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Balanced Clean Development
in China
Oxford Institute for
Energy Studies
Renfeng Zhao
Oxford Institute for Energy Studies/Kreab
Courtesy of workshop participants at Balanced Clean
Development in China Workshop in Beijing, November 2008
The key features of Chinese Model
Oxford Institute for
Energy Studies
• High investment rate supported by high savings
and FDI inflows
• Trade preferential policies
• Domination of state-owned commercial banks in
financial intermediation
• Capital control
Gross capital formation, % of GDP
Oxford Institute for
Energy Studies
Source: WDI online, 2008.
Household consumption, % of GDP
90
80
70
60
50
30
20
10
China
Middle income countries
Source: WDI online, 2008.
High income countries
Low income countries
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0
1970
Oxford Institute for
Energy Studies
40
The strength and weakness of
Chinese Model
Oxford Institute for
Energy Studies
• Strength
– High GDP growth
– Mitigate unemployment pressure
– Not vulnerable to external shock
• Weakness
– Double misallocation of resources
• A developing country exporting capital
• Current account surplus Vs. Poor investment income
– Excess liquidity (Inflation pressure + Asset bubble)
• Twin surpluses (Accumulation of reserve)
• Exchange rate inflexibility (Incomplete sterilization)
Misallocation of resources
Oxford Institute for
Energy Studies
• A typical developing country should run current
account deficit and capital account surplus.
• To fully utilize the FDI inflows, a developing country
should use the capital inflows to purchase foreign
machines, technologies and commodities, i.e., to
translate the capital inflows into current account
deficit.
• However, twin surpluses reflect that China has fully
utilized neither its domestic resource nor capital
inflows.
• A 1.9 billion USD foreign exchange reserve represent
a huge subsidy to developed countries
Why China should be worried
Oxford Institute for
Energy Studies
• China’s growth relies on the high investment rate
supported by high saving rate;
• China is aging. Demographic dividend will disappear in 15
years.
• China will need positive investment income to supplement
the declining saving, otherwise China will not be able to
maintain a decent investment ratio.
How to rebalance Chinese
economy
Oxford Institute for
Energy Studies
• The traditional Chinese model is unsustainable.
• To rebalance Chinese economy, a comprehensive
policy mix should be adopted.
• Financial crisis is both an opportunity and a challenge
for the structural adjustment of Chinese economy.
• Address specially
– Deterioration of environment
– Exhaustion of energy
– Widening gap between the rich and poor, coastal
and inland regions.
Macroeconomic policy, energy
security and the environment
Oxford Institute for
Energy Studies
 Trade-offs and challenges in the energy sector
 Energy security and the supply of primary energy
 Demand side and efficiency
Trade-offs and challenges
Oxford Institute for
Energy Studies
• Development – need to maintain growth
momentum
• Energy security – how to manage increasing
import dependence and diversify away from
coal
• Prices and social impacts – is cleaner energy
affordable?
• Rebalancing – implications for energy security
and the environment
Rebalancing could help
Oxford Institute for
Energy Studies
As the economy matures
• Slow down of incremental energy
demand with shift to services
• Demand shifts to lower carbon fuels
• Fuel supply structure changes
• Policy intervention is more
affordable
But there could still be problems
Oxford Institute for
Energy Studies
• Development of inland regions may promote
transport demand and oil use
• Services and higher domestic living standards lead
to increased share of electricity
• Construction has been major energy demand driver;
inland development requires more construction
• Difficulties with fuel diversification
Managing the change
Oxford Institute for
Energy Studies
• Economic rebalancing – can be used to shift to a new
growth path
• Global challenge creates global opportunities
• “Pollute now, clean up later” could be very expensive
• Many policies can help meet social and economic
objectives – eg energy efficiency. Pricing could also
be used proactively.
Policies that promote rebalanced
development
Oxford Institute for
Energy Studies
• Energy efficiency
• Low carbon electricity (clean coal; renewables; nuclear)
• Transport – efficient vehicles and effective public
transport
• Use of CDM
• Other forms of joint responsibility
• Technology issues
Climate Change communications
Oxford Institute for
Energy Studies
• Climate change is an environmental issue as
well as a development issue
• Behaviour change is very important
• Tackling myths and confusion about climate
change is a long journey
• Climate Change Journalists Club
http://www.climatereporting.cn/English.aspx