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The Challenge of China’s Green Technology Policy

Testimony Before the U.S.-China Economic and Security Review Commission

SOURCE: AP

A worker walks past solar panels in a solar farm in China's Yunnan province. China is currently the world leader in clean energy technology.

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Download the full testimony (pdf)

Below is the oral statement as delivered.

Good morning and thank you for the opportunity to testify before this distinguished commission on China’s policies to develop clean energy technologies.

My name is Julian Wong and I am a Senior Policy Analyst at the Center for American Progress Action Fund. I speak before you today after having spent the past two and a half years of my professional life almost exclusively devoted to analyzing China’s energy policies. Three months ago, I led a delegation of senior staffers from the Center, along with key Senate staffers from Ohio and other important districts, to Beijing and the surrounding area to look at China’s advances in clean energy.

In a Washington Post op-ed last year, two esteemed business leaders, venture capitalist John Doerr and General Electric CEO Jeff Immelt, said:

Do we want to win the race to lead the next great global industry, clean energy? … We are clearly not in the lead today. That position is held by China, which understands the importance of controlling its energy future. China’s commitment to developing clean energy technologies and markets is breathtaking.

Today, I would like to address three points. First, I’d like to briefly describe the means by which China is pursuing the development of clean energy technologies. Second, I want to talk specifically about what China is doing on innovation in clean energy. Finally, I will describe what I see as the implications of all this for U.S. policy.

China adopts a comprehensive approach to clean energy

China’s big push into clean energy begins right at the top, when its leaders are able to articulate a clear, long-term vision for clean energy development, sending a stable market signal to local governments and companies.

This vision takes the form of specific, quantifiable energy conservation and renewable energy installation targets in its five year economic development plans, which are tantamount to their economic “Ten Commandments.” Local officials and government-appointed heads of state-owned companies are held accountable to meeting their allocated share of these targets through a variety of sticks and carrots.

Next, China is able to mobilize large volumes of low-cost capital through various channels, including state-owned investment vehicles and financial institutions, and economic stimulus programs across the full value chain of clean energy development, from R&D to manufacturing to deployment.

Finally, China is building out the necessary infrastructure upon which its clean energy transformation will take place. This includes not only physical infrastructure, like a national grid network using some of the most efficient high voltage transmission lines, or the world’s densest electric high-speed rail system, but also the economic infrastructure required to create a skilled workforce.

China has launched a medium-to-long term talent development plan to oversee its human capital investments over the next decade. It is strengthening its education system, particularly its colleges and universities, and seeking to bolster its innovation networks and supply chains through the establishment of over 100 science parks while luring foreign researchers and returning overseas Chinese scientists.

China is pushing ahead aggressively in clean energy innovation

A common perception of China is that it is good at manufacturing and deploying infrastructure quickly, but not at innovating world class technologies. While this remains largely true, things are starting to change quickly, especially in the clean energy sector. Science and technology innovation lies at the heart of the government’s “scientific development” concept and its ongoing economic reforms.

It is a third of the way through its current 15-year Science and Technology Development Plan, which contains tangible benchmarks, such as achieving global top-five rankings in patents generated and citations in international science publications. The plan also identifies five priority industries with top priority given to technologies relating to “energy, water resources, and environmental protection.” The plan calls for an increase in R&D funding to reach 2.5 percent of GDP by 2020, compared to just over 1.5 percent today. Supporting the plan is a range of national technology R&D programs. Government R&D funding has increased significantly from $7 billion in 1998 to $39 billion in 2008.

In what may be a worrying trend for the prospects of American innovation, China is also becoming a popular R&D destination for foreign multinationals like Applied Materials, DuPont, IBM, and GE. Consistently, these firms are locating R &D activities in China because that is where both the manufacturing infrastructure and the ultimate demand for their products are, and that it makes economic and business sense to conduct R&D close to other parts of the value chain.

Recently, certain aspects of Chinese innovation policies have been attacked by the international business community as being over-protectionist and inconsistent with principles of free trade. While such claims may be legitimate, they are a distraction to the more fundamental question that we should have at home—Why haven’t we gotten our own house in order?

What the United States has to do

The implications for the United States cannot be any starker. If the United States wants our companies to thrive in the clean energy sector, we need to adopt a comprehensive package of policies that creates market demand for clean energy technologies, channels adequate levels of public and private finance across the full value chain of clean energy development (and not just R&D), and builds the physical and economic infrastructure that can support this new market and enable the deployment of clean energy technologies. In my written testimony, I point to previous work which details a range of concrete policies that fit within this comprehensive framework, but by far the most important is a comprehensive policy that sets a price and a cap on carbon and sets a nationwide renewable electricity standard while strategically directing investment into renewable and efficient technologies at every stage of the value chain.

Conclusion

I would like to close with an observation that I gained from watching World Cup soccer over the past few weeks. In particular, I was struck by the recurring juxtaposition of two advertising billboards in the background of the soccer pitch, one in red by an American company—McDonald’s, the other in blue by a Chinese company—Yingli Solar. I thought to myself, this is the World Cup, the world’s biggest sporting stage, and China is proudly showcasing the future of its economy with a solar technology company. What is the U.S. best able to showcase?

Hamburgers.

I believe this image speaks volumes about the state of play not only in the global clean energy race, but also in the global competitiveness landscape. At the same time, I do believe there is a window of opportunity to do the right things to get America’s house in order so that it too can shape its energy future.

Download the full testimony (pdf)

Julian Wong is a Senior Policy Analyst at American Progress.

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