China Power

Speech Transcripts and Background Reading

Speakers Biographies for the Hearings on the 21st of March

China Power Programme
Full text:Programme21thMarch.doc

Zhou Dadi’s Presentation on Sustainable Energy Development in China
Full text : SustainableEnergyDevelopmentinChina.doc

INTRODUCTORY NOTE

By Professor Paul Reynolds, Development Economist, and Professor Hugo de Burgh, Director of the China Media Centre, both of the University of Westminster.

The Hearings

The purpose of these Hearings is to help businesses and the government better to understand the growing impact of Chinese economic expansion on the British industrial and commercial system. In addition, the Hearings are an attempt to help senior Chinese officials understand the impact changes in their country are having on others, as they see them, so as to anticipate and take advantage of changes in Chinese relationships with the British and with Europe more widely.

The aim is thus to help in the evolving relationships between British businesses and government on the one side, and Chinese businesses and government on the other.

By ‘impact’ is meant the opportunities and threats from Chinese expansion to which British businesses may respond, and the evolving scope for British businesses to help the commercial and governmental sectors in China to address growth-related problems as they see them.

Furthermore, it is taken to mean those commercial and social changes underway in Britain that are driven by Chinese expansion and which have a major influence on British government policy. These range from British export support in Britain & China, Britain-China foreign relations, British education and R&D policies (ie following increasing use of China as a manufacturing base), and facilitation of Chinese investment in Britain and Europe.

For British businesses and government departments, an understanding of the impact of Chinese expansion on commercial opportunities and threats, and on public policy, requires a solid appreciation of the nature of Chinese growth and economic success, and the risks attached.

For example, how much of China’s export growth is driven by foreign companies based in China, how much ‘foreign-driven’ sourcing, and how much by Chinese companies pursuing international market share on their own account ? What are the educational and industrial-structure implications of accelerated manufacturing outsourcing to China, in Britain, and how should public policy adapt ? Where is Britain finding competitive advantage in China, and what is the balance between large corporations and Small or Medium sized Enterprises (SME)?

Where are Chinese companies investing and to what extent is there a ‘Chinese industrial policy’ behind such investment trends ? Is it true that Chinese policy officials are struggling with the legal and financial frame for Chinese commercial expansion and how can British expertise help smooth the way forward ? How relevant to Chinese policy are lessons from the expansion of ‘The City’ relative to Wall St., or the growth of British venture equity markets, or university-business relations, or successes in addressing pockets of regional industrial decline, for example ?

Answers to these questions, and others, form the foundations of future Britain-China commercial and governmental relations, for mutual benefit and harmony. These hearing will explore some deeper issues and generate future points of policy discussion between the two nations, as well as help British civil servants and MPs to think through policy.

21st March 2007: CHINA POWER

China’s rapid economic growth is increasing energy demand above the rate of GDP growth. Given that energy is China is still a state-dominated sector, foreign and domestic investors look to government for answers to questions of energy risk underlying growth. As with any rapidly growing economy, there is energy-related risk both in the ability of existing players and market entrants to meet demand, but also the ability of government structures and the regulatory regime to respond appropriately too.

However, these problems and risks have special features in China. The huge size of the energy sector means that changes in demand raise questions about the ability of international investors globally to respond to demand, as well as domestic investors, and indeed about the impact of China’s energy needs on world energy markets. Government policy on investment and regulation – and the relevant institutional adjustments necessary – faces particular challenges given the size of the market and the complex structure of national, provincial and local government. The political impact of hydrocarbon sectors, electricity generation and related sectors like water, coal extraction and the downstream plastics industry, is well known internationally.

Energy sectors in China contribute to its investment-led growth as well as respond to it. Over the last three years China has suffered from periodical energy shortages, especially in the hot summers. However, the supply side response has been dramatic, and shortages are predicted by the Chinese government to ease in 2007. New investment in the energy sector alone – including electricity generation – made a major contribution to overall economic growth in 2006.

Whilst the general picture may be one of improvement, there are still several areas where shortages will persist. In China, raw materials must be moved by rail over great distances, and the rail and road networks respond with slower lead times. Much electricity generation is undertaken with coal, and alongside electricity and oil sector reforms, the government is grappling with the reform of inefficient (and sometimes unsafe) coal extraction.

The government’s role and institutions are, on the other hand, changing rapidly. A new energy law is being drafted, and unusually, government officials have been seeking international input on some features. There are many policy and regulatory institutions involved in the energy sector in China, and the big issues are being addressed by a State Energy Leading Small Group, headed by Premier Wen Jiabao. However, consideration is being given to re-establishing the Energy Ministry – dissolved in 1993 – in order to establish a unitary body responsible for the implementation of regulation and sector strategies, and help China meet its commitments on environmental protection.

The Chinese government, during the recent National People’s Congress (legislature), made it clear that energy sectors will continue to be regarded as nationally strategic, and remain in state ownership. Notwithstanding, there have been a wave of energy and water sector ‘privatisations’ over the last 18 months, and the involvement o foreign investors has been increasing.

The first theme of this, second, ‘China Impact’ Westminster Hearing is China’s power and water sectors, and it is an attempt to help investors and Chinese officials alike to understand their contrasting analyses of the future. There are many opportunities for UK firms to support the development of energy markets in China and invest where needs arise. There are also important opportunities for Chinese firms and government authorities to further their interests and seek further channels of cooperation – in London; one of the world’s centres of decision making in global markets.

The second theme is the environmental impact of China and the opportunities this offers for cooperation and investment.

The longstanding problems China faces in its environment are being compounded by its rapid and successful economic development. What are likely to be the effects of these upon its relations with other countries? Does the UK have relevant expertise and experience in tackling environmental problems? Can UK companies work in waste management and water systems to help service China’s growing water challenge? Or in pollution control? What are the most innovative business solutions to global geopolitical and energy challenges.

The 11th five year plan emphasises energy efficiency, giving impetus to businesses to work in China to develop and implement clean technologies and energy efficient projects. How can UK companies and investors take part in China’s clean energy and water revolutions? What are the opportunities for UK SMEs to partner with big business in innovating in clean technologies in China?

Hugo de Burgh, Paul Reynolds,

Meeting China’s energy needs through liberalization

‘China’s thirst for imported oil has the goverment concerned about securing enough energy to keep economic growth on track.’

Full text pdf: McKmeetingchina_senergyneeds.pdf

Reproduced courtesy of McKinsey & Company.