Growth, Transparency and China

02-20-2015 By Timothy Nixon

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A closed gathering of world experts on “sustainable” development occurred two weeks ago in Shanghai, China. The focus: how to maintain the juggernaut 7% plus rate of growth in China while at the same time improving the state of the environment.

One of the attendees and China’s former negotiator at the WTO, Mr. Long Yongtu explained the growth dilemma. There are three macro drivers for continued growth: “consumerism, export and investment”. Consumerism he suggested would be insufficient due to the lack of aggregate buying power across the existing consumer base. Export also would be insufficient due to the flagging state of the world economy and rising domestic costs. Investment, he said, is the key.

Further, this is about a new kind of investment. It’s about investment which produces both economic growth and improvements in the “natural capital” of China. It’s about understanding the sources of wealth and prosperity across the Chinese economy in a new, holistic sense, and crafting policy and economic incentives to develop those interrelated assets.

One very compelling example is the recent, staggering goal set by the Chinese central government on renewable energy:

“China’s target to expand total energy consumption coming from zero-emission sources to around 20 percent by 2030 is notable. It will require China to deploy an additional 800-1,000 gigawatts of nuclear, wind, solar and other zero emission generation capacity by 2030 – more than all the coal-fired power plants that exist in China today and close to total current electricity generation capacity in the United States.”

This is even more significant for the planet given China’s position as the leading aggregate emitter of greenhouse gases, and the significant role played by its two giant energy conglomerates, PetroChina, and China Petroleum and Chemical.

This then leads to the question of “how”. How does China achieve this previously irreconcilable set of goals? One powerful answer is increased transparency. And by transparency, I mean several things.

First, transparency as a driver of growth is about creating clarity on the level of risk attached to new investment. Developing a clear set of reporting standards, like those suggested by the integrated reporting movement, would bring enormous benefits to those sectors of the economy. New capital from China and abroad would embrace risk transparency and ongoing reporting, and the reward would be lower costs of capital and increased demand from those investors.

Second, transparency as a driver for growth is about innovation, and this means being open to innovation wherever it is happening. The host for this workshop, the De Tao Group, is a fascinating example of this in action. De Tao has collected a stable of over 500 “masters” who come from all parts of world to interact with Chinese social, economic and environmental experts and as well as students to share their knowledge.

Third, transparency as a driver for growth is about leaders. It’s about individuals willing to change existing habits on the value of secrecy and the allocation of economic benefit. While at this workshop, I met several examples of this leadership: Mr. George Lee, De Tao Chairman and architect of the global “masters” education model, Professor Zhu Dajian, adviser to the central government on sustainable growth, and Mr. Li Baiqing, the Vice Mayor of the southern Chinese city of Sanya, which has developed a live balance sheet for measuring stocks of natural capital. All three are playing an important role in this great journey for both China and our planet, and in my next installments on “Growth, Transparency, and China” we will tell their stories.