We could write an entire novel on the massive infrastructure investments which have taken place over the years and are taking place as this article is being written. Or about just how many buildings have entered and are entering the Chinese market. Perhaps about the newly-found prosperity of the just as new Chinese middle class, with the consumerist implication this brings about (doubled by a more and more internal consumption-oriented economy). Examples of increased economic activity abound and in all of the previously mentioned examples as well as many more, the key role of the transportation sector is worth highlighting.

The same way, a more than reasonable role in the economic success story (thus far, at least) of China with respect to exports has been represented by the transportation sector. Had the average Chinese citizen been asked if he thought it was possible for Chinese products to be shipped tens of thousands of miles away back in the Mao Zedong days, the result would have undoubtedly been an outburst of laughter. Even if we were to fast-forward to the days of Deng Xiaoping and his commerce-oriented goals, let’s just say today’s status quo would have been considered an optimistic dream and nothing more.

Yet here we are.

Whether we are referring to automobiles, specialized shipping vehicles, high-speed trains, airplanes or an impressively vast commercial fleet, one cannot help but feel overwhelmed when glancing over the Chinese transportation industry.

However, this came at a (steep) cost.

While the proverbial West has its own set of sins to account for when it comes to pollution, it would be unrealistic not to acknowledge that textbook examples when it comes to pollution tend to be China-centric… and, in many cases, justifiably so. Even decades ago, for example during the Jiang Zemin regime, frustrations started building up due to the perception that the authorities were interested in economic growth at any cost. And from lifestyle deterioration due to pollution all the way to the personal tragedies caused by the illnesses it brought about, examples of “costs” abound.

The Hu Jintao and Xi Jinping regimes ended up being essentially forced to pay more attention to this dimension and, indeed, results started appearing. At this point a shot, producing a snapshot of the Chinese transportation industry requires a great deal of combing through stereotypes on all imaginable fronts.

Is it true that China is now the global leader when it comes to new energy sources such as wind and solar energy?

Yes, it is.

Is it true that China can still be considered a highly pollutING and pollutED nation? Unfortunately, the answer to such questions tends to once again be yes.

At the end of the day, the name of the game is acknowledging that a great deal of progress is needed when it comes to metrics such as pollution but, at the same time, identifying key areas in which existing breakthroughs cannot and should not be ignored. With that in mind, here are just a few of the more recent ones:

1. Heavy duty vehicles (commonly referred to as HDVs) being gradually eliminated from major cities (as became the norm in other jurisdictions such as the European Union). For example, as of late last year (December of 2018), CHINA III diesel HDVs were no longer allowed to be present in the 5th ring road of Beijing and as of late this year, they will be banned from Beijing altogether (an administrative area roughly the size of Belgium)
2. By 2020, 30 modern logistics hubs are expected to be built and within another five years, that number is expected to increase all the way to 150
3. Toward the end of 2018, a three-year framework for so called Connected Smart Ships has been agreed upon, making it clear that this means of transportation is not ignored either
4. The same principle applies toward Intelligent Connected Vehicles, with the end of 2018 also bringing about a coherent plan when it comes to this dimension

From concrete agreements and already-implemented plans to expected measures on all fronts (from placing caps on the production of conventional vehicles to facilitating the production of Intelligent Connected Vehicles, Neighborhood Electric Vehicles, Hydrogen-Powered Vehicles, etc.), it becomes abundantly clear that we are not simply talking about rhetoric when it comes to modernizing the colossus that is China’s transportation industry.

It remains to be seen what the future holds with respect to China but also other economic superpowers. Will the current anti-pollution trends persist or are new trends emerging due to decisions such as the United States’ withdrawal from the Paris Accord? At the end of the day, it’s important to embrace a realistic collective approach because whether we choose to ignore this reality or not, we are all stakeholders in this global equation.

This led to another mega-trend, one that the Chinese authorities consider deeply worrisome: the fact that China has grown increasingly dependent on energy imports. While Chinese leaders enjoy referring to the monstrous Chinese demand for resources because it highlights the economic dominance of China, they are far less enthusiastic when thinking about the fact that self-sufficiency in this respect has deteriorated.

For example, over the past six years, China has dealt with a bit of a predicament: reconciling the fact that for example oil demand has risen by 30% with the reality that oil production has fallen by almost 15%. Even prior to the previously mentioned six-year period, the situation in terms of import dependence was anything but stellar but at this point, the fact that imports account for approximately 3/4 of China’s oil needs is deeply problematic.

When it comes to natural gas, the situation doesn’t seem as dire, with China only being 45% dependent on natural gas imports and with domestic natural gas production having essentially doubled. However, the trend can be considered worrisome in light of the fact that the percentage in question was close to zero not that long ago. Furthermore, we need to understand that natural gas represents clean(er) energy and as such, Chinese demand is likely to go up, especially since at this point in time, natural gas accounts for less than 10% of China’s energy consumption, with the percentage in question being approximately three times higher for more developed nations such as the United States.

For any nation, being dependent on energy imports represents a natural security issue due to the fact that in dire geopolitical situation, the proverbial cord can be pulled, resulting in economic and even humanitarian damage that can be very difficult to quantify. Of course, as European countries can attest to (given the degree to which they rely on Russian natural gas, for example), being dependent on resources is hardly a problem that is unique to China.

However, the Chinese tend to consider it more problematic in light of the fact that self-sufficiency has been either a goal or even the status quo for thousands upon thousands of years. As those who have read the history-oriented articles that have been published on ChinaFund.com can confirm, China has pretty much always embraced a somewhat isolationist approach. There is a wide range of historical evidence (including evidence that is impossible to ignore such as… you’ve guessed it, the Great Wall of China) which makes it clear the Chinese have always considered self-reliance a significant component of their national security strategy. The let’s call it post-Deng-Xiaoping period which has been characterized by an unprecedented willingness to trade is an exception if we are to put China’s history under the microscope, definitely not the norm.

Before ending this article, it is worth pointing out that China is aggressively exploring a wide range of energy alternatives to oil and natural gas. Quite effectively so, in fact, with China currently being the number one producer of solar and wind energy. From green energy to electric vehicles, it would be a sign of ignorance to assume that China is 100% stuck in 20th century thinking when it comes to energy, that is most definitely not the case.

Still, it is very likely that for the foreseeable future, China will continue representing the world’s #1 source of oil and natural gas demand. The increased dependence of energy imports is ultimately a price that has to be paid if the Chinese economic growth success story is to continue, even if it is unlikely to continue at the pace we have been accustomed to due to reasons which revolve around sustainability.

On that note, while China can be considered the #1 source for global oil and natural gas DEMAND and that is unlikely to change, it doesn’t necessarily mean it has to also be the world’s #1 DEMAND GROWTH example. With countries such as India being more than eager to catch up (with five Indian households being required to consume as much energy as one Chinese household currently consumes) and the catch-up game in question being downright necessary, let’s just say that while it might be a cliché statement to make, change is indeed the only constant when it comes to global energy trends.

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As such, it’s only wise to take a close look at the natural resource dimension of the Chinese equation, as follows:

1. Water, believe it or not, is an extremely important variable, with China boasting the world’s top hydroelectricity generators, including the Ertan Dam, Xiluodu Dam and Three Gorges Dam (with the Three Gorges Dam currently being the largest plant around, surpassing the previous leader from Brazil/Paraguay, the Itaipu Hyro Power Plant, as of 2012). Despite its impressive projects, China is still struggling with the relatively low productivity of its various plants and issues such as water level-related problems
2. Arable land, with over 10% of China’s territory being represented by just that. Furthermore, the fact that China accounts for approximately 7% of the world’s arable land may seem impressive but in light of the fact that almost 1 of 5 people out there are Chinese… let’s just say it makes the statistic less impressive. Prior to Deng Xiaoping’s post-1978 reforms, agriculture accounted for over 50% of the nation’s GDP but as the country was put and kept on a modernization course, we’re looking at less than 10% nowadays, 8.7% according to current figures to give a more precise estimate. In terms of representative products, China is of course the global leader when it comes to rice production and the same way, they are dominant when it comes to fishing outputs as well. Despite massive modernization efforts, many Chinese farmers are still using methods that are labor-intensive and as such, almost 300 million citizens are still involved in the agriculture sector. As time passes and mechanization kicks in to a larger and larger degree, that number will most likely go down considerably
3. Moving on to other resources, it is worth noting that China is the world’s #1 producer of coal, a status quo which still contributes to it being perceived as a pollution-oriented nation despite China also being the dominant player when it comes to solar and wind energy. Aside from coal, China is also a force to be reckoned with when it comes to lead, gold and aluminum production, with approximately 6 million people being employed by the mining sector, approximately 3.2% of China’s labor force. Export-wise, current estimates indicate that almost 2% of China’s exports are mining-related
4. Does China have oil and natural gas at its disposal? Once again, the answer is inevitably positive given its significant size. However, the overwhelming majority of what China produces in this area is consumed domestically and as such, to call China an exporter of oil and/or natural gas would be a bit of an overstatement

… this would be an overly-simplified snapshot of China’s current resource situation.

However, as economic thinkers have made clear since the days of Adam Smith, the number one resource of a nation isn’t arable land, precious metals or fossil fuels. It’s represented by… you’ve guessed it, the productive capacity of its people and therein lies the success story of pretty much any nation which is presented as a positive example at this point.

For example, does Japan have amazing resources at its disposal? Not exactly. Switzerland? No, not really. China? Sure, it does have quite a few resources worth mentioning but importance-wise, they pale in comparison to the potential of its 1.4+ billion population. Once the true potential of the average Chinese citizen started being unleashed as of 1978, China’s GDP Per Capita grew by a staggering 2,500% and even so, it still has quite a bit of catching up to do.

Despite having its share of natural resources, China is growing to such a degree that it is the world’s most massive importer in that respect. As time passes and the dynamic of China’s economic growth changes, the trend is likely to be affected as well but for the time being, China’s GDP success story primarily revolves around massive imports of natural resources that were put to use via record-breaking infrastructure investments, with China for example consuming more cement in two years than the United States needed throughout the 20th century… need we dwell on this more?

First and foremost: yes, China has a pollution problem.

However, so does everyone else and as such, the situation needs to be analyzed globally rather than just laser-focused.

For example, according to a 2017 New York Times report (published in context of the US withdrawal from the Paris Agreement), the United States is the largest carbon polluter in history and for several decades (granted, not in the very recent past), the US generated more CO2 emissions than all other countries… combined. To bring the discussion closer than today, it’s worth noting that the US produced more CO2 than any other country until 2014. So, while it is no longer the world’s #1 polluter at this very point, it’s he largest polluter in history and this, corroborated with its withdrawal from the Paris Agreement should make it clear that China is not the only game in town when it comes to pollution.

That being stated, China is of course an important variable in light of its economic development and huge population. In other words, even if the average United States citizen still burns twice as much CO2 as the average Chinese or European, China’s emissions are a significant problems as a sheer function of its population and the same principle is valid when it comes to India.

Fortunately, steps are being taken to remedy this.

In China’s case, a promise has been made that by the year 2030, 20% or more of its energy will be generated through solutions that do not require fossil fuel. The same way, India also pledged to reduce emissions by 35% until the same year, with the EU being even more aggressive and aiming for a 40% reduction.

Is this enough?

Time will ultimately tell but just like in the world of economics, trends are important as far as pollution is concerned. As such, while the current reality of China and India is problematic not necessarily due to their per capita energy consumption but rather as a result of their population numbers, we have reasons to be optimistic as a result of the fact that pledges are being made, measures implemented and even more so, China is seemingly trying to fill the void left by the US departure from the Paris Agreement. In other words, we are dealing with a “problematic reality vs. promising trend” situation with China and India.

As far as the United States is concerned, while significant progress has been made thus far, the trend when it comes to political initiative is worrying. Should this trend not be reversed, the implications from the perspective of both pollution and economics are hard to quantify. Why? Simply because obvious economic questions will arise:

1. If everyone else is spending money and limiting growth in an effort to reduce pollution but individual players such as the United States are using this to their economic advantage by not doing the same, can this imbalance persist?
2. Up until this point, the United States had a strong leadership position when it comes to combating pollution, what is likely to happen with the void that has been created? Can China use this to its political advantage and fill it? Will it?
3. What would happen if the European Union, with its commitment to the reduction of pollution, ends up dealing with greatly reduced economic growth problems as a result? Will the political sector be able to convince citizens that it is a sacrifice worth perpetuating?

… the list could go on and on.

The bottom line is this: yes, we currently have a serious pollution problem but if everyone is on board with respect to making and keeping promises, we can turn things around. However, in light of the fact that a chain is only as strong as its weakest link, it is hard to quantify the effects of changes in course by major players such as the 2017 decision of the United States.