Today we offer you an issue focused on climate and energy. Christiane Kuehl compares the state of the Chinese power grid with that of Germany. Both countries add enormous amounts of solar capacity each year. When the sun is shining brightly at midday, the power lines are flooded with a lot of valuable electricity. However, this electricity doesn’t find consumers in real-time.
China is now investing around 80 billion euros in modernizing and stabilizing the grids to effectively utilize green energy. As a result, the peak of emissions will likely be reached much earlier than previously announced.
But in China, it’s not just about reducing greenhouse gas emissions; there’s also the idea of reversing them. The technology to remove carbon dioxide from the atmosphere has its supporters, but also its critics. The latter argue that the focus should be on preventing emissions rather than trying to reverse them later.
For the first time, China has tested a facility that directly captures CO2 from the air. With its mass production capabilities, China could drive down the costs of this technology.
Billions are also being invested in such projects in the US, and companies like Climeworks from Switzerland are reporting significant progress. Nevertheless, the technology remains expensive and complex, as Nico Beckert reports.
China is rapidly increasing its renewable energy capacities. The challenge, similar to Germany and other countries, lies with the power grid. The government is aware that it urgently needs to modernize and expand the grids to make the explosive growth of renewable energy usable as electricity. Since February, Beijing has hinted at substantial increases in investments in the power grid. Now, the two state-owned grid operators, State Grid and the smaller China Southern Grid, have announced record-high investment targets totaling billions.
The numbers are staggering. State Grid plans to invest around 600 billion yuan (77 billion euros) in grid expansion in 2024. The company supplies electricity to 1.1 billion people and covers 88 percent of China’s land area. Southern Grid will spend about 40 billion yuan (just over five billion euros) on this. Both sums are more than ten percent higher than the previous year and significantly higher than the goals announced at the beginning of the year.
“This could be the beginning of a new phase in which record-breaking investment budgets for the grids become the norm,” say climate experts from the consulting firm Trivium China. These would lead to record investments in “power distribution networks, long-distance transmission capacities, infrastructure digitization, and grid-wide energy storage” – with promising prospects for China’s decarbonization.
In the second quarter, China’s CO2 emissions fell by one percent compared to the previous year, marking the first decline since the end of the pandemic. Officially, China aims to peak emissions by 2030, but experts believe an earlier shift is quite possible. According to data from the National Energy Administration (NEA), electricity generation from photovoltaics increased by 47 percent and from wind energy by ten percent in the first half of the year compared to the previous year. Solar and wind power thus generated one-fifth of the total electricity.
However, their share of installed capacity is significantly higher than their share of the electricity mix -especially in photovoltaics, whose capacity share was 21 percent at the end of 2023, according to the business magazine Caixin. However, solar power only contributed three percent to electricity generation. The strong solar power growth this year suggests that the solar utilization rate has improved. Nevertheless, this figure highlights the urgent need to modernize the power grids.
“The recent budgets of the two grid operators and an unprecedented number of grid-related measures show how seriously policymakers are taking this issue,” write the Trivium experts. Indeed, the investments are accompanied by political decisions. At the end of July, the National Development and Reform Commission (NDRC), together with the NEA and the National Data Administration, released a four-year action plan to build a “new power system” by 2027. This includes not only expanding the power grids but also significant investments in:
According to Trivium, China is already “feverishly” building new ultra-high-voltage power lines to transport green electricity generated in remote western provinces to the industrial centers and coastal metropolises. However, the technical challenge is that such lines must be operated with consistently high utilization, which is not possible with the naturally fluctuating solar and wind power plants alone. “Changes in wind conditions during peak demand can cause electricity generation to drop,” writes Caixin. “This has led to power shortages in many regions of China, despite an excess of newly installed generation capacity.”
Therefore, according to Caixin, the NDRC recently even relaxed the rules for the minimum purchase of green electricity by grid operators – to give them the opportunity to make their grids more flexible and build energy storage. The action plan mentions “advanced power regulation technologies” in long-distance power lines. The goal is to gradually reduce the coal power used as a backup. This requires new high technology.
According to Caixin, a parallel reform of the electricity market and pricing mechanisms is also important. The pricing system was originally developed for stable fossil fuels like coal and is now outdated. “This plan is all or nothing,” believe the Trivium experts. “China cannot sustain the record growth of renewable energy without greater grid flexibility and infrastructure improvements.”
Additionally, coal power traditionally enjoys political protection in some provinces. Therefore, in 2019, Beijing introduced minimum quotas for renewable energy in the electricity mix of each province, which have been increasing every year since. The provincial quotas announced by the NDRC and NEA for 2024 in early August are four percent higher for 14 provinces compared to 2023, more than six percent higher for six provinces, and somewhere in between for all others. This is an “unusually high increase compared to previous years”, write the Trivium analysts.
Starting in 2025, there will also be an annually increasing renewable energy quota in the production process for electrolytic aluminum. This is a particularly energy-intensive industry that will soon be included in China’s emissions trading scheme. The Trivium experts welcome the plan: “Higher industrial demand for renewable energy will be crucial to not only expanding but also utilizing these capacities.” Existing plans for the entire aluminum sector aim for it to cover at least a quarter of its electricity needs with renewables by the end of next year. There’s still much work to be done.
There have been some recent success stories in direct air capture (DAC) technology: China has also successfully tested a larger DAC plant for the first time, and companies such as Climeworks and CarbonCapture have reported new developments. The progress is significant because limiting global warming to 1.5 degrees will require large quantities of CO2 to be removed from the atmosphere and permanently stored. Will China, with its large industrial capacities, also help this technology achieve a breakthrough? What role will the billions in US subsidies play? And what about the developments of Western companies?
The DAC system successfully tested by China for the first time is a so-called CarbonBox fitted in a shipping container. It is capable of filtering 600 tons of CO2 from the ambient air every year. The People’s Republic has already used subsidies to set up mass production in solar and battery manufacturing, significantly contributing to the immense cost reduction in these key energy transition technologies. Could this also work for DAC technologies?
China’s “companies and local governments are looking for the ‘next big thing‘” in climate technologies, says Cory Combs, energy expert at the consulting firm Trivium China, optimistically. As soon as costs and investment risk fall, investment in China could pick up, says Combs. Milestones such as the CarbonBox test are “important signals.” So far, however, the central government has not focused too much on DAC. However, Combs says the central government’s “focus on innovation-driven growth” could provide subsidies and other support for DAC technologies in the future.
“China’s mass production capabilities could help bring down the cost of new types of DAC filters or other equipment,” says Julia Attwood, an industrial decarbonization specialist at BloombergNEF. However, DAC technology differs in many ways from solar panels and batteries, meaning that China’s strengths in mass production would not be as strong:
DAC companies in Europe and the United States also report new developments. For example, the US company CarbonCapture presented a modular DAC system in a shipping container in June 2024, similar to the Chinese CarbonBox. Mass production is set to start in a factory in Arizona. The Swiss company Climeworks also recently announced a breakthrough: New filter material reportedly captures twice as much CO2, uses only half the energy and can be used three times longer than existing technology. The company claims to be well on the way to reducing the cost per ton of CO2 filtered and stored to between 400 and 600 US dollars by 2030. At the current exchange rate, it would be around 360 to 540 euros. At present, the costs are still twice as high. The company believes that technological advances, mass production and larger factories will reduce costs beyond 2030.
These high costs highlight the significant challenges of DAC technology. So far, companies such as Microsoft, JPMorgan Chase, Facebook parent company Meta, Klarna and Stripe have voluntarily purchased carbon credits from DAC systems on a relatively small scale. However, if DAC systems are to offset hundreds of millions of tons of emissions in the future, experts believe a price of 400 US dollars is too high. The target value for the economic viability of DAC was 100 US dollars for many years. However, there is little to suggest that this value will be reached quickly.
Funding projects and tax breaks from the US government could give DAC technology new momentum in the coming years. The Biden administration has earmarked 3.5 billion US dollars in funding, which will be awarded when companies reach certain milestones. The USA initially wanted to use the money to fund four so-called DAC hubs, which include several facilities for filtering and storing CO2. That sounds like a lot of money at first. However, only two promising sites have been found so far. That is why part of the funding is being held back or used for basic research until two more hubs can be found.
The two DAC hubs in Texas and Louisiana could receive up to 1.2 billion US dollars in state funding in the long term. However, the money will be paid out in phases. The Louisiana site, for example, which is expected to filter one million tons of CO2 from the air from 2030, only received 50 million US dollars in funding. The construction of the plant has yet to receive any funding. The project is still at an early stage. The companies involved first have to win over local residents and obtain permits for operation.
Moreover, the Inflation Reduction Act (IRA) provides a tax credit of 180 US dollars per ton of CO2 filtered from the atmosphere. Thanks to these support programs, the USA is considered “a leader in political support for DAC,” as the International Energy Agency writes. Both the Democratic and Republican parties support DAC. However, analysts from the consulting firm Rhodium Group warn that even the announced US billions in funding will hardly be enough. They say that in order to create a substantial DAC industry that could capture enough CO2 from the air, “The magnitude of policy necessary to support a gigaton-scale CDR industry is on the order of 20 times larger than current policy support today.”
In recent months, Chinese overcapacity has been a major topic of discussion – and a source of controversy – among economists and policymakers around the world. While these concerns are not entirely off base, they are excessive and resolvable.
Over the past four decades, as China has shifted from a planned economy characterized by shortages to a market economy oscillating between insufficient aggregate demand and overheating, its government has often sought to eliminate overcapacity whenever it arose. In 2003, for example, a crackdown on overcapacity in the steel industry led to the shutdown of many steel mills.
Following the 2008 global financial crisis, China’s exports plummeted, leading to a significant economic slowdown. In the first quarter of 2009, Chinese GDP grew by just 6.1 percent, the lowest rate in more than a decade. To counteract this shock, China’s government introduced a 4 trillion renminbi (560 billion dollars) stimulus plan. Fueled by massive investments – fixed-asset investment grew by 30.1 percent in 2009 and 23.8 percent in 2010 (year on year) – China’s economy rebounded sharply, achieving 10.6 percent growth in 2010.
Although aggregate demand also rose quickly, aggregate supply failed to keep pace, as it takes time for new investment to translate into increased production capacity. (The duration of the lag depends on the type of investment.) This mismatch contributed to an uptick in inflation, with the consumer price index rising by 3 percent in 2010.
By the time CPI growth peaked at 5.4 percent in March 2011, the Chinese government had announced that its top policy priority for the year would be to clamp down on inflation. And clamp down it did: from 2009 to 2011, China’s budget-deficit-to-GDP ratio fell from 2.8 percent to 1.1 percent, and new credit declined from 9.6 trillion renminbi to 7.5 trillion renminbi.
But the production capacity associated with past investments was already forming, if not becoming operational. Consequently, as fiscal and monetary tightening reduced aggregate demand, a new mismatch emerged and overcapacity surged in many industries, including steel, automobiles, cement, electrolytic aluminum, pesticides, photovoltaics and glass.
By this point, CPI growth had fallen below 3 percent, and the producer price index was in negative territory. Under these circumstances, the typical response to surging overcapacity would have been to return to fiscal and monetary expansion in order to stimulate the economy. Instead, China’s government decided to continue tightening. As a result, GDP growth fell to 7.7 percent in 2012 and has declined continuously ever since.
With hindsight, it seems entirely possible that inflationary pressures would have subsided later even if the government had not pursued fiscal and monetary tightening in 2011, owing to the gradual formation of new production capacities. If policymakers had pursued moderate fiscal and monetary expansion while encouraging the market to play a decisive role in eliminating sectoral overcapacity in 2012, China may well have achieved higher GDP growth rates in the ensuing years.
We cannot change the past, but we can heed its lessons to achieve a better future. In China’s case, this means implementing a more expansionary fiscal and monetary policy today. This would help reduce “overcapacity” at the macroeconomic level, which is equivalent to “lack of effective demand,” while creating more space to eliminate overcapacity at the sectoral level – a process in which China’s government should be allowing the market to play a decisive role.
All this would go a long way toward improving China’s trade balance. Though there is no justification for countries to introduce protectionist trade policies in the name of “national security” – as the United States, for example, has been doing – China must ensure that it adheres to all World Trade Organization rules.
On this front, the Third Plenary Session of the 20th Central Committee of the Communist Party of China, held earlier this month, was encouraging. As the meeting’s communiqué noted, China plans to “enhance [its] capacity for opening up” its own economy to the outside world; foster “new drivers of foreign trade”; and develop, through expanded cooperation with other countries, “new institutions” to support an open global economy. As long as all parties are committed to mutually beneficial – and mutually respectful – engagement, no trade dispute is unresolvable.
Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
Beijing residents are known across China for giving nicknames to just about everything, and the headquarters of China’s state and propaganda broadcaster, CCTV, is no exception. This monumental structure, which was swiftly dubbed “Big Underpants” due to its shape in Beijing slang, was completed just in time for the opening of the 2008 Summer Olympics – at least the exterior and shell were finished, with the actual move-in not occurring until 2012. The nickname didn’t exactly please the building’s architect, Ole Scheeren, a German, nor the government in Beijing. Despite the fact that the building’s sloped sides tend to accumulate a lot of Beijing’s dust, the city’s residents have come to accept their “Big Underpants” as a permanent fixture of the skyline in Beijing’s Central Business District (CBD).
Today we offer you an issue focused on climate and energy. Christiane Kuehl compares the state of the Chinese power grid with that of Germany. Both countries add enormous amounts of solar capacity each year. When the sun is shining brightly at midday, the power lines are flooded with a lot of valuable electricity. However, this electricity doesn’t find consumers in real-time.
China is now investing around 80 billion euros in modernizing and stabilizing the grids to effectively utilize green energy. As a result, the peak of emissions will likely be reached much earlier than previously announced.
But in China, it’s not just about reducing greenhouse gas emissions; there’s also the idea of reversing them. The technology to remove carbon dioxide from the atmosphere has its supporters, but also its critics. The latter argue that the focus should be on preventing emissions rather than trying to reverse them later.
For the first time, China has tested a facility that directly captures CO2 from the air. With its mass production capabilities, China could drive down the costs of this technology.
Billions are also being invested in such projects in the US, and companies like Climeworks from Switzerland are reporting significant progress. Nevertheless, the technology remains expensive and complex, as Nico Beckert reports.
China is rapidly increasing its renewable energy capacities. The challenge, similar to Germany and other countries, lies with the power grid. The government is aware that it urgently needs to modernize and expand the grids to make the explosive growth of renewable energy usable as electricity. Since February, Beijing has hinted at substantial increases in investments in the power grid. Now, the two state-owned grid operators, State Grid and the smaller China Southern Grid, have announced record-high investment targets totaling billions.
The numbers are staggering. State Grid plans to invest around 600 billion yuan (77 billion euros) in grid expansion in 2024. The company supplies electricity to 1.1 billion people and covers 88 percent of China’s land area. Southern Grid will spend about 40 billion yuan (just over five billion euros) on this. Both sums are more than ten percent higher than the previous year and significantly higher than the goals announced at the beginning of the year.
“This could be the beginning of a new phase in which record-breaking investment budgets for the grids become the norm,” say climate experts from the consulting firm Trivium China. These would lead to record investments in “power distribution networks, long-distance transmission capacities, infrastructure digitization, and grid-wide energy storage” – with promising prospects for China’s decarbonization.
In the second quarter, China’s CO2 emissions fell by one percent compared to the previous year, marking the first decline since the end of the pandemic. Officially, China aims to peak emissions by 2030, but experts believe an earlier shift is quite possible. According to data from the National Energy Administration (NEA), electricity generation from photovoltaics increased by 47 percent and from wind energy by ten percent in the first half of the year compared to the previous year. Solar and wind power thus generated one-fifth of the total electricity.
However, their share of installed capacity is significantly higher than their share of the electricity mix -especially in photovoltaics, whose capacity share was 21 percent at the end of 2023, according to the business magazine Caixin. However, solar power only contributed three percent to electricity generation. The strong solar power growth this year suggests that the solar utilization rate has improved. Nevertheless, this figure highlights the urgent need to modernize the power grids.
“The recent budgets of the two grid operators and an unprecedented number of grid-related measures show how seriously policymakers are taking this issue,” write the Trivium experts. Indeed, the investments are accompanied by political decisions. At the end of July, the National Development and Reform Commission (NDRC), together with the NEA and the National Data Administration, released a four-year action plan to build a “new power system” by 2027. This includes not only expanding the power grids but also significant investments in:
According to Trivium, China is already “feverishly” building new ultra-high-voltage power lines to transport green electricity generated in remote western provinces to the industrial centers and coastal metropolises. However, the technical challenge is that such lines must be operated with consistently high utilization, which is not possible with the naturally fluctuating solar and wind power plants alone. “Changes in wind conditions during peak demand can cause electricity generation to drop,” writes Caixin. “This has led to power shortages in many regions of China, despite an excess of newly installed generation capacity.”
Therefore, according to Caixin, the NDRC recently even relaxed the rules for the minimum purchase of green electricity by grid operators – to give them the opportunity to make their grids more flexible and build energy storage. The action plan mentions “advanced power regulation technologies” in long-distance power lines. The goal is to gradually reduce the coal power used as a backup. This requires new high technology.
According to Caixin, a parallel reform of the electricity market and pricing mechanisms is also important. The pricing system was originally developed for stable fossil fuels like coal and is now outdated. “This plan is all or nothing,” believe the Trivium experts. “China cannot sustain the record growth of renewable energy without greater grid flexibility and infrastructure improvements.”
Additionally, coal power traditionally enjoys political protection in some provinces. Therefore, in 2019, Beijing introduced minimum quotas for renewable energy in the electricity mix of each province, which have been increasing every year since. The provincial quotas announced by the NDRC and NEA for 2024 in early August are four percent higher for 14 provinces compared to 2023, more than six percent higher for six provinces, and somewhere in between for all others. This is an “unusually high increase compared to previous years”, write the Trivium analysts.
Starting in 2025, there will also be an annually increasing renewable energy quota in the production process for electrolytic aluminum. This is a particularly energy-intensive industry that will soon be included in China’s emissions trading scheme. The Trivium experts welcome the plan: “Higher industrial demand for renewable energy will be crucial to not only expanding but also utilizing these capacities.” Existing plans for the entire aluminum sector aim for it to cover at least a quarter of its electricity needs with renewables by the end of next year. There’s still much work to be done.
There have been some recent success stories in direct air capture (DAC) technology: China has also successfully tested a larger DAC plant for the first time, and companies such as Climeworks and CarbonCapture have reported new developments. The progress is significant because limiting global warming to 1.5 degrees will require large quantities of CO2 to be removed from the atmosphere and permanently stored. Will China, with its large industrial capacities, also help this technology achieve a breakthrough? What role will the billions in US subsidies play? And what about the developments of Western companies?
The DAC system successfully tested by China for the first time is a so-called CarbonBox fitted in a shipping container. It is capable of filtering 600 tons of CO2 from the ambient air every year. The People’s Republic has already used subsidies to set up mass production in solar and battery manufacturing, significantly contributing to the immense cost reduction in these key energy transition technologies. Could this also work for DAC technologies?
China’s “companies and local governments are looking for the ‘next big thing‘” in climate technologies, says Cory Combs, energy expert at the consulting firm Trivium China, optimistically. As soon as costs and investment risk fall, investment in China could pick up, says Combs. Milestones such as the CarbonBox test are “important signals.” So far, however, the central government has not focused too much on DAC. However, Combs says the central government’s “focus on innovation-driven growth” could provide subsidies and other support for DAC technologies in the future.
“China’s mass production capabilities could help bring down the cost of new types of DAC filters or other equipment,” says Julia Attwood, an industrial decarbonization specialist at BloombergNEF. However, DAC technology differs in many ways from solar panels and batteries, meaning that China’s strengths in mass production would not be as strong:
DAC companies in Europe and the United States also report new developments. For example, the US company CarbonCapture presented a modular DAC system in a shipping container in June 2024, similar to the Chinese CarbonBox. Mass production is set to start in a factory in Arizona. The Swiss company Climeworks also recently announced a breakthrough: New filter material reportedly captures twice as much CO2, uses only half the energy and can be used three times longer than existing technology. The company claims to be well on the way to reducing the cost per ton of CO2 filtered and stored to between 400 and 600 US dollars by 2030. At the current exchange rate, it would be around 360 to 540 euros. At present, the costs are still twice as high. The company believes that technological advances, mass production and larger factories will reduce costs beyond 2030.
These high costs highlight the significant challenges of DAC technology. So far, companies such as Microsoft, JPMorgan Chase, Facebook parent company Meta, Klarna and Stripe have voluntarily purchased carbon credits from DAC systems on a relatively small scale. However, if DAC systems are to offset hundreds of millions of tons of emissions in the future, experts believe a price of 400 US dollars is too high. The target value for the economic viability of DAC was 100 US dollars for many years. However, there is little to suggest that this value will be reached quickly.
Funding projects and tax breaks from the US government could give DAC technology new momentum in the coming years. The Biden administration has earmarked 3.5 billion US dollars in funding, which will be awarded when companies reach certain milestones. The USA initially wanted to use the money to fund four so-called DAC hubs, which include several facilities for filtering and storing CO2. That sounds like a lot of money at first. However, only two promising sites have been found so far. That is why part of the funding is being held back or used for basic research until two more hubs can be found.
The two DAC hubs in Texas and Louisiana could receive up to 1.2 billion US dollars in state funding in the long term. However, the money will be paid out in phases. The Louisiana site, for example, which is expected to filter one million tons of CO2 from the air from 2030, only received 50 million US dollars in funding. The construction of the plant has yet to receive any funding. The project is still at an early stage. The companies involved first have to win over local residents and obtain permits for operation.
Moreover, the Inflation Reduction Act (IRA) provides a tax credit of 180 US dollars per ton of CO2 filtered from the atmosphere. Thanks to these support programs, the USA is considered “a leader in political support for DAC,” as the International Energy Agency writes. Both the Democratic and Republican parties support DAC. However, analysts from the consulting firm Rhodium Group warn that even the announced US billions in funding will hardly be enough. They say that in order to create a substantial DAC industry that could capture enough CO2 from the air, “The magnitude of policy necessary to support a gigaton-scale CDR industry is on the order of 20 times larger than current policy support today.”
In recent months, Chinese overcapacity has been a major topic of discussion – and a source of controversy – among economists and policymakers around the world. While these concerns are not entirely off base, they are excessive and resolvable.
Over the past four decades, as China has shifted from a planned economy characterized by shortages to a market economy oscillating between insufficient aggregate demand and overheating, its government has often sought to eliminate overcapacity whenever it arose. In 2003, for example, a crackdown on overcapacity in the steel industry led to the shutdown of many steel mills.
Following the 2008 global financial crisis, China’s exports plummeted, leading to a significant economic slowdown. In the first quarter of 2009, Chinese GDP grew by just 6.1 percent, the lowest rate in more than a decade. To counteract this shock, China’s government introduced a 4 trillion renminbi (560 billion dollars) stimulus plan. Fueled by massive investments – fixed-asset investment grew by 30.1 percent in 2009 and 23.8 percent in 2010 (year on year) – China’s economy rebounded sharply, achieving 10.6 percent growth in 2010.
Although aggregate demand also rose quickly, aggregate supply failed to keep pace, as it takes time for new investment to translate into increased production capacity. (The duration of the lag depends on the type of investment.) This mismatch contributed to an uptick in inflation, with the consumer price index rising by 3 percent in 2010.
By the time CPI growth peaked at 5.4 percent in March 2011, the Chinese government had announced that its top policy priority for the year would be to clamp down on inflation. And clamp down it did: from 2009 to 2011, China’s budget-deficit-to-GDP ratio fell from 2.8 percent to 1.1 percent, and new credit declined from 9.6 trillion renminbi to 7.5 trillion renminbi.
But the production capacity associated with past investments was already forming, if not becoming operational. Consequently, as fiscal and monetary tightening reduced aggregate demand, a new mismatch emerged and overcapacity surged in many industries, including steel, automobiles, cement, electrolytic aluminum, pesticides, photovoltaics and glass.
By this point, CPI growth had fallen below 3 percent, and the producer price index was in negative territory. Under these circumstances, the typical response to surging overcapacity would have been to return to fiscal and monetary expansion in order to stimulate the economy. Instead, China’s government decided to continue tightening. As a result, GDP growth fell to 7.7 percent in 2012 and has declined continuously ever since.
With hindsight, it seems entirely possible that inflationary pressures would have subsided later even if the government had not pursued fiscal and monetary tightening in 2011, owing to the gradual formation of new production capacities. If policymakers had pursued moderate fiscal and monetary expansion while encouraging the market to play a decisive role in eliminating sectoral overcapacity in 2012, China may well have achieved higher GDP growth rates in the ensuing years.
We cannot change the past, but we can heed its lessons to achieve a better future. In China’s case, this means implementing a more expansionary fiscal and monetary policy today. This would help reduce “overcapacity” at the macroeconomic level, which is equivalent to “lack of effective demand,” while creating more space to eliminate overcapacity at the sectoral level – a process in which China’s government should be allowing the market to play a decisive role.
All this would go a long way toward improving China’s trade balance. Though there is no justification for countries to introduce protectionist trade policies in the name of “national security” – as the United States, for example, has been doing – China must ensure that it adheres to all World Trade Organization rules.
On this front, the Third Plenary Session of the 20th Central Committee of the Communist Party of China, held earlier this month, was encouraging. As the meeting’s communiqué noted, China plans to “enhance [its] capacity for opening up” its own economy to the outside world; foster “new drivers of foreign trade”; and develop, through expanded cooperation with other countries, “new institutions” to support an open global economy. As long as all parties are committed to mutually beneficial – and mutually respectful – engagement, no trade dispute is unresolvable.
Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
Beijing residents are known across China for giving nicknames to just about everything, and the headquarters of China’s state and propaganda broadcaster, CCTV, is no exception. This monumental structure, which was swiftly dubbed “Big Underpants” due to its shape in Beijing slang, was completed just in time for the opening of the 2008 Summer Olympics – at least the exterior and shell were finished, with the actual move-in not occurring until 2012. The nickname didn’t exactly please the building’s architect, Ole Scheeren, a German, nor the government in Beijing. Despite the fact that the building’s sloped sides tend to accumulate a lot of Beijing’s dust, the city’s residents have come to accept their “Big Underpants” as a permanent fixture of the skyline in Beijing’s Central Business District (CBD).
