The US-China trade dispute and efforts to freeze out the technology group Huawei in the US, Australia and, to a lesser degree, Britain demonstrate the fears aroused by China’s emergence as a highly competitive industrial power. To critics, the shift eastward of the global economy represents a threat to jobs and existing business models and potentially national security.
But in one area, however, developments in China have produced significant gains for the world as a whole. Without its development of wind and solar power over the past decade, the growth in production from renewables would not have taken place and the transition to a low-carbon economy would hardly have begun.
The fact that solar and wind power are now competitive, without any need for subsidies, with other forms of energy is largely the result of the mass production of turbines and panels by Chinese companies. The costs of wind power have fallen by 69 per cent over the past decade, while solar costs are down by 88 per cent, according to investment bank Lazard. China is now the world leader in both technologies.
As a result, China is leading the energy transition. And there is much more to come. It is well ahead of anyone else in the development and application of advanced grid technology and is the world’s largest producer of lithium ion batteries with some 60 per cent of global capacity. Chinese companies installed more civil nuclear power than anyone else last year. Of the 3m electric vehicles on the world’s roads the majority are in China — it accounted for 56 per cent of sales last year.
None of this is the product of pure altruism. Under President Xi Jinping, China is using its skills, financial strength and political reach to become a global industrial power. The country’s wind and solar businesses began life as ventures created to take advantage of the lavish subsidies for renewables offered in Europe.
Their development within China is helping to reduce low level pollution, which has become a political problem in many of the cities. Growing the industry is also a potential source of national security for a country where oil imports have increased to more than 9m barrels per day. In an era of Middle East turmoil and instability in Venezuela, China is dangerously dependent on countries which are beyond its control. The development of home grown renewables can over time be a big part of the solution.
China’s trade practices have been rough and ready, provoking many allegations of dumping and the use of currency manipulation to squeeze out competitors. Critics accuse it of failing to respect intellectual property rights. But China’s development of advanced technology such as 5G demonstrates its growing strength.
The failure of western companies or governments to keep up raises hard questions about the security consequences of dealing with companies that are ultimately responsible to the Chinese state. One way to deal with this tension would be to limit China’s role in the development of renewables and other parts of the energy sector, from grid technology to nuclear power.
But a new paper from the US think-tank Brookings lays out an alternative approach, arguing for a new level of engagement. The paper describes how China is seeking to reform a clumsy subsidy system which has encouraged overproduction of wind and solar and to improve the efficiency and technology of its products.
Both efforts offer opportunities for overseas companies at a time when the rules of engagement are changing. International companies are now able to manufacture directly in China without having to use joint ventures with local companies and there are signs China may be showing a new respect for intellectual property.
Brookings argues that combining Chinese and international skills, technology and production capacity could help to advance the transition to low carbon energy in ways which would be impossible if we move into a new era of protectionism.
All this is well argued but feels over optimistic because it misses the core political point. The industrial base of the world is moving eastward, leaving many in Europe and the US behind. Globalisation is entirely rational in economic terms and without doubt a great source of common progress in tackling climate change.
But globalisation costs jobs. China, because of its strength and its driving ambition, is an obvious target for those who wish to protect what is being lost. In the face of such pressures, there is no reason to think that the open trading system to which we have grown accustomed is secure or sustainable.