What’s the Driving Force Behind China’s Great Green Leap Forward?

The Chinese economy is looking increasingly mighty these days. With most of the world still reeling from the global financial crisis, China shows no signs of slowing down. And, despite charges of obstructionism at last year’s Copenhagen climate summit, the People’s Republic is steadily taking the lead in cleantech and the green economy as well.

China is now the leading manufacturer of solar panels in the world, and last year became the world’s largest producer of wind turbines as well. According to one recent report, China is now poised to surpass the West in virtually all areas of clean energy, including transportation technologies, advanced batteries, solar water heaters and even next generation nuclear and “clean coal” technologies.

China’s pull is so strong these days that it has even begun attracting cutting edge firms away from places like Silicon Valley. And its geopolitical aspirations are equally ambitious. This month a plan for a transcontinental high-speed railway, from Beijing to London, was revealed. It no longer seems improbable that, as a 26-year-old Chinese engineer told a New York Times reporter recently, “China will lead everything.”

All of this is occurring, despite the fact that China is a one-party system without elections or democratic institutions. How did this most capitalist of communist states, known until recently as one giant sweatshop, take such a profound lead over the democratic West?

Or, to put it another way, what in the world would motivate a government to build a model green economy from scratch, when it doesn’t even have to worry about being voted out of office?

Here’s a clue: A 2007 World Bank study found that air pollution kills three quarters of a million Chinese every year. This number so embarrassed the Chinese government that it prevented parts of the report from being released to the public. Although things have improved somewhat in recent years, clean air remains a scarce commodity in Chinese cities and pollution-related diseases are still the leading cause of death in China.

China also faces food security issues. With 20 percent of the world’s population living off of 7 percent of the world’s arable land, a hectare of land in China must produce enough to feed 10.3 people (compared to 1.6 in the U.S.). Yet, while the population continues to grow, China’s supply of arable land is dwindling, due to soil degradation and water pollution.

Add to this the additional 300 million people that are expected to crowd into China’s urban areas over the next 15 years, and an expanding middle class, and it becomes quite clear that the number one threat to the health and well-being of Chinese citizens is pollution and environmental degradation. And anything that threatens the well-being of hundreds of millions of Chinese is also a threat to the stability of the regime.

Enter cleantech. Ostensibly an excellent means to clean up the environment while putting some of those hundreds of millions of city dwellers to work, the Chinese government has clearly identified the green economy as a key element of its survival strategy.

According to the above-mentioned study, the country is set to pour a whopping $400 billion into clean energy and green technologies over the next five years. That’s well over twice what the US will be spending, even with the greener elements of the Obama Administration’s stimulus package.

As an undemocratic country, China does not have to waste time arguing over policy, budgets and the usual partisan battles. And as a rapidly developing country, China is able to “leapfrog” outdated development models and technologies in favor of new and innovative ones.

For example, one of China’s most serious environmental problems, air pollution, is due to the country’s heavy reliance on coal-burning power plants, a technology as old as the Industrial Revolution. While the government has demonstrated its ability to clean the air using short-term solutions (especially ahead of the 2008 Beijing Olympics), it is one of the world’s first early adopters of “clean coal” technologies, such as carbon capture and storage, that may end up cleaning up coal’s mess over the longer term.

High-speed rail is another good example. Until only a few years ago, China had no high-speed rail service whatsoever. But when its transportation limitations began to hamper its manufacturing capacity, China decided to create, from scratch, a massive network of high-speed rail lines. That was in 2004. Today, China has the world’s most extensive high-speed rail network, with 42 lines expected to be in operation two years from now.

Such an extensive transportation network will make China that much more economically competitive. But, as Stephen Gardner of Amtrak told the New York Times: “The sheer volume of equipment that they will require, and the technology that will have to be developed, will simply catapult them into a leadership position.”

So, while no red-blooded American would suggest that the West abandon democracy for a China-inspired one-party system, the unique conditions that make China a cleantech forerunner will be difficult to challenge. China’s decisive investments along with its swift policies that help its investments bear fruit should — and can — serve as a guide to Western governments if we hope to keep up with China.

David Anthony is an experienced entrepreneur, venture capitalist, and educator. Since founding 21Ventures in 2004, the firm has provided seed, growth, and bridge capital to over 40 clean technology ventures across the globe. David Anthony sits on the board of a number of 21V portfolio companies including (partial list) Advanced Telemetry; BioPetroClean, ETV Motors, and Variable Wind Solutions. David also serves on the board of directors of several publicly traded companies including Axion Power International, Inc. (OTC: AXPW); Clean Power Technologies Inc. (OTC: CPWE) and ThermoEnergy Corporation (OTC: TMEN).

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