A Green Twist To China’s Two Loops

THIS WEEK, CHINA’S top policy-makers will hold their annual plenum. For four days, they will solidify goals for the next Five-Year Plan (2021-25) and set the political guidelines for the country’s economic development to 2035.

The 14th five-year plan will not be formally signed-off until next March, but the plenum will settle the sub-heads under the heads the Politburo has already decided.

It will particularly give structure to the ‘dual circulation’ or ‘dual loops’ notion. This reframes the rebalancing of the economy towards higher-quality, sustainable growth as the pairing of global integration with expanded domestic supply and demand. The latter, ‘inner loop’, will take China a long way down the road of self-sufficiency, especially in high-tech goods and services, with significant import substitution. Beijing would see the ‘external loop’ as being China-led.

Ambitious green policies are likely to be a core driver of both loops, now that China has unilaterally set itself the goal of carbon neutrality by 2060. Beijing had targeted peak emissions in 2030 but had not previously set a deadline for going carbon neutral before President Xi Jinping announced it at the UN General Assembly in September.

The five-year plan is likely to lay out a formidable route map for the transition to a low carbon economy based on either the elimination of CO2 emissions or balancing them with carbon removal. Measures could include a substantial hike in the target share of non-fossil fuels in primary energy consumption by 2025, currently 15%, an annual CO2 emissions cap of under 10.5 billion tonnes (ie, no growth from current levels) and the current decarbonisation regime getting much stricter after 2030.

Xi’s public imprimatur on 2060 carbon neutrality suggests to this Bystander that policy decisions earlier this year that encouraged more coal-fired power plants have little long-term directional intent.

Optimists will regard the new goal as potentially the single most significant contribution yet to mitigating global warming. Realists will note that it would also make it more difficult for the United States to be the only large nation not transitioning to a low-carbon economy, although that could change if Joe Biden replaces Donald Trump as US president; Biden has committed to the United States being carbon neutral by 2050, ten years ahead of China’s target.

China’s planners have already identified green technologies from renewable energy to electric vehicles and recycling as among the critical next-generation industries that the state will champion in the move up the economic value chain. They also see large export markets for Chinese green technology products, especially in countries along the Belt and Road that are increasingly forming China’s economic sphere of interest.

Thus the full weight of China’s industrial planning machine will be thrown behind the 2060 goal. Ministries, provinces, cities, state-owned enterprises and industry bodies will all create new economic plans consistent with delivering it.

One early expression of this could come ahead of next year’s UN climate conference, COP26, particularly if Biden does become US president and takes his country back into the Paris climate agreement. Beijing could lead a movement for international economic coordination of a ‘green’ recovery from the Covid-19 pandemic. The rest of the world will then be faced with dealing with the deft trick of Chinese industrial policy being turned into a global public good.

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