Category Archives: Environment

Drought Hits Northern China, El Niño Threatens Worse

EL NIÑO, THE periodic warming of sea-surface-temperatures in the Pacific, is already if prematurely being blamed for the worst drought to hit northern and central China in 60 years. State media says more than 27.5 million people are facing water shortages across at least six provinces.

Previous El Niños caused flooding in the southern rice-growing regions, as they did so disastrously along the Yangtze River in 1998, even as they brought drought to the wheat-growing provinces of the north. The extreme weather produced by El Niño in 1876–77 caused one of that century’s most deadly famines across Asia, with 13 million people dying from hunger in northern China alone.

While the latest El Nino conditions are only just starting to form in the Pacific, they are exacerbating the hot, dry weather in northern China, which was already suffering from serious water shortages as a result of years of deforestation, industrialization and urbanization.

The previous El Niño in 2009 triggered a sharp fall in wheat output. State media say that drought in Liaoning Province has so far devastated 2 million hectares of crops. An El Niño would ratchet up that number significantly.

Drought is also severe in Jilin, Inner Mongolia, Shaanxi, Henan and Hubei, affecting a further 2 million hectares of crops. The overall effects on harvests could be significant. A break to a run of 11 consecutive years of rising wheat harvests looks likely. The key question is whether this turns out to be a short El Niño lasting a few months, or a more long-standing event lasting as long as a couple of years.

China is not alone in being affected by El Niño. The net effect around the Pacific could be to cut global grain harvests by upwards of 2%. Sugar, beef, cotton, palm oil, cocoa and coffee output could also be hit, pushing up prices of those commodities. China’s cotton fields are south of the Yellow River, and like the rice paddies, subject to El Niño-related flooding.

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A Beijing Boost For China’s Electric Vehicle Makers

CHINA SEES ELECTRIC vehicles as the way to leapfrog its way to leadership of the global car industry. Promoting green technologies will also help the country tackle its widespread and worsening pollution, even though the impact of electric vehicles will mostly be in mitigating the problem from getting worse.

Despite government backing since 2009, production is currently modest, to say the least. The goal is to be building half a million electric vehicles a year by the start of 2016 and twice that number by 2020.

To that end, the government has announced an industrial-policy boost. Central government departments and municipal administrations will have to allocate a third of their annual vehicle procurement to “new energy” vehicles. That covers hybrids as well as vehicles powered by hydrogen cells, but in practice means electric vehicles. Local authorities are also instructed to install charging stations — one for each electric vehicle on the road.

Some financial incentive for officials to follow these new directives seem inevitable, given the increasing pressure on local-authority budgets now land sales are a less readily available honeypot. Any subsidies will have to be carefully structured to ring fence them from any potential international trade disputes.

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Environmentalists’ Political Threat To China’s Communist Party

ENVIRONMENTAL PROTESTS ARE of even greater concern to the leadership of China’s Communist Party than the threat of domestic terrorism. For one, they are far more widespread. The violence that broke out on May 10th in Zhongtai, a township outside Hangzhou, at a demonstration against building a waste incinerator there, may have been untypically bloody, but such protests in themselves are far from uncommon. Tens of thousands occur every year across the country.

The annual numbers are rising at a marked rate as far as we can tell. Some like one last year against China National Petroleum Corp.’s plans to build a petrochemical plant in Kunming gain international attention, but most remain local affairs. Nor do most secure more than get a delay to the unwanted project. Last year’s cancellation of a proposed lithium battery factory in the Songjiang district of Shanghai following large-scale protests was an exception rather than the rule.

Nor can the authorities point at the finger of blame on outside agitators, as they can do with the recent knife and bomb attacks blamed on militants from Xinjiang — though this Bystander will not be surprised to see the 50-centers on social media and their equivalent official unofficial voices in the public prints doing just that with environmental protests. There is too large a slice of China’s middle class concerned about the environmental degradation that has come with economic development for authorities to crack down on them all. Surveys of public opinion suggest that three-fifths to three-quarters of the public want the government to do more to improve the environment, and particularly to lessen pollution.

There is nothing exclusively Chinese about demonstrations against development projects by those who don’t want them in their backyards regardless of the greater benefit to a broader society. Incinerating waste rather than burying it in landfills and using the energy created as an alternative to coal-burning power generation plants is net for net an environmental gain for Hangzhou and the rest of the eastern China seaboard. Zhongtai residents are more narrowly concerned that what would be Asia largest incineration plant will further pollute their air and contaminate their water.

For the leadership, the long-term threat is that environmental protests will be the kernel form which a political party could grow to challenge the Party’s monopoly on political power. That is one reason it has allowed so many environmental protests to proceed for as long as they remain relatively local and peaceful.  Indeed, thousands of residents have been protesting against the planned incineration plant in Zhongtai for the past couple of weeks.

What the leadership will not tolerate is attacks on symbols of national authority such as police. That puts it on a slippery slope. Throwing a dragnet over the Zhongtai in a search for 15 men suspected of involvement in Saturday’s violent clashes with riot police is meant to show that the leadership will tolerate only so much dissent — and that that has to remain local and disorganized.

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China Allows Its First Corporate Bond Default

chaori_solar

CHINA’S FIRST ONSHORE default since the corporate bond market was opened up in 1997 is at hand. Solar-panel maker Shanghai Chaori Solar Energy Science & Technology has technically defaulted on its 1 billion yuan ($163 million) five-year bond issued in 2012 after warning last month that it would be unable to meet in full a 89.8 million yuan ($14.7 million) interest payment due March 7. The company says it was only able to pay 4 million yuan on the due date.

By not coming to the issuer’s aid, and as they are doing with defaulting trusts, authorities are warning that the implicit guarantee that investors have assumed government gives to every issuance no longer holds true. Big money is at stake. Chinese companies had 8.7 trillion yuan of bonds outstanding as of end-January (up from 800 billion yuan at end-2007). That makes Chaori’s default a drop in the bucket, one reason that central government is letting it default. The ripple will be salutary rather than financial.

Investors have had time to prepare. Chaori’s bonds were suspended from trading last July and its equities, listed on the Shenzhen exchange, last month. Authorities, though, will be hoping now the day of default has come it does not turn into “China’s Bear Stearns moment” as analysts at Bank of America have warned, referring to the way investors reassessed credit risks when the U.S. investment bank had to be bailed out by Washington in 2008 triggering a chain of events that led to the crash of Lehman Bros. and the global financial crisis.

Another reason to let Chaori go is the dire state of the solar panel industry where the government is promoting the consolidation of weaker players to remove excess production capacity. (Another solar panel maker, LDK Solar, has previously been allowed to default on its offshore bonds and to go to the brink of bankruptcy, a precipice that Wuxi SunTech went over.) Nonetheless, four companies have scrapped bond sales that would have raised an aggregate 1.27 billion yuan while yields on Chinese junk-bonds have jumped in the wake of Chaori’s default.

Getting lenders and investors to better price risk in domestic credit markets and corporate managers to better understand what is a realistic return on their investments in plant and equipment is exactly what President Xi Jinping and Premier Li Keqiang meant when they said market forces would be allowed to play a greater role in the Chinese economy. This Bystander expects more low-key corporate bond defaults to come in other industries suffering from excess capacity such as steel, metals and shipbuilding.

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China Gives Another Boost To Its Solar Power Industry

solar-panels

Solar panels in Qingdao, Shandong Province. Photo credit: Xinhua

SIX MONTHS AGO, China’s policymakers set a new goal of more than quadrupling the country’s solar power generating capacity by 2015. The objective came against a background of an industry wracked by overcapacity and falling prices that has pushed companies like LDK Solar and JA Solar to the edge of bankruptcy, and Sun Tech over it. It was intended to restore the ailing industry’s health — more solar power plants will require more photovoltaic panels — and draw the sting from a series of trade disputes. It also fits with an overall goal of diminishing the country’s dependency on polluting fossil fuels.

Now the industry ministry has announced measures to help reach that goal, largely by driving industry consolidation and promoting standardization. It is also pushing the local generation of solar power in small-scale installations not connected to the power grid. That should promote technical innovation, as will R&D into batteries to store solar power. The package of measures is intended to avoid creating the trade frictions with the U.S. and the E.U. that China’s earlier support for its solar exporters caused. It will potentially provide more domestic work for China’s solar companies which together provide more than half the world’s solar panels — and have been accused of dumping them on international markets at below cost. Both the U.S. and the E.U. have imposed anti-dumping penalties.

China’s total installed solar power generating capacity increased by 8 gigawatts (GW) in 2013, of which 6 GW were at power plants and 2 GW were at decentralized installations, according to the China Photovoltaic Industry Alliance. If that initial estimate is confirmed it would mean capacity doubled last year. The raising last July of the country’s goal for 2015 to 35 GW from 21 GW requires another doubling of generating capacity  over this year and next.

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China’s 3m-plus Hectares Of Farmland Too Polluted To Grow Crops

CHINA HAS LONG been steadily losing farmland to urbanization, soil erosion and environmental degradation. Now authorities say 3.33 million hectares of the arable land the country still has are too polluted to grow crops. By way of comparison, that is an area almost equal to the size of Taiwan. Vice-minister for land and resource Wang Shiyuan says “tens of billions of yuan” is being thrown at pilot projects to rehabilitate contaminated land and water supplies tainted by the same source.

Officials are particularly concerned about toxic metals getting into the food chain. This Bystander has heard reports of rice being sold in Guangzhou that contains dangerous levels of cadmium. Once in the ground, such metals can persist for years, and government land surveys are still turning up traces of pesticides banned in the 1980s.

China is skirting the 120 million hectares of farmland considered to be the minimum needed to ensure the country’s food security. A newly released national land survey says the country’s arable land was down to 135.4 million hectares as of the end of 2012. The current five-year plan calls for more than 50 million hectares of new farmland to be created by 2020, so every little bit of reclaimed contaminated land helps.

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Carbon Trading Starts In Guangdong

guangzhou_dusk_panoramaWHAT IS EXPECTED to be China’s largest and the world’s second-largest carbon trading market has opened for business. First-day’s trading on the China Emissions Exchange in Guangzhou was roughly double the opening day’s volume on its predecessors in Beijing, Shanghai and Shenzhen.

Exchanges in Chongqing and Tianjin, and the province of Hubei are planned to follow in the next few months as Beijing clamps down on CO2 emissions from heavy industry. Beijing is planning to run the seven exchanges for three to five years as pilots for a national scheme.

Companies have to have a carbon permit for every tonne of carbon dioxide emitted. Most permits will be issued for free initially, but companies will have to pay for 3% of their expected emissions in the first year of the scheme, with that percentage gradually rising in the future. The Guangdong scheme covers the province’s big power generators, cement, iron and steel producers, a group of 242 companies that have been capped at 350 million tonnes of CO2 emissions. Textiles, pulp and paper and metals industries will be added later. 

When all the carbon trading markets are up an running they will regulate 800 million tonnes of emissions, equivalent to Germany’s annual emissions. Beijing’s goal is to cut its greenhouse gas emissions per unit of GDP to 40-45% below 2005 levels by 2020, not just to limit the effects of climate change, but also as part of its drive to become more energy efficient and to deflect the negative criticism that comes with being the world’s biggest polluter.

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