Where the Sun Does Shine.

            China’s “industrial policy” appears to be founded on choosing specific industries that are believed to be key future industries; then backing lots of firms; then letting them fight out who will be the winner.  It seems to be accepted from the beginning that there will be many losers who will go bankrupt.  In contrast to some Western models of industrial policy, where the government chooses a “national champion” company, China prefers a more rugged approach. 

The fundamental Chinese insight is that “talk is cheap” and that “the proof of the pudding is in the eating.”  That is, you can’t tell beforehand who is smart enough and ruthless enough to win-out in a new undertaking.  So, give everyone who asks a bunch of money, wait ten years, and see who is drinking cheap wine while living in a refrigerator box under a bridge. 

In the nature of things, a few producers who can maintain very low costs while producing large quantities of goods crush the many other less competitive, less efficient firms.  The losers go out of business and sell off their assets.  What is left are a few survivors: highly-efficient and large-volume producers who have achieved economies of scale and are ready to compete on world markets. 

            In about 2009, the Chinese government decided to make a major commitment of resources to the solar power industry.  They saw a market not only in China, but even more in the world export market.   Today, the vast majority of both the machinery to manufacture solar panels and the solar panels themselves are “Made in China.”[1]   

            Then a series of small, dark clouds appeared on the horizon.  For one thing, China’s strategy produced massive excess-capacity.  That is, China builds far more things than there is market for those things.  The struggle for survival intensifies.  Firms cut prices to very low levels.  Currently, those prices are well below production costs.  Companies are now shouldering serious losses.[2]  Yet they don’t all stop building capacity.  Instead, they are trying to sell their surplus abroad at these very low prices.[3] 

For another thing, local governments made generous grants because of a booming housing market.  This pumped up their revenue because they sold long-term leases to developers.  Now, excess-capacity has developed in housing.  Unable to sell or rent what they have already constructed, developers have cut back on new projects.  Local governments don’t have the money for subsidies anymore.  Within China, the economic losses are a problem for whoever provided the financing for the companies.  In China, this is a complicated network of local governments, government investment funds, and government-supported banks.[4] 

For yet another thing, the United States and Europe are fighting back against cheap Chinese imports that threaten their own solar-panel industries. 

How do you get down off a tiger? 


[1] Keith Bradsher, “China Rules Solar Energy Worldwide, but Its Industry at Home Is in Trouble,” NYT, 6 August 2024. 

[2] For example, wholesale prices for solar panels fell by almost 50 percent in 2023 and another 25 percent in the first half of 2024. 

[3] See: Dumping (pricing policy) – Wikipedia 

[4] See: The Woes of China 2. | waroftheworldblog 

Climate of Fear XIX.

Once Mao had died and his myrmidons had been shoved aside, Deng Xiaoping launched China on a drive for industrialization and integration into the world economy. Over the last twenty years, that effort has born remarkable fruit: China has the second largest economy in the world; millions of people have been dragged out of dire poverty and living standards have risen for all Chinese.[1]

However, all progress comes at a cost. Some 70 percent of China’s energy comes from coal-fired generators. China’s energy consumption rose by 50 percent just between 2008 and 2013. In 2014, China’s per capita emissions of CO2 passed those of the European Union. Twenty years of industrialization have turned the air over Chinese cities into thick dark clouds of smog.

The health effects have been devastating, with half a million people a year dying of pollution-related causes. There may be economic effects as well. It is getting more difficult to move people out of the comparatively healthy countryside to work in industrial cities that are themselves “dark, Satanic mills.” Perhaps most serious, from the point of view of China’s Communist leadership anyway, is that the pollution is stirring low-level political unrest. There have been an estimated 50,000 environmental protests a year in recent years. Many are of the “Not in My Back Yard” variety, protesting the actions of local factories or generating plants. However, these have the potential to grow, to coalesce, and to turn into a more general criticism of the Party’s leadership.

The convergence of these forces is driving China to limit carbon emissions. In 2009 China committed to reducing the role of carbon emissions in its energy production by 45 percent by 2020; China has invested $90 billion in renewable energy in 2015 alone[2]; China has announced the implementation of a cap-and-trade policy for emissions by 2017; and China has agreed to cap its carbon emissions by 2030.[3]

That doesn’t mean that there aren’t problems to be solved. One problem is how to connect the “green” generating sources with the consumers of energy. Most of the non-carbon generating capacity is located in remote areas, distant from the main industrial cities. As the crow flies, it is 1,200 miles from the southern edge of the Gobi Desert to Shanghai, and almost 1,400 miles to Guangzhou. Power lines aren’t going to run as the crow flies. So, there is a big engineering project there. Another problem is how to match generated energy with timely use. That’s a storage problem. The Chinese haven’t been any better—so far—than have Western countries at developing reliable storage batteries.

China’s drive is easing co-operation with President Barack Obama’s push for an international agreement to curb climate change. China’s agreement to limit carbon emissions breaks from its refusal to do so that torpedoed American ratification of the 1991 Kyoto Protocol.

Two worries remain. First, can China’s leaders solve the technical problems of storage and transmission? Second, can China expand green energy in pace with the demand for rising living standards from it citizens?

[1] “China’s green revolution,” The Week, 16 October 2015, p. 11.

[2] China has built solar farms in the Gobi Desert. This year alone it has increased the generating capacity of these farms by 18 gigawatts. That’s equal to total US solar generating capacity. China already leads the world in wind power generation, but plans to double the generating capacity by 2020. Half of the world’s hydro-electric dams are in China, but the Chinese are still building at a rapid clip. .

[3] The efforts now under way make it likely that China will be able to reach peak carbon emissions by 2025.