Crisis control

What happens when the global financial tsunami meets the crisis of climate change?

For China it could present a new opportunity to change its economic development policy and model.

In China, the climate change issue has not been played down as the financial crisis unfolds from the US through Europe and developed countries looking at a looming recession.

Last week, in the White Paper on Climate Change and Premier Wen Jiabao's visit to Russia showed two interrelated efforts toward a new financial order and battling climate change.

In Russia last Tuesday, Wen said China could join in global efforts to help rebuild the damaged international financial system and save developing countries from suffering further losses brought on by the financial turbulence.

And last Wednesday, the Chinese government's white paper signaled that the severest economic crisis since the Great Depression will not weaken China's determination to maintain its economic growth, but not at the expense of the environment.

Despite the fact that China's market, businesses and ordinary consumers (and the rest of the world) are still waiting for more effective near-term fixes to bring the financial crisis under control, what the Chinese government has expressed last week is decisive and far-sighted.

Why? Because behind the premier's hope and the goodwill expressed in the white paper is common goal that China desires for a world free of turbulence: no matter if it's a financial crisis or a climatic catastrophe.

These were not simple diplomatic gestures.

Coinciding with Wen's position, high-level economists and bankers close to the leadership had already suggested that Chinese leaders take active approaches to share of global responsibility and "become well prepared to have a say" in the process of rebuilding the international financial system.

They have suggested that the yuan be brought into the basket of international reserve currencies along with the US dollar, euro and Japanese yen. And a new global monitoring and arbitration system should be set up to ensure a safe cross-border credit flow.

To be sure these issues could become a long and bumpy process of negotiations between China and the developed economies, comparable to the rough negotiations prior to China's entry into the World Trade Organization in 2001.

Former Asian Development Bank senior economist Tang Min suggests that China should "embrace the opportunity" and fulfill its international responsibilities.

"The international financial system should become more diversified and demands from developing countries should be recognized," says Tang, who is now deputy secretary-general of the Beijing-based China Development Research Foundation.

The white paper has not only signaled its determination to ensure a global deal on climate change to replace the Kyoto Protocol.

It also repeatedly stressed that the Chinese government has been poised to fulfill its sustainable promises, though the worsening global economic situation has made it difficult for China to accurately predict its economic growth next year.

China's policy shift to increase investment in sustainable development is actually relatively easy as the central government's determination was already clear even before the financial crisis. And now the financial crisis will push the government to expand spending and help strengthen its determination to promote sustainable growth.

Liu He, deputy director of the Office of the Central Leading Group on Finance and Economy Work, pointed out recently that the economic slowdown can work as an opportunity for China to restructure its economy, which has previously relied heavily on government investment, foreign trade and low-cost technology over the past years.

When the economy is experiencing fast growth, companies are unwilling to upgrade their technologies but the slowdown now gives these firms the opportunity to enhance their competitive edge through technological and environmental upgrades.

For Liu, it's an opportunity for China to embark on a low-carbon path, which means China will implement tougher measures to save energy, control emissions and promote responsible investment.

Nicholas Stern, the former British government advisor famous for his climate report, says during his recent visit to China, that a low-carbon infrastructure also represents huge investment opportunities. The International Energy Agency estimates that world energy infrastructure investments are likely to be around $1 trillion every year over the next two decades.

"If the majority of this is low carbon, it will be an outstanding source of investment demand," says Stern. "That's an opportunity both for China and the rest of the world."

How to turn the investment potential into realities? Chinese companies should set up joint ventures with technology groups in developed nations to pursue its aim of developing a "low-carbon" economy, Stern suggests, despite that under the Kyoto Protocol and the United Nations Framework Convention on Climate Change, developed countries are obliged to provide financial support and transfer technology to developing countries on favorable terms.

But the developed countries, which have held more than 90 percent of the advanced technology related to climate change, are reluctant to provide the support to developing countries out of concern of losing their competitive edge.

And many developed countries are blamed for failing to deliver on commitments for funding and technology transfers to help developing countries combat global warming.

Currently, many developing countries, including China, have reached the consensus to develop their economy with low-carbon technologies but the developed countries require high transfer fees, which have blocked many developing countries from using the advanced technologies.

Meanwhile, the weekly average oil prices of the Organization of Petroleum Exporting Countries dropped to around $65 per barrel recently, a far cry from $147 in July.

This could decrease incentives for the oil users to take measures to save energy and dampen the industry's enthusiasm in investing in developing renewable energy, which may not become cost-competitive and economic.

Facing the new changes, there will be demanding negotiations between developing countries, including China, and richer countries, to set up an effective mechanism to facilitate technology transfers.

At the strategic level, the two gestures and decisions China has made last week are vital. But from the point view of implementation, more efforts, negotiations, and even quarrels are along the way.

(China Daily 11/03/2008 page4)