naked capitalism

This idea of China being ahead of the game in anything environment protection related probably strikes readers as ironic, given reports of extensive industrial pollution, such as air pollution on a scale that is changing weather patterns, large scale lead poisoning, and cadmium in the soil. As Forbes commented recently, “China: Where Poisoning People Is Almost Free.”

But we pointed out in April that China had been out for some time to take the lead in electric cars. Not only has the US fallen behind in battery technology, but we also gave up the know-how for the related drive trains:

h torque DC servomotors are the sine qua non for electric vehicles.

High torque performance is achieved via magnets made of alloys of various so called “rare earth” elements. Prominent among the alloys are samarium-cobalt and neodymium-iron-boron. GM held a majority interest in Magnaquench, an Indiana company with expertise in such materials and magnet fabrication. GM however decided that electric motors did not fit into its “core competencies.”

Ambrose Evans-Pritchard of the Telegraph tells us China is taking ground on other green energy fronts, namely solar panels and wind turbines:

China is running away with the green technology prize. It has conquered a third of the world market for solar cells and is on a breakneck course to build 100 gigawatts of wind turbines by 2020, doubling again the global capacity for wind power across vast stretches of Inner Mongolia and Xinjiang.

But potentially more important, China is on the cutting edge of price performance:

Suntech Power in Wuxi has just broken the world record for capturing photovoltaic solar energy, achieving a 15.6pc conversion rate with a commercial-grade module.

Trina Solar is neck-and-neck with America’s First Solar, the low-cost star that has already broken the cost barrier of $1 (61p) per watt with thin film based on cadmium telluride.

The Chinese trio of Suntech, Trina and Yingling all expect to be below 70 cents per watt by 2012, bringing the magical goal of “grid parity” with fossil fuels into grasp.

The concept of grid parity is subject to fierce debate, mostly revolving around which form of fuel – nuclear, oil, coal, or renewables – enjoys the biggest implicit subsidy, and what the future price of crude is likely to be. Parity has already been achieved in hot spots. First Solar’s 10-megawatt plant in Nevada can produce electricity without subsidies for 7.5 cents per kilowatt hour compared to 9 cents for fossil-based power.

But are these true technology achievements, or also a function of cheap currency? These gains are coming at the expense of European rivals, and the often often Euro-bashing (more accurately EU-bashing, but that difference is often lost) Evans-Pritchard has some sympathy:

German pioneers Solarworld and Conergy allege foul play and have called for EU sanctions, accusing Chinese rivals of practices that “border on dumping”. China’s finance ministry says it intends to cover half the investment cost of solar projects. It is a life-and-death moment for the German solar industry, pioneers who provide 75,000 jobs and once led the world. “A large number of German solar cell and solar module producers will not survive,” said UBS’s Patrick Hummel….

Roughly speaking, Chinese firms can undercut the Germans by 30pc. At root, it is a currency problem. China has stolen a march against Europe over the last five years by linking an already undervalued yuan to a weak dollar. While Beijing sheds crocodile tears about the falling greenback, it is deliberately riding dollar devaluation to protect its own export share. What is happening to German solar firms is a revealing case study of the slow-burn damage caused by currency misalignment.

If the global economy continues to be weak, advanced economies will become less tolerant of China’s continued mercantilism. Everyone knows the danger of protecionism, but if China continues to push the boundaries based on the assumption its trade partners will continue not to do much to preserve the system, it may learn to our collective detriment that it overplayed its hand.