oil and Brazil for its hydropower. Of China’s $100 billion investment in Latin America since 2005, more than half has been energy and infrastructure related. In 2010, China’s State Grid announced a $1 billion buyout of seven Brazilian power transmission companies. Two years later, in 2012, China’s State Grid was chosen by the Brazilian government to build a $440 million power-transmission project. And at the end of 2013, China’s State Grid led a group to win the rights building a $21 billion hydropower plant in Brazil. Set to become the world’s third-largest hydropower plant and take around 46 months to complete, it will also create a 2,092 km hydropower transmission line and two energy converter stations that will be able to take energy from the State of Pará, along the Xingu River in the Amazon Basin, to Brazil’s Southeast region, with a planned capacity of 11,233 megawatts. Brazil’s economic acceleration in the past decade led to a surge in the country’s energy demand. Given Brazil’s geographical endowment, as much as 80% of its total energy comes from hydropower generation.13 With power generation operating close to the limit, Brazil is urgently constructing more power plants using the Amazon’s abundant hydro resources and transmitting it to its Southeast region, especially Rio de Janeiro where much more energy is needed in light of the upcoming World Cup and Summer Olympics in 2016. To do so, Brazil has turned to China for its expertise and experience in building long-distance power transmission towers or the so-called electricity pylons (see Photo 2).

 

Photo 2: High on an Electricity Pylon in Eastern China  Source: China Daily/Reuters

Photo 2: High on an Electricity Pylon in Eastern China Source: China Daily/Reuters

Besides its growing economic presence in Latin America, China has made some cultural inroads as well. Since 2012, China has opened 32 new Confucius Institutes all over Latin America, a Chinese foreign ministry deputy announced. Hotels in the region have begun to prepare for the increasing number of Chinese tourists by making the menus available in Mandarin.14 This confirms the larger trend of more Chinese tourists going to developing countries beyond Asia and advanced economies in North America and Western Europe, making China the world’s number one tourist-sending nation in 2013 with approximately 100 million overseas trips.

 

China in the Middle East: Reviving the Silk Road

Tracing what China is doing in the conventionally defined developing world has taken us to Asia, Africa and Latin America. Yet given China’s huge demand for external energy, we are not surprised at all to see China’s growing presence in the Middle East, whose energy sector ranks second behind Asia in absorbing Chinese investment (see Figure 1).

Despite China’s massive efforts to secure energy from Asia and Africa, as well as from Venezuela in Latin America, its dependency on Middle Eastern oil has risen over time. The Middle East is currently the largest exporter of crude oil to China. The share of oil imported by China from the Middle East was 48% in 1990, 49% in 2005, and 51% in 2011. It is expected that China’s crude oil imports from the Middle East will reach 70% by 2020 and continue to grow until 2035, according to the International Energy Agency. Saudi Arabia is China’s largest energy supplier with about one million barrels per day, accounting for 20% of China’s crude oil imports. Iran, another big oil supplier, contributes about 10% to China’s overall oil imports as well (see Figure 2). China has maintained a friendly relationship with both Saudi Arabia and Iran. A number of top Chinese leaders including Hu Jintao and the current president Xi Jinping have visited Saudi Arabia. And China has been dragging its feet on the UN sanctions against Iran.15 These diplomatic postures toward the Middle East conform to China’s pragmatic economic policies and interests in other energy- and commodity-rich regions such as Africa and Latin America.

But China’s interest in the Middle East does not stop with oil. “As with other regions, China has rapidly expanded its economic ties with the Middle East through trade. From 2005 to 2009, China’s total trade volume with the Middle East rose 87%, to $100 billion and reached approximately $222 billion in 2012, according to China’s official statistics. This surge pushed China to surpass the United States as the top destination for the Middle East’s exports in 2010. China’s exports to the Middle East are primarily low-cost household goods that benefit the average Middle East consumer. An example is growing numbers of Egyptians being able to afford inexpensive Chinese cars. Also, residents in the Gaza Strip suffering from the Israeli blockade depend on cheap Chinese goods in their daily lives.”16

As many African countries have done, some Middle Eastern governments have brought Chinese contractors in to work on major infrastructure projects. Egypt has also partnered with China to develop its Suez special economic zone, a development strategy that China had used itself and promoted in Africa and the least developed parts of Southeast Asia like Laos. While China has diversified its investment in the Middle East, it is much more concentrated in the energy sector than in infrastructure (Figure 1). This further establishes China’s significant dependency on the Middle East for energy resources, namely oil. However, once we factor in the non-oil related Chinese economic activities, China’s footprint in the Middle East becomes somewhat similar to the large scope of China’s economic influence in the other three developing regions, especially in several major countries where China has moved beyond energy into infrastructure and commodities (see Figures 1 and 2). In this sense, the Middle East still marks the old destination for China’s new effort to revive the ancient Silk Road through Central Asia.

 

China’s Ambitious and Uncertain Role

Judging by a sampling of evidence across the four developing regions, we characterize China’s role as very ambitious and yet uncertain. The ambitious aspect is increasingly fueled by China’s abundant surplus capital in both private and public hands that may have a stronger effect on the urban landscape and transport infrastructure of developing countries than on its quest for the latter’s energy and commodities.

On the bank of the Mekong River in Cambodia’s capital city Phnom Penh, the $700 million Diamond Island Riviera, a joint venture mixed-used development project involving a Chinese company, includes three 33-story condominium towers, a shopping mall, a hospital, an international school and two pedestrian shopping streets with signs in Mandarin. Before its scheduled completion in 2017, Chinese buyers, especially Shanghainese, are already buying the condos in cash as investment properties.17

It is again in Africa where the transport infrastructure is the poorest in the developing world that China is scaling up its investment most aggressively. On his recent four-country tour of Africa, Chinese Premier Li Keqiang committed to set aside $2 billion for an African Development Fund and promised his support for a high-speed rail network connecting African capitals. As a start, China Railway Construction Corporation made a $13.1 billion deal to build an 860-mile high-speed railway in Nigeria that would employ more than 4,000 workers during construction, and 5,000 more afterward.18 Claiming no-strings-attached, China’s ambitious effort can deviate from the precedent of Western colonial powers who had built highly limited transport infrastructure for shipping out their craved commodities from Africa. Yes it is uncertain that the Chinese will succeed where the earlier powers largely failed.

As further evidence on its ambition to build the developing world’s urban and transport infrastructure, China is funding and building Nicaragua’s lifelong dream in having its own canal since the 19th century, when it rivaled Panama for control of the waterway. In August 2013, President Daniel Ortega announced that a $40 billion contract had been signed with a Hong Kong-based Chinese company that would design a route and start construction in December 2014 and manage the canal for 50 years. Estimated to cost as much as $60 billion, an infrastructure project of this massive scale is very uncertain in terms of returning investment to China. Yet China might not be looking for a quick return on investment, but to control a trade route independent from U.S.-managed Panama.19

The uncertain aspect of China’s strong role has also run into trouble in the Middle East. Despite China’s political advantage in taking a somewhat neutral position regarding Iran under West-imposed sanctions in order to continue buying its oil, Iran’s Ministry of Oil has recently removed China from the project to develop the South Azadegan oilfield because of long delays. This puts China’s non-political or no-strings-attached approach to dealing with developing countries, especially those with an authoritarian domestic system and a precarious international status, to test or at risk.

While ambitious and already far-reaching and powerful, China’s role in reshaping the developing world will only grow and remain uncertain over time. It highlights the ongoing debate about whether China merely exploits commodity and energy resources in developing countries as the old West or truly promotes national and local development through its overseas infrastructure construction and other positive means as a new global power. This debate will not be settled for a long time as we continue to scrutinize China’s powerful role in shaping the developing world during the 21st century.

 

About the Authors

Xiangming Chen is the founding Dean and Director of the Center for Urban and Global Studies and Paul E. Raether Distinguished Professor of Global Urban Studies and Sociology at Trinity College, Connecticut, and a distinguished guest professor at Fudan University, Shanghai. He has published extensively on urbanization and globalization with a focus on China and Asia. His several books include Shanghai Rising: State Power and Local Transformations in a Global Megacity (University of Minnesota Press, 2009; Chinese Edition, 2009).

Ivan Su is currently a third-year student at Trinity College, Connecticut, majoring in Public Policy and Law and Urban Studies. His interests are situated at the intersection of city planning, city economic development, and legal studies. He speaks fluent Mandarin and Cantonese, and  carried out a field research project in the southern Chinese city of Guangzhou in summer 2014. He has been a student researcher at the Center for Urban and Global Studies at Trinity College since 2012.

References

  1. For this culminating article, we have drawn heavily from the series of articles on China and the developing world that has appeared in this magazine since the February 2013 issue. See Kayla Chen and Xiangming Chen, “China and Latin America: Connected and Competing”,The European Financial Review(February 2013): 56-58; Fakhmiddin Fazilov and Xiangming Chen, “China and Central Asia: A Significant New Energy Nexus”, The European Financial Review (April 2013): 38-43; Xiangming Chen and Curtis Stone, “China and Southeast Asia: Unbalanced Development in the Greater Mekong Subregion”, The European Financial Review (August 2013): 7-11; Xiangming Chen and Garth Myers, “China and Africa: The Crucial Urban Connection”, The European Financial Review(December 2013): 89-93; Abbᾱs Varij Kᾱzemi and Xiangming Chen, “China and the Middle East: More Than Oil”, The European Financial Review(February 2014): 40-44; and Xiangming Chen, Pallavi Banerjee, Gaurav Toor, and Ned Downie, “China and South Asia: Contention and Cooperation Between Giant Neighbours”, The European Financial Review(April 2014): 10-16.
  2. Xiangming Chen and Curtis Stone, ‘China and Southeast Asia: Unbalanced Development in the Greater Mekong Subregion’,The European Financial Review(August 2013): 7-11.
  3. Ibid.
  4. ‘Malaysia and China agree to $11 billion deal to build mines, dams in Borneo’; accessed from http://news.mongabay.com/2010/0112-sarawak.html.
  5. Xiangming Chen, Pallavi Banerjee, Gaurav Toor and Ned Downie, ‘China and South Asia: Contention and Cooperation Between Giant Neighbours’,The European Financial Review(April 2014): 10-16.
  6. Xiangming Chen and Garth Myers, ‘China and Africa: The Crucial Urban Connection’,The European Financial Review(December 2013): 89-93.
  7. John C.K. Daly, ‘China’s bold $10 Billion investment in Nigerian hydrocarbons’; accessed from http://thediplomat.com/2014/01/chinas-bold-10-billion-investment-in-nigerian-hydrocarbons.
  8. Godfrey Marawanyika, ‘China Africa Sunlight to invest $2.1 Billion in Zimbabwe Power’; accessed from http://www.bloomberg.com/news/2013-09-03/china-africa-sunlight-to-invest-2-1-billion-in-zimbabwe-power.html.
  9. Michail Vafeiadis, ‘China buying out Africa: Top five destinations of Chinese money’; accessed from http://www.csmonitor.com/World/2012/0301/China-buying-out-Africa-Top-5-destinations-of-Chinese-money.
  10. ‘Nigeria embarks on vast free trade zone with China’; accessed from http://www.reuters.com/article/2010/09/01/nigeria-china-idUSLDE67U24K20100901.
  11. Accessed from http://www.ibtimes.com/imf-worries-chinese-slowdown-could-damage-sub-saharan-economies-1576706?ft=3aj78&utm_content=xiangming.chen@trincoll.edu&utm_medium=Apr_27_2014_0401_194973&utm_source=TailoredMail&utm_term=China+Economic+Slowdown+Impacts+Reach+To+Africa&utm_campaign=Apr_27_2014_0401.
  12. Kayla Chen and Xiangming Chen, ‘China and Latin America: Connected and Competing’,The European Financial Review(February 2013): 56-58.
  13. Ze Jin, ‘China’s 21 billion investment in Brazil’s hydropower’; accessed from http://wallstreetcn.com/node/75689.
  14. ‘China’s influence in Latin America is increasing’; accessed from http://www.dw.de/chinas-influence-in-latin-america-is-increasing/a-17156409.
  15. Ibid.
  16. Ibid.
  17. Chris Horton, ‘Giant development in Cambodia hinges on Chinese buyers’,The New York Times,May 6, 2014; accessed from http://www.nytimes.com/2014/05/07/realestate/commercial/giant-development-in-cambodia-hinges-on-chinese-buyers.html?_r=1.
  18. Kathleen Caulderwood, ‘Chinese Premier Li Keqiang vows to help build a railway through Africa ‘with no strings attached’,International Business Times,May 6, 2014; accessed from http://www.ibtimes.com/chinese-premier-li-keqiang-vows-help-build-railway-through-africa-no-strings-attached-al+African+Railway+No+Longer+A+Pipe+Dream&utm_campaign=May_09_2014_0700.
  19. Patricia Rey Mallén, ‘Is the partnership between China and Latin America paying off’?International Business Times, May 8, 2014; accessed from http://www.ibtimes.com/partnership-between-china-latin-america-paying-off?

 

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Water release at Yunnan dam sparks SE Asian alarm

Manwan Dam, Yunnan

A huge hydroelectric facility in southern Yunnan is causing tension between China and several of its downstream Southeast Asian neighbors. The Jinghong dam (景洪大坝), which stretches across the Mekong River, is currently discharging water in an effort to lower reservoir levels, raising the specter of flash flooding further south along the riverway.

On September 1, the Chinese government informed flood control authorities in Cambodia, Laos and Thailand that the dam would begin to release large amounts of excess water. The facility partially opened its floodgates September 5, releasing 535 cubic meters of water per second. Such activity is expected to continue through the end of the month.

Although this amount of water has yet to cause flooding in Laos or Thailand, both countries have issued public warnings as a precaution. Officials in both countries fear any further increase in outflow from the dam — which has the capacity to release up to 9,000 cubic meters of water per second — could have disastrous consequences. An unnamed official in Laos told website RFA river levels in the city of Houayxay — 200 kilometers south of the Jinghong dam — had risen noticeably but had so far not approached flood levels.

Thailand, which makes up more than 800 kilometers of the country’s northern border, is currently in the grips of its annual flood season. At least 28 provinces in the country’s north are already experiencing widespread inundations. Because of this, Thai flood control authorities are particularly wary of any increased flow along the river. Channel News Asia is reporting “the situation at the Chao Phraya dam, the main water gateway between the mountainous north and the central plains [of Thailand], are at a critical level”.

Further downstream in Cambodia and Vietnam, officials appear less concerned. No flood warnings related to the Jinghong dam water release have yet been issued in either country. However, a spokesman for Cambodian water conservancy group 3S Rivers Protection Network told reporters, “We know when an upstream dam opening its gates to release reservoir water combines with the heavy rains of wet season, it’s a high threat.”

The 1,750-megawatt hydropower plant, located roughly five kilometers north of the city ofJinghong, first went into operation 2008 following more than five years of construction. Power generated at the facility is used in Yunnan but is also often sent to energy-hungry Guangzhou or exported to Thailand.

Exemplified by the current situation in Jinghong, cross-border management of the Mekong — called the Lancang River (澜沧江) while flowing through China — is often a contentious issue. Mekong countries have, in the past, expressed frustration over how the river is handled inside China. Such concerns largely revolve around the wellbeing of the 48 million people who rely directly on the waterway for their food and livelihoods in Southeast Asia.

This article was written by Patrick Scally and originally posted on GoKunming.

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The Red Line, Bottom Line, and Direction of State-Owned Enterprise Reform (translation)

China's president Xi Jinping discussing State-sector reform in December 2013.

China’s president Xi Jinping discussing State-sector reform in December 2013.

Translators note: This essay was first published in Qiushi’s online journal Red Flag in early June and then recirculated on various CCP and government websites/publications including the official CCP News website, SASAC website, and most recently SinoPec’s  official site.  Its analysis provides key insight into the both the nature of China’s coming state-owned enterprise reforms and challenges to launching reforms.  

The author, Zhu Jidong, first outlines that the reforms will not be a massive sell-off or a granting of private and foreign firms access to state assets as many pundits have suggested, but rather a reform that re-introduces corporatization and mixed-ownership structures to China’s state-owned firms.  The essay continues with a discussion of the connection between the importance of state-owned industries and the survival of the Chinese state and Communist Party.  It touches on the dangers and risks of reform going off in a wrong and misguided direction and hints that power currently is unevenly distributed in the state-owned sector and that managers of state-owned industries could continue to use their power to make arbitrary decisions, engage in corrupt practices, and take advantage of reform.  The author calls on the Party and governments from the central to local level to promote the supervisory powers of various societal sectors to ensure the coming reform process is fair and transparent.  He encourages Party commissions and local governments to set up hotlines using various forms of social media for observers and whistle-blowers within the state-sector to utilize in reporting malfeasance and corrupt practices that occur during the coming round of state-owned enterprise reform.

 The timing of this essay’s release is critical as state-owned enterprise reform should be a key issue discussed at the coming 4th Plenary Session of the 18th Party Congress this fall. To date this is the essay’s only known English language translation.

 

 The Red Line, Bottom Line, and Direction of State-Owned Enterprise Reform

Deepening state-owned enterprise reform is a major undertaking and is a major issue gaining attention and controversy around the future fate of the party and the state.  During the “two sessions” of 2014, General Secretary Xi Jinping stressed that state-owned enterprises cannot be undercut but rather must strengthen.  State-owned enterprises must absorb the experience and lessons of past reforms and state assets cannot turn into an opportunity for speculative profiteers amidst the wave of reform.  The underlying spirit of this essay is to further advance the definition of state-owned enterprise reform’s red line, identify the bottom line, and clarify its direction.

Drawing the red line: Speculative profiteering opportunities cannot be made in the name of State-owned enterprise reform

“Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform,“ the document produced during the CCP’s Third Plenary Session of the 18th Party Congress clearly states for the positive development of a mixed ownership economy.  There are those who advocate the position that the development of mixed ownership economies will serve as a big push to advance privatization, to permit more private and foreign enterprises to control the shares of state-owned enterprises while at the same time allowing state-owned enterprises to retreat away from competitive sectors.  This has created a certain mindset of confusion throughout society.  Looking back at more than 30 years of Reform and Opening, the loss of state assets during the process of state-owned enterprise reform has been a controversial topic which triggered many problems.

Some people say that the purpose of reform is to sell state-owned enterprises, as if success is only delivered through wholesale sell-offs and the price of the efforts of privatization is the laying off of large quantities of employees. A sentiment exists that not only can state employees not share fruits of this kind of reform, but they also serve as the sacrifices of reform; further the state must shoulder the welfare burden of this heavy issue.  Correspondingly a minority state-owned enterprise upper management who once carried the torch of reform have become billionaires.  Now there are even those who advocate “To mix is to sell, if you don’t sell you can’t mix.” If the name of reform is to forcibly make state-owned enterprises sell off rights and assets to private and foreign enterprises, then state-owned enterprises are not strengthened, rather they are weakened..

Developing a mixed ownership economy calls for open and transparent principles. Some people stress that the process of developing mixed ownership is to allow private enterprises to participate in the affairs of state-owned enterprises.  But if upper management of some state-owned enterprises take up this slogan and combine it with the efforts of private managers, then the possibility of “state assets becoming opportunities for private exploitation in the wave of reform” will arise. The crux of reform is openness and transparency and it is a reform to be carried out under the supervision of the masses.

The basic policy of developing a mixed ownership economy is already clear and its essence, as well as its success and failure, is in the details of regulation.  It is imperative for the transfer of state ownership and assets to be an open and transparent process.  Financial assets should be made known to exchange markets.  Transfers should be public knowledge.  State-owned enterprises should engage in open, fair, and just exchange.  The state should establish an institution with the sole purpose of managing, supervising, and quickly establishing a platform for the transfer of state ownership and assets and mandate all state-owned enterprises regardless of reputation to openly, fairly, and justly execute the transfer of state assets.  The private transfer or third party management of the transfer of state assets is impermissible. At the same time, this platform must be built to be as transparent as a glass window in order to put a stop to end all under the table dealings.

In order to develop mixed ownership economies it is necessary to guard against foreign capital controlling the pulse of the Chinese economy.  In accounting for the livelihood of the Chinese people, China’s state-owned industries not are not only the key sector for economic stabilization and boosting the economy, but these firms also bear the load of fending off the control of International monopolistic capital controlled by multinational corporations.  They take on the heavy task of protecting the security of the national economy, and because of this, frequently are a target in the eyes of Western countries and multinational corporations.  If foreign capital and foreign firms are to enter the reform of the state sector, we must first consider the question of the security of the economy and the security of the entire country.  Otherwise after foreign capital and foreign firms enter this sector, it is possible they will spy on the state sector’s confidential policies and strategic decisions.  One can easily imagine that this will influence the security of China’s economy.

A 2006 report issued by the State Council’s Development Research Center expressed that among industries already open to foreign capital investment, each of the top five firms in those industries were nearly completely under the control of foreign capital.  Particularly among twenty-eight major industries, foreign capital exploits the controlling rights to multiple forms of assets of twenty-one industries.  It can be said that foreign capital controls these twenty-one industries.  Today this data should be even more shocking.  Because of this, we must guard against foreign capital from taking advantage of mixed ownership economies to control the lifeline of the Chinese economy and threaten China’s economic stability.   We must take strict precautions against foreign capital from seizing the opportunities of national defense, railways, energy resources, telecommunication, public industries, and those that are associated with national security and major industries associated with the economic pulse of the state and people.

The development of mixed economies needs to allow for the participation and supervision by the masses.  We must appeal for the positive activation of the masses to supervise the whole process of the development of mixed ownership economies and absolutely cannot allow for the invaders to embezzle from and take advantage of state industries.  The party committees and governments at the central and local levels have all installed hotlines, mailboxes, and websites and are positively ready to receive reports on neglect, malfeasance, and corrupt activities associated with state enterprise reform. We will positively investigate and make public the clues reported by the masses pertaining to the loss of state assets.  Toward the actions and behavior of those who embezzle state assets, we will investigate resolutely and severely punish. Through dissecting case studies involving the loss of state assets, we will establish and strengthen the institutions to protect state assets and the benefits of workers during the process of state sector reform.

In the development of mixed ownership economies, we must prevent the torchbearers of this reform from carving up state assets for their own purpose.  The selling of shares to managerial levels and to employees is a topic that will attract much attention during this round of state-owned enterprise reform.  Some locals are already implementing models for share distribution, so this direction has already been established. State assets are legal assets owned by the people of the socialist state of China, and the spirit of state assets cannot be violated. No one has the right to turn these assets into the private assets regardless if they are at the managerial level or a common employee.  Importantly the leaders and employees of state-owned enterprises cannot grant distribution of shares to themselves or transfer all of the people’s assets into private assets.  To permit or even encourage employees and managerial levels to hold shares or to institute models for the holding of shares is a means to permit these people to buy enterprise shares using their own money –  not to carve up state assets for their own usage.

Identifying the bottom line: State enterprise not only cannot weaken, but it must strengthen

In the Communist Manifesto, Marx and Engels pointed out that: “The question of ownership is the fundamental issue of the movement.” The common means of production is the economic base of the socialist system and state-owned enterprises are the principal part and pillar of the common means of production.  The Constitution of the People’s Republic of China clearly stipulates common ownership economy is the guiding power of the economy of the Chinese people and the state.  The state must guarantee the strengthening and development of the state economy.  The development of a strong state economy is assured by the state economy’s controlling the economic lifeline of the people and the state.  In order to express the superior characteristics of the socialist system as well as provide national defense and social cohesion, it is critically important to strengthen the power of China’s economy.

Through controlling the economic lifeline of the people and the state, the state-owned economy can keep the entire national economy running and serve as the engine of development.  The state-owned economy is the effective means for macro-economic adjustment, adjusting market inefficiencies and for realizing the prerequisite conditions of national strategic planning.  Because of this CCP General Party Secretary Xi Jinping has emphasized, “State owned enterprises not only must not weaken, but they must strengthen.” Regardless of the manner of reform, we cannot go beneath this bottom line, otherwise we will end up on the wrong road.
Even after if the many years of privatization and liberalization in Europe, the state owned economies of many countries in many still occupy dominant positions in key sectors and state-owned enterprise investment takes up approximately 20% of total national investment.  For example, state-owned enterprise investment is more than 27% in France.  Moreover the French national government owns more than fifty-one enterprises and employs 838,000 people.  The income of these enterprises contributes approximately 15% of France’s GDP ranking sixth in Europe.  Norway’s government owns forty-six firms which employ 230,000 and contribute about 9.4% of national employment, levels these firms’ incomes comprised nearly 70% of Norway’s 2008 GDP, an increase of 10% from 2004.  Although post-Soviet economies went through a spurt of privatization, by and large, the state-owned sector of many powerful former Soviet states is extremely large.  Russia’s state-owned fixed assets account for 40% of total state assets and state-owned enterprises control nearly 50% of the economy, and state-owned enterprises account for 31% of total employment.  Moreover, the state owned economy comprises more than 70% in Belarus.  Perhaps this is the reason why Russia and Belarus have the confidence to not fear the West and even dare to stand up to Western hegemony.

A few foreign friends have also provided advice for the reform of China’s state-owned economy. On February 15, 2012, German Prime Minister Schmidt reminded China in an interview that the question of ownership reform is one of hundreds of trillions of RMB. Currently most state enterprises are monopolistic and relate to state security.  These firms should develop in the interest of long-term stability and are not for the purpose of profit-seeking as top priority.  The profits of state-owned enterprises are the profits of the people; if these state-owned enterprises privatize, they will not necessarily become more competitive, and they will not necessarily provide more benefit.  Schmidt used the railway system as a case in point: some of China’s western railways are seriously bearing too much weight and collecting too little in fees.  If the railway firms privatize, these railways might halt transportation or raise their price.  This will bring major (negative) impacts to the development of the country’s interior.  If foreign friends can clearly see the danger, should their words fall on deaf ears?

China’s 2012 GDP was 51.9322 trillion RMB and per capita income 38,354 RMB.   This is already higher than 6000 USD.  This makes China the world’s second largest economy.  Moreover the rapid development of China’s state-owned economy was the major guarantor of China’s reaching the rank of the world’s second largest economy.  It is also the major motivational fountainhead of China’s economic development.  The CCP’s “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform” calls for the transitioning of a portion of state-owned capital to enrich social welfare funds, improve the budgetary system of state capital operations, improve the rate of contribution of state-owned enterprises to public finance.  The decision sets the goal of 30% contribution to public finance by 2020 in order to guarantee welfare benefits for the people.  Further, this reveals how state capital relates to all people, and it is only through the strengthening of enterprise that the broad masses can enjoy the benefits of state capital.

Let me ask, can the state enrich social welfare funding through foreign capital and private capital?  Can foreign capital and private capital act without conditions, not seek return on investment, invest in the infrastructure of impoverished areas or fend off earthquake, floods, and other natural disasters? The answer is obviously no.  Because of this, if China is to strengthen and is to allow the people to better enjoy the fruits of reform and development, it must demonstrate the guiding function of the state-owned economy, continuously increase the state economy’s vitality, controlling capabilities, and influence, and make this bottom line clear to the world.

Many people think of the selling off of state production rights and assets when they hear of mixed ownership economies and envision the single possibility of private enterprises and foreign enterprises entering into state-owned enterprises.  Actually the development of mixed ownership in no way should be or is a one-way concept.  Moreover, the development of mixed ownership is two-directional and even multi-directional.  Private and foreign enterprises can enter the state owned sector by purchasing production rights and assets, and state-owned enterprises can also purchase the production rights and assets of private and foreign enterprises and even control the shares of some private and foreign enterprises.  This is the true meaning of mixed ownership economy.

If the development of a mixed ownership economy means only the selling-off of state production rights and assets then the obvious result is the weakening of state-owned enterprises and not their strengthening. Because of this we certainly need to clarify that the development of a mixed ownership economy is not for the purpose of weakening state-owned enterprises and surely is not to privatize.  We need to promote dual directional and multi-directional mixed ownership structures of state-owned enterprises, private enterprise, and foreign enterprise and not simply sell off the production rights and assets of state-owned enterprises to private and foreign enterprises.

Setting the Course: Continuously strengthen the vitality, controlling abilities, and influence of the state economy

In order to promote national modernization, guarantee power the mutual benefit of the people, the continuous development and strengthening of state-owned enterprises is the major force that supports the rise of the Chinese economy. It is also the guarantor of the endurance, strength, and perfection of the party leadership.  “To continuously strengthen the vitality, controlling abilities, and influence of state-owned economy” is the direction set forward for reform in the state sector by the CCP’s 18th Party Congress.

State-owned enterprises should take steps of self-improvement and like a phoenix rising from the ashes take on social responsibilities, establish a proper image, and increase the degree of promoting the processes of reform.  This requires us take a serious look at  the existing challenges to the current development of state-owned enterprises and persevere to strengthen and perfect the party leadership and realistically strengthen the positive characteristics which promote the working class as masters of society.  We should take action in accepting the supervision of multiple levels of society, severely punish graft and corruption, and in the deepening of state-owned enterprise reform promote the continuous improvement of modern enterprise system.

At the high strategic level we must prioritize and continuously strengthen the vitality, controlling abilities, and influence of state-owned industries. As the corporatization of state owned industries attracts strategic investors and key groups, state owned property rights are diversified, and the vitality, controlling abilities, and influence of the state economy continuously strengthens.  But at the same time we can see that the existing problems within state-owned industries are many.  The salary differences in some state-owned enterprises are comparatively large even to the point of great disparity. Disparities exist in the execution of corporate social responsibility programs within some state owned enterprises.  The management method of some state-owned enterprises is careless and accidents have occurred, some state-owned enterprises’ modern enterprise systems are just for show or have large degrees of patrimony.  Some leaders of state-owned enterprises make arbitrary decisions, their lives are extravagant and degenerate, they practice nepotism, and even will sell off state interests for their own personal benefit.

These issues not only influence the initiative of employees, but also damage the vitality, controlling capabilities, and influence of the state-owned economy.  The report of the 18th Party Congress calls to stimulate new energies in various market sectors and calls for all state-owned enterprises to adopt a specific and realistic focus. Thus the increase, stimulation, and demonstration of these new energies is a major challenge that all state-owned enterprises and their leaders must face directly, and this challenge must be highly respected at the strategic levels.  The issue of how to continuously reform and increase the state-owned economy’s vitality, controlling capabilities, and influence is for the relevant departments, work units, and experts located within the Central level’s  Leading Groups on Comprehensive Deepening of Reform to deepen research and determine the right path, polices, and regulations.

We must clearly see that from the distribution of industries, to date 90% of state-owned enterprise are outside the realm of competitiveness.  A slogan such as “Allow state-owned enterprises to leave the realm of competitiveness” is a covert argument of those who support privatization, and the basic motive of those who support privatization of state enterprises is to destroy our party’s economic base.  We must prioritize at a high degree how to scientifically develop a mixed ownership system while preventing new losses of state assets and guard against people from taking advantage of state assets in a new round of privatization.  To develop mixed ownership economies, we should select a portion of firms within a portion of industries as demonstration sites and expand the scale of development after summarizing experience and learning.  We must act accordingly to the path, policies, and regulations set by the central government in order to orderly develop mixed economies and prevent a mad rush.

We must persevere to strengthen and perfect the party leadership of state-owned enterprise reform.  General Party Secretary Xi Jinping has stressed many times “China is a major power, and we absolutely cannot allow any subversive errors.” What are subversive errors?  It is those errors of directionality which depart from the fundamental characteristics of socialism. And it is on this point that the 3rd Plenary of the 18th Party Congress stresses that comprehensive deepening of reform must strengthen and perfect party leadership.  Serving as the resolute leadership core of China’s socialist cause, the CCP naturally also forms the leadership core of China’s economic construction and serves as the leadership core of state-owned enterprise reform.

During the coming reform of the state-owned sector, we must demonstrate the offensive and defensive functions of party organs and the vanguard and model nature of party members.  Further we must dare to shoulder responsibility and resolutely confront all erroneous words and deeds.  It is only through perseverance in strengthening and perfecting the party leadership that the existing degeneration, extravagant waste, and nepotism within state-owned enterprises can be solved. We must unite and lead the masses the struggle against the activities of those who would embezzle state assets in order to maintain the right direction of state-owned enterprise reform. The nature of mixed ownership economies is decided by who controls shares. This is the central issue. The Central government should not give up shareholding rights in the name of state-owned enterprise reform.  Moreover, the Central government cannot change the characteristics of strategic enterprises.  This is what is meant by persevering to strengthen and perfect the party leadership as a strong base and powerful safeguard.

We must strengthen the master status of the working class.  Strengthening the master status of the working class is to continuously strengthen the vitality, controlling abilities, and influence of the state-owned economy’s solid base.  The working class is China’s leading class.  It is the representative of China’s advanced production force and production relationship.  It is our party’s most solid and most reliable class base and the comprehensive construct of a moderately prosperous society.  Lastly, the working class is the main force of upholding and developing socialism with Chinese characteristics.  To uphold and develop socialism with Chinese characteristics, we must rely on the working class with our whole hearts and whole minds and strengthen the master status of the working class to realize the full function of the working class as a main force.

In recent years the issue of corruption has arisen within state-owned enterprises and within some industries to the point of extreme severity. A contributing factor to this corruption is that the master status of the working class is wrongly viewed.  Some leaders and cadres within state-owned enterprises do not take supervision by the working class and the interest of workers to heart, and for their own personal benefit, these leaders will sacrifice the interests of workers and the state.  Relevant documents have expressed that the gap between actual average salaries of leaders of centrally owned enterprises to their employees is exponentially widening.  This has raised questions and criticisms in some enterprises.  When developing the mixed-ownership structure, state-owned enterprises should consider the raising of employee’s salaries.  Actually many centrally owned enterprises achieved rapid improvement and synergy in increasing industrial efficiency and employee’s salaries when shifting to mixed ownership.

Chen Jieyuan, Party Secretary and Board Chairman of the Shanghai Port Group LLC said, “In recent years, The Shanghai Port Group, through has experience the sweet taste of mixed ownership.  From 2006 when we fully listed on the market, our net assets have doubled, profits have basically doubled, and employees’ incomes have doubled.  These three “doubles” mark the direction in which state-owned enterprise reform should persevere especially in the process of developing mixed ownership, priority should be placed on promoting the distribution of shares to employees, establish a modern enterprise system, and fully raise income of employees.

The data shows that in 2010 the average income of an employee in a state-owned enterprise was 38359 RMB, 5% higher than the national average.  The average income of an employee in a private enterprise was 20759 RMB, 43% lower than the national average.  It is obvious which kind of enterprise serves as a better model for increasing the incomes of workers.  Because of this, the only way to strengthen the master status of the working class is to continuously increase the income levels of employees in the private sector, not the other way around.  Relevant organs at the central level should come up with a proposal for the distribution of shares to employees based on rigorous surveying and research and make this a major breakthrough point for feasibly strengthening the master status of the working class.

We must require state-owned enterprises to accept supervision from many levels of society.  This is the major guarantor for the continuous strengthening of the vitality, controlling ability, and influence of state-owned enterprises. We must open various channels of supervision, promote and accept the supervision of the masses, and accept and participate in supervision of the process of mixed ownership reform.  We must also draw from the concepts and management experience of private enterprises and foreign enterprises. Party committees at the central and local levels and governments should set up whistle-blower hotlines, mailboxes, and websites and accept reporting from all levels of society on malfeasance, dereliction of duty, and corruption during the process of state-enterprise reform. Concerning state-owned enterprise reform these committees should take advice and suggestions from various societal levels, and make use of the body of people’s wisdom and power to make good on state-enterprise reform.

Especially with the rapid development of the internet, online news, Weibo, Wechat, forums, blogs, podcasts, these broadcast formats provide the best arena and platform for the people to supervise government and fight corruption in an ever-strengthening manner.  Relevant organs should organically integrate educational experiences from the mass party line and pure and clean frameworks into the reform of state-owned enterprises.  These organs should positively involve the participation of the masses, make progress in using the internet, and widen and open to the masses channels for reporting corrupt practices.  Anti-corruption departments must especially focus on clues related to the loss of state assets which are revealed through reporting from the internet, and encourage and direct the masses to report on the egregious ways and issues of corruption through legal methods.  Those who would attempt to transfer state assets into personal exploits should be called out and swatted like mice crossing the street. This is the way to uphold the core status of common ownership.

About the author:  Zhu Jidong is a researcher at the Qinghua University Research Center for College Moral Education.  Holds a post-doctorate in Marxism Theory, is Head of China Academy of Science World Socialism Research Center and General Secretary of National Cultural-Security and Ideology Research Center.

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China and South Asia: Contention and Cooperation Between Giant Neighbors

Are China and India allies or enemies in the South Asian economy? Well, it seems they are both; working together in healthy and profitable partnerships while maintaining armies in the contested China-India borders. This article explains the paradoxical nature of the China-India relationship and its impact and implications for the smaller countries in South Asia and neighboring Southeast Asia.

The rise of China and India over the last two or three decades continues to make global news headlines. Competition between these two global powers in economic, political and diplomatic domains has garnered scholarly and media attention. Yet we know much less about China’s growing ties and contention with India that are also spreading across the South Asia subcontinent and beyond. As China-India trade has grown, India in 2006 opened the historical trade route, Nathula Pass, which had remained closed for almost 50 years as a result of a border war with China in 1962. Today in the presence of several persistently disputed border zones in South Asia (see Map 1), China is beginning to build dams on the rivers in the Tibetan Plateau, including the upper Brahmaputra (yarlung tsangpo or Yarlung River), which could impact populations living downstream in India and Bangladesh (see Map 1). China has taken over the construction of Gwadar Port in the Pakistani province of Baluchistan, on the Arabian Sea. China has also begun building the Gwadar road corridor all the way north to Xinjiang. Continue reading

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The Coming Downturn of China-Vietnam Trade Relations

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I recently had a conversation with a high ranking officer in Vietnam’s Ministry of Industry and Trade whose work responsibilities include promoting and facilitating border trade and investment between Vietnam and China.  We have been meeting for years and despite past flareups in the South China Seas and the occasional anti-China rally in Hanoi, he has always expressed optimism toward the future of the China-Vietnam relationship. He has believed that cooler heads will always prevail at the upper levels of government and that the increasing flows in border trade and investment overland between China and Vietnam do much to alleviate the tensions brewing on the seas.  But in my recent meeting, the officer expressed a 180 degree interpretation of the future of trade relations between China and Vietnam.  He fears that as a result of China’s aggressive movements in the South China Sea, the two countries will soon adopt isolationist and protective trade policies toward each other, and the goodwill provided by decades of border trade and shared investment projects will soon become undone. Continue reading

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