HONG KONG – Entrepreneurs and investors see a game-changer in the China State Council’s new program for a unified national energy market and just released five-year plan for technological innovation in the energy sector by the National Energy Administration (NEA).
The NEA’s ambitious plan specifies new power systems for renewable energy sources, safe nuclear power development, low-carbon and more efficient fossil fuel utilization, and creation of a more digitized and smart energy sector.
The detailed documents, revealed on April 8 and 10, provide official backing and regulatory support for a wide range of technologies that fall under the rubric of the so-called Fourth Industrial Revolution, namely the application of artificial intelligence and broadband connectivity to all major economic activities, with wide-reaching implications for the Internet of Things (IoT), blockchain applications for transportation and logistics, and carbon trading.
Private sector leaders envision a transformed Chinese economy in which IoT will track every item in a vehicle or warehouse through blockchain applications while monitoring every vehicle’s carbon emissions through a unified national network.
A study released by the China Society for Finance and Banking, a state body established by the People’s Bank of China (PBoC) and regulators in 2015, projects China will invest the equivalent of US$74.2 trillion (487 trillion yuan) in carbon neutrality financing over the next 30 years, representing five times its 2020 national output.
The 200-page green finance study appeared in December 2021 under the direction of Ma Jun, president of the Beijing Institute of Finance and Sustainability, an independent outfit that provides research, analysis and training on sustainable finance.
Ma, who received his PhD in economics from Georgetown University, is also a former director and investment strategist at Deutsche Bank, ex-economist at the International Monetary Fund and World Bank, and one-time member of the PBoC’s monetary policy committee.
China’s great green energy program, resonant of, yet strikingly different from the World Economic Forum’s “Great Reset” initiative broached in 2020, is not an environmental program per se. Plans to reduce and rationalize carbon emissions, the new State Council paper indicates, will drive economic and capital market reforms across a broad range of industries.
The China Society for Finance and Banking report argues that high-tech investments in carbon-neutral technologies will substantially raise productivity and fuel new economic growth. The $74.2 trillion plan, if fully implemented, would be the most ambitious investment program on record.
The new State Council guidelines propose to make the institutional and regulatory changes required to fast-track the plan.
In particular, the State Council document calls for a unified capital market with “strong risk management capabilities” for equity markets, an all-China secondary market for land leasing and mortgages, a “new credit-based regulatory mechanism” to allocate capital to corporations, and enhanced security and transferability of property rights.
In sum, the State Council’s vision of a unified national market foresees a “national logistics hub network” linked to “multimodal transport.” China, it says, will rely on its leading technology companies and “cultivate a group of digital platform companies and supply chain companies with global influence and promote logistics in the whole society to reduce costs and increase efficiency.”
Significantly, the State Council also proposes a unified national energy market, to be forged through “market-oriented reform of natural gas,” a “multi-level unified power market system” with a “national power trading center” and a “national unified coal trading market.”
A more unified energy market will help to resolve current distortions. In 2021, conflicting demands on coal companies to reduce pollutants and improve mine safety clashed with a surge in national demand for coal, leading to shortages, power outages and a spike in coal prices.
The State Council program, though, has broader ambitions than China’s short-term power issues through plans to “build a unified national carbon emission rights and water rights trading market.”
Its proposed national energy trading market is part of an overarching larger plan to integrate “big data, artificial intelligence, blockchain, fifth-generation mobile communications (5G), Internet of Things, and energy storage.”
For all this to work, however, entrepreneurial drive and spirit is required. Enter Chinese-American entrepreneur Bruno Wu Zheng, chairman of Sun Seven Stars Investment, founder of global enterprise Giga Carbon Neutrality (GNC) and, full disclosure, substantial investor in Asia Times Holdings, the parent company of Asia Times.
Wu, a PhD holder from Fudan University, envisions a Chinese energy market in which sensors will measure the carbon emissions of every vehicle, transmit data in real-time over 5G networks to a national carbon database, and trade emission rights among hundreds of millions of network members.
Giga anticipates that 13 million hydrogen-powered trucks and buses will be on China’s roads by 2036 in what it foresees as a nearly $1 trillion market.
“We are at the verge of entering into one of the greatest revolutions in the history of mankind, which is the ‘artificial intelligence Internet of Things’, or AIoT,” Wu said in an interview. “AIoT means that everything needs to get connected. All devices need to get connected, but in addition, everything needs to get recorded on blockchain.”
According to Wu, Giga has developed groundbreaking technology for carbon monitoring, reporting and verification, as well as an online payment platform for emissions rights. Wu foresees a major opportunity in the confluence of green energy, blockchain reporting of vehicle emissions and AI-big data analysis.
Green transport will provide the regulatory impetus and financing for a revolution in transportation, Giga believes. Indeed, a Giga marketing document cites a March 22, 2022, speech by Chen Qingtai, chairman of the China Electric Vehicle 100 Association, predicting that smart cars will replace traditional cars just as smartphones replaced the old feature phones.
Chen said: “The car of the future is a powerful carrier for absorbing intermittent renewable energy. It is the link between green energy, smart grid, future travel, and new-generation mobile absorbing new technologies such as informatization, networking, intelligence, big data, cloud computing, new materials, electronic power, advanced manufacturing, and new potentials in intelligence and other aspects that will be the platform for the integration and innovation of many industries. It is leading and promoting the digital and intelligent upgrade of the economy, society and many industries.”
Wu, co-founder of the social media site sina.com, also known as Sina, started his career as a media entrepreneur in Internet platforms and cable television. His turn to the sustainable energy and artificial intelligence space, he says, was inspired by China’s former Minister of Science Wan Gang, who held the post consecutively from 2007 until 2018.
Tellingly, Wan is more an engineer than politician and was the first minister of government since the 1970s who was not a Communist Party member.
Wan studied mechanical engineering in Shanghai and Germany, where he earned his doctorate in 1990. As an executive at Audi Corporation, Wan was R&D head of the company’s computer virtualization of cars and led the development of the Audi A4, a standard-setter in its class.
In 2000, Wan made a strategic proposal to China’s State Council, “Regarding Development of Automobile New Clean Energy as the Starting Line for Leap- Forward of China’s Automobile Industry”, which proposed to develop a new type of clean fuel car to usher China’s auto industry onto a new stage.
He soon thereafter returned to China, established a research institute at his alma mater Tongji University dedicated to hydrogen technology and became the leading advocate for carbon-neutral mobility in China. In 2008, he received an honorary doctorate at the Technical University of Berlin.
Like Wan, Wu sees hydrogen technology as the core of intelligent carbon-neutral commercial mobility. Applications include fuel cells for powering electric motors or hydrogen internal combustion engines. Wu’s GNC, he says, plans to focus on design and won’t seek to build the engines or the bodies of commercial vehicles.
“It is the Apple to Foxconn, the designer for OEM manufacturers…It is an essential building block for intelligent transportation in smart cities. It designs and integrates vanguard products and thus acts as driving force for technological advancement and industrial upgrading,” Wu projects.
Wu’s goal for GNC is to evolve into a platform that hosts integration and innovation for various industries by leveraging the latest developments in materials, electronics, advanced manufacturing methods, artificial intelligence and cloud computing, and to be a leading transformer of the transportation industry and thereby a catalyst for broader green and intelligent social transformation.
It’s a grand vision, to be sure, but consistent with the direction that China’s regulators say they are keen to travel. And large-scale data monetization with carbon credits will be required along the way.
On April 15, Caixin Economic Daily reported that “China’s central bank has stressed the need to establish orderly and effective connections between green finance and transition finance. In a video conference this month, the People’s Bank of China (PBoC) called for deepening research on transition finance to support the country’s green and low-carbon development.”
“Transition finance helps traditional high-carbon companies transition toward low-carbon or net zero emissions. Currently, energy-intensive industries — such as chemicals, steel and cement — find it tough to tap green finance markets, because of the difficulty in defining their emissions-cutting activities as ‘green.’
“Transition finance can complement green finance, by encouraging financial institutions to provide services such as issuing sustainability-linked bonds and loans to high-carbon industries. This can be seen as vital to reaching China’s carbon goals, with high-carbon industries still playing a major role in the economy,” the Caixin report said.
The PBoC’s emphasis on transition financing takes a cue from Ma’s China Society for Finance and Banking’s December 2021 report.
The society’s Green Finance Committee wrote at the time: “In the process of achieving carbon neutrality, many high-carbon companies need to transform themselves into low-carbon or zero-carbon businesses. If the company in transition is currently in a high-carbon industry and cannot obtain financing, then the transition will be very difficult. This is difficult to implement, and the failure of a large-scale transformation would lead to financial and social risks.”
The report proposed to create a “transformation certification and information disclosure system,” including “the use of funds, the implementation of the transformation path, the realization of the transformation goals, and the resulting environmental benefits.”
It also proposed the creation of new financial products, transformation credits and loan guarantees, debt-to-equity swaps, as well as mergers and acquisition funds to meet the requirements of transformation finance.
Some Chinese cities have already offered subsidies for carbon-neutral vehicles. According to Caixin, “The Beijing Municipal Bureau of Economy and Information Technology adopted a new policy to subsidize fuel cell vehicles (FCV) in 2022. Beijing will incentivize the promotion and operation of FCVs, construction and operation of hydrogen refueling station, and key component innovation efforts.”
The Green Finance Committee’s report, meanwhile, argued that green and low-carbon investments “will help boost aggregate demand and thus stimulate the economy.” It said, “a rational climate policy can effectively allocate resources and direct investment to high-productivity sectors, thereby increasing growth potential.”