Normative Narratives


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China’s Model of Economic Development Cannot be Exported to Africa

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Original article:

However, with China’s more recent rise, what has emerged instead is the so-called “China model” featuring authoritarian capitalism. China is actively promoting this new model of China’s political and economic development in Africa through political party training programs, which constitute a key component of Chinese foreign policy toward Africa.

China has seen remarkable economic growth in the past few decades. About 3/4 of the global  reduction in extreme poverty since the end of the Cold War can be attributed to China. But as impressive as its experience has been, China’s growth model cannot be exported to Africa.

Why not? China has a strong, stable central government and a huge population. Despite the inevitable levels of corruption resulting from an economy dominated by government investment and a civil society which is subservient to the government (lack of transparency, accountability / judicial independence / checks-and-balances, no freedom of press/assembly), the Communist Party is somewhat uniquely dedicated to investing in the human capital of its people and providing some semblance of a welfare system

These positive features that have fueled China’s growth are generally missing in African countries. African economies tend to be natural resource-based, which do not require investment in people for growth but rather patronage politics to keep ruling regimes in power. As a result, the African continent is dominated by poor governance, corruption, poverty and conflict.

China also happens to be reaching the limits of its government-investment and export fueled economic growth model. Because of the Communist Party’s unwillingness to expand civil liberties, China’s greatest avenue for sustainable growth –it’s people’s innovative potential (really the only avenue for long-term sustainable growth for any country, but especially China due to it’s huge population)–remains underutilized. In short, while China’s model can (in the best case scenario) bring a country from low to middle income, it cannot bridge the gap between middle and high income (and as previously stated, the conditions needed for the Chinese model to bring Africa into middle income-dom simply do not exist).

The Communist Party is facing resistance at home, due to the twin forces of increasing demands for political rights (an inevitable result of advances in communication technologies and globalization) and slowing economic growth. Instead of loosening its grip at home to promote economic growth, the Chinese government is tightening its grip abroad. It is effectively trying to buy more time at the expense of regular African people–this is neo-colonialism.

But isn’t this the same as America’s goal of promoting democracy abroad? Perhaps ostensibly, but not functionally. Democracy is based on the concept of self-determination–of people determining their own future and having a government that carries out that vision. Decades of failures and hard-learned lessons in development reinforce the idea that effective democratic governance is the path to peace, stability, and sustainable growth. This is why the United Nation’s new Sustainable Development Goals (SDGs) are based on accountable, inclusive governance and the protection of human rights–i.e. effective democratic governance.

The Chinese model of political economy, on the other hand, places little to no emphasis on the African people.  It will enrich Africa’s autocratic leaders and Chinese businessmen in the short-run, leaving the host countries with rising inequality, continued extreme poverty, human rights violations, and conflict. 

The only thing the Chinese and American visions for governance and development have in common, aside from being based on capitalism, are that they are visions being offered by outside powers. Other than this, they could not be more different.

China states that the training programs are strictly exchanges of opinions rather than an imposition of the China model on African countries. In other words, China invites African political party cadres to China to study the Chinese way of governance on issues they are interested in, but whether they eventually adopt the Chinese way is purely at their own discretion.

The original article suggests that perhaps China is just offering best practices, take ’em or leave ’em, but other recent actions compound the idea this is part of a larger play. Considering increased military assertiveness by China (South China Sea) and Russia (Crimea, Syria), combined with the economic backing of new Sino-Russo-centric development institutions (the Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB)), and China’s sharing of “best practices” (best for China, anyhow) look like the “soft power” component of a larger “hard power” play to actively and aggressively promote its interests.  

Contrast this with likely European (Brexit and other internal EU concerns) and potential American retrenchment (who knows what a Trump presidency could mean for our foreign policy), and an even more concerning picture emerges.

Western backed international organizations, though still the dominant players for now, will face increased competition from organizations (AIIB, NDB) that have lower standards for governance and human rights, potentially compromising what is already a lukewarm embrace of the human rights based approach to development (the IMF, still trying to shake the legacy of failed “Washington Consensus” policies, has embraced more pro-poor, context-sensitive, flexible, ex-ante conditionality; the World Bank, on the other hand, is dragging its feet on mainstreaming human rights into its operations).

Global democratization–which has the benefit of near universal popularity among the civil societies of nations–is facing authoritarian headwinds. Overcoming these authoritarian forces requires strong, principled, long-sighted leadership. Lets hope said leadership is somewhere on the horizon.

 


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Green News: The U.S. and China Discuss Energy Poverty, Sustainable Development in Africa

“Common But Differentiated Responsibilities”:

During the recent APEC summit, President’s Obama and Xi Jinping announced what could be a landmark environmental agreement. The U.S. pledged to reduce carbon emissions by 26 percent to 28 percent from 2005 levels by 2025. China pledged to reach peak emissions by 2030, while increasing its renewable energy consumption to 20% of total consumption (China currently gets about 10% of its energy from zero emission sources).

This announcement has been received well by the international community. With the two largest GHG emitters on board (in gross emissions, the map above shows per-capita emissions), many believe this announcement could galvanize support for a legally enforceable climate treaty, to be finalized during the 2015 UN Climate Change Conference in Paris.

Another potential area of cooperation, which has received far less attention but is nonetheless significant, were discussions between the U.S. and China regarding clean energy investment in Africa (original article):

The United States is considering partnering with China on improving electricity in Africa and the proposal could be part of bilateral discussions when President Barack Obama visits Beijing next week, two sources involved told Reuters.

The 48 countries of sub-Saharan Africa, with a combined population of 800 million, produce roughly the same amount of power as Spain, a country of just 46 million.

The shortage imposes a massive burden on economies in the continent, constraining growth and leading to hundreds of millions of people remaining mired in poverty.

China’s policies in Africa have also been described by some African leaders as “neo-colonial” – lending money to impoverished states to secure natural resources and support state-owned Chinese construction companies.

U.S. Secretary of State John Kerry hinted this week that discussions during the APEC conference to conclude a Trans-Pacific Partnership (TPP) would involve energy agreements in other parts of the world.

“The TPP is not only a trade agreement but also a strategic opportunity for the United States and other Pacific nations to come together, to bind together,” Kerry said in a speech in Washington on Tuesday.

“Second, powering a clean energy revolution will help us address climate change while simultaneously jump-starting economies around the world,” Kerry added.

Approximately 1.3 billion people in the world live without access to energy, 95% of which live in Sub-Saharan Africa or developing Asia. Without access to energy, it is impossible for a society to modernize; energy access is an indispensable component of poverty reduction. How those who currently live without access to energy fulfill their energy needs will be a primary determinant in meeting global emission targets.

According to the International Energy Agency, 2/3 of known fossil fuel reserves must stay in the ground in order to reach global emissions targets. This will require both ambitious climate agreements from large emitters such as the U.S. and China, as well as aggressive investments in clean energy in countries that do not currently emit as much.

(For more reading on Africa’s Energy and Economic landscape, check out the 2014 World Energy Outlook Special Report on Africa)

Natural Resource Revenues, Accountability, and Development:

The Post-2015 Development Agenda, while appreciating the role of official development aid (ODA) in financing development initiatives, also recognizes the limits of relying on such a volatile source of funding. In order to reliably secure the finances needed for sustainable human development, developing countries will need to mobilize natural resource revenues in a responsible way.

This is admittedly  tall order. Historically, the “natural resource curse” has led natural resource revenues to be extracted by corruption rulers, cementing the rule of regressive, extractive regimes. Nigeria’s Sovereign Wealth Fund, while imperfect, provides a model for bringing transparency and accountability to natural resource revenue management.

Neocolonialism and corruption will not lead to development. When it comes to investing in Africa, the “return on investment” is in creating stable, resilient allies, who can positively contribute to global security and become new markets for trade; it is a long-game, not a short-game.

Lots of people have their hands out to grab resource “rents”. Therefore, a strong network of accountability is required if natural resource revenues are ever to benefit a countries poor / marginalized. This network includes social accountability (individuals, civil society organizations, and NGOs); corporate accountability (businesses operating in developing countries); and good governance at all levels (local, national, and international).

The Extraterritorial Responsibilities of Global Leadership:

During the APEC summit, President Obama urged China to be a partner in ensuring world order:

U.S. President Barack Obama said on Monday a successful China was in the interests of the United States and the world but Beijing had to be a partner in underwriting international order, and not undermine it.

“Our message is that we want to see China successful,” Obama told a news conference. “But, as they grow, we want them to be a partner in underwriting the international order, not undermining it.

He urged China to move “definitively” to a more market-based exchange rate and to stand up for human rights and freedom of the press.

At the risk of sounding cliche (or like a Spiderman move), with great power comes great responsibility. If China wants to be recognized as a global leader, it must show the world it is capable of fulfilling the obligations associated with such a role.


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Transparency Report: China Speaks of Inclusion at UN, Cracks Down on Protestors in Hong Kong

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Pro-Democracy Protests in Hong Kong:

During China’s annual address to the UN General Assembly, Foreign Minister Wang Yi had an interesting message for the international community:

The new sustainable development agenda should advance people’s wellbeing, promote inclusivity and ensure implementation

Inclusive, participatory politics are a foundation of modernization theory / a human rights based approach to development. Coming from a Chinese official these words ring hollow, as they were delivered while the Chinese government cracked down on pro-democracy protestors in Hong Kong:

In a significant escalation of their efforts to suppress protests calling for democracy, the authorities in Hong Kong unleashed tear gas and mobilized riot police with long-barreled guns Sunday to disperse crowds that have besieged the city government for three days. But thousands of residents wielding only umbrellas and face masks defied police orders to clear the area.

At the heart of current protests are provincial elections in Hong Kong. The Chinese government is allowing these elections to take place, but will only permit certain candidates to run. To their credit, and against great odds, protestor’s have defied calls from the Communist Party to end their protests.

It has become clear the people of Hong Kong are willing to defy authority in their attempt to secure political rights. The protests have naturally gained much international attention, and have put the usually shrewd Chinese Communist party in a difficult position.

Polyarchy and a Context Sensitive Approach to Development:

Robert Dahl, one of the most influential political scientists of the 21st century, would probably consider Hong Kong an “inclusive hegemony”. Technical terms aside, even the casual observer should realize that, as they stand, Hong Kong’s elections would not represent a real democratic exercise (and hence the protests).

When it comes to human rights and poverty reduction, the Chinese experience is perplexing. Since 1981, the number of people in the world living in “extreme poverty” (less than $1.25 PPP / day) has fallen by 500 million people; excluding China, this reduction turns into an increase of 100 million people. One could certainly argue that the UN is not in a position to lecture China on the finer points of poverty reduction.

But China’s experience with development and poverty reduction cannot easily be replicated. Economic development is always context sensitive, and the least developed regions in the world (specifically Western / Sub-Saharan Africa and the Middle-East) must develop from starkly different contexts than China has.

China is generally a homogenous, stable country with a strong central government that effectively meets peoples basic needs. Generally speaking, modern day Western / Sub-Saharan Africa and the Middle-East couldn’t be more different; sectarianism / tribalism run rampant, and governments are corrupt and ineffective at providing even the most basic services. This combination results in instability, insecurity, and high poverty rates.

Any meaningful attempt at “South-South cooperation”–using the experiences of past development efforts when drafting new ones–would quickly identify these difference. While China’s economic development has been a remarkable success story, it would also be impossible to reproduce in today’s least developed countries (LDCs).

Furthermore, there are limits to the growth China’s can realize from it’s political economy model. While extreme poverty has dropped in China, the average Chinese person is by no means “wealthy”. The Chinese government has proven itself to be incredibly adept at picking the “low hanging fruit” of economic development. But it is widely accepted, even by Chinese leadership, that future growth and development requires a shift from export-based / state-sponsored growth to consumer-demand / market based growth.

The question is whether  this type of growth is possible in a quasi-capitalist, authoritarian country. Perhaps China will continue to be the exception to the rule, and become a highly developed nation without extending the political freedoms many of it’s people crave. I have my doubts, and recent slowdowns in China’s economic growth may affirm my beliefs, but admittedly a longer-term perspective is needed to see whether China’s economic slowdown is a symptom of structural flaws in its political economy or not.

Human Rights Records and Rankings:

It is worth noting that China is far from an outlier / renegade nation (such as North Korea). China is not, for instance, Egypt or Syria–countries whose leaders greeted pro-democracy protestors with indiscriminate slaughter. Furthermore, modern day China is not 1989 China; these are not the Tiananmen Square protests, times have changed and I am fairly certain the Chinese central government will not resort to violence in order to break up the protests.

China generally works within the international community, and is sensitive to negative perceptions that may affect its economic growth. The Communist party has proven itself to be in-tune with the needs of it’s people–whether this is out of some sense of good governance or a survival tactic is certainly open to debate.

It is difficult to rank countries based on their human rights records; human rights violations are interconnected and their consequences difficult to quantify. One such organization that attempts to rank countries, the International Human Rights Rank Indicators, has China ranked 48/216. This rank is below most of the world’s wealthiest countries (which has a lot to do with a governments ability to fulfill economic and social rights), but ahead of many of the worlds poorest / most oppressive regimes; I would say this is a reasonable ranking.

Growth and Development:

The ability of the worlds LDCs to develop, and of China to continue to develop, should be of great concern even to those in the “developed” world. If the Great Recession has proven anything, it is that “financial innovation” is not a sustainable path to prosperity. Wealthy countries need new markets to export their goods–they need people in poorer regions to obtain greater purchasing power. This means the international community must be clear-eyed when assessing the merits and limitations of the Chinese growth model.

For the world’s LDC’s, I am fully convinced that a human rights based approach to development is needed. The Post-2015 development agenda–with a human rights and a context sensitive approach to development at its core–is being designed with the world’s most impoverished in mind. I am cautiously optimistic that this second iteration of the MDGs will make a meaningful impact in the battle to end extreme poverty and expand human dignity in the worlds poorest regions.

China will not take outside advice when determining its future policy choices. China does not need international economic assistance, so there is no mechanism for implementing outside advice (regardless of its merits). If democratic gains are to take hold in China, it will require a combination of internal pressure (protests) and a continued slowdown in China’s economic growth.


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Conflict Watch: Bringing Democracy To The U.N.S.C.

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The Syrian Civil War has raged for over 3 years and claimed an estimated 150,000 lives, with no sign of abating. During this time, reports from Syria have documented every violation of humanitarian law and human rights norms imaginable, including: the targeting of civilians, including children, in armed combat; mass displacements; the use of chemical weapons / “barrel bombs” / other indiscriminate means of killing; kidnappings / torture / forced disappearances; and the reemergence of Polio to name a few. The International Community, led by the U.N., has been powerless to stop these horrific acts:

The United Nations on Tuesday rejected calls for it to deliver humanitarian aid across borders into Syria without the approval of the government in Damascus, saying such operations would be possible only under a stronger U.N. Security Council resolution.

It’s the longstanding and consistent position of the United Nations that consistent with its charter … the organization can engage in activities within the territory of a member state only with the consent of that government of that state,” U.N. spokesman Stephane Dujarric said on Tuesday.

The only exception is where the Security Council has adopted a binding resolution under Chapter 7 of the (U.N.)Charter, authorizing the organization to act without the government’s consent,” he said.

Diplomats also said Moscow would likely be opposed to a Chapter 7 resolution to allow cross-border aid deliveries without the consent of Assad’s government.

Russia, supported by China, has shielded its ally Syria on the Security Council during the war. They vetoed three resolutions that would have condemned Syria’s government and threatened it with possible sanctions.

The purpose of this blog is not to assign blame for the situation in Syria–I have been very straightforward about my beliefs on this issue. Instead, I would like to turn attention on the inability of the U.N., in its current framework, to uphold international law in general.

In instances where governments are either ineffective in dealing with, or are themselves perpetrating gross human rights violations, the responsibility to protect (R2P) is supposed to give the U.N. authority to intervene. With the vast majority of today’s wars occurring within country borders, the R2P was a necessary modernization of U.N. peacekeeping initiatives. But R2P has not been as effective as its supporters may have hoped; [apparently] the U.N. still needs a Security Council authorized Chapter 7 approval whenever it enters a country without government approval, rendering R2P useless without unanimous Security Council support.

As a proud American, a student of the political economy of development, and a former UNDP Democratic Governance Group Intern, it is fair to say I believe in the importance of effective democratic governance from both an ideological and practical stance; I believe there is no alternative path towards sustainable human development. Democratic governance is not only a “means” to important “ends”, it is also an important “end” itself, providing and protecting the political freedoms people needed for self-determination and a life of dignity.

Under the current U.N. framework, permanent members of the Security Council (China, France, Russian Federation, the United Kingdom, and the United States) each hold veto power. Two of these members, China and Russia, are decided opposed to concepts of democratic governance. These two countries find themselves in a position where they do not vote on individual issues (such as whether to invoke the R2P in Syria), but rather on ideological issues (should anything trump “national sovereignty”). China and Russia are engaged in an existential battle, fighting for an authoritarian identity in an increasingly democratic world; they will NEVER vote against a national government, afraid of the precedent it may set. All the while, the actual issue at hand goes unaddressed, leading the U.N. to abandon the very people who risk their lives championing U.N. principles.

Democracy is one of the universal and indivisible core values and principles of the United Nations.” It seems antithetical that an organization dedicated to the principles of democracy, human rights, peace and international law, would leave its most important decisions to such a decidedly undemocratic process.

It is time for the U.N. to bring the democratic process to the U.N.S.C. In the event of a Security Council veto, the U.N. General Assembly should have a vote as to whether it should uphold the veto or not. This vote could either require 3/4 of member states (there are currently 193 states) to vote to overturn (an abstention could be viewed as a vote in favor of the veto; if the issue is important enough to veto, a representative will be present to vote), or it could be weighted based on member state population (similarly to many legislative branches, like the U.S. Congress).

The details at this point are unimportant, what’s important is the concept that no one nation should be able to veto the will of the vast majority of the international community. Such a resolution (which would require an amendment to the U.N. Charter, a process which itself is subject to the unanimous will of the Security Council) would cost all permanent U.N.S.C. members (including the United States) some power in U.N.S.C. decision making. The Permanent members of the Security Council must accept the necessity of such an amendment. The alternative is an ineffective U.N., leading to the eventual breakdown of the international norms which made the second half of the 20th century the most peaceful and prosperous era in history.


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Conflict Watch: In Effort To Show How “Powerful” He Is, Erdogan Exudes Weakness

Demonstrators, members of the Turkish Youth Union, shout anti-government slogans during a protest against a Twitter ban, in Ankara March 21, 2014. REUTERS-Stringer

CREDIT: REUTERS/STRINGER

Turkish Prime Minister Tayyip Erdogan shut down Twitter, citing bias and vowing to show the world how “powerful” his administration is:

“It is difficult to comprehend Twitter’s indifference, and its biased and prejudiced stance. We believe that this attitude is damaging to the brand image of the company in question and creates an unfair and inaccurate impression of our country,” the statement from Erdogan’s office said.

“Twitter, mwitter!,” Erdogan told thousands of supporters at a rally ahead of March 30 local elections late on Thursday, in a phrase translating roughly as “Twitter, schmitter!”

“We will wipe out all of these,” said Erdogan, who has said the corruption scandal is part of a smear campaign by his political enemies.

“The international community can say this, can say that. I don’t care at all. Everyone will see how powerful the Republic of Turkey is,” Erdogan said.

The European Union Commissioner for Digital Agenda Neelie Kroes tweeted that the ban in Turkey “is groundless, pointless, cowardly.” She added that the “Turkish people and international community will see this as censorship. It is.”

It is laughable to call Twitter “biased”, as it is a social media platform for people to share what they think. If Twitter is “biased” against Erdogan’s administration, it is because it has lost the support of the Turkish people. If Twitter was creating fake accounts to post anti-Erdogan tweets, or censoring pro-Erdogan followers, that would indeed be biased; this is not the reality of the situation.

On one hand, Erdogan says “Twitter, schmitter”, as if he is indifferent to supposedly falsified accusations against him. On the other hand, he shows himself to be very concerned about what goes up on Twitter, enough so to shut the social media platform down. Erdogan is clearly afraid that Twitter will catalyze a revolution in Turkey, as it did in Egypt.

In an attempt to show his strength, Erdogan has instead shown just how concerned he is about his oppositions social media activities, lending credence to their claims. This action is likely to backfire, adding another grievance (alongside corruption, tightening control over the judicial branch, and firing hundreds of police officers and officials) to the opposition’s arsenal, while moving protest movements from social media back to the streets.

Michelle Obama, on a “non-political trip” to China, had a markedly political message for Chinese citizens; internet freedom is a human right:

U.S. first lady Michelle Obama told an audience of college students in the Chinese capital on Saturday that open access to information – especially online – is a universal right.

“My husband and I are on the receiving end of plenty of questioning and criticism from our media and our fellow citizens, and it’s not always easy,” she added. “But I wouldn’t trade it for anything in the world.”

Censorship in Chinese news media and online is widespread, and internet users in the country cannot access information about many controversial topics without special software to circumvent restrictions.

Turkey has modernized quickly over the past decades, and currently boasts a much stronger human rights record than China or Egypt. But sometimes taking away freedoms can cause a greater backlash than keeping them from people in the first place. When people have been empowered with certain rights and then see them taken away, it generally does not sit well.

It is not easy to take criticism, but as most people know, addressing a claim only makes it appear legitimate. In the age of social media, any position in the public eye requires “tough skin”.

While Erdogan has presided over a prosperous era in Turkish history, he now seems outdated and unfit to govern a country with “Western” aspirations (such as EU ascension). Erdogan sounds borderline crazy when he calls dissent a “conspiracy” or “bias” from an inherently neutral medium of expression.

In pluralistic democracy, political dissent is part of everyday life. It is up to the politician to make the call as to whether dissent is:

a) uninformed (in which case the government can inform the opposition as to why they should not be concerned), and/or;

b) comes from a vocal minority which can (but not necessarily should) be dismissed, or;

c) a legitimate grievance which must be addressed with policy changes.

When “c” is met with a dismissal (claims of conspiracy, bias, etc.) and tightening of power, it makes the situation worse. Erdogan still remains very popular in Turkey, but one has to question how many missteps his popularity can endure.

(Note: A government will almost always try “a” and claim “b” even if in reality the case is “c”. Furthermore, “b” can turn into “c” if not addressed. This list is supposing these alternatives are mutually exclusive and there is an objective truth, which is often not the case, at least until long after the fact.)


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Economic Outlook: China’s Local Debt Solution–Financial Liberalization or Debt Monetization?

Original Article:

The total debt of local governments in China has soared to nearly $3 trillion as the country’s addiction to credit-fueled growth has deepened in recent years, according to the findings of a long-awaited report released on Monday by the central auditing agency.

The June figure also represented a sharp increase of 67 percent from the end of 2010, when an earlier report by the Audit Office estimated local government debt at 10.71 trillion renminbi.

In the five years since the onset of the global financial crisis, local governments at the provincial, municipal, county and township levels across China have gone on a spending spree, loading up on debt to finance a surge of investment in infrastructure, real estate and other projects.

The structure of much of this borrowing has also raised concerns. With a few exceptions for pilot programs, local governments in China are prohibited from directly taking on loans or issuing bonds. Instead, they have set up thousands of special-purpose financing vehicles that borrow on the government’s behalf to pay for a given project.

Such financing vehicles had confirmed probable and potential debt obligations totaling 6.96 trillion renminbi as of June, according to the Audit Office’s report, accounting for nearly 40 percent of all local government debt.

Analysts had for months been anticipating the results of the audit office’s survey. As part of an investigation that began in July, the agency said, it deployed 54,000 auditors across the country, who combed through the books of more than 62,000 government departments and institutions and examined 3.4 million debt instruments related to more than 700,000 projects.

Based on findings of the new report, Lu Ting, a China economist at Bank of America’s Merrill Lynch unit, estimated that China’s total public debt stood at 53 percent of gross domestic product. Adding corporate and household obligations lifts the total debt ratio to as much as 190 percent of G.D.P., he estimated.

China’s overall debt ratio “is neither exceptionally high nor low,” Mr. Lu wrote on Monday in a research note. Still, he said he was concerned that for the last two years China has been adding debt faster than its economy has been growing.

Financial Liberalization:

According to analysis by Reuter’s economists, China’s plan to reign in debt via municipal bond markets relies on “the one thing its officials are most afraid of: transparency”:

By letting local governments sell bonds for cash, China wants to rely on nimble markets rather than inflexible regulations to keep spendthrift units in check.

The stakes are high. A bond market is the centerpiece in China’s blueprint to mop up fiscal troubles and keep its economy growing at an even pace, giving it needed room to start other bold financial reforms.

But analysts say China’s dreams of a municipal bond market are so far just that, as building one has been impeded by a lack of disclosure from local governments on how much money and assets they have, and how much they owe.

“If you want to lend to a specific government, you need to have a clue as to what the financial conditions are like,” said Tan Kim Eng, a senior director of sovereign ratings at Standard & Poor’s in Singapore.

“There’s still a lot of work to be done on the fiscal transparency front.”

“Any improvement to fiscal transparency will be limited unless the central government regularly publishes similar audit reports,” Standard & Poor’s said separately in a note on Tuesday. “It’s also unclear whether China will disclose the debts of individual local and regional governments.”

To be sure, China is mulling other options for cleaning up its debt mess, including allowing private investors to pay for public works, and letting the central government absorb more spending responsibilities.

But no plan resonates better with reform-minded officials than that for a municipal bond market, partly because it fits perfectly with China’s goal of reducing central planning to let financial markets work their magic.

Facing savvy local officials quick to change financing strategies to evade rules, Chinese experts have championed creation of a municipal bond market. Such vehicles, they say, will decide which governments deserve funding, and spendthrift ones will be punished with higher borrowing costs.

Beijing appears to like the idea, and is testing the ground for such a bond market in six prosperous cities including Shanghai and Guangdong.

But short of full disclosure of just how much governments take in and borrow, analysts doubt China’s experiments with its local bond market will go far.

“Banks and rating agencies do not have easy access to local governments’ overall fiscal position, which includes not only budgeted revenue and expenditure but also extra-budgetary revenue and expenditure,” the International Monetary Fund said in October.

“This lack of transparency prevents banks and rating agencies from pricing credit risk properly and prevents local governments from managing related risks prudently,” it said.

Debt Monetization:

Another option to reign in local debt is “debt monetization”. In such a scenario, China’s central bank (The People’s Bank of China) would print money, and use that money to buy up outstanding debt (taking it out of the public’s hands). China’s central government could then cancel the debt it just purchased, on the condition certain policies it desires are enacted (financial transparency / fiscal responsibility / greater future role for the central government in local budgetary decisions for example).

The downside of “debt monetization” is that it increases the money supply, which can have inflationary consequences.

Which policy (or mix of policies) will China pursue to reign in local government debt? It depends if you believe in China’s economic blueprint rhetoric or not.

In recent months, China has revealed an ambitious plan that will allow markets to play a bigger role in the economy, beginning a shift from a primarily export based economy to one based more on personal consumption. In line with this plan would be a financial transparency / market based approach to the local debt problem. Increasing budgetary transparency would make local governments more accountable to financial markets and (secondarily) their electorates.

However, the debt monetization approach creates winners as well (who happen to be the usual winner in China–the political elite). It would provide a greater role for the Communist Party in local economic decisions. It would also reduce the value of China’s currency (monetary expansion), which while reducing disposable income (consumption spending) would likely make exports more attractive (which has been the traditional engine of Chinese growth). If you think the Chinese government is just blowing smoke with its economic “blueprint”, and cares more about aggregate growth rates than personal well-being, the debt-monetization approach makes more sense.

It remains to be seen what actions the Chinese government takes, and actions speak louder than words. “Pilot” market liberalization projects have begun in large “international” cities like Shanghai and Hong Kong, will they reach smaller municipalities as well? Can China’s blueprint for economic liberalization fit in with the  determination of the Communist Party to keep a strong grip on political power? Is the Chinese government trying to say the right thing, while further entrenching the role of the central government in everyday life?

The policy response to the local debt crises will provide some rare insight into the true intentions of the Chinese Communist Party.


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Transparency Report: (In China) the Appearance of Human Rights Laws Must be Upheld, Especially When they are Being Broken

This is a picture of William “Boss” Tweed, one of the most notoriously corrupt politicians in American history. His character, in the critically acclaimed movie “Gangs of New York”, has a particularly memorable line; “the appearance of the law must be upheld, especially when it is being broken”.

The Chinese government does not supporting human rights, as exposed in a recent government white paper on the subject. According to the Tibetan Centre for Human Rights and Democracy, “China’s white paper is oblivious to the indivisible and universal nature of human rights, and that guaranteeing human rights requires action and not just mere hollow proclamations.”  While Tibetan’s are admittedly not unbiased observers, this does not change that fact that this statement is 100% correct.

International human rights law is not only about economic development; this is just one element of the human rights based approach to development. Human rights consist of economic rights, as well as social, cultural, political and civil rights. These rights are understood as universal (must be granted indiscriminately), interdependent, indivisible, and mutually reinforcing. One right begets other rights (leading to empowerment and sustainable human development), while one violation enables another (leading to undesirable ends such as “extreme poverty”). This broader definition of [sustainable] human development is about far more than GDP per capita – that tells us remarkably little about the state of a society, particularly where gross inequity prevails, according to Helen Clark, UNDP administrator.

It seems the Chinese government believes in the economic rights portion of human rights, but not the other essential components. It may pay lip-service to these other rights, but this is simply a facade to appease the international community and it’s own civil society. However, neither of these parties seem fooled. Microblogs have become a popular outlet for Chinese citizens to voice grievances against the government, prompting stricter monitoring / regulations. The international community also recognizes a deterioration of human rights in China, according to a report by the United Nations Human Rights Council:

“We’re concerned that China suppresses freedoms of assembly, association, religion and expression…, harasses, detains and punishes activists…, targets rights defenders’ family members and friends and implements policies that undermine the human rights of ethnic minorities,” Zeya said.

“I think that there wasn’t really an openness to criticism,” Sharon Hom, executive director of Human Rights in China, told a news briefing. “It was clear from the Chinese delegation’s responses that ‘objective and frank’ meant no criticism, or at least no criticism that they didn’t control.”

Some experts had thought the administration of Xi would be less hardline than his predecessors. Instead, critics say Xi has presided over a clamp down that has moved beyond the targeting of dissidents calling for political change.

For example, authorities have detained at least 16 activists who have demanded officials publicly disclose their wealth as well as scores of people accused of online “rumor-mongering”.

“Xi Jinping has definitely taken the country backwards on human rights,” prominent rights lawyer Mo Shaoping told Reuters.

Three specific examples support the theory that China does not uphold international human rights standards, but rather pays lip service to them: 1) the governments reaction to smog in China, 2) the corruption trials of Bo Xilai, and 3) the treatment of Tibetan monks.

1) Smog in China:

Schools, major roads and an airport remained closed Tuesday, as a thick cloud of filthy smog smothered the northeastern city of Harbin.

Pollution levels remained far above international standards, as the city’s monitoring stations on Tuesday showed that concentrations of PM2.5 — the tiny airborne particles considered most harmful to health — were more than 30 times the World Health Organization’s recommended standard, the state-run China Daily reported.

However, the government has responded with token measures. To the extent the government cares about pollution, it is arguably for economic reasons (reduced tourism, stopped economic activity), as opposed to the health aspect (premature deaths due to dangerous smog)

China said on Monday it would give rewards amounting to 5 billion yuan ($816.91 million) for curbing air pollution in six regions where the problem is serious, underscoring government concern about a source of public anger.

Protests over pollution in China are becoming common, to the government’s alarm. Authorities have invested in various projects to fight pollution and even empowered courts to mete out the death penalty in serious pollution cases.

But the results have been mixed. Enforcement of rules has been patchy at the local level, where district authorities often rely on taxes from polluting industries.

State media said in July the government planned to invest 1.7 trillion yuan ($277 billion) to fight air pollution over the next five years.

Despite new enforcement rules, without empowering people with civil and political rights, top down measures never become ground level realities; a prime example of the interdependence of different aspects of human rights.The Communist party can be seen taking a tough stand on pollution, without adequately addressing the problem.

Such a response will not result in better air quality; which is bad news for the vast majority of Chinese people who cannot afford a purifier; top of the line airs purifiers run between $2000 and $3000, and basic standard models range from $320 to $480 a piece. Meanwhile, the average annual family income of the 712 million urban Chinese is $2100. Do the math!

2) Bo Xilai Trial

The sentencing of former Chongqing Communist Party boss Bo Xilai to life in prison on bribery charges over the weekend effectively brought to a close China’s biggest political crisis since the Tiananmen Square crackdown in 1989.  Bo’s exit is significant in that it leaves the neo-Maoist “New Left” without a star. But the trial was also noteworthy for the many questions it raised about the future of China’s much-scrutinized legal system.

The trial of Bo, presided over by the Jinan Intermediate People’s Court in eastern China’s Shandong province, caught many off guard with its apparent openness. While politically sensitive trials have typically been cloaked in secrecy, the proceedings in the Bo trial were broadcast online in unusual detail through the court’s official feed on Sina Weibo, China’s version of Twitter.

This “apparent openness” was by design, as is everything done by the Communist Party in China. The purpose was to show Chinese citizens, and the world, that leadership has gotten “serious” about corruption. Here’s the problem, China has over 10 million civil servants, it is impossible to stamp out corruption on an ad-hoc basis. In effective democracies, corruption is kept at bay by the democratic process; if a civil servant is proven unfit for service, he is dismissed. Absent these political rights, the Chinese people must rely on the benevolence of the parties internal auditing.

The Chinese judicial system is controlled by the government (and therefore not independent or transparent)  and is highly reliant on confessions as opposed to evidence. Confessions can be forced, especially when people lack the civil rights to challenge the interrogation / judicial processes. The Chinese judicial system allows government leaders to push out strategic foes under the guise of fighting corruption. Again, the Communist party appears to be upholding peoples rights, without making any meaningful reforms.

3) Tibetan Monks:

One of the most important sites in Tibetan Buddhism, Labrang presents an idyllic picture of sacred devotion that is carefully curated by the Chinese government, which hopes to convince visitors that Tibetan religion and culture are swaddled in the Communist Party’s benevolent embrace.

But behind closed doors, many of the monastery’s resident monks complain about intrusive government policies, invisible to tourists, that they say are strangling their culture and identity.

“Even if we’re just praying, the government treats us as criminals,” said a young monk, who like others interviewed recently asked for anonymity to avoid government repercussions.

Such frustrations, many monks say, are what has driven more than 120 Tibetans to set fire to themselves since 2009, including 13 in the Labrang area, in a wave of protests that has gone largely unreported in the Chinese media.

International human rights advocates say that rather than address the underlying grievances — including Beijing’s deeply unpopular campaign to demonize the Dalai Lama, the exiled Tibetan spiritual leader — Chinese authorities have responded with even harsher policies that punish the relatives of those who self-immolate and imprison those who disseminate news of the protests to the outside world.

Monks here describe a largely unseen web of controls that keep potential troublemakers in line: ubiquitous surveillance cameras, paid informers and plainclothes security agents who mingle among the busloads of tourists. Hidden from the throngs are the political education sessions during which monks are forced to denounce the Dalai Lama. Stiff jail sentences await those who step out of line. “If we don’t obey, it will be terrible for us,” the monk said. 

With an eye on the lucrative prestige of a Unesco World Heritage listing, the central government is giving the monastery a $26 million face-lift. Around 1,000 monks and 65,000 volumes of Buddhist scripture are housed in the sprawling complex, which local officials say is in dire need of structural improvements.

Yet locals complain that much of the construction is aimed at increasing tourism, rather than benefiting Tibetans. “It looks fancy, but in reality all the improvements are for Chinese people,” one said.

Such complaints appear to be falling on deaf ears. During a tour of the region in July, China’s top official in charge of ethnic minorities, Yu Zhengsheng, insisted that economic development was the panacea for what ailed Tibetans. In the same breath, he condemned the Dalai Lama’s “middle way,” which calls for genuine autonomy in Tibet but not independence, saying it conflicts with China’s political system.

“Only when people’s lives have been improved can they be better united with the Chinese Communist Party and become a reliable basis for maintaining stability,” he said, according to Xinhua.

Notice a common thread? You should. In each of these cases, the Chinese government is going to great lengths to paint the picture of a society which respects the human rights of it’s citizens. At the same time, it continues to crack down on dissenters with relative impunity. It is no secret that people do not have political freedom in China’s one party system, but apparently there is also no respect for civil or rights, religious freedom, or concern for health-related socioeconomic rights. By denying political and social rights, as well as media independence, the Communist party can appear to be making reforms while in reality it roles back China’s human rights record by cracking down on dissenters.

It would appear that the only rights the Communist Party of China truly cares about are economic rights. Am I being too critical? Read Mr. Zhengsheng’s comment again and decide for yourself; it would appear the Chinese government is openly concerned only with economic rights. The appearance of the law must be upheld, especially when it is being broken–international human rights law is no exception. Perhaps this is all for the good of the Chinese people; if that is so, let them decide that for themselves.   

Can China perhaps uphold specific human rights, notably economic and educational, while denying others? There is certainly an element of Chinese exceptionalism; there is no parallel political structure in the world that compares the Communist Party of China–it’s experiences are unique. Even if China ultimately proves that sustainable human development can be achieved by picking strategic human rights and denying others (which I do not think will happen, I try not to make predictions but growing unrest in China’s future is more of a hypothesis anyhow), this would be the exception (albeit an incredibly large exception), not the rule.

The political organization and homogeneous society present in China simply does not exist in the vast majority of the developing world. Furthermore, without the “production engine” that over a billion Chinese workers represent, other developing countries will need to rely on less labor intensive, more diversified / entrepreneurial growth; which are cultivated by upholding all human rights and allowing them to realize their full potential. 


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Economic Outlook: African Leaders Demand Better Deals in Chinese Extractive FDI

Original Article:

In Niger, government officials have fought a Chinese oil giant step by step, painfully undoing parts of a contract they call ruinous. In neighboring Chad, they have been even more forceful, shutting down the Chinese and accusing them of gross environmental negligence. In Gabon, they have seized major oil tracts from China, handing them over to the state company.

China wants Africa’s oil as much as ever. But instead of accepting the old terms, which many African officials call unconditional surrender, some cash-starved African states are pushing back, showing an assertiveness unthinkable until recently and suggesting that the days of unbridled influence by the African continent’s mega-investor may be waning.

For years, China has found eager partners across the continent, where governments of every ilk have welcomed the nation’s deep pockets and hands-off approach to local politics as an alternative to the West.

Now China’s major state oil companies are being challenged by African governments that have learned decades of hard lessons about heedless resource-grabs by outsiders and are looking anew at the deals they or their predecessors have signed. Where the Chinese companies are seen as gouging, polluting or hogging valuable tracts, African officials have started resisting, often at the risk of angering one of their most important trading partners.

“This is all we’ve got,” said Niger’s oil minister, Foumakoye Gado. “If our natural resources are given away, we’ll never get out of this.”

“We’ve got to fight to get full value for these resources,” Mr. Gado said. “If they are valued correctly, we can hope to bring something to our people.”

“The Chinese are genuinely unprepared for this degree of pushback,” Mr. Soares de Oliveira said.

China’s Foreign Ministry rejected the notion that its role had been anything but fruitful. In Niger, it said, it has improved the economy, has hired local residents and is building schools, digging wells and carrying out other “public welfare activities.” In Chad, it said, it has urged companies to protect the environment and will seek to resolve the dispute through “friendly negotiation.” In Gabon, as elsewhere, it said, it supports cooperation “on the basis of equality, amity and mutual benefit.”

Few nations in the world are as weak as Niger, where nearly half of the government budget comes from foreign donors. But the nation long had unfulfilled oil dreams that were largely ignored by major companies. In 2008, two partners came together secretively — the country’s autocratic ruler, Mamadou Tandja, and China National Petroleum — and signed an unpublicized deal that seemed to give both parties what they wanted.

But far less clear, then and now, was whether Niger — one of the world’s most impoverished countries, regularly threatened by famine — would substantially benefit from the deal.

Mr. Tandja got a costly oil refinery in an area of Niger that he needed to win over with the promise of development, but the need for such a project in this low-energy-consuming nation has been sharply questioned by experts, not to mention the mysterious $300 million “signing bonus” Mr. Tandja’s administration received….The refinery has a capacity that is three times Niger’s consumption, and the overall cost should have been only $784 million, according to a United Nations expert. Niger must still pay 40 percent of the original cost, with money lent to it by the Chinese.

In return, the Chinese got access to untapped oil reserves in the remote fields on Chad’s border on terms that still make Oil Ministry officials here wince. Beyond that, local residents have protested that the Chinese presence has brought few jobs, low pay and harsh working conditions.

“In the context of this fight, we are revisiting these contracts to correct them,” said Mr. Gado, the oil minister in the new democratic government led by an opponent of Mr. Tandja. “In the future, we will pay closer attention, to not make the same mistakes.”

“This is a lesson we are giving to the Chinese: we are keeping a close lookout on them,” said Mahaman Gaya, the Oil Ministry’s secretary general. Mr. Gado has not made his last trip to Beijing.

Niger’s lesson is being applied elsewhere as well: African governments, grateful as they are for Chinese-built roads and ministry buildings, are no longer passive partners.

“Are we going to continue to ignore what the Chinese companies are doing?” asked Mr. Doudjidingao, the Chadian economist. “I think this is the beginning of a change between African states and the Chinese. It’s a consciousness-raising, so they won’t be guilty in the face of history.”

Natural resources need not be a “curse”, but avoiding human rights violations in extractive industries takes political will, government oversight, and corporate accountability. In order to help African governments, which tend to be underfunded and sometimes corrupt, the Chinese government should hold it’s companies accountable for their extra-territorial human rights obligations (especially considering these companies are state-owned!). Sure this may result in higher costs in the short-run, but businesses thrive on consistency and stability; it is better to pay a little more now then have no idea what the cost may be in the future.

Commitments must be made on the side of the African government’s too; if the Chinese agree to work with them on vetting extractive contracts for human rights implications, then the terms agreed upon will be honored for the life of the contract. This is admittedly challenging in an unstable political climate, where the government of today may not necessarily be the government tomorrow. I am not talking about regime changes, I am talking about revolutions, coups, and other means of fundamentally altering the structure of the government. But still, deals should be made with a mutually beneficial long-term view.

Certain types of foreign direct investment, known as “market-seeking” FDI, are characterized by better deals for host-countries. Willing to forgo some of the labor and regulation saving costs, companies pay a little more because they wish to not only produce at a cheaper cost, but to also empower locals to become future customers. Unfortunately, “extractive” FDI does not lend itself to such benevolent partners. It is therefore the job of the government(s) involved to ensure that human rights obligations are upheld; in an industry with tens of billions of dollars in annual profits, paying to ensure the local poor are receiving a fair deal should not be an issue.

It is not only foreign powers that wish to exploit Africa’s natural resources, cheap labor and lax environmental standards. Natural resources can be easily stolen, especially in countries with lax security / highly organized criminal networks. Furthermore, often times corrupt government officials are willing to provide protection for oil thieves in exchange for personal riches:

Thieves steal an estimated average of 100,000 barrels a day, the report said; working in elaborate networks and protected by corrupted security officials, they tap into the huge and isolated network of pipes that crisscross the country’s swampy southern Niger Delta region. The price of oil fluctuates, but a hypothetical per-barrel price of $100 would mean an annual loss of $3.65 billion. Oil closed at $107.28 per barrel on Thursday.

“Top Nigerian officials cut their teeth in the oil theft business during military rule,” it said. “Over time, evidence surfaced that corrupt members of the security forces were actively involved. The country’s return to democracy in 1999 then gave some civilian officials and political ‘godfathers’ more access to stolen oil.” Security officials are said to extort payments from the oil thieves in return for protection, according to Chatham House.

There is no easy answer to sustainable human development in Africa. However, it is self-evident that the presence of natural resources should expedite the development process, not slow it down or reverse it. This requires political will from both host countries and governments representing foreign investors. But political will is not enough, multiple layers of accountability are needed to ensure the gains of resource extraction go to help the people in the countries which own these resources. Corporate accountability is one aspect which, alongside political accountability, can help ensure that the rule of law is upheld with respect to contracts, and that deals are properly vetted for human rights considerations.

There is, however, another part of the story. African governments would be right to instill the idea within their citizenry’s that profits from natural resource production indeed do belong primarily to the people. Bad contractual terms are more easily remedied than organized criminals and corrupt officials stealing resource rents. In order to remedy this issue, social accountability could go a long way. Empowering people with political rights, and institutions for voicing grievances (such as ombudsman offices and / or NHRIs, or institutions created specifically for extractive industry grievances) can help turn nationalism and self-interests into meaningful accountability on a scale that is otherwise unachievable.

If people in the developing world are convinced resource profits will go to development programs, and governments are committed to these programs and institutions that promote social accountability, then perhaps we can move past the point in history where the presence of natural resources is considered a “curse” and move toward a future where natural resource profits help expedite human development (as they should!). It appears the political will is slowly accumulating throughout Africa, this is great news as tighter regulations always work better when imposed regionally in order to avoid a “race to the bottom”. The UN Post-2015 Development Agenda will also help achieve this goal, as it is set to have human rights considerations and accountability at it’s core.


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Green News: Who Is Cutting and Who is Increasing GHG Emissions? The Answer May Suprise You

I gotta say, it is nice to not be covering the Syrian civil war in this post. Events in Syria have dominated the news lately, but it seems that at least for the immediate future diplomatic exercises have stalled the prospect of outside military intervention.

I would like to take this opportunity to highlight an interesting trend I have noticed lately, involving different countries efforts (or lack thereof) to curb greenhouse gas (GHG) emissions. The trend is interesting because it involves major players from both extremes (both high emitting nations and sustainability champions) moving forward with policies that would seem to contradict their historical stances on climate change. In recent news, the U.S. and China are moving to curb GHG emissions , while Australia and Canada are moving towards less sustainable energy portfolios.

(For some background, please see interactive maps on: GHG emissions by country per capita, CO2 emissions by country, renewable / fossil fuel energy production and consumption by country)

Australia and Canada have, in recent history, been global champions of sustainable development. Both countries were original ratifying members of the Kyoto Protocol, and have signed the protocol into law (although it appears Canada will not make it’s emissions targets). Australia became one of the first countries to sign a carbon tax into law, and while Canada does not have a federal carbon tax, several Providences have their own regulations in place. Canada and Australia, with their natural beauty, seemed like global poster-children for sustainable development. However, recent developments show these two countries shifting in the other direction.

Economic downturns have pitted environmentalists vs. industry in a zero-sum and short-sighted game, in which advocacy for sustainable development could be political suicide. Of course, in the long run, we need a more sustainable global energy portfolio; but these are problems for future generations who do not have the unemployment problems of today’s world, opponents of carbon taxes argue (I am not considering the climate change skeptic as a legitimate opposition anymore).

Canada has seen rising GHG emissions in recent years, with no future decline in sight–if anything, increased production of oil sands forecasts emissions trending upwards in Canada. Politics have turned against environmentalists in Canada for reasons discussed above; anybody who thinks about environmental sustainability implicitly does not care about jobs / the economy / problems facing Canadians today (sound familiar? this is a common argument for putting off action on reducing emissions around the world).

Australia recently had elections, which were won by conservatives based partially on a promise to abolish the unpopular carbon tax:

The Australian mining industry welcomed Saturday’s election of Prime Minister Tony Abbott and his coalition’s pledge to abolish the carbon tax on fugitive greenhouse gas emissions from coal mines and the Minerals Resource Rent Tax on coal and iron ore mining profits.

The coalition of Liberal and National parties campaigned on a platform to repeal the taxes within 100 days of taking the reins of government.

“On the first sitting day of Parliament under a coalition government, I will introduce legislation to repeal the Carbon Tax,” Abbott said on the Liberal party’s website that included policy documentation stating the party would also rescind the MRRT.

For some Australians, the free-rider issue seems to make being environmentally conscious not worth fronting the bill–literally:

The carbon tax is one reason Sydney resident Geoff Hamment, who normally votes for Labor, is supporting the conservatives this time around. Hamment said he’s seen his household electricity bills go “through the roof” since the tax was introduced.

“I don’t like it,” he said. “I think us paying so much is just pointless when you have countries like China churning it out.”

The tax is extremely unpopular, despite the fact that most Australians, but not the wealthy, get government compensation for higher electricity prices.

For all the well-founded China bashing on the environmental front–China has overtaken the U.S. as the global leader in terms of absolute GHG emissions (although the U.S., per capita, still emits more than China; this is arguably a better measure of a countries energy efficiency)–the Chinese government appears to be trending towards more sustainable environmental policies:

BEIJING — The Chinese government announced an ambitious plan on Thursday to curb air pollution across the nation, including setting some limits on burning coal and taking high-polluting vehicles off the roads to ensure a drop in the concentration of particulate matter in cities.

The plan, released by the State Council, China’s cabinet, filled in a broad outline that the government had issued this year. It represents the most concrete response yet by the Communist Party and the government to growing criticism over allowing the country’s air, soil and water to degrade to abysmal levels because of corruption and unchecked economic growth.

The criticism has been especially pronounced in some of China’s largest cities, where anxious residents grapple with choking smog that can persist for days and even weeks. In January, the concentration of fine particulate matter in Beijing reached 40 times the exposure limit recommended by the World Health Organization.

For years China has had an array of strict environmental standards on paper, and its leaders talk constantly about the need to improve the environment. But enforcement has been lax, and the environment has continued to deteriorate at an alarming rate.

“The plan successfully identifies the root cause of air pollution in China: China’s industrial structure,” said Ma Jun, a prominent environmental advocate. “Industrialization determines the structure of energy consumption. If China does not upgrade its coal-dependent industries, coal consumption can never be curbed.” he said. “The key to preventing air pollution is to curb coal burning — China burns half of all the coal consumed in the world.”

In the United States, the world’s number two GHG emitter, the issue of emissions has been divided largely down partisan lines. Liberals, led by President Obama, believe in taxing carbon and subsidizing renewable energies as part of an “all of the above” energy portfolio to meet future demand and cut emissions. Conservatives tend to argue against the need to curb GHG emissions, largely for the same reasons mentioned above with respect to Canada and Australia. However, it seems Obama intends to bypass partisan gridlock by passing executive orders, carried out through the EPA, to curb emissions from fossil fuel power plants:

The Environmental Protection Agency is due to unveil next week the first batch of regulations under President Barack Obama’s new climate action plan – a carbon emissions-rate standard for new fossil fuel power plants.

If standards are as strict as the industry expects, it could be the death knell for new coal plant construction. The recent bankruptcy of Longview, a highly efficient West Virginia coal plant, is an example of the pressures already facing the industry.

The EPA is due to issue an emissions-rate standard for new fossil fuel power plants by September 20. Proposed standards on existing plants will follow in 2014.

Obama asked the EPA to re-propose a rule it introduced last year using a section of the federal Clean Air Act that required all new power plants, including those that use coal, to meet a standard of 1,000 pounds of carbon dioxide per megawatt hour – the rate of an average gas-fired plant.

Sources that have met with the administration in recent weeks said the agency has likely revised its earlier proposal to provide separate standards for natural gas and coal plants, and also raised the emissions limits for coal plants.

The new rules, like those initially proposed in 2012, are also likely to include a requirement for new coal plants to use a form of carbon capture and storage (CCS), a technology that captures carbon emissions and stores the carbon underground, that is years away from being available on a commercial scale.

Eugene Trisko, a lawyer who represents clients such as the American Coalition for Clean Coal Electricity in energy and environmental matters, said CCS cannot be deployed if coal plants, such as Longview, are unable to run.

“If you really wanted to advance CCS, you really need to build new coal plants because those are the plants that one day or another would be the laboratories for CCS,” he said.

“Nobody is going to put CCS on plants that are 50 years old,” he added.

But some environmentalists argue that new EPA rules will only add another layer of financial risk around coal plant investment even in coal-reliant states like West Virginia.

Instead of investing in new coal plants, which will only become more costly, states should diversify their energy supply, said Cathy Kunkel, an energy research consultant and fellow at the Institute for Energy Economics and Financial Analysis.

The concept behind taxing carbon emissions and subsidizing renewable energies is pretty straightforward. Emissions represent a negative externality, pollution, that is a detriment to society as a whole. A carbon tax or cap-and-trade system creates a cost for this negative externality, discouraging its use and potentially helping to fund R & D in renewables (and therefore encouraging competing cleaner energy sources). Renewable energy has positive externalities (energy with lower levels GHG emissions), subsidies compensate producers for these externalities. Furthermore, renewable energy is still a relatively infant industry, which combined with its inherent positive externalities and increasing global energy demand, make it a prime candidate for government subsidy.

Do not get me wrong, we are still a long way away from the point where China and America can lecture Australia and Canada about their emissions (especially considering that China and America represent large export markets for Australian and Canadian fossil fuels respectively). However, it is interesting to note the role reversal, which I believe at it’s root is a failure of the international community to embrace the concept of “common but differentiated responsibilities”. Previous environmental champions, discouraged by the lack of international commitment to emissions reductions, have created an environment where politicians can win elections by tapping into that frustration. “We have tried, now we are concerned with our own problems.” people in these countries may argue. Australia has taken this stance on step further, with respect to ODA:

The outgoing Labor government said in May that Australia’s long-standing pledge to increase its foreign aid spending to 0.5 percent of gross national income by 2015-16 would be postponed by two years.

The coalition said in a statement last week that it shared Labor’s commitment to reach the 0.5 percent target “over time, but cannot commit to a date given the current state of the federal budget.”

“I have to say, there are higher immediate priorities” than reaching the 0.5 percent target, Abbott told reporters last week. “The best thing we can do for our country and ultimately the best thing we can do for people around the world is to strengthen our economy.”

The plans have been condemned by opponents and aid groups, who dubbed it short-sighted and contrary to the nation’s image of global cooperation, particularly in light of Australia’s recent appointments to presidency of the U.N. Security Council and the G-20 in 2014.

While this stance on international relations is obviously flawed and short-sighted, it is understandable how Canada and Australia got to this point. The U.S. and China, on the other hand, are recognizing they must lead any global initiative to reign in GHG emissions, before the costs rise further and irreparable damage is done.  China has an even more pressing problem, with the deadly smog it’s unchecked emissions has produced. This is the natural ebb and flow of accountability without coordinated global policy. Those who are mostly responsible for GHG emissions, fearing future accountability, want to work together to make those future costs as low and evenly shared as possible. Those who have forgone some economic growth for sustainable development in the past feel they have already done their part, and are beginning to forsake what they see as failed international commitments for domestic goals.
This is a failure of global policy coordination, and one the world cannot afford. The G20 would be a natural place to come up with a global environmental commitment, based on the concept of “common but differentiated responsibilities” (which is really only fair) as the worlds largest emitters are represented there. Furthermore, as a relatively new group (established in 1999, the first meeting of the G20 Leaders took place in Washington, D.C., on November 14-15, 2008)the G20 doesn’t have the history of failed negotiations that sometimes doom other global climate change efforts. Australia taking over the U.N.S.C. and G20 presidency in 2014 looked liked a “win” for sustainable development a few years back; now I am not so sure that is the case.


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Transparency Report: Denuclearization

In a speech delivered at Brandenburg Gate in Berlin yesterday, President Obama outlined many of his global ambitions for his second term. Among those was a renewed global push for nuclear disarmament:

“President Obama plans to use a speech in Berlin on Wednesday to outline plans for further reductions in the American nuclear arsenal if Russia agrees to pare back its weapons at the same time, administration officials said Tuesday.”

“Mr. Obama will propose trimming the number of strategic warheads that each of the two big nuclear powers still maintains by up to a third, taking them below the 1,550 permitted in the treaty he signed with Russia in his first term, a senior administration official said. That would leave each country with just over 1,000 weapons.”

“Mr. Obama will also declare that he will work with NATO allies to develop proposals for major cuts in tactical nuclear weapons, which are not covered by the existing treaty. Russia, which has far more tactical nuclear weapons deployed than the United States and Europe do, has firmly resisted such cuts. There are fears that its tactical weapons are in parts of Russia where they risk being seized by terrorist groups.”
“The president, who once talked about eventually ridding the world of nuclear weapons, faces enormous obstacles to any further reductions, both in Moscow and in Washington. President Vladimir V. Putin of Russia has demanded further concessions on missile defense before entertaining deeper nuclear cuts, and Republicans in the Senate have made clear they would resist any treaty that went beyond the New Start pact ratified in 2010.”

Despite obstacles, it is heartening to see President Obama placing nuclear disarmament on his second term agenda. It is important if the U.S. seeks legitimacy in talks with Iran and North Korea; both countries, in a recent change of tone, seem ready to begin talks with the U.S.

North Korea:

“North Korea’s powerful National Defense Commission announced on Sunday that Pyongyang was ready to hold ‘broad and in-depth discussions’ with the US on a range of issues, including the building of ’a world without nuclear weapons.’”

“The country warned, however, that talks cannot take place if the US continues to set preconditions for direct dialogue. Washington has repeatedly said that North Korea must take concrete steps to abandon its nuclear weapons program before negotiations can take place.”

“The Obama administration said Sunday it was receptive to North Korea’s proposal for high-level talks, but wanted “credible negotiations” that would lead to a nuclear-free North.”

“National Security Council spokeswoman Caitlin Hayden said in a statement: ‘Our desire is to have credible negotiations with the North Koreans, but those talks must involve North Korea living up to its obligations to the world,’ including UN resolutions, and ‘ultimately result in denuclearization.’”

The U.S., preempting an obvious North Korean objection of America’s vast nuclear program, is taking the first step towards realizing a “world without nuclear weapons”. The issue remains whether Kim Jong-Un’s North Korea can be a credible negotiating partner.

China will have a key role to play in such negotiations, which it is hopefully ready to do after Presidents Obama and Xi summit meeting in early June. There are reasons to be optimistic, China has signed onto UN sanctions against North Korean in response to nuclear testing, frozen North Korean assets in major Chinese banks, and generally taking a much firmer tone than usual on the issue of North Korean denuclearization.

Iran:

“The election of Hassan Rowhani as Iran’s next president creates an opportunity to move forward on a negotiated agreement to stop Iran’s nuclear weapons program and to begin to repair three decades of hostility with the United States.”

“During his first news conference on Monday, Mr. Rowhani promised to “follow the path of moderation” and allow greater openness over the nuclear program. But he also restated Iran’s refusal to halt uranium enrichment as the United Nations Security Council has demanded.”

“Iran is ready to suspend enrichment of uranium to 20 percent, a key demand of world powers at talks over its disputed nuclear program, Russian Foreign Minister Sergei Lavrov said.

In return, the Persian Gulf nation must be offered “weighty reciprocal steps,” including a gradual lifting of unilateral and United Nations sanctions, Lavrov said in an interview with the Kuwaiti news service Kuna posted today on the Foreign Ministry’s website.”

“‘This could become a breakthrough agreement that could largely remove the tension surrounding the existing problems, including concern about enrichment rising to weapons level,’ he said. ‘It would be unforgivable not to use this opportunity.’”

“Iranian chief negotiator Saeed Jalili said that while his country would consider the step of suspending enrichment at 20 percent levels, ‘we must know upon what foundations it rests.’ Recognition of Iran’s right to enrich uranium for peaceful use under the nuclear Non-Proliferation Treaty would move the talks forward, he said.”

The interesting issue here is Iran’s continued insistence that its uranium enrichment is for peaceful means. As an American of Jewish decent, I have many reservations about legitimizing the nuclear capacity of a nation that has a history of promoting both anti-Western and anti-Israeli values.

However, the development economist and human rights advocate in me agrees with Mr. Jalili than Iran has a “right to enrich uranium for peaceful purposes”. The fact that it is expressly stipulated in the NPT gives legal backing to the human rights implications of nuclear capability.

Enriched uranium can be used for peaceful purposes, such as nuclear energy and medical isotopes. Is it not the right for Iran’s citizens to have access to cheaper electricity and advances in medical care as the nation modernizes, unlocking resources for further modernization?

Further complicating matters is that nuclear energy has virtually zero GHG emissions; it is hypocritical to promote sustainable development (as Obama has done and continues to do) and at the same time disallow Iran from using nuclear energy. Nuclear energy is part of a “comprehensive energy portfolio” needed to combat climate change.

The issue comes down to transparency, accountability, and ultimately governance. Can countries without the traditional checks and balances present in Western democracies be credible partners? Can they actually uphold their promises, or are they merely trying to buy time / have sanctions eased until it is beneficial to renege on their commitments?

The burden of proof falls on Iran and North Korea on this one. If either country wishes to be allowed to enrich uranium for peaceful purposes without dealing with crippling international sanctions, certain conditions must be met. Most notably, independent international inspectors must be given unrestricted access to known / suspected uranium enrichment facilities; if either country can fulfill this condition, then it will have earned the right to enhance uranium for peaceful purposes. 

What do my readers think? Are nuclear capabilities a “right”? Can either Iran or NK (or both) be credible negotiating partners? Does nuclear energy have a role to play n combating climate change? Global denuclearization is the definition of a long-term normative goal, but we must start somewhere. To paraphrase Voltaire, we should not let perfection impede progress.