Industry Today: The World of Manufacturing

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 Date:1/16/2008

 

Wake Up Call
Smog And Mirrors
Under the guise of ‘developing country’ China uses U.S. businesses to clean up their environment. While companies transfer factories the economic advantages pale to the amount of pollution that needs cleaning up, writes William R. Hawkins

In his most recent work of history, In the Ruins of Empire: The Japanese Surrender and the Postwar Struggle for Asia, Ronald Spector recounts how the Russians stripped everything of value that Japan had invested in Manchuria: “Working around the clock, the Soviets dismantled entire factories and power plants and sent them north to Siberia on endless trains of flatcars.” He cites a U.S. State Department assessment that the Soviets “set back China’s industrial progress by a generation.”

Several generations have passed since 1945, and now it is China that is moving entire manufacturing complexes from foreign lands to its territory. A Dec. 12 New York Times article by Joseph Kahn recounted how ThyssenKrupp's former steel mill was “dismantled and shipped piece by piece from Germany's old industrial heartland to Hebei Province, China's new Ruhr Valley.” Kahn reported, “The transfer, one of dozens since the late 1990s, contributed to a burst in China's steel production, which now exceeds that of Germany, Japan and the United States combined. It left Germany with lost jobs and a bad case of postindustrial angst.”

The Soviet deindustrialization of northern China was the result of war, with the movement of productive assets conducted by the Red Army. China’s re-emergence is the result of commercial warfare, less violent, but more steady. Military conflicts attract great attention, but the daily grind of business can accomplish many of the same ends by redistributing the foundations of wealth and power. As Paul Kennedy argued in The Rise and Fall of the Great Powers: Economic Change and Military Conflict 1500-2000, “how a Great Power’s position steadily alters in peacetime is as important to this study as how it fights in wartime.”

In neither war nor peace are the transfers done by any mysterious “invisible hand.” Real people make real decisions in their attempts to increase their share of the world’s pie. Governments set the parameters within which private enterprise works, using international agreements as well as domestic regulations. War is “politics by other means” and politics, like economics and gravity, are in effect at all times.

Consider the UN Climate Change Conference held in Bali, Indonesia, Dec. 3-14. It is easy to poke fun at this gathering. As colder weather swept through the northern latitudes, delegates headed for a tropical resort to complain about “global warming.” They then spent two weeks in luxurious surroundings, while calling on more common folk to cut back on their materialism. But behind the more pretentious statements about “green” lifestyles and mankind’s allegedly harmful effects on the environment, old fashioned realpolitik was hard at work.

When the conference opened, the U.S. hoped to align with other pro-growth countries, particular China and India, to block any binding limits on the emissions of greenhouse gases or energy use. But Beijing, whose leaders no more believe in the human-created global warming theory than does the Bush administration, saw an advantage for China is splitting from America rather than forming a common front. China still likes to posture as a developing country, even though it has the world’s second largest economy in terms of output. It assumed the leadership of the Group of 77 underdeveloped countries and demanded that the burden of cleaning up the environment fall only on the “rich” developed nations.

The adopted “roadmap” calls for “Measurable, reportable and verifiable nationally appropriate mitigation commitments or actions, including quantified emission limitation and reduction objectives, by all developed country Parties” but only “Nationally appropriate mitigation actions by developing country Parties in the context of sustainable development, supported and enabled by technology, financing and capacity-building, in a measurable, reportable and verifiable manner.” Though the convoluted language of the two sections may sound similar, there is a reason the developed and developing countries are treated separately. While developed countries will have “quantified” targets, the developing countries are provided with a variety of reasons to opt out of any limitations. The double standard will allow China (and others) to continue to provide safe havens for high emission industries that will need to relocate from those developed countries which enact uneconomical regulations to meet UN targets.

On my trips to Beijing, Shanghai, and the Zhuhai economic zone, it became painfully obvious that China’s leaders care nothing about pollution. The worst smog I have ever seen here would be a breath of fresh air over there. I know people who have come back with respiratory ailments after living in China for just a few years. The relocation of industry from America or Europe is a movement to a land where emissions and energy use per unit of output is significantly higher. According to the OECD, China’s carbon-dioxide emissions per unit of output are five times greater than America’s. And last July, the Chinese government said that power consumption per unit of GDP had climbed 3.64 percent year-on-year in the first six months of 2007. Seventy percent of Chinese energy use is in the industrial sector.

China’s lax regulations are a competitive advantage, as firms do not have to factor into prices the full social costs of operations. Beijing plans to improve its performance, but more as a result of rising energy costs than global warming theory. However, under the UN plan, the “rich” countries are to foot the bill, with “incentives for the transfer of technology to developing country Parties in order to promote access to affordable environmentally sound technologies.” Rather than develop clean industries at home, protected from lower cost “dirty” rivals overseas, the United States is expected to continue the transfer of manufacturing to China in the short-run, then pay to clean up those foreign factories later through the UN.

It’s not too late to head off this self-defeating course of action. The Bali roadmap is only a guide to two more years of negotiations to reach an agreement by 2009 to replace the Kyoto Protocol (which expires in 2012). The U.S. did not ratify the Kyoto Protocol because developing countries like China were not bound by it. Any such double-standard should again be rejected. Furthermore, in the name of public health (rather than the dubious claims of climate change), U.S. trade law should restrict imports from countries whose environmental standards are lower than those imposed on American producers. The temptation to relocate overseas to gain a commercial advantage from irresponsible behavior must be eliminated.

William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.



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