Renewable Energy Investment in China Research Paper

China' s Investment in Green Companies

Introduction

Climate change is one of the major issues facing the world today – arguably the most important one of them all. At issue is the reality that, of the present path of development during the entire industrialized era, much of it has come as the result of using machines to perform tasks that otherwise were performed by humans, animals, or not at all. This is not a problem of itself, but combined with the fact that the negative externalities of development, from climate change to pollution to garbage, are often poorly priced into the cost of goods. This means that there is a trade-off between the desire to develop, and the negative impacts that development has on our world, and ultimately will have on human society as a whole. As many observer has pointed out – the planet will be just fine, in a million years or so, but humanity might potentially suffer terribly from climate change and pollution.

This leads to the paradox of development. Development lifts people out of poverty and a state where life is perpetually difficult, but to develop brings about negative costs of its own. The concept of sustainable development is rooted in the idea that development does not necessarily have to be destructive in the long run. Enter green investment – investing in technologies that deliver development without the negative environmental consequences. This means renewable energy sources, biodegradable and natural products, and anything else that takes nothing from the world, but can instead by reproduced infinitely, in theory.

China is the world's leading producer of greenhouse gases, by far (Ge, Friedrich & Damassa, 2017). It is not the per capita emissions leader, but its per capita emissions are higher than the world average (Ibid.). Further, China ranks as one of the highest in the world for emissions intensity, which includes things like deforestation and land use change. Its high population and its rapid industrialization and urbanization put China at the fore of pollution and climate change. Its cities are among the most polluted in the world. This has led to intense crackdowns on factories, and substantial concern at the highest political levels that pollution and water shortage will undo much of China's recent economic progress (Nace, 2017).

Area of Focus

This paper will investigate China's investment in green companies. The objective here is to understand the state of such investment. It has been reported that China has invested heavily in green companies, in order to become the world leader in green technologies on one hand, but also as a means of addressing the crisis of its own pollution, which derives from industrialization, intensive coal use, and an increasing number of automobiles on the country's roads. This area of focus has not been given much study in academic journals – they are not a good resource for current events research, so some other sources will also have to be adapted in order to actually gain a proper understanding of this issue.

The geographic area will be China, at the national level of the People's Republic of China. This is because a lot of China's investment policy is driven by the national-level government, through state-owned banks and other investment vehicles. The PRC, as a Communist country, has tremendous influence over investment both in the country and with outward foreign direct investment, and the latter does often tend to reflect the national interests of the PRC. Note that "China" and "PRC" will be used interchangeably here, but that does not mean anything with respect to recognition of the PRC's claims to various foreign territories.

Gaps in the Research

There are massive, massive gaps in the research. This is not the sort of thing that is typically studied in academic journals. There are some threads of research that are related, and some that can provide some valuable background information. There have been studies about China's energy policy, including with respect to renewable energy those studies are some of the most direct on this topic. There have also been studies on China's investment in green supply chains, which given that country's position in supply chains around the world is important in the study of China's green investments. The studies that are utilized here will provide some key context, and if possible they will be augmented with other reliable sources, ideally including primary source information about China's investments.

Link Between Economic Growth and Renewable Energy

One of the reasons that China has been so active in green investments is that it wishes to be able to continue growing its economy, but start to minimize the environmental toll that this growth has taken. The country's leaders recognize that environmental damage is an externality, and one that is critical. When the Chinese people no longer accept the trade-off between economic growth and pollution – as occurred in the West starting in the 1960s, there is the risk that unrest will occur and disrupt the social order. One study showed that energy consumption lags economic growth, which gives the country the opportunity to force a transition to renewable energy without compromising growth, and indeed there is some reason to believe that this logic has been adopted by government, though not explicitly or publicly so (Zhang & Cheng, 2009).

China and Clean Energy

Given the reliance on coal in China, the moves that China has made towards investments in clean energy are of critical importance. In May 2017, Xi Jinping "promised to invest in clean energy, build scientific coalitions, and support other countries' efforts to adapt to climate change" (Kaufman, 2017) This investment is set to include $900 billion in foreign direct investment in green companies and initiatives. In part the move is political, taking advantage of the opportunity the American people handed to China in the form of putting a moron in charge of the country, but in part this is simply an extension of prior Chinese policy on clean energy investments and green technology. China had previously set aside $360 billion for clean energy investments, and cancelled 103 coal plants that were on order (Ibid).

China has invested significant amounts of money both internally and externally in renewable energy. The country's $32 billion in outward FDI in 2016 included a significant investment in renewable energy, including solar power (Jaeger, Joffe & Song, 2017). Internally, China has enacted policy reforms, including at the legal level, that have sought to encourage the use of renewable energy. Both the reliance on coal, and the persistent electricity shortages that the country faces have been targeted, for example in the 2005 Renewable Energy Promotion Law, and other instances where China has sought to use a variety of incentives to encourage the development clean energy investment, and seek legal means of curtailing investment in coal-fired power plants at the same time. By providing both disincentives for coal and incentives for renewables, China's clean energy policy goes beyond focusing on investments and targets current consumption patterns as well (Chemi & Kentish, 2007).

China has examined a number of different alternatives to coal as a means of focusing on green investment in the energy sector. It has examined, for example, municipal solid waste as a renewable energy source. There are a variety of financial incentives and government policies that help encourage such development, which would be implemented at the municipal level, but using technology developed by Chinese companies through the provision of incentives by the national-level government (Cheng & Hu, 2010).

China has also become a world leader in the development of renewables, including solar and wind energy. Chinese companies have leveraged government policy and incentives to develop strong research and development branches, and the result is that China has been able to leapfrog Western nations to become a technology leader in the field of renewable energy. The implementation of financial incentives typically flows through the state-owned banking system, to private enterprise. There is not necessarily a transfer of equity in such arrangements, but rather the banks lend money to companies, the central government also funnels money into research at the university level, providing money for research institutions to work on projects in the green space. So not all of China's investment in green technology specifically goes towards companies; just some (Chang et al, 2003).

It is worth mentioning that even though most of China's energy consumption is urban in nature, the country has also made investments in renewable energy in rural areas as well. Small, off-grid wind energy projects were reported by the late 1990s in Inner Mongolia, and it was noted that these wind systems were cost competitive with gasoline power, and were "capable of providing year –round electricity and meeting rising energy demands" (Byrne, Shen & Wallace, 1998).

China…