Command economics: for China, not all it’s cracked up to be

The drumbeat these days is that command economies, specifically China’s, are tough to beat. Beijing simply formulates and executes a plan of action, absent messy public debate. That is the narrative, for example, on carbon emissions reductions – China, it is said, is on an inexorable Big Green Push as part of a new path of economic development. But is it?

The background is that China instructed local governments to meet emissions reductions of 20 percent by the end of the 11th five-year plan, which corresponds with the close of the 2010 calendar year. As UPI reports, local governments have responded by simply turning off the power. In a series of rolling blackouts, local authorities throughout China have cut off electricity to industries, both profitable and failing.

The glitch is that factories still have the same production quotas, which they have been meeting by turning to diesel generators. One result has been wanton competition for diesel. Chinese diesel demand will rise by 1 million tons over the coming month, according to Stratfor. As the Financial Times’ Leslie Hook notes:

The Chinese government is rationing the electricity supply as it rushes to meet ambitious energy and environmental targets by the year’s end, hence boosting demand for diesel, power generators and even candles as the country scrambles for extra power.

It’s not just emissions reductions targets that are soaking up these diesel supplies. Twin state-owned refiners Sinopec and PetroChina have a near-monopoly on domestic refining, and despite scheduled August maintenance, are struggling to keep up with demand. Sinopec says it’s considering importing 200,000 tons of diesel and is pressuring subsidiaries to increase production, but critics are accusing the companies of hoarding the fuel in order to profit later when prices go up. The government says it may tap state fuel reserves to offset the shortage.

But the larger question is the result of all this diesel burning – the generators are pouring out heat-trapping gases, raising doubts of whether China will or will not manage to meet its emissions targets after all. As The Associated Press reports, some people think that authorities should abandon the blackout strategy. "The only solution is to begin supplying more power," Citigroup economist Ken Peng told the news agency.

The lesson is that central planning only goes so far. At this point, it seems highly unlikely that China will meet its emissions targets this year anyway.