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“Deng would back green growth”

Hu Angang is a leading Chinese economist, government advisor and advocate of low-carbon development. He talks to Isabel Hilton about his country’s path to fiscal success – and how it can be painted green.

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The distinguished Chinese economist, Hu Angang, is noted for his radical approach to economic reform and, more recently, to the political economy of climate change. On a recent visit to the United Kingdom, he explained to chinadialogue how he has been examining China’s past – including the relatively unfashionable ideas of Chairman Mao – to help him formulate policies for China’s future. 

“I wanted to understand why Mao’s first period, from 1949 to 1956, was a golden age,” he said. “Why this period was the mother of his later failure and how Mao’s failure was the mother of Deng Xiaoping’s success. I wanted to explain why China took off for 30 years in the second golden age after 1978. If we want to maintain this growth for the next 30 years, we have to change the model now. We can’t get locked in to the pattern of the past.”

In looking at China’s future, Professor Hu has adopted one of the more famous sayings of the late leader, Deng Xiaoping: it doesn’t matter if the cat is black or white, as long as it catches mice. Deng first used this aphorism in the early 1960s to contest what he considered Mao Zedong’s erroneous policies. He did not prevail then, but deployed the saying to more effect after Mao’s death, successfully breaking China’s attachment to Maoist dogma and launching his economic reforms. Now Hu is adapting Deng’s words to advocate a new set of reforms.  

“Under Mao the cat was red. Under Deng the cat was black. Now we need a green cat,” he said. “We needed different coloured cats for different moments.”

Hu draws lessons from both the successes and failures of the past in thinking about China’s new development path. Even today, he urges his students to read Mao, as he himself was obliged to do during the Cultural Revolution. “I think his ideas were highly suited to China’s culture and background,” he said. “I urge my students to have a dialogue with Mao.”

In 1956, he explained, when Mao was preparing the second five-year plan and wanted to break with the Soviet model, he thought about how to reconcile the needs of China’s coastal and inland areas, or agriculture and industry. “At that time, we also looked at the relationship between population and development, between resources, energy and development. The key idea is how to find a good road for China’s modernisation and to understand what kind of character, what kind of ideas are suited to China’s real situation.”

Hu is a prominent advocate of a new, green economy and of a pro-active approach to reducing carbon emissions. If Mao and Deng were alive today, he believes they would approve of his ideas. “If Deng was thinking about climate change, the biggest challenge we face today, I think he would come up with similar ideas to mine. We need to create an international environment that is not only peaceful but green,” he said.

The international context, he believes, has been crucial to China’s success since 1978, allowing China to catch up with more developed countries. Now, China has to think about innovation. But to achieve its green potential, he believes China needs a better understanding of the relationship between altruism and self-interest. 
 

“I think China owes everything to the peaceful international environment over the last 30 years,” he said. “China quickly became the biggest beneficiary of globalisation. Today the equivalent of joining the World Trade Organization [WTO] is the international effort to reduce carbon. If China joins in, it will be successful in five to 10 years.”

Today, Hu believes that the green revolution is capturing the Chinese imagination. “Private sector CEOs are very interested in the new green market opportunities – green energy, green building and so on,” he explained. “It’s the new green game and you will lose if you don’t change your colour. If per capita GDP rises to US$3,000 to US$4,000 [around 20,000 to 27,000 yuan], it will stimulate green demand and green consumption; when China gets out of poverty to middle income level, it will naturally produce a demand for green consumption.”

Hu argues that it is in China’s interest to take a proactive role in carbon reduction. Acknowledging that China’s per capita income and emissions are lower than Western countries, he believes that the total effect is equally important: “China’s rapid rise has produced two important effects – the positive contribution to global growth, trade and poverty reduction, which was very successful. But there were also strong, negative externality effects. China, as a big beneficiary of globalisation, needs to take responsibility for the global and reduce the negative effects.”   

China came under fierce international criticism for its approach to global climate negotiations in Copenhagen in December 2009, as Hu had predicted it might. “China was at a crossroads: either active cooperation with developed and developing countries or risk being the object of attack from both. This was my warning. As you know, after Copenhagen, that is what took place.” But despite the international criticism, he believes China’s leaders are taking the domestic challenge seriously. “I think the next five year plan will be based on the green development principle, and if China follows this path of green development it will make a big global contribution.”

The disparity between China’s international and domestic efforts, he thinks, is partly explained by “information asymmetry” in China’s foreign policy, a product of the relatively closed manner in which foreign policy is formed in China, which makes it harder to persuade those behind it to take climate and environmental problems as seriously as they merit: “Since 1978, debates on economic policy have been more and more transparent, with more and more experts involved. But foreign policy remains relatively closed, without expert involvement. It’s a black box.”

Hu stresses the importance of reliable data to make his case. “Data on things like GDP in China is authoritative and reliable,” he said. “But we only set up solid data for energy consumption three or four years ago, when China set its 20% energy intensity reduction target. The next step, based on the energy account, should be to set up a carbon emissions account.”

With both energy consumption and emissions accounts, he argues, policymakers can calculate green GDP for different sectors and regions to illuminate policy choices. “If we compare Shanxi [northern China] and Guangdong [southern China] for instance, we find that Shanxi’s energy consumption has a very high ecological cost because it is based on coal. Guangdong has to import energy, so the price is very high, which makes it much more energy efficient,” he said. “In 2008, Guangdong’s energy consumption per unit of GDP was 0.5715 tons. In Shanxi it was 2.554. That’s a huge difference, with very strong implications for policy. We can use taxation to stimulate efficiency.

“We need to use both cap and trade and carbon tax. Last year, we imposed a carbon tax on gasoline for the first time and it was very successful. Car numbers increased by 40%, but gasoline consumption increased by just a few percentage points and diesel consumption fell. At the same time, Beijing subsidised public transportation and increased parking charges, so people were buying cars but using them less.” 

The most effective incentives, he believes, are VAT on fossil-fuel heavy electricity at 17% and no VAT on clean energy, to acknowledge the positive externalities of renewable energy and penalise power generation that produces big negative externalities in the form of carbon dioxide and sulphur dioxide. 

As well as taxation, Hu would like to see China establish the world’s biggest domestic carbon market within the next five years: “The forest sector is the biggest carbon reducer, and electricity generation the biggest carbon source. How do you get them to make a deal? The domestic market has huge potential and we should use the market as a driver to give a strong incentive to entrepreneurs to develop renewable energy and clean-coal technology.

“It’s a two handed approach – government and the market. We hope that China will be a green innovator and, as a low cost manufacturer, will quickly become an exporter. For example, from 1995 to 2000 China was a net importer of mobile phones. Now we are the number one exporter.”

China needs to encourage indigenous green technologies but should not use this policy to exclude foreign firms from the Chinese market, he said. “Multinationals took a prominent role in technology transfer in the past, so China quickly became a major exporter and producer. We need to keep our policies open, but on the other hand we need to encourage domestic innovation and knowledge creation based on China’s real situation.”

Both foreign and domestic companies, he argued, will need to become green to maintain their market share. “For example, the CEO of Motorola  told me that Motorola’s share of the Chinese domestic market has declined and that they need to give the Chinese consumer smart, green and safe technologies to maintain it.”

Hu believes that some foreign companies have a good demonstration effect in China, though promoting fair competition to benefit from this demonstration effect is more complex. 

“Sometimes there are issues, frankly, with intellectual copyright,” he acknowledged. “But sometimes local competitors are very smart about innovation. Baidu, for example, has more than 2,000 engineers and scientists doing research. Google only has a few hundred and it can’t compete in the local market. Nokia has a huge research and development centre, not just in Beijing but regionally, because in China different regions have different cultures and demands. Foreign companies have to adapt to the market.”

Hu has no doubt that the forthcoming 12th Five Year Plan will set China on a new, green pathway. He points to his 2007 book, China in 2020, as the blueprint for a society that pays attention to health and lifelong learning as well as to such constraints as China’s energy shortage.

Hu is also optimistic about the perennial problem of aligning central policy with regional, local or provincial implementation. He believes that China’s notoriously wayward local authorities are increasingly aligned with national objectives, closing the worrying gap between China’s central policy and local implementation. Officials in such cities as Beijing and Nanjing generate their own indicators to complement the national plan and his research indicates that the overlap of local and national development indicators under the 11th Five Year Plan had risen to 85%, from less than 70% under the ninth plan

“It allows local government to realise both national and local targets,” said Hu. “These are Chinese characteristics – two hands and two legs! It explains why China is able to walk faster and remain stable.”


Isabel Hilton is editor of
chinadialogue

Hu Angang is one of China’s best-known economists. He is professor at the Chinese Academy of Sciences and Tsinghua University and has worked as the chief editor for
China Studies Report, a circulated reference for senior officials.

Homepage image from Tsinghua University

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Default avatar
匿名 | Anonymous

很有创意

林业部门是最大的减碳者,而电力部门则是最大的排放者。怎样才能让这两家做成交易呢?——我对胡教授的这个想法很感兴趣,林业部门历来不受重视,然而电力行业一直是投资者的宠儿,如果这两家做交易,应该是很有趣的一件事。不过中国的电力部门拥有众多权重势强的企业,他们会把势单力薄的林业部门放在眼里吗?

Very original

The forestry sector is the biggest carbon reducer, and electricity generation the biggest carbon source. How can they possibly make a deal? I am very interested in professor Hu's ideas, the forestry sector has so far been ignored, but the electrical power industry has always been the investors' favourite. It would be quite interesting if the two of them made a deal. However, the Chinese electrical power industry owns several powerful businesses, will these ever take into consideration the powerless forestry sector?

Default avatar
匿名 | Anonymous

地方政府有更多的利益驱使

对于中央政策和地方执行间的错位问题,胡鞍钢同样乐观。他认为中国以我行我素闻名的地方政府越来越遵守全国目标,原来令人忧虑的中央政策和地方执行间的错位现象正在减少。

看来作者还真是过于乐观了。根据中国现在的政绩考核制度,地方政府和官员仍然会以发展经济为中心,而且土地交易权的问题,更是驱动地方政府继续忽视环境利益的重要因素。

Local governments are more interest-driven

Hu is also optimistic about the perennial problem of aligning central policy with regional, local or provincial implementation. He believes that China’s notoriously wayward local authorities are increasingly aligned with national objectives, closing the worrying gap between China’s central policy and local implementation.

It seems that the author is still too optimistic. According to the Chinese performance evaluation system, local governments and officials still have economical development as their main objective, and the land trade rights' problem plays an important role in driving local governments to continue to ignore environmental benefits.

Default avatar
匿名 | Anonymous

讨论

1)胡鞍钢是否过于乐观?GDP的增长是否会自动刺激绿色需求或者消费?中央政府的目标是否能在地方层面上实现?

2)对山西能源征税是否有失公允?毕竟此举的目的是为了平衡全国的能源消耗,而山西比广东更为贫穷且更寒冷?

Discussion

1) Is Hu too optimistic? Will rising GDP automatically stimulate green demand and consumption? Will the central government's targets be achieved at the local level?

2) Is it fair to tax Shanxi's energy in order to equalize energy consumption across the nation when they are poorer and colder than Guangdong?

Default avatar
匿名 | Anonymous

乐观主义派

胡鞍钢是乐观主义派,因为这是他能站在中国政策讨论主流位置的唯一途径。他对未来发展的良好祝愿能否成真是一个趋势问题。随着GDP的上升能源密度将会下降。问题是它的下降速度是否会快于GDP的增长。如果不是的话,排放量就会继续增长,而我们也会陷入能源困境中。——约翰

Optimism

Hu is optimistic because that is the only way to stay in the mainstream policy discussion in China. Whether his fairly benign view of the future occurs is a matter of momentum. Energy intensity will decline as GDP increases. The question is whether it will decline faster than GDP growth. If not, emissions will continue to grow and we will all be in a heap of trouble. - John

Default avatar
匿名 | Anonymous

公平公正

换一种方式提出第二个问题:如果山西越来越穷,那么民众又可以从低廉脏污的能源中获益多少呢?问题的关键是谁才是真正的获益者,对穷人征收污染能源税的机率又有多大呢?——约翰

Fairness

Another way of posing the second question: if Shanxi is much poorer, how much are its people benefiting from cheap, dirty energy? The issue is, who is benefiting, and what would be the incidence of a dirty energy tax on the poor? - John