China has recently announced a new “One Belt One Road” regional economic development initiative along both the historical sea and land routes of the Silk Road. The initiative is aimed at promoting economic development and closer economic integration of China with its neighboring countries, especially between the less developed provinces of China and less developed regions of south and central Asia. Infrastructure is a central part of this strategy, as it is a prerequisite for economic development. Given the growing concern of the environmental impacts of development, especially the experience in China, it is critically important that such infrastructure is built with low-carbon and environmentally friendly technologies.
Investing in green and low-carbon infrastructure is not only good on a regional level, but also beneficial for China and the world, both environmentally and economically. China has developed comparative advantages in building such green infrastructure projects over the last decade, benefitting from a long-term strategic perspective, access to low-cost financing, economies of scale, and supply-chain integration, as well as a large, well-educated work force. College enrollment has increased rapidly, to 21 million in 2012. Every year, hundreds of thousands of new engineers are trained in China, compared to the now approximately 83,000 engineers that graduate from the United States each year. China’s research and development spending has also surpassed that of Europe (see figure), reaching 2 percent of GDP in 2012. This trend is likely to continue as well.
Reprinted by permission from Macmillan Publishers Ltd: Nature 505; doi: 10.1038/505144a, copyright 2014.
The Chinese government has made strategic choices in recent years to invest in high-tech and clean technologies. In the 12th Five-Year Plan (FYP), it has identified seven strategic industries to invest in, including clean energy, electric vehicles, and environmental industries. Most recently, in a move to shift to a different growth model, the service economy and innovation have been given extra attention.
Despite the recent economic slowdown, China has maintained a very high savings rate, thus making capital much easier to obtain for investments in alternative energy and low-carbon infrastructure, which typically have higher capital costs but lower operating costs. Therefore, China has an inherent capital advantage in building low-carbon infrastructure. Furthermore, such long-term investment would also be a good vehicle for the social insurance program, which faces looming liability but lacks good long-term investment opportunities in China.
China’s large and growing domestic market is also an advantage in developing domestic industries. Both the market size and growth speed of capital stock allows clean technology firms to quickly scale up their production facilities and reduce the cost of technologies. This is true in the case of solar panels, wind turbines, and high-speed rails.
China also benefits from well-developed supply chains of electronic and electric equipment manufacturers. Well-integrated supply chains are not only important for scaling up production and reducing costs, but also critical to the speed of technology refinement and innovation.
This combination of factors has contributed significantly to China’s success in becoming a global leader in clean energy manufacturing and market development. With access to abundant capital, it is well positioned to scale its domestic market, and enter into the global market. In developing economies in particular, these cost and financing advantages put China at a formidable competitive position vis-à-vis others as a provider of low-carbon technologies around the world. Instead of exporting coal power plants and highways, China can export solar farms and build high-speed railways.
If this is adopted as a national strategy, it would be a huge boost to the Chinese economy, as it would help Chinese companies export higher-value clean technology products and support better jobs at home. According to the World Economic Forum, total global infrastructure investment need is estimated at $5 trillion per year, with an additional $700 billion to make these infrastructure projects “green.” For the energy sector alone, the estimates are $619 billion and $139 billion, respectively. So the “green” infrastructure projects represent a huge growth market as Chinese companies expand internationally.
This would also reduce the global footprint of China’s economic growth, thus bringing additional geopolitical benefits. China has lots of experience related to economic development to share with its less developed neighbors so they can avoid some of the missteps, especially related to environmental management. This South–South collaboration toward low-carbon development would inject new energy in the global negotiations for climate action plans.
