Macro-economic Restructuring Focus of China’s Leading Economic Forum

The Chinese government’s top-level think tank, the Development Research Center, hosted its annual Forum this past weekend, with speeches by top Chinese government leaders, international Nobel laureates and other top economists, and global CEOs. While the major controversies raised at the conference concerned trade and currency (see for instance the Washington Post interview with Commerce Minister Chen Deming, who covered much of the same ground in his comments at the Forum), most of the actual focus of policy discussion was on Chinese economic restructuring and support for domestic demand.

I last attended the conference two years ago, when China’s policies of “energy efficiency and pollution abatement” were top-level concerns for most speakers up through Vice Premier Li Keqiang. This year the Vice Premier again addressed the gathering, and while he mentioned both energy efficiency and pollution abatement and in fact spoke specifically about addressing global climate change by developing a low carbon economy, given the global financial crisis of the past two years, the majority of Li’s discussion focused on the Chinese macroeconomic situation. While many of the speakers focused on China’s relationship to the world economy, Li’s focus was very much on improving social welfare at home. He talked about the need to reduce the inequality between urban and rural residents, to increase average incomes, to ensure economic equity and to provide better services (including education, social security, medical care and housing to an urbanizing population).

For those interested in climate change, the focus on both economic restructuring and developing the service sector are in fact crucial for reducing China’s carbon intensity. China’s growth in recent years has focused on heavy industry. A number of the speakers noted that China’s build out of needed infrastructure has now progressed quite far, and there should be a natural transition over the next few years away from this type of development to both services and to consumer demand.

Speakers also focused on China’s urbanization, including the oft-heard figure that China will have one billion urban residents within the next 15-20 years. That figure is undoubtedly true, but many outside China perhaps do not realize that China already has over 700 million urban residents. What is striking in discussions like these is that Chinese government officials are focused on the challenges of planning for this transition to a more urban economy – an inevitable result of improved efficiency in agriculture – and are also focused on developing secondary cities to try to encourage a more even spread of the population.

The major speech on climate change was given by Lord Nicholas Stern, who commended China’s target of a 40-45% carbon intensity reduction by 2020 as compared with 2005 as progress. While he said he did not think that it – along with the submissions of the other major countries – is enough to maintain global temperatures within a 2 degree Celsius rise, he did hail it as “a major step forward.”

Stern presented some challenging math to the conference. He said that to meet the 2 degree Celsius target agreed to in Copenhagen, the world would need emissions per capita of no more than 2 tons by 2050. At present, he said the US is at 20 tons per capita, Europe at 10-12, China at 6, India at less than 2, and sub-Saharan Africa at less than 1. To get to his approach of a per capita allotment in 2050, Lord Stern suggested that China would need to peak its emissions and bring them down to the current level by 2030, which would mean, as the economy is growing rapidly, a four-fold decrease in carbon intensity per unit GDP over this same period. He suggested to his audience they consider a 29% decrease in carbon intensity per unit GDP for each of the following four 5 year plans.

When asked about whether he thought China actually had the capacity to make such rapid reductions, Lord Stern argued that he thought China did and had seen models that suggested the possibility. My sense of the models – including those of the Energy Research Institute, Renmin University, Tsinghua University and the Chinese Academy of Social Sciences – is that at most one Chinese model suggests a peak prior to 2030, and most other modelers do not consider its technology assumptions realistic. The ERI models that became the center of the WWF/Energy Foundation-sponsored China 2050 Scenarios is a good example of the mainstream view. While the scenarios have not been put on the web in English, there is a good set of powerpoints here that give a good sense of the data. What you see is that ERI’s forecast, which is similar to most other models, is that with extensive policy effort, China can level its emissions by around 2030, and then with widespread deployment of CCS begin to reduce from its peak (different models have different peak dates during the 2030s). The implication of these models is that to cause a peak and decline earlier than 2030, would require more aggressive and rather optimistic assumptions about deployment of energy efficiency, renewable technologies, and early widespread deployment of CCS. At present, China has some small carbon capture projects and plans to experiment with storage later in this decade.

Photo by pmorgan, courtesy of a Attribution-Noncommercial-No Derivative Works 2.0 Generic license.