“Deng would back green growth” - China Dialogue
Business

“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.

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