Americans are fretting over China's green leap forward. They shouldn't be.
- By Michael Levi<p> Michael Levi is senior fellow for energy and the environment at the Council on Foreign Relations. He blogs regularly at Energy, Security, and Climate. </p>
Washington may be cordially welcoming Chinese President Hu Jintao to town this week, but it does so against a backdrop of American anxiety about China’s rise that has rarely been so intense. In addition to long-running fears about U.S. debt holdings and currency controls, American pundits and policymakers now fret about China’s educational prowess, military technology, and geopolitical ambitions.
Among the newest worries is the fear that China is poised to beat the United States in what many have claimed is the premier technological competition of the early 21st century: the race to develop and manufacture the clean energy technologies that will power the post-fossil-fuel world. “I am more convinced than ever that when historians look back at the end of the first decade of the 21st century, they will say that the most important thing to happen was not the Great Recession, but China’s Green Leap Forward,” New York Times columnist Tom Friedman wrote last week. Energy Secretary Steven Chu recently devoted an entire speech, complete with frightening PowerPoint slides, to the Chinese juggernaut, declaring China’s rapid clean energy advances a “Sputnik moment” and calling on the United States to respond.
These warnings are grossly overblown. China is not crushing the United States in a clean energy race. And this myth isn’t merely wrong — it is also dangerous. Unwarranted fears of a clean energy competition threaten to spur a protectionist wave in the United States while squelching cooperation between the two countries — all of which will make it much tougher to develop the robust clean energy economy that the world needs.
The numbers, it’s true, look scary. According to Bloomberg New Energy Finance, China led the world in clean energy investment last year at $51.1 billion, up 30 percent from 2009. The United States runs a trade deficit in clean energy products with China that, according to the AFL-CIO, cost U.S. workers 8,000 jobs in 2010. A team of Harvard University researchers reported in November that the Chinese government spent $11.8 billion on energy technology research, development, and demonstration (RD&D) in 2008, while the United States spent barely a third as much.
These figures, however, are misleading. Yes, China spent more money buying wind turbines and solar panels than any other country last year. But consumption does not necessarily translate into technological leadership — if it did, the United States would have little to worry about in most product categories. Massive deployment of clean energy will give the Chinese government leverage with foreign firms (because Beijing will be able to demand concessions in exchange for market access) and provide opportunities for incremental innovation. But the cutting edge is, in most cases, far away: The Chinese innovation system still has enormous difficulty moving ideas from the laboratory to commercial application.
The AFL-CIO employment analysis, for its part, is extraordinarily narrow. Many clean energy products manufactured in China incorporate sophisticated materials and components made in the United States, which means that U.S. manufacturers can often benefit from their Chinese counterparts’ gains. The Harvard report, while more careful, also paints only a partial picture. Much U.S. RD&D happens in the private sector, which means it doesn’t register in the researchers’ government-to-government comparison. The Chinese economy, by contrast, is dominated by government and state-owned enterprises; as a result, a much larger fraction of its spending shows up in the analysis. No one has good numbers that describe the full picture, but it’s certainly too early to conclude that the United States is far behind.
But don’t broader trends reinforce the doom-and-gloom message? According to Chu’s speech, China has jumped from 15th to fifth in global patent rankings and from 14th to second in published research articles, while passing the United States as the leading source of global high-tech exports. But none of these statistics tells the full story.
As my colleague Adam Segal argues in his fascinating new book Advantage, Chinese patent numbers are inflated by perverse incentives: Universities and enterprises encourage people to file for patents even when they have little or no real intellectual property to protect. He also points out that Chinese scientific journals are rife with plagiarism and fraud. That’s not unrelated to the impressive publication counts: When institutional pressures reward publication at all costs, the result is both high quantity and low quality.
The purported Chinese dominance in high-tech exports, meanwhile, is the product of statistical sleight of hand. Chu’s figures describe the total value of Chinese exports. That gives China credit for the full price tag of every product it exports — even if it’s only responsible for its final assembly. (If China imported a Mercedes and painted it green, it would rack up tens of thousands of export dollars.) A careful analysis would focus instead on value added, which is what drives profits and wages. And on that score, the United States is still firmly in the lead.
The prophets of doom back up their figures with tales of woe. The sob story of the day is Evergreen Solar, a Massachusetts-based company that announced last week that it would shut down its solar module-manufacturing factory in the face of stiff competition from China. But lost in the noise was another report that Evergreen would boost investment in its U.S.-based R&D efforts.
Moreover, while the shutdown is clearly bad for employees at Evergreen’s Devens, Mass., plant, it’s not entirely clear that it’s bad for U.S. manufacturing workers in general. U.S. firms and workers still dominate the most lucrative parts of the solar value chain, particularly the production of the ultrapure silicon that ultimately goes into solar panels. (In the long term, China might compete there too, but most observers believe that day is still a ways off.) By bringing down the price of those panels, Chinese firms expand the global market in ultrapure silicon, benefiting U.S. firms and workers in the process. The ultimate balance between jobs created and killed is difficult to pin down, but the net result is far murkier than it might seem.
The growing U.S. paranoia about Chinese clean energy comes at a real cost. Advocates might hope that highlighting Chinese strength will spur U.S. lawmakers to pass legislation boosting U.S. deployment of clean energy and investment in energy R&D. So far, it hasn’t — and the more likely result is much uglier.
Fears of China lead quickly to calls for protectionism, through steep barriers to clean energy imports or to Chinese investment in U.S. clean energy projects and firms; investment and imports are currently relatively small, but have great potential to grow. Such moves hurt support for Washington’s efforts to open up foreign markets (including Chinese ones) to U.S. firms. They slow the flow of clean energy technology across borders, stifling innovation and delaying much-needed cuts in the cost of green technology. They starve capital-hungry U.S. firms of investment, while depriving U.S. consumers of access to cheaper sources of pollution-free power. At the same time, the Sputnik rhetoric is bound to sap lawmakers’ enthusiasm for the sort of clean energy cooperation with China that President Barack Obama will push for during Hu’s visit. This will hobble the development of cheaper sources of clean energy, delaying the much-needed expansion of clean energy markets and increasing costs for U.S. consumers.
To be sure, the United States has little reason to rest on its laurels. U.S. spending on energy R&D is pathetic relative to investment in other high-tech areas. Moreover, absent strong U.S. government policy to encourage deployment of more clean energy at home, opportunities to learn by doing in the United States will be few. U.S. policymakers should also be clear-eyed when facing real Chinese dangers: Beijing has used its big domestic market to pressure foreign firms to turn over their most prized technologies, something that will ultimately hurt the U.S. economy. And while China sometimes attracts U.S. firms because of genuine competitive advantage resulting from things like cheap labor and land, it also uses questionable — and possibly illegal — trade barriers and subsidies (such as its rules requiring local content in many clean energy projects). Washington should push back when Beijing goes too far.
But U.S. leaders must not lose sight of the bigger picture. Neither China nor the United States alone has the resources required to drive down the cost of clean energy to a point where markets for it will flourish. Shortsighted pursuit of victory in an imagined clean energy race will backfire, keeping costs high and public appetite for clean energy down. Without that demand, there will be no clean energy race to be won.
Clyde Prestowitz is the founder and president of the Economic Strategy Institute (ESI), where he has become one of the world's leading writers and strategists on globalization and competitiveness, and an influential advisor to the U.S. and other governments. He has also advised a number of global corporations such as Intel, FormFactor, and Fedex and serves on the advisory board of Indonesia's Center for International and Strategic Studies.| Prestowitz |