Towards the end of this month the Central Committee of the Chinese Communist Party will release their finalised 14th Five Year economic growth plan. Beginning in 1953, the Chinese Five-Year-Plan (FYP) has been the single most important policy document for guiding the country’s growth.
Historically, the plans have focused on economic and social development; however, from 2011 environmental issues began to be explicitly featured, with the 12th plan focusing on seven strategic areas: environmental protection and energy efficiency, new energy, next generation information technology, biotechnology, high-end manufacturing, clean-energy vehicles, and high-tech materials. In addition, the Government also committed to spend 2.5% of GDP on research and development as a basis for driving its commitment to technological innovation and self-reliance.
The 13th plan, which ran from 2016 to 2020, went one step further to firmly place Green Growth at the centre of the policy direction, reinforcing the government’s intentions to address environmental degradation and build out its clean energy, green manufacturing, and environmental services sectors. This plan was unique in that environment-related targets accounted for 10 out of 25 targets laid out in the plan.
Urban air quality was one of the key focus areas of the plan, predicated on a genuine Government concern around increasing social protest due to poor environmental conditions. The Chinese are acutely aware that high economic growth rates based on resource-intensive manufacturing, exports, and low-paid labor has resulted in economic, social, and environmental imbalances. Since 2016, Xi Jinping has been central in this economic debate emphasising that China needs to embrace a new economic model that focuses more on the quality rather than the quantity of growth. He therefore pushed for more Green metrics to be included in the 13th FYP (such as defining urban air quality measures).
Given its sheer scale, what China says and does matters when it comes to economic growth discussion. This comes into even sharper focus when you add green growth into the frame. As the world’s largest emitter of greenhouses gases, counting for some 30% of global annual emissions, China’s emission trajectory counts. Skeptics point towards the country’s 98,520 megawatts (MW) of coal power plants under construction and another 153,726 MW under various planning stages as of July 2020. Yet Xi Jinping surprised many when he declared a carbon-neutral China by 2060 during his United Nations General Assembly in September 2020. He also committed the country to peak emission before 2030, which is a material change compared to prior commitments. Coupled with this was his commitment to raising the share of non-fossil energy in primary energy use to 25% and to grow total installed capacity of wind and solar electricity to more than 1200GW (currently China has the largest installed renewable energy base).
From a political ambition perspective, green growth presents an enticing proposition under which to consolidate power globally. The COP26 negotiations in November provide an important window into global power positioning on climate issues. To date the EU, Japan, Korea, UK, Canada and New Zeeland have all set “net zero by 2050” goals. All eyes will be on the US, who have yet to formally make a Net Zero commitment.
The Dragon is a powerful totem animal and is often associated with magical and powerful change. I wonder if this is the case with Mr JinPing, who after a recently consolidated lifelong power in China. My expectation for the final text of the 14th FYP (2021-2025) is that China shows further material commitment to drive Green Growth as basis for supporting their own long-term geo-political and economic advantage. There is some speculation that there will be no GDP targets set, and that they will instead focus on quality of growth measures.
The Chinese government is not blind to the fact that a large amount of capital needed for the green transition, nor to the fact that they don’t have enough fiscal muscle to do this alone. I expect that Green financing will therefore become a focal point in the 14 FYP along with progress in areas like “Green” bond standards and stronger environmental enforcement.As the global green economic transition gets underway it’s becoming increasingly clear that the winners in the long run will be those economies that can decouple their growth from GHG emissions (at least initially). The South African Government is acutely aware of this and is taking steps to align itself with global green economic best practice. Treasury has made some recent important moves to achieve this goal, starting with an assessment of how the financial sector is adopting ESG risk management, which soon expanded to include sustainable finance opportunities such as green, social and sustainability focused bonds and other types of financial instruments. In line with global developments, it also released a draft technical paper, titled ‘Financing a Sustainable Economy’, in May 2020, to encourage a collective transition to sustainable financial systems within a local context. Key recommendations in the paper include developing a green finance taxonomy, creating technical guidance for disclosures, as per the Task Force of Climate-related Financial Disclosures (TCFD), and developing a benchmark climate risk scenario for use in stress tests by the financial sector and regulators. There is still much to be done in SA, but these are encouraging steps in the right direction.