COP21: Follow The Money

Paris skyline

THE PARIS CLIMATE talks — formally the United Nations 21st Conference of the Parties (COP21) — starting on November 30 will be a political bun fight in which China as the world’s biggest polluter will be at the centre. But the how, who and who pays arguments over environmentally sustainable development are only another front in the wider competitive-cooperative struggle between North and South for global influence.

Whatever the outcome of the Paris meeting, China will come off a winner.

The goal of COP21 is for more than 190 countries to agree a global and legally binding treaty that will let the world avoid the worst impacts of climate change. In practice, this means an enforceable plan to keep global warming below 2℃ by cutting greenhouse gas emissions.

The countries that account for 80% of the world’s emissions, three-quarters of which are accounted for by China, the United States, the 28 European Union members and India, have submitted plans for how they will play their part. However, these Intended Nationally Determined Contributions in aggregate fall short of what is needed to meet the 2℃ target.

China’s INDC’s are conventional enough: a speeding up of the transformation of energy production and consumption to mitigate increasing greenhouse gas emissions; continuing improvements in energy efficiency as the economy is rebalanced in a sustainable way; and increases in forest carbon sinks.

In hard numbers:

  • Peak CO2 emissions to be reached by 2030 at the latest;
  • Cut carbon intensity by 60-65% from 2005 levels;
  • 20% of energy produced by renewables by 2030 (10% in 2013); and
  • Increase forest coverage by 4.5 billion cubic meters compared to 2005.

These targets build on ones set out in 2009. That year, Beijing said that by 2020 it would lower carbon dioxide emissions per unit of GDP by 40-45% from 2005’s levels, increase the share of non-fossil fuels in primary energy consumption to around 15%, and increase forests by 40 million hectares and the forest stock volume by 1.3 billion cubic meters compared to 2005 levels.

In its INDC, Beijing claimed that by 2014, it had achieved:

  • 33.8% lower carbon dioxide emissions per unit of GDP than the 2005 level;
  • 11.2% non-fossil fuels share in primary energy consumption;
  • Forested area and forest stock volume increased by 21.6 million hectares and 2.188 billion cubic meters respectively compared to the 2005 levels;
  • 300 gigawatts of installed hydropower capacity — 2.57 times of that in 2005;
  • 95.81 gigawatts of on-grid wind power capacity — 90 times of that of 2005);
  • 28.05 gigawatts of solar power installed capacity of — 400 times of that of 2005; and
  • 19.88 gigawatts of nuclear power installed capacity — 2.9 times of that for 2005.
  • Also, China has initiated pilot carbon-trading markets in seven provinces and cities and low-carbon development pilots in 42 provinces and cities, with a goal of having a nationwide cap-and-trade market in place by 2017.

All of which is real progress, though not sufficient to have kept up fully with the growing economy, as the skies over Beijing bear daily witness.

China’s COP21 targets still look ambitious, unlikely to be achieved without either technological advances both to improve energy intensity (units of energy required per unit of GDP created) and to help nuclear energy replace coal-fired power generation, or a slowdown in the economy to reduce power demand. On some estimates, the later would mean China’s GDP growth rate slowing to at least 4.5% a year for a sustained period in the decade to 2030.

All of which helps to explain why the politics of climate control will be so confrontational at COP21 behind the feel-good words the politicians will spout.

As de facto spokesnation for developing economies, China wants the rich nations to carry the much more of the burden of reducing emissions than poor ones. Its argues that historically the developed countries have gone through their industrial revolutions and so should not expect developing economies to have artificial constraints put on them as they now go through theirs.

The motives for such a position fall along a spectrum running from fairness — developed nations shouldn’t get a ‘free ride’ on pollution just because it occurred centuries ago — to nefariousness — the old world powers are using climate change to hold back the development of new rivals arising in the East and South.

Thus, China wants ‘ambitious economy-wide absolute quantified emissions reductions targets’ for developed countries, while calling only for ‘enhanced mitigation actions’ on the part of developing economies such as itself. Furthermore, it wants developed countries to provide the finance, technology and capacity-building for developing nations to do so.

The proposed financing is scarcely chump change. Beijing wants it to start at $100 billion in 2020 and then increase yearly, with the monies coming from the West’s public purses, not private sources. It proposes that this financing is channeled through the UN’s Green Climate Fund, a somewhat misbegotten five-year-old UN agency that would be made directly accountable to COP21.

So far, the fund has barely raised more money than needed to cover its set-up costs and is wracked by internal disagreements over what it should be funding and how. As of May this year it had received pledges of only $10.2 billion towards its own $100 billion-by-2020 target.

Developing nations don’t like the fund’s focus on private investment, which in practice means Western investing institutions. Environmentalists don’t like its acceptance of fossil-fuel investments, and no one likes the fund’s governance, hence Beijing’s effort to switch it to public funding and put it under COP21’s authority.

The third area of contention at Paris beyond targets and where the money is coming from will be technology. Beijing wants COP21 to impose a clear requirement on developed nations to transfer technologies and R&D to developing countries ‘based on their technology needs’. That would give developing economies, including China, carte blanche to demand virtually any technologies from the developed nations that it wants.

China has need of such technologies, given the challenges of its COP21 proposals. It will not be able to displace coal from the central place it now occupies in the energy mix without a significant increase in nuclear power generation. China is developing an indigenous nuclear industry apace, but its third-generation technology remains unproven, its capacity for making key components for reactors is uneven, and it has limited abilities in spent fuel reprocessing and storage.

Free licence to demand technology transfers from Washington and Paris to tackle any and all of those problems so its nuclear industry can make itself internationally competitive is not going to be acceptable to the West.

However, COP21 will likely yield an agreement, not the vague promises of previous UN climate summits. China will, of course, not get everything it is calling for going in. Binding hard 2030 targets on developed nations are unlikely, as are commitments by the West to any significant public funding of the Global Climate Fund or carte blanche technology transfers.

A mechanism for strengthening national carbon reduction targets every five years is likely. Presidents Xi Jinping and Barack Obama agreed when they met in September to support such an approach, calling for COP21 to establish reporting and accountability that would strengthen emission reduction targets over time.

That, along with some concrete steps towards mobilizing financial and technical resources to assist the power countries to develop sustainable low-carbon and climate resilient economies would be achievement enough in Paris.

These outcomes would give Beijing plenty of advantages. It would get flexibility in recalibrating its tough 2030 domestic emissions targets and constrain Western efforts to impose a World Bank IFC-type private-sector financing model on climate mitigation.

At the same time, it would be free to expand its bilateral climate lending channels such as its South-South Climate Fund. Through its other burgeoning channels such as the Asian Infrastructure Investment Bank, the BRICS’ development bank, and its Silk Road Fund, it can position itself as a key player in global low-carbon investment through its overseas infrastructure and project finance.

With that would come another broad, long-term ratcheting up of Beijing’s global clout, and especially if the next U.S. administration is a more isolationist and climate-change-rejecting Republican one.

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China’s Modern Major-Generals

President Xi Jinping poses for a group photo with military delegates to a meeting on armed force reform, Beijing, November 24-26, 2015

THE MODERNIZATION OF China’s armed services into a professional fighting force commensurate with the needs of the country’s growing global presence is starting to reach the sharp end. A two-day policy meeting on PLA reform, presided over by the chairman of the Central Military Commission (CMC), President Xi Jinping, has just wrapped up in Beijing. The photograph above shows Xi and his top brass at the event.

The meeting ratified:

  • the PLA and the Chinese People’s Armed Police being put under the administration of the Central Military Commission, the twin state-Party agency through which the Party controls the armed forces, a move that further strengthens and integrates the Party’s control of the military and security apparatus;
  • amalgamation of the country’s seven military regions into four, which will be refocused as combat commands;
  • and advancement of the concept of the PLA as a true multi-service force as opposed to an army with planes and ships by giving the PLA Navy (PLA-N), the PLA Air Force (PLAAF) and the Second Artillery Corps, which controls nuclear and conventional ballistic weapons, more autonomy over their procurement and strength expansion.

While much of this was presaged in the five-year-plan for the military drawn up in 2011, this most recent meeting suggests that the army, which has been fighting a rearguard against the changes, has largely concluded that further resistance is futile. This is partly because of the irrefutable military rationale that modern China needs more air and naval power and fewer ground forces, but also because Xi’s anti-corruption drives have successfully removed more than 200 of the greenish-brown-uniformed gainsayers.

However, the tightening of Party control over the armed forces, in itself another aspect of Xi’s centralization of power, and state media reports of the continuing need ‘to solve the problem of weak discipline enforcement and inspection and to ‘eradicate the soil of corruption with stricter rules and systems’, suggests that the pressure will be kept up. Corrupt, poorly trained and equipped ground forces is the PLA’s Achilles heel.

While the PLA ’s old commercial empire was dismantled some years back, China growing industrial-military complex offers new temptations. A ‘revolution in the management’ of the military will take care of some of that, as will cutting 300,000 administrative and non-combatant personnel from the army’s numbers as previously advertised — though the timeline is unclear and the cuts will still leave the PLA as around a 2 million-strong force including 1 million ground forces.

The aircraft carriers, advanced submarines, stealth fighters and ballistic missiles bear ample testimony to the naval and air services’ ascendancy. However, the PLA’s command structure, including its communications and logistics, does not yet fully reflect that though the communications infrastructure is making rapid advances.

A unified joint military command is also needed for the tighter integration between the PLA and internal security forces, even more important now that Beijing has now declared its ‘war on terror’ albeit mostly starting at home.

The 2011 five-year plan spoke of developing leaner, more technologically sophisticated armed forces with a joint command structure capable of “winning local wars under conditions of high technology and informatisation”. That is now being put in place, even if China is still — at least for now — only capable of winning skirmishes rather than wars in the Pacific, cyberspace and real space.

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China Considers Overseas Counterterrorism Special Ops

BEIJING IS CONSIDERING with renewed urgency law to authorize counterterrorism operations beyond its borders. One of the provisions of its controversial proposed anti-terrorism legislation, Article 76, would let People’s Liberation Army (PLA) and state and public security forces operate in other countries with the approval of that country.

A draft of the new law was circulated late last year. Primarily focused on combating domestic terrorism, the draft has been criticized by human rights organizations for its broad definition of terrorism. The execution of a Chinese citizen held by Islamic State for ransom, which Beijing’s apparent efforts failed to avert, and the siege in Mali in which three China Railway Construction Corp. managers were killed have given new impetus to enacting the draft law to provide the PLA with the legal authority its commanders desire if they are to conduct counterterrorism operations abroad.

Details of what overseas counter-terrorism operations could be undertaken are not laid out in any detail, in the manner of draft Chinese law. Article 76 says no more than:

Given that the proposed law includes ‘thought, speech or actions’ that seek to ‘influence national policy making’ as possible acts of terrorism, it potentially provides authorities with broad latitude abroad as well as at home. However, regardless of what is finally put into law, and, more critically, implemented — and it is highly unlikely that Beijing would be anything but ultra-cautious in embarking on overseas counterterrorism missions, even in lawless areas of the world where Chinese citizens are in harm’s way — carrying out any such operations will be challenging even with the cooperation of other countries.

Chinese military and security forces have scant experience of the political, cultural and operational constraints on such work beyond their borders despite the country’s extensive domestic security apparatus. Flushing out suspected terrorists with flamethrowers before shooting them, as reportedly happened recently in Xinjiang, would not necessarily be acceptable elsewhere.

It was only in late 2013 that the PLA sent its first detachment of armed personnel abroad to join a UN peacekeeping force, a deployment of 170 soldiers (now increased to 400) — in Mali, as it happens. Previously, Beijing’s peacekeeping contributions had concentrated on logistical and medical support, as it has done in the international anti-piracy operation off the Horn of Africa.

The PLA-Navy has, though, in recent years undertaken evacuations of Chinese citizens from Libya in 2011 and Yemen earlier this year. In 2011, it engaged in combined operations with Thailand, Myanmar and Laos on the Mekong river against drug runners.

Operations a few metres offshore are obviously very different from sending special forces or even intelligence teams on counter-terrorism missions a few thousand kilometres away. However, providing a legal framework for doing so would signal a change in both foreign policy and military doctrine.

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China’s Islamic State Dilemma

THE KILLING OF a Chinese hostage by the self-described Islamic State poses a dilemma for Beijing. It does not want to get dragged into the Syria-Iraq front of a war on terror it does not see as its fight and in which at best it would be a junior partner, not the equal on the world stage that it wishes to portray itself as. At the same time, it needs to preserve the narrative that Mother China — for which read the Party – looks after all its citizens when they venture abroad.

It is unclear under what circumstances Fan Jinghui fell into Islamic State’s hands. Described as a freelance consultant from Beijing, he was captured in September, according to Islamic State, which demanded a ransom for his release. That he has perished shocked Chinese. President Xi Jinping said in Manila, where he is attending the APEC summit, that terrorism was the “common enemy of humanity” and that “the Chinese government is opposed to all forms of terrorism, and will firmly crack down on any violent and terrorist activities.”

There have been unconfirmed reports that China is considering joining the Russian-led coalition against Islamic State in Syria and Iraq, but at best any presence is likely to be token and focused on humanitarian operations. China’s foreign minister Wang Yi summed up Beijing’s dilemma when he told the UN Security Council session in New York earlier this month that “the world cannot afford to stand by and look on with folded arms, but must also not arbitrarily interfere”.

What Xi’s condemnation may turn out to mean is a further crackdown on Uighurs on the excuse that a handful of the Muslim minority in Xinjiang has gone to fight for Islamic State in Syria and Iraq. On Friday, state media said that security forces had disbanded a ‘terrorist group’ in Xinjiang that was “directly guided by an overseas extremists group”, and during the 56-day operation had killed 28 people allegedly responsible for a deadly attack on the Sogan coal mine in Asku on September 18 in which 16 people died. Update: Flamethrowers were used to flush out militants hiding in a cave, who were then shot, according to the BBC.

Update: Chinese are reportedly among hostages taken by an al-Qaida-affiliated group that attacked a Radisson hotel in Mali on Friday. Later update: Three China Railway Construction Corp. managers were among the 21 hostages reported killed in the siege; four other Chinese hostages survived.

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Yuan Marches On Towards Reserve Currency Status

100 yuan notes

THE INTERNATIONAL MONETARY Fund’s staff have recommended that the fund includes the yuan in the basket of currencies that comprise its Special Drawing Rights. The IMF’s board is likely to endorse the staff’s view at its November 30 meeting, agreeing that the currency meets the test of being ‘freely available’, a test that it failed in 2010 when the IMF last reviewed its basket. The yuan would then become a reserve currency from September 2016.

The staff recommendation is not unexpected, but it marks another milestone in the Chinese currency’s internationalization — and more significantly its full convertibility. As we have noted before, the contingent opening of the capital account is an important policy priority for rebalancing the economy.

Recent changes to that end, but also to address specific IMF concerns, have included overhauling how the central bank sets its reference rate for the currency in foreign-exchange markets, letting foreign central banks trade China’s onshore currency products and improving the short-term yield curve through the issuance of  three-month debt.

The People’s Bank of China said in a statement that it welcomed the IMF staff’s recommendation, trotting out that making the yuan a reserve currency would be “a win-win result for China and the world” and avowing its commitment to financial reform and opening-up.

None of that makes pushing ahead with either any less urgent, or any easier.

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Navies Calm Dangerous Waters Beneath The Political Storms

US Navy officer on board the PLA-Navy's aircraft carrier Liaoning, October 2015. Photo credit: People's Daily.

THE RECENT ‘FREEDOM of navigation’ passage by the US Navy’s destroyer, the USS Lassen, through the Spratly islands was sandwiched between a visit by 27 US naval officers to the PLA-Navy’s aircraft carrier, the Liaoning (seen above), and the first visit by the PLA-Navy to an East Coast US Navy station when three PLA-Navy warships of Escort Task Force 152 led by the guided missile destroyer Jinan called at Mayport in Jacksonville, Florida.

That was far from the first visit by Chinese military officers. The chief of the PLA general staff, General Fang Fenghui, toured of the nuclear-powered aircraft carrier the USS Ronald Reagan in San Diego in May last year. Also last year China was invited for the first time to participate in the biannual RIMPAC exercises, the 22-nation maritime warfare drills organized by the US Navy’s Pacific fleet.

Beyond the political rhetoric, military-to-military cooperation between China and the U.S. is on the rise, and particularly between their respective navies over the past two years.

Military-to-military contacts have long been a staple of U.S. diplomacy to prevent wars of words becoming anything more deadly. They build trust and transparency between two groups of professional military men who often have more in common and more respect for each other than they do with and for their political masters.

China and the United States undertake similar technical contacts in the realms of trade and financial affairs. The military contacts, however, and especially the naval ones given the increasing political tensions between the two countries over the South China Sea, have raised concerns in the U.S. Congress that they are yielding too much military information to the PLA without restraining Beijing’s increasingly assertive actions off its shores and beyond.

Fang’s visit, in particular, raised questions of whether the US Navy had broken Congressional rules that forbid exchanges with China that could involve ‘force projection’. In December, Randy Forbes, the Virginian congressman who heads the seapower and projection forces subcommittee of the House Armed Services Committee sent a letter to the civilian bosses of the Pentagon calling for a review of America’s current military-to-military engagement policy with China.

Forbes’s letter did not fall on entirely deaf ears. Attitudes towards China in many parts of political Washington are hardening to a degree.

There is no evidence that those shifts are being felt among the military, although they will keep a weather eye out for shifting political winds. And the Pentagon continues, if perhaps slightly more circumspectly than before, to pursue the so-called new model of military-to-military relations between the two countries that reflects the broader framework of a relationship that China wants to put more on a partnership footing.

The Obama administration let President Xi Jinping write the rubric for that — “no conflict, no confrontation, mutual respect, and win-win cooperation.” It is language that Washington is showing less enthusiasm for now than before. But it is the tone that is changing rather than the overall narrative.

The working model is now cooperation where interests overlap, careful management where they do not. As relations go through a rocky patch, the priorities are avoiding accidents that turn into crises and establishing lines of communications if they do happen.

The risk is real. Last year a PLA fighter buzzed a US Navy plane, coming within 10 meters of it. The year before, a Chinese amphibious transport vessel escorting the Liaoning forced the USS Cowpens, a guided-missile cruiser, to take evasive action to avoid a collision.

That there have been no further mishaps is down in part to the Code for Unplanned Encounters at Sea, known by its acronym, CUES, that China, the United States and other Western Pacific nations agreed last year. The Code sets out ground rules for safe speeds and distances that vessels should keep, the language to be used in communications between navies, and actions to be taken in case a ship becomes disabled.

However, the rules do not apply to coast guard or other civilian vessels such as fishing boats. Nor are there enforcement mechanisms.

A third issue is that the rules apply “at sea.” They do not specify it that means international and territorial waters, or just international waters, which makes the disputed waters of the South and East China seas huge grey areas.  Washington and many other regional nations do not recognize Beijing’s maritime territorial claims.

It is the same disagreement as Washington and Beijing have over the United Nations’ Convention on the Law of Sea (UNCLOS), to which the Code is subservient.

Nonetheless, any code is better than none. Even the process of creating it was a confidence-building measure in its own right, as is the joint practice drill on using the Code that the two navies held in February. The USS Lassen was warned by China using the CUES protocols when it sailed passed the Spratlys last month.

Beijing and Washington signed a further bilateral memorandum of understanding that was a follow-up to the Code and in October this his year added a codicil. The two countries have also set up a military crisis hotline.

Is this all enough to prevent anything untoward happening? Probably not if one side or the other is set on a deliberately provocative act or even if a citizen-patriot becomes recklessly overzealous. But it does provide an often overlooked counterpoint to the currently testy political narrative.

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Two Gentleman Of China

WHEN XI JINPING and Ma Ying-jeou meet in a hotel in Singapore for 20 minutes on Saturday, the diplomatic sensitivities require both men to address each other plainly.

Neither man will formally acknowledge the other’s official title at what will be the first meeting between the presidents of China and Taiwan ever and the first between the leader of the Communist Party and the Kuomintang (KMT) since Mao Zedong, at Washington’s prompting, reluctantly met Chiang Kai-shek in 1945  to try to resolve the civil war they had been fighting for 20 years.

Were they to be speaking in English, they would address each other as Mr Xi and Mr Ma.

Their encounter will be a landmark occasion, but its significance lies in the fact that it is taking place at all, not in what might be said or achieved, which is likely little. There will be no agreements signed and no joint statement afterwards. Indeed, the two men will hold separate press conferences.

That said, the meeting is a bigger gamble for Xi than Ma as he is injecting himself into Taiwanese domestic politics. Ma has to step down next year after completing two terms as president during which he has pushed for closer ties across the Straits of Taiwan. Eric Chu, the Kuomintang (KMT) candidate in January 16’s election of his successor, is trailing the pro-independence opposition Democratic Progressive Party’s candidate, Tsai Ing-wen, who is not trusted in Beijing.

The KMT dumped its original candidate, the unpopular Hung Hsiu-chu, barely three months ago in an effort to close the gap with Tsai and Xi will hope his meeting with Ma will boost Chu’s efforts.

The risk is that the opposite happens if Taiwanese voters, who handed the KMT a punishing defeat in last year’s local elections, perceive the meeting as an unwarranted meddling in domestic affairs.

Regardless of the electoral impacts, it looks to this Bystander’s eye that the closer integration of Taiwan and the mainland will slow whichever candidate wins the presidency. Tsai is campaigning to reverse Ma’s policy and Chu has said the even though he favours continuing to increase economic cooperation, he would pursue it incrementally and at a slower pace than Ma.

Every Chinese leader since Mao has wanted to reunify what Beijing regards as its renegade province with the mainland. With the hollowing of Taiwan’s economic base, its brain drain and ever diminishing diplomatic recognition around the world (although the crucial support and protection of the United States remains), doing nothing and saying less might be Xi’s better bet.

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