The Chinese government is unparalleled when it comes to reshaping the physical reality of the world to suit its plans. Whereas it is already difficult in Germany to build a bike path, make room for a railroad track or let alone erect a wind turbine, China literally moves mountains. Or rivers. In the future, even more water from the Yangtze River is to be channeled through a tunnel into the arid north. The project is so huge that even the world’s longest tunnel to date is just half as long. Christiane Kuehl analyzes the details.
A fair amount of faith in technology is also required to set computer-controlled cars loose onto road traffic. Robot cabs are already in operation in Shenzhen, but they do not yet have a license for regular operation. Here, Chongqing and Wuhan are now taking the lead. They have allowed AI company Baidu to use their self-driving taxis in normal daily operations, as our team reports from Beijing. This is the beginning of the end of the cab driver profession. For just a few thousand euros more, cab companies will be able to purchase vehicles and cut labor costs out of the equation.
While such tech projects are making rapid progress, a large chunk of the Chinese economy is struggling. Construction is slowing, private consumption is not advancing, and young people cannot find jobs. As a result, the central bank has made loans cheaper. Our analysis shows: This step was mainly symbolic. An interest rate hike signals that Beijing is doing something for the economy. The improved sentiment has a greater effect than the loans themselves.
Meanwhile, shots are again being fired around Taiwan. Because US delegates once again traveled to the island, China is making good on its threat and is having the navy fire around the island without further warning. What is also concerning is that Beijing has imposed sanctions on a European politician for the first time – also due to a trip to Taiwan. So the current crisis will continue for the time being.
Densely overgrown mountains characterize the border area between the Chinese provinces of Hubei and Henan. It is precisely there – between the Yangtze River and its tributary the Han River – where the gigantic system for south-north water transfer, which has been covering the drinking water needs of the north for years, is to be expanded. But the thirst in the north continues to grow, while the region is getting drier and drier. So the Yangtze basin will have to provide even more water than before – and in the future directly from the middle reaches.
But the water cannot be pumped across the mountains. So instead of building canals, China’s engineers want to drill what will be the world’s longest water tunnel by far through the mountain ranges. According to the plan, it will be around 250 kilometers long – almost as long as the Autobahn from Hamburg to Berlin. The world’s current number one, the 130-kilometer-long Päijenne Tunnel in Finland, reaches a depth of 130 meters. But the planned Yinjiangbuhan tunnel tops even that. It is to run as deep as 1,000 meters below the mountain slopes.
Huge amounts of water will then flow from the reservoir behind the world’s most powerful hydropower plant at the Three Gorges Dam near Yichang through the pipe toward the Danjiangkou Dam. This is where the middle route of the transfer system, which went into operation in 2014, begins. But the level of the Danjiangkou Reservoir has been falling steadily since 2014 due to long drought periods. And so the reservoir alone can apparently no longer meet the demand on its own.
According to Xinhua, the construction of the water connection will take ten years and, based on the plan, will cost around ¥60 billion, the equivalent of about €8.7 billion. By comparison, the construction of the canal from Danjiangkou to Beijing, which is six times as long, cost a whopping €66 billion.
The South-North Canal System is already one of the largest megaprojects on the planet. Since it went into operation in 2014, it has pumped around 54 billion cubic meters of water from the rain-wet south to the barren north – to supply more than 140 million people. According to the South China Morning Post, that is almost the average amount of water found in the entire Yellow River, China’s second-largest stream after the Yangtze.
The gigantic transfer program was generally controversial from the very beginning. Especially internationally, there were warnings about the ecological consequences. In the Soviet Union, the rerouting of large rivers had caused entire regions to dry up; the once enormous Aral Sea has practically disappeared over decades because it no longer had any major inflow.
But the Communist Party is fond of great feats of engineering. Due to the increasingly drastic drought in the north, it was keen to increase the volume of water via a transfer, especially for Beijing and the port city of Tianjin. In August 2002, the State Council approved the project. Construction work began in 2003, and hundreds of thousands of people were resettled along the middle route.
The hydrology and ecology of the Yellow River and Yangtze River systems have also been fundamentally changed. The long-term consequences of the project are not even foreseeable yet. Time and again, reports of water pollution in the vicinity of the transfer canals have emerged.
Nevertheless, in May 2021, President Xi Jinping announced that he would press ahead with the project – in other words, that he wanted to launch an additional route. This has now become more concrete. “The Yinjiangbuhan tunnel will establish a physical connection between the Three Gorges Dam and the South-to-North Water Diversion Project, China’s two critical infrastructures,” said Niu Xinqiang, president of the Changjiang Institute of Survey, Planning, Design and Research during the groundbreaking ceremony on July 7.
Perhaps this plan is based on the realization that the planned original western route is not viable. It would mean having to build canals and tunnels along the upper reaches of the Yangtze in inaccessible high mountain regions of the Tibetan Plateau. The project could also thwart ideas of diverting water from transboundary rivers such as the Brahmaputra, which flows from Tibet to India. Beijing has never officially supported this idea. Nevertheless, it has been causing unrest in India for years.
China has significantly less water available than the world average. Around seven percent of the global freshwater supply has to sustain around 20 percent of the global population. And this water is also extremely unevenly distributed. While the water-rich subtropical south can grow wet rice fields and is repeatedly hit by floods, many regions in the north are fighting against desertification. Thousands of rivers have disappeared, and industry and agriculture are polluting large parts of what remains. Cultivation of cereals, for example, is only possible with the help of artificial irrigation, which is inefficient in many places and thus wastes water. According to estimates, only 14 percent of China’s land mass is suitable for agriculture.
Climate change is causing the north to dry up further. The number of droughts is increasing, and the groundwater level is falling. Yet northern China is becoming increasingly densely populated. Industry and agriculture are also growing. As a result, water supplies in the region are becoming increasingly scarce. Despite the transfer system, China has to look into water conservation. The fight against wastage is difficult because the price of tap water is still low for political reasons.
The Ministry of Water Resources has now reacted and, according to a February memo, plans to impose regional caps on water use and to set up systems for trading water rights. Such systems exist in Australia, the United States and South Africa, for example. From 2000 to 2020, China’s cities saved a total of 97.2 billion cubic meters of water, according to the Ministry of Construction – in part by building sponge cities (China.Table reported). That is about nine times the amount pumped annually through the central route of the water transfer project.
China’s central bank supplements the government’s current economic stimulus program (China.Table reported) by lowering certain interest rates. The move came as a surprise: Just a few days ago, experts were primarily expecting a decrease in liquidity in the financial system. An interest rate cut generally has the opposite effect. It makes loans cheaper and easier to acquire for companies. So analysts were surprised on Monday by the decision of the People’s Bank of China (PBoC).
The new consensus is now that the central bank wants to brighten overall economic sentiment on behalf of the government. Most recently, several indicators slipped into the red zone:
An interest rate cut in such a situation signals that the government has realized the gravity of the situation and is taking action. Cheaper loans in the growth country of China generally mean more construction activity, investment in new factories and the like. The interest rate cuts could thus spread optimism for the second half of the year as a reflex alone.
Experts, however, doubt if there will be any tangible effect on the financial market. “Businesses and households seem to be cutting back on their borrowing because of their concerns about economic weakness,” writes Michael Pettis, a financial scientist at Peking University. The reason for the current low investment, he says, is not a lack of capital. “The problem, in other words, is lack of domestic demand.”
As long as the real estate industry is in a downturn, even the prettiest interest rate cut will not boost home construction. The sector is currently simply too depressed for that. Meanwhile, the Covid measures are putting the brakes on consumption. Especially in the big Shanghai lockdown, jobs have been lost, companies have collapsed, and restaurants and stores have been closed down. All this will not simply come back by command in the second half of the year, it will have to regrow first.
Pettis is convinced that the central bank announced the rate cut because “it knows that something must be done, but it doesn’t know what else to do.” Accordingly, the rate cut was moderate. Nevertheless, the PBoC probably has not taken the decision lightly. After all, even a small interest rate cut has a considerable impact on the financial markets, especially in the current shaky economic environment.
The most noticeable effect on Monday was on exchange rates. Capital always flows toward higher interest rates, so a rate cut in an economy tends to cheapen the local currency. That is also what happened to the yuan, which depreciated against the dollar. Lower exchange rates thus support exports. They make Chinese goods cheaper. That, in turn, could at least help to dampen the inflation that is sweeping the globe. That is if the parts to produce more export goods are available.
However, in China’s domestic economy, the interest rate cut creates a paradox. Actually, the government tries to find a more balanced economy. During decades of construction, continuous high capital investments made sense. But since then, all that cheap money has been used to realize hardly worthwhile projects. One symptom of this is the current real estate crisis. Here, a bubble is collapsing.
For a turbulent growth economy, such violent cycles of boom and correction are basically normal. But it is no coincidence that analysts currently expect money to leave the system. After the previous interest rate cut in January, there was again a great amount of capital on the move that did not find any use. This is another reason why Beijing is not investing in the usual sectors like construction for its current stimulus program, but rather in high-tech industries.
Now, the PBoC has one foot on the gas and one foot on the brake. While it is lowering interest rates, it has cut back on the volume of loans it provides to commercial banks at precisely this more favorable rate.
Specifically, the central bank has cut the interest rate on one-year medium-term lending facility (MLF) loans from 2.85 percent to 2.75 percent, making it cheaper for banks to access the funds. At the same time, it is providing ¥200 billion less in the MLF program than before. This also underscores that the rate cut was intended to have more of a symbolic effect. The target audience for the message was the general public, whose mood was expected to rise.
In the Nanshan district of Shenzhen, autonomous cabs are already part of the street scenery. Many people no longer even stop and watch when one of the white cars with a knob on the roof drives past them. It houses cameras and sensors that allow the vehicles to drive through the city without human control.
People in Shenzhen have become accustomed to revolutionary mobility concepts of the 21st century in the form of autonomous robot cabs. For more than a year and a half, the Internet company Baidu has been testing its technology on selected streets in public urban traffic – always with a backup driver in the passenger seat.
But while robot cabs from the operator Cruise have already been operating commercially on their own and for a fee in the US metropolis of San Francisco since June, Shenzhen has not yet issued the required license to scrap the emergency driver. And so Wuhan and Chongqing now take the pioneering role of being the first Chinese cities to authorize an autonomous cab fleet from Baidu, which fully trusts the technology and charges for it.
Baidu stated that five vehicles will provide services in each of the selected districts between 9 AM and 5 PM every day in Wuhan and from 9:30 AM to 4:30 PM in Chongqing. The areas cover 13 square kilometers in the Wuhan Economic & Technological Development Zone and 30 square kilometers in the Yongchuan district of Chongqing. However, it is only a matter of time before other Chinese cities also give the green light. Negotiations with Beijing and Guangzhou are already underway.
The approval is an important milestone for Baidu. The search engine giant, which suffers under declining advertising revenues, has focused its future business on artificial intelligence and autonomous driving. Baidu aims to significantly undercut prices for traditional cab rides. “We are moving toward a future where taking a robotaxi will be half the cost of taking a taxi today,” said Baidu founder Robin Li at the launch of the upcoming RT6 robot cab, which will hit Chinese roads from 2023.
Baidu plans to double its current autonomous fleet to 600 vehicles by the end of the year. The company plans to expand its Apollo Go cab service to 65 Chinese cities by 2025. By 2030, then even to 100 cities. At that point, tens of thousands of autonomous cabs are expected to be in use. The Apollo RT6 is to enter mass production for ¥250,000 (about €36,000) per vehicle. That is half the cost of the previous model, according to Baidu. For the first time, it will even be possible to retract the steering wheel.
For Baidu and other providers of robot cabs, it is important to reduce the production costs for the vehicles as much as possible to refinance their production through use on China’s roads. Especially since cab fares in the People’s Republic are significantly lower than in Germany, for example.
Not only is Baidu building its own autonomous cab fleet. It is also making its Apollo system available to dozens of automakers in China to build their own autonomous cars. Baidu is considered a leader in China in developing technology that enables autonomous driving. According to its own information, the group has a treasure trove of data, from more than 20 million kilometers of monitored autonomous driving. Like Tesla, Baidu uses this data to train its algorithms.
For passengers, there is little difference compared to other ride service providers such as DiDi Chuxing. They can download an app including a payment service, enter their pickup location and destination, and minutes later the robot cab will arrive. However, foreigners cannot yet take a ride because the app so far only allows registration with a Chinese ID. Gregor Koppenburg/Joern Petring
No commitment to “net-zero” is as important as Beijing’s, writes the International Energy Agency (IEA) in a recent report on China’s goal to peak annual carbon emissions by 2030 at the latest and achieve carbon neutrality by 2060 – or as they say in China, “30/60”.
If the world is to achieve the goal of maximum global warming of two degrees, or at best no more than 1.5 degrees Celsius, there really is no way of getting past Beijing. After four decades of turbo growth, China is now the hub of global value chains and has been the world’s largest energy consumer since 2009 – with the trend continuing to rise. Last year, for example, consumption increased by a further 10.3 percent compared to the previous year.
The problem: China continues to primarily rely on fossil fuels. These “dirty” energy sources cover almost 85 percent of China’s primary energy consumption – coal still plays a dominant role, accounting for 67 percent of domestic power generation. Although China’s per capita carbon footprint is less than half that of US citizens, the Middle Kingdom is now the world’s largest emitter of greenhouse gases, responsible for no less than one-third of annual global carbon emissions.
This – as China’s head of state and party leader Xi Jinping told the UN General Assembly in September 2020 – is about to change. While Beijing was long reluctant to tackle climate issues more resolutely and to commit to ambitious international targets because it kept its own level of development in mind, a cautious change in thinking is now emerging.
Beijing wants to coordinate and drive decarbonization with two central plans: The Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy and the Action Plan for Reaching Carbon Dioxide Peak Before 2030. The Action Plan is the first of several concrete implementation plans that set specific targets in ten areas, such as the development of renewable energy sources, energy storage, sector-specific targets and the carbon peak. For six of these ten areas, additional specific 14th Five-Year or implementation plans have been adopted.
So Beijing is serious. But despite these positive signs, China’s ambition level remains modest. Although the 14th Five-Year Plan targets absolute greenhouse gas emissions for the first time, which is actually a stronger lever than the previous focus on relative emissions per unit of GDP, the most recent plans lack corresponding targets. For instance, the implementation plan for the manufacturing industry contains just one quantitative target for reducing energy intensity, but does not specify total carbon emissions for industrial plants.
So China currently does not want to cap absolute emissions for its domestic industry, nor does it want to set a target for energy intensity. Economic growth is not to be jeopardized. Accordingly, the targets for total energy consumption were also dropped recently.
And now there is a risk of a renewed relapse to coal. Last fall’s painful bottlenecks showed once again how fragile China’s energy supply still is, and what risks a too rapid shift away from coal could pose to the economy. In addition, China does not yet have an effective and widespread power grid where bottlenecks could be offset with surpluses elsewhere.
In order to guarantee the energy supply, Beijing has unceremoniously reversed the ecologically motivated restrictions on the production of domestic coal. This year’s 14th Five-Year energy plan has also lifted the limits on coal consumption again.
The turmoil and price hikes on international energy markets following Russia’s invasion of Ukraine have further added to the urgency for Beijing to rely on domestic energy. Coal production, for example, was up 11 percent in the first six months of 2022 compared to the same period last year. Imports of the energy carrier, on the other hand, slumped by 17.5 percent.
But Beijing continues to back renewable energy sources. No other country has recently expanded photovoltaic capacity as rapidly as China. Between January and June 2022, China also expanded wind and solar power capacity by a further 17.2 percent and 25.8 percent, respectively, compared to the same period last year.
The sectoral 14th Five-Year energy plan drafted in March by the NDRC and the National Energy Administration (NEA) – China’s energy agency – aims to increase the share of non-fossil energy sources to 39 percent of electricity generation and 20 percent of energy consumption by 2025. In addition to solar and wind power, this currently includes hydropower in particular. Apart from that, Beijing is also expanding its nuclear capacity at full speed.
Apart from fighting air pollution and energy security, renewable technologies are key to Beijing’s dominance in future technologies. Here, industrial and environmental policies often go hand in hand. For example, China wants to transform the economy away from dependence on infrastructure and exports toward “high-quality” growth with increased domestic consumption, with more consideration for the environment and health. Heavily polluting industries are to give way to far more energy-efficient and thus eco-friendly high-tech industries.
This means that if Beijing wants to achieve “socialist modernization” by 2035, put the domestic economy on a healthier footing and become one of the market leaders in future technologies, it will not (be able to) turn away from its medium- and long-term goals despite the current relapse to coal. With this, the government, which values its legitimacy, can also over-fulfill the less ambitious goals rather than miss overly ambitious targets.
Michael Settelen is the Director of Swiss consulting company China Macro Group and Project Manager China at the University of Applied Sciences Northwestern Switzerland.
This article is part of the Global China Conversations event series of the Kiel Institute for the World Economy (IfW). On Thursday, August 18, 2022 (11:00 AM, CEST), Sebastian Eckardt, Practice Manager for Macroeconomics, Trade and Investment at the World Bank, and Prof. Dr. Xiliang Zhang, Professor of Management Science and Engineering and Director of the Institute of Energy at Tsinghua University, will discuss the topic: “Green Growth: What can we Expect from China?“. China.Table is a media partner of this event series.
Nimble rodents scurry across the tiles of a market in Hong Kong: The city’s government has declared war on litter and dirt. A three-month campaign is to bring 600 particularly unsanitary places in the metropolis up to standard. Markets and alleyways in particular, where dripping air conditioners leave puddles of water behind, will be targeted by the cleaning offensive over the next 90 days.
The Chinese government is unparalleled when it comes to reshaping the physical reality of the world to suit its plans. Whereas it is already difficult in Germany to build a bike path, make room for a railroad track or let alone erect a wind turbine, China literally moves mountains. Or rivers. In the future, even more water from the Yangtze River is to be channeled through a tunnel into the arid north. The project is so huge that even the world’s longest tunnel to date is just half as long. Christiane Kuehl analyzes the details.
A fair amount of faith in technology is also required to set computer-controlled cars loose onto road traffic. Robot cabs are already in operation in Shenzhen, but they do not yet have a license for regular operation. Here, Chongqing and Wuhan are now taking the lead. They have allowed AI company Baidu to use their self-driving taxis in normal daily operations, as our team reports from Beijing. This is the beginning of the end of the cab driver profession. For just a few thousand euros more, cab companies will be able to purchase vehicles and cut labor costs out of the equation.
While such tech projects are making rapid progress, a large chunk of the Chinese economy is struggling. Construction is slowing, private consumption is not advancing, and young people cannot find jobs. As a result, the central bank has made loans cheaper. Our analysis shows: This step was mainly symbolic. An interest rate hike signals that Beijing is doing something for the economy. The improved sentiment has a greater effect than the loans themselves.
Meanwhile, shots are again being fired around Taiwan. Because US delegates once again traveled to the island, China is making good on its threat and is having the navy fire around the island without further warning. What is also concerning is that Beijing has imposed sanctions on a European politician for the first time – also due to a trip to Taiwan. So the current crisis will continue for the time being.
Densely overgrown mountains characterize the border area between the Chinese provinces of Hubei and Henan. It is precisely there – between the Yangtze River and its tributary the Han River – where the gigantic system for south-north water transfer, which has been covering the drinking water needs of the north for years, is to be expanded. But the thirst in the north continues to grow, while the region is getting drier and drier. So the Yangtze basin will have to provide even more water than before – and in the future directly from the middle reaches.
But the water cannot be pumped across the mountains. So instead of building canals, China’s engineers want to drill what will be the world’s longest water tunnel by far through the mountain ranges. According to the plan, it will be around 250 kilometers long – almost as long as the Autobahn from Hamburg to Berlin. The world’s current number one, the 130-kilometer-long Päijenne Tunnel in Finland, reaches a depth of 130 meters. But the planned Yinjiangbuhan tunnel tops even that. It is to run as deep as 1,000 meters below the mountain slopes.
Huge amounts of water will then flow from the reservoir behind the world’s most powerful hydropower plant at the Three Gorges Dam near Yichang through the pipe toward the Danjiangkou Dam. This is where the middle route of the transfer system, which went into operation in 2014, begins. But the level of the Danjiangkou Reservoir has been falling steadily since 2014 due to long drought periods. And so the reservoir alone can apparently no longer meet the demand on its own.
According to Xinhua, the construction of the water connection will take ten years and, based on the plan, will cost around ¥60 billion, the equivalent of about €8.7 billion. By comparison, the construction of the canal from Danjiangkou to Beijing, which is six times as long, cost a whopping €66 billion.
The South-North Canal System is already one of the largest megaprojects on the planet. Since it went into operation in 2014, it has pumped around 54 billion cubic meters of water from the rain-wet south to the barren north – to supply more than 140 million people. According to the South China Morning Post, that is almost the average amount of water found in the entire Yellow River, China’s second-largest stream after the Yangtze.
The gigantic transfer program was generally controversial from the very beginning. Especially internationally, there were warnings about the ecological consequences. In the Soviet Union, the rerouting of large rivers had caused entire regions to dry up; the once enormous Aral Sea has practically disappeared over decades because it no longer had any major inflow.
But the Communist Party is fond of great feats of engineering. Due to the increasingly drastic drought in the north, it was keen to increase the volume of water via a transfer, especially for Beijing and the port city of Tianjin. In August 2002, the State Council approved the project. Construction work began in 2003, and hundreds of thousands of people were resettled along the middle route.
The hydrology and ecology of the Yellow River and Yangtze River systems have also been fundamentally changed. The long-term consequences of the project are not even foreseeable yet. Time and again, reports of water pollution in the vicinity of the transfer canals have emerged.
Nevertheless, in May 2021, President Xi Jinping announced that he would press ahead with the project – in other words, that he wanted to launch an additional route. This has now become more concrete. “The Yinjiangbuhan tunnel will establish a physical connection between the Three Gorges Dam and the South-to-North Water Diversion Project, China’s two critical infrastructures,” said Niu Xinqiang, president of the Changjiang Institute of Survey, Planning, Design and Research during the groundbreaking ceremony on July 7.
Perhaps this plan is based on the realization that the planned original western route is not viable. It would mean having to build canals and tunnels along the upper reaches of the Yangtze in inaccessible high mountain regions of the Tibetan Plateau. The project could also thwart ideas of diverting water from transboundary rivers such as the Brahmaputra, which flows from Tibet to India. Beijing has never officially supported this idea. Nevertheless, it has been causing unrest in India for years.
China has significantly less water available than the world average. Around seven percent of the global freshwater supply has to sustain around 20 percent of the global population. And this water is also extremely unevenly distributed. While the water-rich subtropical south can grow wet rice fields and is repeatedly hit by floods, many regions in the north are fighting against desertification. Thousands of rivers have disappeared, and industry and agriculture are polluting large parts of what remains. Cultivation of cereals, for example, is only possible with the help of artificial irrigation, which is inefficient in many places and thus wastes water. According to estimates, only 14 percent of China’s land mass is suitable for agriculture.
Climate change is causing the north to dry up further. The number of droughts is increasing, and the groundwater level is falling. Yet northern China is becoming increasingly densely populated. Industry and agriculture are also growing. As a result, water supplies in the region are becoming increasingly scarce. Despite the transfer system, China has to look into water conservation. The fight against wastage is difficult because the price of tap water is still low for political reasons.
The Ministry of Water Resources has now reacted and, according to a February memo, plans to impose regional caps on water use and to set up systems for trading water rights. Such systems exist in Australia, the United States and South Africa, for example. From 2000 to 2020, China’s cities saved a total of 97.2 billion cubic meters of water, according to the Ministry of Construction – in part by building sponge cities (China.Table reported). That is about nine times the amount pumped annually through the central route of the water transfer project.
China’s central bank supplements the government’s current economic stimulus program (China.Table reported) by lowering certain interest rates. The move came as a surprise: Just a few days ago, experts were primarily expecting a decrease in liquidity in the financial system. An interest rate cut generally has the opposite effect. It makes loans cheaper and easier to acquire for companies. So analysts were surprised on Monday by the decision of the People’s Bank of China (PBoC).
The new consensus is now that the central bank wants to brighten overall economic sentiment on behalf of the government. Most recently, several indicators slipped into the red zone:
An interest rate cut in such a situation signals that the government has realized the gravity of the situation and is taking action. Cheaper loans in the growth country of China generally mean more construction activity, investment in new factories and the like. The interest rate cuts could thus spread optimism for the second half of the year as a reflex alone.
Experts, however, doubt if there will be any tangible effect on the financial market. “Businesses and households seem to be cutting back on their borrowing because of their concerns about economic weakness,” writes Michael Pettis, a financial scientist at Peking University. The reason for the current low investment, he says, is not a lack of capital. “The problem, in other words, is lack of domestic demand.”
As long as the real estate industry is in a downturn, even the prettiest interest rate cut will not boost home construction. The sector is currently simply too depressed for that. Meanwhile, the Covid measures are putting the brakes on consumption. Especially in the big Shanghai lockdown, jobs have been lost, companies have collapsed, and restaurants and stores have been closed down. All this will not simply come back by command in the second half of the year, it will have to regrow first.
Pettis is convinced that the central bank announced the rate cut because “it knows that something must be done, but it doesn’t know what else to do.” Accordingly, the rate cut was moderate. Nevertheless, the PBoC probably has not taken the decision lightly. After all, even a small interest rate cut has a considerable impact on the financial markets, especially in the current shaky economic environment.
The most noticeable effect on Monday was on exchange rates. Capital always flows toward higher interest rates, so a rate cut in an economy tends to cheapen the local currency. That is also what happened to the yuan, which depreciated against the dollar. Lower exchange rates thus support exports. They make Chinese goods cheaper. That, in turn, could at least help to dampen the inflation that is sweeping the globe. That is if the parts to produce more export goods are available.
However, in China’s domestic economy, the interest rate cut creates a paradox. Actually, the government tries to find a more balanced economy. During decades of construction, continuous high capital investments made sense. But since then, all that cheap money has been used to realize hardly worthwhile projects. One symptom of this is the current real estate crisis. Here, a bubble is collapsing.
For a turbulent growth economy, such violent cycles of boom and correction are basically normal. But it is no coincidence that analysts currently expect money to leave the system. After the previous interest rate cut in January, there was again a great amount of capital on the move that did not find any use. This is another reason why Beijing is not investing in the usual sectors like construction for its current stimulus program, but rather in high-tech industries.
Now, the PBoC has one foot on the gas and one foot on the brake. While it is lowering interest rates, it has cut back on the volume of loans it provides to commercial banks at precisely this more favorable rate.
Specifically, the central bank has cut the interest rate on one-year medium-term lending facility (MLF) loans from 2.85 percent to 2.75 percent, making it cheaper for banks to access the funds. At the same time, it is providing ¥200 billion less in the MLF program than before. This also underscores that the rate cut was intended to have more of a symbolic effect. The target audience for the message was the general public, whose mood was expected to rise.
In the Nanshan district of Shenzhen, autonomous cabs are already part of the street scenery. Many people no longer even stop and watch when one of the white cars with a knob on the roof drives past them. It houses cameras and sensors that allow the vehicles to drive through the city without human control.
People in Shenzhen have become accustomed to revolutionary mobility concepts of the 21st century in the form of autonomous robot cabs. For more than a year and a half, the Internet company Baidu has been testing its technology on selected streets in public urban traffic – always with a backup driver in the passenger seat.
But while robot cabs from the operator Cruise have already been operating commercially on their own and for a fee in the US metropolis of San Francisco since June, Shenzhen has not yet issued the required license to scrap the emergency driver. And so Wuhan and Chongqing now take the pioneering role of being the first Chinese cities to authorize an autonomous cab fleet from Baidu, which fully trusts the technology and charges for it.
Baidu stated that five vehicles will provide services in each of the selected districts between 9 AM and 5 PM every day in Wuhan and from 9:30 AM to 4:30 PM in Chongqing. The areas cover 13 square kilometers in the Wuhan Economic & Technological Development Zone and 30 square kilometers in the Yongchuan district of Chongqing. However, it is only a matter of time before other Chinese cities also give the green light. Negotiations with Beijing and Guangzhou are already underway.
The approval is an important milestone for Baidu. The search engine giant, which suffers under declining advertising revenues, has focused its future business on artificial intelligence and autonomous driving. Baidu aims to significantly undercut prices for traditional cab rides. “We are moving toward a future where taking a robotaxi will be half the cost of taking a taxi today,” said Baidu founder Robin Li at the launch of the upcoming RT6 robot cab, which will hit Chinese roads from 2023.
Baidu plans to double its current autonomous fleet to 600 vehicles by the end of the year. The company plans to expand its Apollo Go cab service to 65 Chinese cities by 2025. By 2030, then even to 100 cities. At that point, tens of thousands of autonomous cabs are expected to be in use. The Apollo RT6 is to enter mass production for ¥250,000 (about €36,000) per vehicle. That is half the cost of the previous model, according to Baidu. For the first time, it will even be possible to retract the steering wheel.
For Baidu and other providers of robot cabs, it is important to reduce the production costs for the vehicles as much as possible to refinance their production through use on China’s roads. Especially since cab fares in the People’s Republic are significantly lower than in Germany, for example.
Not only is Baidu building its own autonomous cab fleet. It is also making its Apollo system available to dozens of automakers in China to build their own autonomous cars. Baidu is considered a leader in China in developing technology that enables autonomous driving. According to its own information, the group has a treasure trove of data, from more than 20 million kilometers of monitored autonomous driving. Like Tesla, Baidu uses this data to train its algorithms.
For passengers, there is little difference compared to other ride service providers such as DiDi Chuxing. They can download an app including a payment service, enter their pickup location and destination, and minutes later the robot cab will arrive. However, foreigners cannot yet take a ride because the app so far only allows registration with a Chinese ID. Gregor Koppenburg/Joern Petring
No commitment to “net-zero” is as important as Beijing’s, writes the International Energy Agency (IEA) in a recent report on China’s goal to peak annual carbon emissions by 2030 at the latest and achieve carbon neutrality by 2060 – or as they say in China, “30/60”.
If the world is to achieve the goal of maximum global warming of two degrees, or at best no more than 1.5 degrees Celsius, there really is no way of getting past Beijing. After four decades of turbo growth, China is now the hub of global value chains and has been the world’s largest energy consumer since 2009 – with the trend continuing to rise. Last year, for example, consumption increased by a further 10.3 percent compared to the previous year.
The problem: China continues to primarily rely on fossil fuels. These “dirty” energy sources cover almost 85 percent of China’s primary energy consumption – coal still plays a dominant role, accounting for 67 percent of domestic power generation. Although China’s per capita carbon footprint is less than half that of US citizens, the Middle Kingdom is now the world’s largest emitter of greenhouse gases, responsible for no less than one-third of annual global carbon emissions.
This – as China’s head of state and party leader Xi Jinping told the UN General Assembly in September 2020 – is about to change. While Beijing was long reluctant to tackle climate issues more resolutely and to commit to ambitious international targets because it kept its own level of development in mind, a cautious change in thinking is now emerging.
Beijing wants to coordinate and drive decarbonization with two central plans: The Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy and the Action Plan for Reaching Carbon Dioxide Peak Before 2030. The Action Plan is the first of several concrete implementation plans that set specific targets in ten areas, such as the development of renewable energy sources, energy storage, sector-specific targets and the carbon peak. For six of these ten areas, additional specific 14th Five-Year or implementation plans have been adopted.
So Beijing is serious. But despite these positive signs, China’s ambition level remains modest. Although the 14th Five-Year Plan targets absolute greenhouse gas emissions for the first time, which is actually a stronger lever than the previous focus on relative emissions per unit of GDP, the most recent plans lack corresponding targets. For instance, the implementation plan for the manufacturing industry contains just one quantitative target for reducing energy intensity, but does not specify total carbon emissions for industrial plants.
So China currently does not want to cap absolute emissions for its domestic industry, nor does it want to set a target for energy intensity. Economic growth is not to be jeopardized. Accordingly, the targets for total energy consumption were also dropped recently.
And now there is a risk of a renewed relapse to coal. Last fall’s painful bottlenecks showed once again how fragile China’s energy supply still is, and what risks a too rapid shift away from coal could pose to the economy. In addition, China does not yet have an effective and widespread power grid where bottlenecks could be offset with surpluses elsewhere.
In order to guarantee the energy supply, Beijing has unceremoniously reversed the ecologically motivated restrictions on the production of domestic coal. This year’s 14th Five-Year energy plan has also lifted the limits on coal consumption again.
The turmoil and price hikes on international energy markets following Russia’s invasion of Ukraine have further added to the urgency for Beijing to rely on domestic energy. Coal production, for example, was up 11 percent in the first six months of 2022 compared to the same period last year. Imports of the energy carrier, on the other hand, slumped by 17.5 percent.
But Beijing continues to back renewable energy sources. No other country has recently expanded photovoltaic capacity as rapidly as China. Between January and June 2022, China also expanded wind and solar power capacity by a further 17.2 percent and 25.8 percent, respectively, compared to the same period last year.
The sectoral 14th Five-Year energy plan drafted in March by the NDRC and the National Energy Administration (NEA) – China’s energy agency – aims to increase the share of non-fossil energy sources to 39 percent of electricity generation and 20 percent of energy consumption by 2025. In addition to solar and wind power, this currently includes hydropower in particular. Apart from that, Beijing is also expanding its nuclear capacity at full speed.
Apart from fighting air pollution and energy security, renewable technologies are key to Beijing’s dominance in future technologies. Here, industrial and environmental policies often go hand in hand. For example, China wants to transform the economy away from dependence on infrastructure and exports toward “high-quality” growth with increased domestic consumption, with more consideration for the environment and health. Heavily polluting industries are to give way to far more energy-efficient and thus eco-friendly high-tech industries.
This means that if Beijing wants to achieve “socialist modernization” by 2035, put the domestic economy on a healthier footing and become one of the market leaders in future technologies, it will not (be able to) turn away from its medium- and long-term goals despite the current relapse to coal. With this, the government, which values its legitimacy, can also over-fulfill the less ambitious goals rather than miss overly ambitious targets.
Michael Settelen is the Director of Swiss consulting company China Macro Group and Project Manager China at the University of Applied Sciences Northwestern Switzerland.
This article is part of the Global China Conversations event series of the Kiel Institute for the World Economy (IfW). On Thursday, August 18, 2022 (11:00 AM, CEST), Sebastian Eckardt, Practice Manager for Macroeconomics, Trade and Investment at the World Bank, and Prof. Dr. Xiliang Zhang, Professor of Management Science and Engineering and Director of the Institute of Energy at Tsinghua University, will discuss the topic: “Green Growth: What can we Expect from China?“. China.Table is a media partner of this event series.
Nimble rodents scurry across the tiles of a market in Hong Kong: The city’s government has declared war on litter and dirt. A three-month campaign is to bring 600 particularly unsanitary places in the metropolis up to standard. Markets and alleyways in particular, where dripping air conditioners leave puddles of water behind, will be targeted by the cleaning offensive over the next 90 days.
