China Research

Keynote speech by Prof. Gerhard Stahl in Shenzen, March 13, 2016
Former Secretary General of the EU Committee of the Regions, visiting professor at the Peking University PHBS Business School

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Three months after the United Nations framework convention on climate change (COP 21) in Paris, there is a need to discuss the next steps of green transformation. It is a very good idea to have such a discussion here in Shenzhen, a frontrunner of green development in China. At the 30.November, with the speech of the Chinese President in Paris, it became clear that China would become a strong partner for the needed ecological transformation.

The degradation of our environment and the negative consequences of climate change is an existential threat for the future development of humankind on our planet.

Already since some years scientific reports showed that our climate system is moving beyond the patterns of natural variability, within which our society and economy have developed. We have to fear an irreversible climatic shift, with all its negative consequences: Increase of the global mean surface temperature, Ice sheet melting, Sea-level rise, Deforestation, Extreme climatic events and devastating natural catastrophes.

In short a degradation if not destruction of our natural environment. Therefore urgent measures are needed to stop global warming.

For a long time important economic and political actors were reluctant to address these challenges. The short term needs of economic growth and development where regarded as the clear priority. Such a priority setting can be well understood for developing countries. Where there is mass-poverty and the fight for daily survival the ecological development and the climate will be secondary. But there have been also mayor economic interests in rich developed countries that denied a shift to a more sustainable policy. In the UN conferences in Kyoto in 1992 and later in Copenhagen (COP15) in 2009, the United States, having one of the highest co2 emissions per capita, was not yet prepared to support a common policy together with European Countries to fight global warming and to develop a more sustainable economic model. Having been part of the official EU-delegation in Copenhagen, I still remember our disappointment about the American position and the failure of the Conference.

The recognition in China of the need for green economy and the very proactive diplomacy of the Chinese President in the preparation of Paris, discussing climate policy directly with President Obama, helped to change the American position. In Paris the Chinese president, the American president and the European leaders all stood on the same side.

But we should have no illusions: The success of Paris was not the end but only the beginning of a transformation process. To achieve a low carbon economy needs concrete sometimes-painful actions. The Paris objective to limit global warming to 1.5 degree Celsius demands a policy change towards green economy in developed and developing countries. China with its understanding of the needs of developing countries and its tradition of south-south cooperation can play a very important role as bridge between the developed and the developing world. But most important: China can show how the development of the most populated country in the world can be achieved in a more sustainable manner. That ecological civilization is the model for the future.

But there is still a lot to do. Based on current planning China will achieve the peak of its CO2 emissions in 2030. This is still a long time. Efforts must be made to advance this deadline. Additional measures should be taken in areas such as energy saving, improving energy efficiency, develop non fossil energy, limit the use of coal and develop clean coal technologies and large scale forestation. For the un-going rapid urbanization process in China low carbon cities must be built. The national carbon emission trading system must be put in place quickly. The legislator can benefit from the experiences of some of the pilot projects in China and from the European experience with its European wide emission trading system. This system exists since 10 years. It is by far the biggest international trading system covering 11000 power stations and industrial plants in 31 countries as well as airlines.

We know that in climate policy good political intentions and even good environmental legislation is not enough, if people, business and local authorities do not translate these ideas and rules into the daily live. Implementation of green economy and concrete actions are the key to success. As former Secretary General of the Comity of the Regions in the EU, I would like to underline the crucial role of the local level in green transformation. In Europe, cities did not wait for international agreements or even for their national governments to advance in the green transformation. After the failure of Copenhagen, cities and regions in Europe took the initiative. More than 3000 cities and regions all over Europe signed an agreement to take measures to reduce CO2 emissions by 20 % until 2020. All prepared a sustainable Energy Action Plan; they accepted regular evaluation and monitoring. They took the commitment to present regular implementation reports.

How much can be done, how creative actions can be, we will also see today. The foundations present at this conference show with their projects that a lot of the work for a green revolution has already started.

Gerhard Stahl
Professor, Peking University HSBC Business School, Shenzen

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This year’s National People’s Congress (NPC) has come to an end – without revealing any major surprises. China’s political leaders stressed that a lot of work has to be done in the forthcoming years. However, the economy is regarded as resilient, moving forward and still able to achieve a GDP-growth rate of at least 6.5 percent on average until 2020 (if we apply official GDP calculations in this context). This growth rate should be good enough – expressed in quite a humble way – “to push China to a moderately prosperous society”, according to the leadership of the Communist Party.

Institutional improvements, innovation and more supply-side policy were also singled out with emphasis at the Congress. But I could not find any deepening details about the reform results so far related to the ambitious program from the Third Plenum in November 2013 (evaluation in 2020). This is certainly a shortcoming if my observation is correct. Actually, I could not find any interesting examples of improved transparency.

One detail was striking me all the same: the acceptance of a higher budget deficit in 2016 (3 percent at the most compared to 2.3 percent in 2015). This was the message in the Chinese and international press. But I did not read any line about the fact that this number was aiming at the central government debt only – thus, excluding the much higher local debt ratio. One more example of insufficient transparency!

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

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Now it’s time again for the annual National People’s Congress (NPC), as usual in the Great Hall of the People in Beijing (March 5 – March 10). This year’s convention belongs certainly to the more interesting ones since hopefully more details on the already in November 2015 approved 13^th five-year plan will come out. Then, five major reform areas – among many others – were put in the first place: innovation, green development, expansion of economic activity on the internet, social insurance plus pensions and financial reforms. This is theoretically certainly more or less alright.

As we have learned from the Third Plenum in 2013, 60 special reform areas have already been addressed by China’s political leaders. Some of them have become more concrete in the meanwhile, others still need a lot of clarification. One concrete example: two-child policy was approved last year – but obviously there is no promising strategy for women on the labor market who will have or would like to have a second child. Consequently, there are currently a lot of doubts about the future success of the new two-child policy.

Some of the most important questions I would like to get answered at least partly by the NPC:

¤ time perspectives for a number of reforms (particularly for social reforms as an indicator for the new growth policy toward a higher share of consumption/GDP),

¤ more details on concrete changes and measures in the next five years (2020 is an evaluation year),

¤ the new GDP growth target (6 ½ % p.a.? Whatever one may think about GDP statistics …),

¤ priority of financial reforms (domestic reforms versus capital account deregulation),

¤ concrete achievements since the Third Plenum in November 2013,

¤ velocity so far of all the planned reforms (on time, lagging?).

Particularly the last two points do not seem to be matters of discussion. Here analysts need more transparency. Not so much focus should be, for example, put on the for China prestigious external question whether China should be treated as a market economy by the EU or not. (In my view, the answer should be “no”, simply because too much of the economy still is planned and influenced by the Chinese state; see also our latest blog by Rolf Langhammer who has a different opinion).

Anyway, it will be worthwhile to find out the degree of openness during and after the NPC. If interesting news can reach us, it would be fine. If not, the traditional communication and transparency shortcomings are still in place .

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

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