The Reality of the China DreamGreenpeace

Q4 2015 and the 13FYP

• How is China doing on its fight on air pollution• How is air pollution linked to Xi’s reform agenda• What are the major energy and environmental

issues/themes to look out for in the lead up to 13 FYP

A long and winding road

Sept 2013: The Massive Action Plan

Reduce PM 2.5 levels in the following regions, from 2012 levels by 2017

a.) "Jing-Jin-Ji" region (Beijing, Tianjin, Hebei): - 25% dropb.) Yangtze River Delta (Shanghai, Jiangsu, Zhejiang) - 20% dropc.) Pearl River Delta region (Guangdong) - 15% drop

3.) How to do this? a.) control of coal consumptionb.) industrial and vehicular emissionsc.) increased used of clean energy alternatives.

Regional Plan: Sept 17th 2013

National Plan: Sept 12th 2013

Beijing Plan: Sept 17th 2013 Tianjin Plan: Sept 28th 2013

Hebei Plan: Sept 6th 2013

Air Pollution campaign connected to coal and capacity reductions

Air Pollution

30 day moving average

China’s Air Pollution scorecardIn 1H 2015.1. Avg PM 2.5 levels fell 16% year-on-

year (YOY) (68.0 ug/m3 to 56.9 ug/m3)

2. Beijing PM 2.5 levels fell 15.5% YOY (92.1ug/m3 to 77.8ug/m3)Shanghai PM 2.5 levels increased 1.6% YOY (56.1 ug/m3 to 57.0 ug/m3)

3. Biggest rises: Zhengzhou (Henan): Up 21.0%, Jiaozuo (Henan): Up 19.1%

4. Biggest falls: Baoji (Shaanxi): Down 44.1%, Xian (Shaanxi): Down 40.7%

2015 has been a good year

…but there is a long way to go to “safe” levels

0 11 22 33 44 55 66 77 88 99 1100%

20%

40%

60%

80%

100%

120%

Increase in risk of death from air pollution related diseases

Ischaemic heart diseaseStrokeChronic obstructive pulmonary diseaseLung cancerChildren's lower respi-ratory diseases

Yearly average PM2.5 level, μg/m3Source: Global Burden of Disease 2010.

Beijing 2014Beijing 2015?

What’s causing the drop?

1.) Increased pressure and policies to deal with China's air pollution and to change its energy mix

- Forced closure of sectors suffering from overcapacity

- Conversion of coal power plants to gas

- Mandatory installation of DeSOx/DeNOx equipment

- Shifting of heavy industry away from cities

- Greater environmental fines- Continued public pressure

2.) Secular and structural changes in China's consumption of energy.

- General slowing growth in property sector

- Global demand and price slump in steel, coal and other commodities after years of investment and expansion

- Steady rise of non-fossil fuels- China’s economy becoming

more energy efficient

Energy StatisticsGeneration (YOY change)

• Total electricity generation down 0.6%

Sectors• Thermal (65% of generation): down 3.2%• Hydro: up 13.3%• Nuclear: up 34.8%• Wind (see below).

Consumption (YOY change)

Total electricity consumption up 1.3%, the lowest growth in 4 years, • 2014 (up 5.3%)• 2013 (up 5.5%)• 2012 (up 5.1%).

Sectors• Industrial (70% of consumption): down

0.5% • Services: up 8.1%• Households: up 4.8%• Agriculture: up 0.9%

Source: NEA国家能源局发布 6 月份全社会用电量 http://www.nea.gov.cn/2015-07/15/c_134414315.htm

A growing coal power bubble

30-40GW/year of new coal-fired capacity still getting permitted, entering construction and getting commissioned

As dispatch becomes more cost-bares and renewable energy curtailment is resolved, the bubble will become more obvious

A growing chorus of concern

China Electricity Council26 Aug 2015: 煤电大讨论：火电增量居高不利结构优化 (http://www.cec.org.cn/xinwenpingxi/2015-08-26/142316.html

Northstar Electricity Network9 Sep 2015煤电产业生产绝对过剩 是否还有转机？http://news.bjx.com.cn/html/20150909/661447.shtml

Sina Energy News2 Sept 2015煤电产能绝对过剩毋庸置疑 利益团体不愿承认http://finance.sina.com.cn/chanjing/sdbd/20150902/141623149663.shtml

ReutersChina should stop adding new coal-fired power plants -state researchershttp://uk.reuters.com/article/2015/11/06/china-coal-electricity-idUKL3N1311O920151106

Investing in Coal Power? No more easy money

The Big Picture

Please note:The 13th FYP for Energy has not been released. The numbers indicated under the 13FYP section are rumored, and not yet confirmed

[3] Dec 2014 – Feb 201513th FYP "General

Guidelines" formed

[2] Apr 2014 – Jan 2015NDRC selects research areas

11 FYP 12 FYP 13 FYP

The Development of the Five-Year Plan

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

[1] Aug – Dec 2013Review of 12th FYP

progress

[4] Feb 2015 – Oct 2015 Consultative Draft

developed

[5] Oct 20155th Plenary of the 18th CPC

Central Committee

[6] Oct 2015 – Jan 2016National Experts

Committee discuss draft

[7] Nov 2015 – Feb 2016Finished draft of the final

plan

[8] Jan 2016 – Feb 2016 Premier collects opinions

from society

[9] Mar 2016FYP to National People's

Congress

[10] Mar 2016 - Mar 202113th FYP implementation

begins

17th National Congress of CPC

18th National Congress of CPC

19th National Congress of CPC

11 FYP 12 FYP 13 FYP

The Intersection of Government and Politics

9 Nov 2013 3rd Plenum

Xi Jinping ReformAgenda unveiled

Oct 2014 4th Plenum

Legal ReformsPassed

Fall 20155th Plenum

13 FYP proposalunveiled to

Central Committee

Oct 20166th Plenum

Work report19th NPC of CPC

preparation

Nov 20177th Plenum

Work reportClosing of 18th NPC

1st PlenumLaunch of 19th NPC

Feb 2013 2nd Plenum

Leadership posts confirmed

Nov 2012 1st Plenum

Xi Jinping assumes Party leadership

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Guiding Theme 1: The role of markets

9 Nov 2013 3rd Plenum

Xi Jinping ReformAgenda unveiled

“Decisive” role of market forces in allocating resources

• Government retreat: capital, energy, land, setting prices• Private sector? More competition for SOEs (For eg, banks, env)• Increased dividend payments

• Government strengthened: macro management and regulation, public service delivery, management of social stability, and environmental protection.

Guiding Theme 2: Stronger “role” of the Law

9 Nov 2013 4th Plenum

Legal ReformsPassed

Strong “role” of law• “Outsourcing power”• Circuit courts that can rule over local/provincial

level cases• Environmental laws being upgraded• Anti-corruption

Understanding Reform

• Freer Markets? + Stronger Rule of Law? = ? Sounds familiar…but wait..

• Markets + Laws > Tools used to drive

• And not as forces that by themselves act as checks or balances

The Reality of the China Dream

• The China Dream is:– The realization of the China’s

rejuvenation– A reversion to the traditional

values– Centrality of the party as the

guiding force to achieve this

• The China Dream is not:– A broad embrace of liberalism

+ constitutionalism– Devolution of the center– Allowing the market to serve

its own needs. (I.e. freeing the bird from the cage)

The New Normal

• Fixing the party, society, and the economy, esp. SOEs• Reversion to high level direct control & engineered

solutions• Economy: central engineered themes and plans

– Growth “themes” – OBOR, JJJ integration,– Productivity: Upgrade of industrial sector (China

2025)– Continued financial market “Reform”

Four Comprehensives

• Build a moderately prosperous society

• Deepen reform

• Govern the nation according to law

• Strictly govern the Party

Final takeaways

• Air Pollution & Anti-corruption campaign will continue. Reform will continue

• Unveven Reform – 2020 resolution?

• Slowly but surely, coal is being displaced in the process– Local and global implications

• Power sector reform is key to address the “coal power bubble”

• Tougher environment: Investors, MNCs, NGOs– Get used to it, It’s not personal

• Don’t misunderstand the reform agenda.– Look for big themes with strong ties to the

center – these are most likely to succeed

Thank YouCalvin QuekCalvin.quek@greenpeace.orgBloomberg: GPEA