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China has a plan – Peak Coal and the new Silk Road

This Article is written by Joan Martinez Alier and Federico Demaria and has been by the Ecologist on 25th July.

China’s contribution to global climate change will increase from oil and gas, not from coal. Despite that and the ongoing repression, internal environmental conflicts related to mining and coal-fired power plants will continue. These coal-related conflicts are not the only ones in China. There are hundreds of other socio-environmental conflicts: conflicts surrounding waste incinerators; environmental and occupational health issues; industrial tree plantations; dams and many others.

The Belt and Road initiative (BRI) launched in 2017 reflects China’s need to increase investments outside the country. Some of them will be in coal or other fossil fuels. Chinese projects overseas have often become conflictive due to working conditions and environmental damages. ‘Flag follows trade’ is the mantra now. 

China’s political power will be increasingly felt, guaranteeing investments and repayment of debts through arbitrage courts or other methods. China’s power will also include a strategy of displacing manufacturing controlled by Chinese firms to other countries – thus displacing carbon emissions.

Peak Coal in China

China is extracting an extraordinary 4 billion tons of coal per year, meaning 3 tons per capita. This  is four times more than the US, while the per capita amount is similar. In China, net imports of coal have also increased but they are scarcely relevant for the overall energy supply. China burned 4.7% less coal in 2016 than in the previous year and coal consumption has dropped since 2014.

This is because of a downturn in the growth rate of the economy and the associated closing of mines. But there is clearly also a structural change: the retreat from coal. Coal’s share in the energy mix decreased from 72% in 2009 to 62% in 2016. Natural gas is increasing as well as hydroelectric, photovoltaics and wind energy. 

There is no lack of coal reserves in China in the perspective of another 40 or 50 years. Coal is peaking because of the need to diminish internal pollution. With a similar population, India is still far behind, at 700 million tons of extraction of coal per year. 

Most coal in China comes from underground mining, with many mortal accidents. Opposition to coal-fired power stations is widespread because of pollution, soil subsidence and other local socio-environmental costs. Many people suffer from coal dust related lung diseases. Despite that, we have found no cases in China so far where local socio-environmental claims get into alliance with the global climate justice movement asking for leaving “coal in the hole” (as in Sompeta in Andhra Pradesh, India or in Fuleni in Kwa Zulu Natal, South Africa). 

The amount of coal to be mined yearly will still be very large for many years to come. The commitments of China under the Paris agreement of 2015 are for increasing the energy efficiency of the economy more than for a rapid reduction of total emissions. 

The circular economy 

Chinese authorities are aware of the nation’s heavy resource exploitation. In 2008, a Circular Economy ‘Promotion Law’ included targets for the coal, steel, electronics, chemical and petrochemicals industries. This has been included in the last three ‘Five years’ plans’. Similarly to the European Union, China’s interest in the circular economy is linked not only to a concern with environmental issues, but also to competitiveness and the provision of natural resources. The results of these policies have been limited. This is not surprising from the viewpoint of ecological economics. Since energy is dissipated and materials are recycled only to a small extent, even a non-growing economy would require everyday incursions into nature to extract energy and materials, and it would continue to produce pollutants and to add carbon dioxide to the atmosphere. 

This is much truer of a growing economy: the industrial economy is not circular, it is entropic. 

China has increased its consumption of natural resources five times from 1990 to 2011, from 5 to 25 billions tons. The material intensity of the economy has improved, especially in the 1990s, from 4.3 kg of resources per US dollar of GDP to 2.5. In other words, the Chinese economy has experience relative dematerialization, but not absolute. This confirms the fact that economic growth and sustainability are not compatible, no matter how you change the slogan from sustainable development, to green economy, green growth or circular economy. A resurgence in the idea of ecological Marxism, or the “ecological civilisation” are not enough since they are in contradiction with other major state policies. 

The Silk Road and Belt Initiative

China experiences a significant trade surplus. Yet, it faces excess capacity, which means some industries -from coal mining to steel production- suffers from over-production. Plans to increase internal demand are ongoing, with significant investments since the financial crisis. However, China’s economy is officially said to have entered the New Normal (xin chang tai) which means a new phase from the past high-speed growth pattern of 10% or more, to the current 7-8% (implying rates of growth of energy use slightly lower). 

Manufacturing industries can no longer rely only upon low cost production factors, since the prices of labor and land are on the rise. Service sectors are increasing in importance. Plus, technological innovation is expected to become the new driving force. Challenges are many, including high level of private and public indebtedness. 

In summary, China aims to transit from export-oriented growth to a new model based on consumption and outward investment. But how? 

China has a plan: To be precise, a Marshall Plan and much bigger than the original one. It could be called the ‘President Xi Plan’, or the ‘Xu Plan’ after the official that in 2009 submitted a proposal to the Ministry of Commerce, interpreted by the foreign press as the “Chinese Marshall Plan”. The context was the financial crisis, with decreasing exports and debates on how to increase domestic consumption. Xu Shanda proposed to use China’s foreign reserves to offer loans to developing countries, which in turn would then contract Chinese enterprises for major construction and infrastructure projects. In his own words: “It is envisaged that the plan can increase exports, digest China’s excess capacity now, but also promote the process of internationalization of the renminbi and raise domestic consumption and in the future domestic financial resources.” 

The Chinese investments in Latin America and Africa have been increasing. The “One Belt, One Road” (OBOR) strategy covers Central, North and South Asia and the Middle East (West Asia), but also Europe and East Africa. This is presented officially as an initiative for ‘shared development’ and not as a unilateral plan. The aim is to increase connectivity and cooperation between Eurasian countries via the land-based “Silk Road Economic Belt” and the oceangoing “Maritime Silk Road”. 

In mid-May 2017 officials and leaders from over 110 countries gathered in Beijing for the first “Belt and Road Forum”. The initiative includes trade, investment and resources extraction initiatives. OBOR aims to channel investments in infrastructure (such as railways, roads, airports, ports and waterways) to connect the region and to open new markets for Chinese products, services and capital. A farmer we met in Yangling (which is supposed to be the cradle of Chinese agriculture 4000 years ago) wondered whether with OBOR he could export kiwi to other countries. 

Investment would focus also on energy, mining, oil pipelines, and telecoms networks and communications. 

Many of these investments are based on renewable energies, but also on fossil fuels. For instance, Chinese companies have already invested heavily in 240 coal power projects in the region with a total generating capacity of 251 gigawatts; top countries are India, Indonesia, Mongolia, Vietnam and Turkey. This contradicts China’s peak coal at home and its promotion of renewable energy, and undermines global action on climate change. 

The Asian Infrastructure Investment Bank (AIIB), the Chinese ‘World Bank’, will serve as the financing arm. The projected investment for OBOR will be US$1.4 trillion (a bit more than Spain’s GDP). The plan will also have domestic positive effects, such as integrating the West part of the country, less industrialized than the East. It also aims to relocate abroad labour-intensive and low value-added manufacturing industries, in the hope also of displacing environmental impacts and conflicts.  

Apart from economic reasons, there is a clear political motivation behind the project: expand China’s influence in the region and in the world. In colonial times, some countries practiced the maxim “trade follows the flag” (first you take political power and them you promote resource extraction and trade), while other countries like Britain and The Netherlands practiced the reverse:  “The flag follows trade”. In the 21st Century China is following suite.  

Conclusion: the energy system and foreign investments  

China’s coal consumption has peaked, and this is good news. However, it is very far from a circular economy. Recent initiatives like OBOR are likely to increase China’s political power as well as extraction and consumption of natural resources, leading to more ecological distribution conflicts, both locally and globally including climate change.

China’s re-structuring of the economy and the energy system serves multiple objectives:
1) Investing the surplus arising from workers poor working conditions and low wages, from the exploitation of nature, from the relative easiness in getting land due to state ownership. This surplus is manifested in a high saving ratio and in the international positive trade balance.
2) Finding an outlet for the excess capacity by making investments abroad that will use Chinese labour and inputs, like steel.
3) Displacing geographically environmental impacts and conflicts.
4) Moving from an export manufacturing economy to a service economy, which means to move from a low cost economy to one of higher economic value-added products and services.
5) Meeting 2015 Paris agreement objectives on greenhouse gas emissions.

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