China’s Clean Energy Market: Industrial Policy In Action

May 17, 2010

Just in case you have not seen industrial policy before, here’s what it’s all about. Countries that engage in this sort of economic planning have specific strategies in place at the sectoral level. These are interventionist plans that may include specific targets and cross over many policy areas, such as fiscal (e.g. tax) and trade.

The current government in China has had an industrial policy since 1949, which is periodically updated. I am slightly confused, therefore, when foreigners scratch their head in puzzlement when foreign investment and international trade bumps up against China’s economic plans. This is inevitable and unsurprising.

Here’s an example of one sector, clean energy, as discussed in an Associated Press article:

U.S. leaders want China’s clean energy boom to drive technology exports and are sending a sales mission to Beijing this week. But Beijing wants to create its own suppliers of wind, solar and other equipment and is limiting access to its market, setting up a new trade clash with Washington and Europe.

U.S. and European companies find that while Beijing welcomes foreign technology, it wants manufacturing done here and know-how shared with local partners.

Of course. This used to be Chinese foreign direct investment policy across the board. Many sectors no longer have such restrictions and problems, but clean energy has been targeted by the Central Government in a very transparent fashion – that is, the government has announced in just about every economic planning document for the past five years that it intends to get into that business in a big way. A recent Guardian article on wind projects in China spells this out very clearly.

Government economic policy is what it is (for lack of a more elegant turn of phrase). There is no need for a false sense of surprise or, on the other side, an alternative explanation for the government’s actions.

“China is very keen on being able to depend on themselves,” said Frank Haugwitz, a renewable energy consultant in Beijing.

True, although that’s a better excuse for protectionism in regards to food security than it is for the clean energy sector. Why can’t we just say it out in the open that China is grabbing as much as it can in this sector, everyone knows about it, and it is part of government policy to do so?

If representatives of the U.S. Department of Commerce, which routinely meet with their Chinese counterparts on this issue, are being told that the sector will open up and that all will be liberalized soon, then the DOC guys are simply being foolish. I doubt that is the case, so the public outcry about protectionism is more of an exercise in propaganda than anything else.

“There is a clash there that I think is going to become more and more prominent unless both sides come to some agreement,” said Jim McGregor of APCO Worldwide Inc., a consulting firm, and a former chairman of the American Chamber of Commerce in China.

Call me when the agreement is finalized. Until then, I don’t need to read about the latest speech from officials “dismayed” at the lack of market access.

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