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China’s energy transition 2020-2050.

China’s energy transition 2020-2050.

Decades of rapid economic growth have dramatically expanded China’s energy needs. China is now the world’s largest consumer of energy, the largest producer and consumer of coal, and the largest emitter of carbon dioxide. However strong growth of renewable power is currently the key driver of China’s energy transition.

 

 

Projections for 2050

2% to 14% Increase in primary energy between 2018 and 2050

-44% to -94% Decline in coal consumption between 2018 and 2050

34% to 55% Share of renewables in power generation by 2050

 

 

Projections Summary

  • China's economy grows at 3.5% p.a. between 2018 and 2050, down from 9.6% p.a. between 1990 and 2018.
  • Primary energy consumption in China increases slightly, in all three scenarios. With the economy size nearly tripling from 2018 to 2050, China’s energy intensity declines by over 60% in all scenarios.
  • China’s share in global energy demand drops from 24% in 2018 to 23% in Rapid, 22% in Net Zero and 21% in BAU by 2050. Nonetheless, China remains the world’s largest consumer.
  • Renewables expand rapidly, with an annual growth rate >5.5% p.a. in all scenarios. Renewables’ share of the energy mix increases sharply, reaching 48%, 55% and 23% in Rapid, Net Zero and BAU, respectively.
  • Coal’s share of the China power generation mix declines sharply under all scenarios, falling to 4% in Rapid, 1% in Net Zero and 31% in 2050 in BAU.
  • Production of coal declines in China, dropping by nearly 90% in Rapid, and 57% under BAU.
  • Nuclear power grows quickly in all scenarios, increasing its share of primary energy demand from 2% in 2018, to 11%, 12% or 9% in Rapid, Net Zero and BAU scenarios respectively.
  • Production of natural gas greatly increases in China, by 76% in Rapid and 114% in BAU scenario. Conversely, production of oil declines by 73% in Rapid and 21% in BAU.
  • Under all three scenarios liquids demand in China peaks in the next 5 years, driven by increased efficiency and fuel substitution in industry and mobility.
  • Net CO2 emissions from energy use drop by 99% in the Net Zero scenario, 84% under Rapid and 35% under BAU.

 

 

Powering China’s Future

China is increasingly looking toward securing its future energy needs with sustainable alternatives. In accordance with the 2016 Paris Agreement, China has committed to make non-fossil fuel energy 20 percent of its energy supply by 2030.

 

 

China is the world’s largest investor in clean energy. Between 2013 and 2018, the country’s investments in renewables grew from $53.3 billion to an impressive peak of $125 billion. This figure has fallen in recent years, but in 2019 China’s investments still stood at $83.4 billion – roughly 23 percent of global renewable energy investment.

 

 

China is also becoming the largest market in the world for renewable energy. It is estimated that 1 in every 4 gigawatts of global renewable energy will be generated by China through 2040.

 

 

Due to large-scale investments in massive infrastructure projects, hydroelectric power has become China’s main source of renewable energy production. The controversial Three Gorges Dam, completed in 2012 at a cost of over $37 billion, is the largest hydroelectric dam in the world and boasts a generation capacity of 22,500 MW. The dam generates 60 percent more electricity than the second-largest hydropower dam, the Itaipu dam in Brazil and Paraguay.

 

 

Including the Three Gorges Dam, China has constructed 4 of the top 10 largest energy-producing hydroelectric dams in the world. From 2000 to 2017, China more than quintupled its generation of hydroelectricity, from 220.2 billion Kilowatt Hours (kWh) to 1,145.5 kWh. As a result of the Three Gorges Dam and other projects, China became the world leader in hydropower in 2014.

 

 

Over the past decade, China has also emerged as a global leader in wind and solar photovoltaic (PV) energy. China’s electricity generated by wind power accounted for just 2.1 percent of its total consumption in 2012, compared to 3.7 in the United States and 9.4 percent in Germany. By 2017, China’s wind-energy generation surged to 304.6 billion kWh, a 28.5 percent increase from the previous year. As a result, China accounted for over a quarter of global wind-energy generation in 2017.

 

 

In solar PV, China is both the leading supplier and consumer. Due to rapidly decreasing costs, aggressive policy incentives, and low-interest loans from local governments, China has dramatically increased its production of solar panels. In 2014, China became the world’s largest producer of solar panels, and a year later it surpassed Germany’s solar power generation capacity.

 

 

China is now home to two-thirds of the world’s solar-production capacity. The future development of China’s solar industry, however, has been called into question. Due to an over-saturated domestic market, Beijing halted all new solar projects and lowered tariffs on imported clean energy in June 2018. Additionally, the ongoing trade dispute between the US and China could further disrupt China’s solar panel industry. In January 2018, President Donald Trump announced a 30 percent tariff on solar panel imports from China.

 

 

 

How does China currently secure its energy needs?

Much of China’s foreign energy supply comes from politically unstable regions and must travel through narrow straits and contested waterways before reaching China. Securing guaranteed access to foreign sources of energy is vital for China’s ongoing growth and development.

 

 

China holds the third largest coal reserves in the world, which it has historically leaned on to satisfy its domestic energy needs. Yet as its economy has grown, China has increasingly relied on imported coal. In 1990, China produced 1.02 billion tons of coal for consumption, needing just 2 million tons of additional imports. By 2009, China’s rising demand drove it to become a net importer of coal, importing 125.8 million tons of coal to meet domestic consumption demand.

 

 

China fulfills its demand for coal by purchasing it from regional neighbours. In 2017, its coal imports primarily came from Australia (79.9 million tons), Indonesia (35.2 million tons), Mongolia (33.5 million tons), and Russia (25.3 million tons). Prior to 2017, North Korea was China’s fourth largest coal supplier, ahead of Indonesia and Mongolia. Due to the implementation of UN sanctions on North Korea, China has suspended all coal imports from the regime. As a result, China has shifted to rely more on Russia and Mongolia to fulfill its coal needs.

 

 

China’s demand for crude oil similarly outpaces its domestic production. Since 1993, China has been a net importer of crude oil, and in 2017 it surpassed the United States as the largest importer in the world. According to China National Petroleum, more than 70 percent of China’s crude oil supply in 2018 will come from imports. This dependence on foreign energy is likely to increase. Some estimates have suggested that by 2040 around 80 percent of China’s oil needs will be sourced from elsewhere. While China has taken steps to diversify its oil portfolio, it still must confront potential bottlenecks to access.

 

 

Given its political instability, the Middle East represents an important energy security concern for China, as roughly half of China’s oil imports come from the troubled region. China’s reliance on Middle Eastern oil is only likely to increase in the future. The International Energy Agency predicts that China will double its Middle East imports by 2035.

 

 

China’s oil trade with Iran is especially illustrative of this uncertainty. While sanctions against Iran had for years restricted Chinese access to Iranian oil, this quickly changed once a preliminary agreement on Iran’s weapons program was reached in November 2013. Chinese imports of Iranian oil in 2014 surged by 28 percent compared to 2013. In 2017, China imported 7.5 percent of its crude oil from Iran, just behind Oman at 7.7 percent and Iraq at 8.6 percent. The withdrawal of the US from the Iran nuclear deal in May 2018 has had seemingly little effect on this exchange, as China remains the top destination for Iranian oil.

 

 

China has diversified its oil portfolio by investing heavily in Africa. Africa only possesses around 9 percent of global proven petroleum reserves (compared to 62 percent in the Middle East), but there is considerable potential for gaining access to untapped resources. China has pursued a strategy of offering economic development loans to African states, such as Angola, in exchange for favorable access to oil reserves. Additionally, in 2015 China sent troops to support UN peacekeeping operations in South Sudan, where China has considerable oil investments. While South Sudan’s oil represents a miniscule amount of China’s total imports, 96 percent of its oil exports were sent to China in 2017.

 

 

Securing maritime energy shipments is another critical energy-security priority for China. Over 80 percent of Chinese maritime oil imports by sea pass through the Strait of Malacca. Therefore, this strategic waterway represents a potential risk to China should it be unable to protect its shipping interests in the narrow strait.

 

 

Another means through which China is seeking to mitigate its dependence on foreign oil is by building a strategic petroleum reserve (SPR), which is designed to insulate China from external market shocks. In November 2014, China’s Bureau of Statistics announced for the first time the size of China’s SPR, claiming to have 91 million barrels, or around nine days of reserves. China’s most recent update on SPR levels came in December 2017, when it reported a volume of 276.6 million barrels. China aims to accumulate 600 million barrels of oil, which would meet the OECD standard of 90 days of import reserves.

 

 

Although China holds the world’s largest shale gas reserves, the amount of natural gas readily available for extraction is much lower due to geographical complexities. Some deposits are buried as deep as 3,500 meters underground, making extraction difficult. In 2017, 38.4 percent (95.5 billion cubic meters) of China’s natural gas needs were met by foreign sources, a 27 percent increase from 2016.

 

 

With over 60 percent of its trade in value traveling by sea, China’s economic security is closely tied to the South China Sea.China currently relies on foreign natural gas delivered via land pipelines and carriers in the form of liquefied natural gas (LNG). Two existing pipelines supplied 46 percent of China’s natural gas imports in 2017, with three-quarters of this coming from Turkmenistan. The share of overland energy sources is likely to increase in the coming years. In 2014, China and Russia signed a 30-year, $400 billion deal to deliver Russian natural gas to China, and in December 2019, the $55 billion Power of Siberia pipeline sent its first shipments of natural gas from Russia to China.

 

 

However, China also imports LNG from several other countries, including Australia (47 percent), Qatar (21 percent), and Malaysia (11 percent) in 2017. The International Energy Agency predicts that in 2030, over 60 percent of China’s natural gas demands will have to be met through imports. In late 2019, China became the world’s top importer of LNG, overtaking Japan for two consecutive months. While monthly imports fluctuate significantly, China is expected to replace Japan as the world’s top LNG importer annually by 2022.

 

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Source: BP Insights, International Energy Statistics

China’s Infrastructure investments...

China’s Infrastructure investments to sustain copper rally.

Despite a precipitous plunge in March, the price of copper has risen 7.6% since the start of 2020 and looks set to maintain momentum in the coming months and beyond as China's economic recovery gathers steam.

Copper prices plummeted from a high of US$6,270 per tonne in mid-January to a low of US$4,617.50/t in late March after the World Health Organization declared the spread of COVID-19 to be a pandemic but has since recovered to levels last seen in 2018.

China's appetite for industrial metals returned swiftly as the world's leading copper consumer shook off the pandemic with a sustained recovery thus far. Despite dipping month over month in August due to seasonal factors, China's unwrought copper imports remained higher than a year ago, which suggests that manufacturing activity in the country is still rebounding, BCS Global Markets said in a Sept. 8 note.

While the pandemic is expected to wipe US$630 billion off China's GDP in 2020, the Asian powerhouse's GDP is still expected to rise by 1.2%, down from S&P Global Ratings' previous forecast of a 5.7% increase, even as the world economy contracts by 3.8% overall.

China's recovery is being driven by three things: stimulus-related infrastructure investment, the electronics sector, and sales and new investment in property, S&P Global Ratings' Asia-Pacific chief economist, Shaun Roache, told Market Intelligence. "This mix of demand is certainly boosting demand for coal, iron ore, and a range of other commodities, including copper. As Chinese consumers start to spend again, we would expect stimulus to wane but this is more likely to affect 2021."

 

 

Infrastructure investments driving up prices

"Infrastructure investment is significant to copper demand, as the metal is heavily used in a wide range of the end-uses impacted such as building materials all the way through to consumer durables," Market Intelligence commodity analyst Thomas Rutland said in an interview.

In the wake of the global financial crisis, copper prices crashed to as low as US$2,809.50/t in December 2008 but rebounded quickly to a peak of US$10,179.50/t in February 2011 after China funneled funds into infrastructure such as railways, roads, and airports.

"China's Ministry of Transport has recently committed to huge investments in its transport systems, which combined with the government's stimulus measures could be behind the reported stockpiling of metal in the country," Rutland said.

The price of the metal has averaged US$5,790/t so far this year, according to Fitch Solutions, which recently raised its 2020 price forecast for the base metal to US$6,000/t in 2020 from US$5,900/t.

Bernstein Research is more bullish than most on the metal and predicts the price to reach US$6,400/t in 2021 and US$6,900/t in 2022, versus analysts' consensus of US$5,478/t and US$6,261/t, respectively, according to a Sept. 14 note.

While Fitch expects the Chinese government's stimulus as well as recovery in global economic activity to sustain demand, prices are likely to remain volatile as the pandemic evolves. The analytics provider sees downside risks to its updated price forecast of should widespread lockdowns reappear, according to a September report.

"A couple of the key questions are: just how far will the Chinese recovery and stockpiling take copper prices? Will copper prices continue to be pushed higher into 2021 or will prices start to fall off as refined output increases during the third and fourth quarters?" Rutland said.

 

 

Copper shortage seen as push for decarbonization intensifies

The closure of some mines, particularly in South America, due to the coronavirus pandemic has offset reduced demand, keeping the market tight. As of late September, 2.9% of annual supply remained disrupted by the pandemic, with Chile and Peru accounting for more than half of the missing 702,000 tonnes per year of output, VTB Capital said in a Sept. 21 note.

The brokerage highlights the transition to renewable energy stoking demand for the metal. Renewable energy assets require as much as 15 times more copper per unit of installed capacity than conventional power sources, according to Bernstein's analysts, and the transition to a low-carbon energy mix will result in a copper shortage as demand outstrips supply.

BHP Group, whose copper segment contribute an average of 24% to group revenue, expects demand for the metal to more than triple over the next 30 years, under the 1.5-degree-C scenario of the Paris Agreement on climate change, versus the past three decades as global efforts to decarbonize gain momentum, according to a September presentation.

The ICSG estimated the apparent deficit of refined copper in the first half of 2020 at 235,000 tonnes, and analysts expect it to grow over the coming years. Fitch estimated the shortfall to reach as much as 510,000 tonnes in 2027 as power, vehicle, and infrastructure usage increases.

 

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Source: S&P Global Market Intelligence

What is the Ice Silk Road? The China...

What is the Ice Silk Road? The China perspective

Russia and China are becoming closer strategic partners, and the Arctic is gradually becoming an area where the two sides can potentially carry out their long-term cooperation. In 2017 Chinese and Russian leaders jointly proposed the "Ice Silk Road (ISR)," with an aim to promote cooperation and development in the Arctic within the context of China's Belt and Road Initiative (BRI).

 

China considers the Arctic a shorter and safer route connecting the Chinese mainland with Europe, it’s white paper on its Arctic policy states that the BRI should provide opportunities for parties interested in creating the Arctic Silk Road, sustainable economic and social development of the Arctic.

 

The ISR is an open initiative that abandons classical geopolitical thinking and advocates cooperation and a Chinese win-win perspective. Against the backdrop of geopolitical conflicts in the Arctic and bottlenecks in regional governance and cooperation, the ISR and the cooperation of countries under this framework are the highlight of current Arctic cooperation and represent a new direction for future Arctic governance and cooperation.

 

 

China's Policies and Positions on Participating in Arctic Affairs

1. Deepening the exploration and understanding of the Arctic

2. Protecting the eco-environment of the Arctic and addressing climate chang

3. Utilizing Arctic Resources in a Lawful and Rational Manner

4. Participating Actively in Arctic governance and international cooperation

5. Promoting peace and stability in the Arctic Conclusion

 

 

The Chinese vision of the Ice Silk Road involves the development of scientific, trade and economic cooperation with all Arctic countries in different directions. However, while developing cooperation with various Arctic countries on joint research and development of the Arctic, China is giving priority to Russia. In the foreseeable future, the main stimulus for the development of the "Ice Road" in this part of the Arctic will be economic projects in the North of Russia. The main regional project, whose fate is closely connected with the development of the ISR, is the development of the fuel and energy wealth of the Yamal Peninsula.

 

 

Ice Silk Road (ISR) projects include:

 

China-Russia Yamal LNG

Partners: China, Russia, France

Status: Production commenced December 2017

 

The world's largest liquefied natural gas (LNG) project, this is China and Russia's first joint Ice Silk Road (ISR) venture. Partners in the project include Russia's Novatek, the China National Petroleum Corporation (CNPC), French firm Total, and China's Silk Road Fund. Together, CNPC and the Silk Road Fund hold a 30-percent stake.

 

 

Payakha oilfield

Partners: China, Russia

Status: Deal signed

 

In June 2019, the China National Chemical Engineering Group and Russian firm Neftegazholding signed a deal on developing the Payakha oilfield, promising investment of USD5 billion over four years.

 

This is Russia and China's second Ice Silk Road (ISR) energy project after Yamal. Payakha lies on the Taymyr peninsula in the region of Krasnoyarsk. According to reports, the project includes the construction of six crude oil processing facilities, a crude oil port capable of handling 50 million tonnes a year, 410 kilometres of pressurized oil pipelines, a 750-megawatt power station and an oil storage facility.

 

 

Zarubino port

Partners: China, Russia

Status: Deal signed, progressing

 

Located just southwest of Vladivostok and close to the Chinese border, the port of Zarubino is ice free year-round. In 2014, the government of Jilin province, the China Merchants Group and Russia's largest port operator signed a framework deal to develop Zarubino into the biggest port in northeast Asia over 18 years, with capacity to handle 60 million tonnes of goods a year. Railways linking the port with inland regions of China will also be built.

 

In September 2018, as the first stage of this project, a shipping route started running from Hunchun on the Tumen river in Jilin to Zarubino and then on to Zhoushan in Zhejiang province. The new Zarubino port will strengthen links between northeast China and the rest of the world, and aid development in Russia's far east. It will also be a key link on the northeast passage trade route to Europe.

 

 

Arkhangelsk deepwater port

Partners: China, Russia

Status: Planning

 

Arkhangelsk is the largest city on Russia's northern coast, situated on the country's European side close to Finland. The new deepwater port has been planned for over a decade. It will be located 55 kilometres from Arkhangelsk on the island of Mud'yug, which lies in the Dvina river delta close to existing port infrastructure. Linking up with Russia's railway network, the port will help develop a combined sea-land transportation system, and improve links to Siberia.

 

The local government predicts the new port and associated railways will create 40,000 jobs in the region. According to one expert, the China Poly Group signed an agreement of intent in 2016, earmarking investment of 550 million yuan (USD79 million). The China Ocean Shipping Company has also made its interest in the project clear.

 

 

China-Finland Arctic Monitoring and Research Centre

Partners: China, Finland

Status: Deal signed

 

In April 2018, China's Institute of Remote Sensing and Digital Earth signed an agreement with Finland’s Arctic Space Centre to establish a new monitoring and research centre for the polar region. The facility, based in northern Finland's Sodankylä, will collect, process and share satellite data, providing an open international platform to support climate research, environmental monitoring and Arctic navigation.

 

The centre will contribute to China's "Digital Silk Road" plan, which aims to create a spatial information system for regions covered by the BRI. It will also promote the Chinese Academy of Sciences' "Global Three Poles Environment" project, which aims to better understand global climate change.

 

The project was inaugurated in October 2018.

 

 

China-Iceland Arctic Science Observatory

Partners: China, Iceland

Status: Operating since late 2018

 

In October 2018, the China-Iceland Arctic Science Observatory was officially opened in the city of Karholl in northern Iceland.

 

Set up to monitor climate and environmental change in the Arctic, the observatory is managed by the Polar Research Institute of China and Iceland's Institute of Research Centres. It can accommodate 15 people and will also be open to researchers from third countries.

 

The partnership started in 2012 when the two governments signed a deal on Arctic cooperation. That year also saw a memorandum of understanding signed between organisations from the two countries on a joint aurora observatory. Plans were expanded in 2017, with work at the observatory now covering the atmosphere, the oceans, glaciers, geophysics, remote sensing and biology.

Chinese shipping firms handle LNG cargos bound for China. In July 2018, seven months after operations started, the first shipment of LNG from Yamal arrived in Jiangsu province's Nantong. A second phase of the project is now being constructed on the Gydan peninsula, to the east of Yamal, and due to begin operating in 2023.

 

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Source; Xinhua Silk Road Information Service

70MW floating solar farm, a world first...

70MW floating solar farm, a world first.

Chinese state-owned developer CECEP has completed a 70MW floating solar project - the largest in the world - at a former coal-mining area of Anhui Province, China, in collaboration with French floating solar specialist Ciel & Terre.

 

 

China is the world's top investor in renewable energy, having committed $698 billion (£551.4bn) in renewables capacity between 2010 and the first half of 2019 according to a UN-backed report. However, this project will soon be overtaken. Rival developers Three Gorges New Energy have already partially connected a 150 megawatt floating solar farm, also in Anhui, which will be the world's largest when fully commissioned.

 

 

The project, spread across 13 separate islets on an area of 140 hectares, was completed in late 2018, with grid-connection, tests and commissioning carried out this month at the project site in the Lianghuai mining subsidence area, Yongqiao District, Suzhou City.

 

 

EPC services were provided by China Energy Conservation Solar Technology and the China Energy Engineering Group Shanxi Electric Power Design Institute. A brand new 18km 110V overhead line was also built for the grid connection of the plant, which is expected to generate up to 77,693MWh of electricity in its first year, equivalent to the power consumption of nearly 21,000 households. While the complete facility in Anhui is said to currently be the largest floating PV plant on the same reservoir in the world, nearby, China-based firm Three Gorges New Energy has already partially connected a 150MW floating PV project to the grid, which will become the largest plant globally once fully commissioned.

 

 

Equipment

The CECEP system was built using Ciel & Terre's Hydrelio floats, which are locally produced to minimize emissions, optimise logistics costs and offer local employment. The project uses monocrystalline modules from Chinese manufacturer LONGi Solar, as confirmed by a C&T spokesperson to PV Tech. Central inverters have also been put on stilt platforms on the shoreline of the quarry lake so as not to interfere with neighbouring farm activity. Concrete poles support the electrical installation and 1,500 helical anchors were used for the project and buried at an 8-15 metre-depth to match the water body.

 

 

Ciel & Terre has already supplied its floating structure solution to GCL's 32MW FPV plant in Anhui province. It has also recently supplied a 9.8MW PV project featuring rooftop and floating elements in Cambodia.

 

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Source: Tom Kenning, for PVTech.

Rare-Earth Market: China monopoly?

Rare-Earth Market: China monopoly?

Most people have no idea what’s in an iPhone. Yttrium and praseodymium don’t exactly roll off the tongue, but they’re part of what make smartphones so small, powerful, and bright. These exotic materials are among the planet’s 17 rare-earth elements, and surprisingly, the soft, silvery metals are not at all rare. But they’re found in tiny concentrations, all mixed together, and usually embedded in hard rock, which makes them difficult — and messy — to isolate. In China, which mines 89 percent of global output, toxic wastes from rare-earth facilities have poisoned water, ruined farmlands, and made people sick.

 

 

Beyond high-tech gadgets, rare earths play a critical role in national defense, enabling radar systems and guided missiles. Ironically, they also power clean-energy technologies, such as wind turbines and electric cars. This year, global consumption is expected to be about 155,000 tons, far more than the 45,000 tons used 25 years ago. Demand will only grow — likely at an accelerated pace — as the world tries to rein in climate change.

 

 

At the moment, only China can satisfy that hunger. Yet in 2010, Beijing cut rare-earth exports by 40 percent — possibly to boost its high-tech sector — and cut off supplies to Japan over a territorial dispute. Its muscle flexing caused prices to soar, sparking new exploration for rare-earth deposits around the world. A boom in illegal mining in China has since driven prices back down, making it extremely difficult for non-Chinese mines to stay open or get off the ground. Nevertheless, the rest of the world hasn’t given up: There are currently 50 deposits at an advanced stage of development (see map below) that could someday challenge China’s dominance.

 

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Source:This article originally appeared in the July/August issue of  FP magazine.

China- Pakistan Energy projects reaching...

China- Pakistan Energy projects reaching fruition

The China- Pakistan Economic Corridor (CPEC) is now gaining momentum with the completion of phase 1 of a 300-megawatt solar photovoltaic power plant. Financed by the Export Import Bank of China and built by Chinese energy conglomerate Zonergy Co, has been connected to the grid in the Punjab Province of Pakistan at the Quaid-e-Azam Solar Park in Bahawalpur. A major milestone in the economic cooperation between China and Pakistan: this is the first phase of the 900MW plant that is to be the world's largest single photovoltaic power station. When completed (est. late 2016) the solar power station, will save 394,000 tons of standard coal and reduce 826,000 tons of carbon dioxide emissions every year.

 

 

The CPEC, a 3,000-km network of roads, railways and pipelines linking Kashgar in northwest China's Xinjiang Uygur Autonomous Region and southwest Pakistan's Gwadar Port, is also a major project of the "Belt and Road" initiative. Pakistani officials predict that the project will result in the creation of upwards of 700,000 direct jobs between 2015–2030, and add 2 to 2.5 percentage points to the country's annual economic growth. In addition to the Zonergy project, a number of new energy projects are being currently constructed by Chinese companies. In total over 10,400MW of energy generating capacity is to be developed between 2018 and 2020 as part of the corridor's fast-tracked "Early Harvest" projects in conjunction with the Bahawalpur PV plant.

 

 

The 1.65-billion USD Karot hydropower plant, the first investment project of the Silk Road Fund, is being developed by the China Three Gorges Corporation. Construction of the 720 MW project has begun and is expected to be put into operation in 2020.

 

 

The Port Qasim coal-fired power plant, is being constructed by Powerchina Resources Limited. The 2.085-billion USD project is due to be operational by the end of 2017.

 

 

SK Hydro Consortium is constructing the 870 MW Suki Kinari Hydropower Project in the Kaghan Valley with financing by China's EXIM bank.

 

 

The Jhimpir Wind Power Plant, built by the Turkish company Zorlu Enerji has already begun to sell 56.4 MW of electricity to the government of Pakistan, though under CPEC, another 250MW of electricity are to be produced by the Chinese-Pakistan consortium United Energy Pakistan.

 

 

Back to Coal

Despite several renewable energy projects, the bulk of new energy generation capacity under CPEC will be coal-based plants, with $5.8 billion worth of coal power projects expected to be completed by early 2019 as part of the CPEC's "Early Harvest" projects.

 

China`s Agricultural Sector: changing...

China`s Agricultural Sector: changing realities.

As China’s agricultural sector struggles to keep up with the country’s growth in demand, its ability to meet the agricultural demands of its population will usher in a new era off opportunities for agricultural companies.

 

 

China’s struggle to consistently secure adequate food supplies of a sufficient quality has resulted in its agricultural sector being placed under increasing pressure. Since February 2014 the State Council has suggested that the country will no longer aim to match demand for grain through domestic production alone. These are the first public signs that Beijing is coming to terms with the realities facing China’s agricultural sector.

 

 

The situation

If China were self-sufficient with regard to agricultural products, it would have to feed 20% of the world’s population with only 10% of the world’s arable land and 6% of global water resources. In the past, this situation was manageable due to the fact that Chinese citizens generally depended on vegetables and grains for energy with only small portions of meat for flavour. Arguably, these dietary preferences arose as a consequence of many not possessing the wealth to buy more expensive food products, as many can today.

 

 

However, China’s meat and calorie intakes have kept pace with the country’s GDP. In 1980, for example, China’s average level of protein consumption was a mere 12% of most developed countries. By 2009, China’s protein consumption had risen to 56% of the above sample’s average. China’s large population and the apparent remaining growth in China’s appetite illustrate how much food will be needed to meet future demand.

 

 

One of Beijing’s responses to China’s lack of food security was to set a 95% ‘self-sufficiency’ target on key grain products—corn, rice and wheat—to shape the way land and water resources were prioritised and insulate the country from fluctuations in global grain prices. However the production of meat is more land and water intensive - putting extra pressure on already strained resources. A pound of beef requires a staggering 6,810 litres of water, pork 2,180 litres, soybeans 818 litres, potatoes 450 litres, corn 409 litres and apples 70 litres.

 

 

The Organisation for Economic Cooperation and Development (OECD) estimates that 70% of China’s arable land is low-yielding, and erosion, salinization and acidification are leading to a further reduction in the quality of China’s soil. Further, these estimates do not take into account the effect of pollution on China’s arable soil. Some analysts say between 8-20% of China’s arable land is contaminated by heavy metals.

 

 

Interestingly though, this ‘self-sufficiency’ target has been abandoned for a more open policy according to guidelines released by the State Council. Analysts have proposed that land and water-intensive products, like beef, offer higher profit margins than vegetables, fruits and grains. Beijing may be attempting to ameliorate China’s high inequality by allowing farmers to choose to farm more profitable produce. However, this policy alone will be insufficient to overhaul China’s agricultural sector.

 

 

Unsurprisingly, China’s growing middle class is demanding the quality and safety assurances associated with imported food and beverages. The apprehension around the quality of domestically-produced powdered baby milk, in particular, has had profound effects around the world. Supermarket stores in Hong Kong, Australia, New Zealand and even as far as the UK have implemented policies aimed at rationing baby formula due to a surge in demand from China.

 

 

Regardless of whether Beijing abandons its ‘self-sufficiency’ targets, opportunities for investors lie in the Middle Kingdom’s future nutritional needs. The Chinese market’s sustained growth will result in an increase in demand for a wide range of food commodities – foreign intervention and innovation will help meet this demand.

 

 

Outlook

If President Xi Jinping follows through on his commitment to double China’s GDP per capita by 2020, demand for the more expensive categories of food, such as animal protein, will rise the fastest and will be met via an increase in imports.

 

 

The OECD and Food and Agriculture Organisation (FAO) have estimated that by 2022, China’s consumption of food commodities will increase considerably across all food classes. Possibly as a result of China’s struggle with tainted milk, the dairy category holds one of the largest gaps between domestic production and consumption.

 

 

The solutions

There is little doubt that Beijing faces a challenge in solving the country’s dramatic mismatch between supply and demand of food products. While many propose that it is inconceivable for China to achieve food security due to its scarcity of water and land resources, Beijing can reduce its dependence on imports in the long term through the implementation of strategic policies.

 

 

Remnants of Maoist collectivism, for example, remain present in China’s rural land policies and reduce motivation to increase agricultural production. Providing farmers the opportunity to own, sell and borrow against land to expand business opportunities and profits may solve some of China’s food woes. Allowing for consolidation could create an environment that makes unprofitable enterprises financially unsustainable and reward those that are profitable. The economy of scale achieved through the consolidation of farms will likely achieve higher production volume at a lower unit cost (as per developed nations in the 50`s and 60`s).

 

 

Since 1997, an estimated 8.2 million hectares of arable land, roughly the area of Austria, has been lost to property developers catering to a growing urban population. While increasing the size of China’s urban population is an important step towards shifting China to a consumption-driven economy, this process has been administered in a haphazard fashion, which has jeopardised the country’s limited fertile land. A policy that preserves the most fertile land while using infertile land for infrastructure could provide for greater efficiency and productivity in the agricultural sector. China’s urbanisation and property development also presents an opportunity to increase productivity in the agricultural sector.

 

 

Urbanisation has resulted in roughly 25 million Chinese farmers becoming defacto urban residents every year. According to a report by the Ministry of Agriculture, only 33% of China’s corn and 69% of its rice are mechanically harvested every year. The report also stated that China performs 72% of its post-harvest processing tasks, such as sorting and packaging, by hand. The opportunity for the mechanisation of the agricultural sector is evident. Mechanisation may, however, result in unforeseen consequences related to unemployment in China’s labour market, so policymakers and the business community would benefit from a coordinated approach to solving challenges in the agricultural sector.

 

 

Even if new policies could maximise the amount of arable land, China will continue to suffer from its unproductive use of land. Advanced agricultural techniques and technologies for fertilisation and irrigation, for example, could help with increasing productivity. Gradually opening up the agricultural sector to foreign investment, which the central government currently forbids, is a potentially effective strategy to transfer such techniques and technologies. Unfortunately, Beijing may not have the luxury of time if it wants to reduce its reliance on imports.

 

 

Beijing’s ‘Going Out’ policy, through which the central government aids firms, private and state-owned, to make acquisitions and investments abroad with the intention of securing physical assets and the associated intellectual property, could complement the reform of the agricultural sector. From 2010 to 2013, Chinese food and beverage companies made over USD 9 billion worth of deals overseas according to the National Australia Bank. Deals such as Shuanghui’s acquisition of Smithfield, the world’s largest pork producer and processor, in May 2013 and COFCO’s March 2014 acquisition of majority stakes in Noble Group’s agribusiness unit and Nidera stand out, but there are countless examples from around the world. With China already having established good relationships in Africa, Australasia and South America, where some of the most fertile farmlands in the world exist, the opportunity for increased OFDI in agriculture is certainly available.

 

 

Genetically modified (GM) food may also provide a partial solution to China’s food supply woes. GM crops have the potential to overcome many of the challenges of agriculture in China, such as low-yielding arable land and decreasing soil quality. Furthermore, the benefits of lower costs will also aid in keeping inflation in check. However, GM food is a sensitive topic in China—the public remains cautious as to whether the government has fully addressed the potential risks. Nevertheless, the Ministry of Agriculture has taken the lead in publicly declaring the safety of GM food and is slowly pushing domestic production ahead. Currently 17 GM products from five plant species are sold on the domestic market: soya beans, corn, oilseed rape, cotton and tomatoes. The only GM crops approved for domestic commercial production are cotton and papaya.

 

 

Lastly, firms can mollify China’s food safety fears by exporting from their home country or by producing strategically within China. Tyson Foods, one of the world’s largest processors and marketers of chicken, has shifted from its conventional business model of sourcing from independent chicken farmers and has built its own network of farms in China, providing direct oversight over the production process. In 2010, Tyson did not have any farms in China; today, they have 20, and they plan to own and operate 90 by 2015.

 

 

Business potential

Not unique to China, numerous countries face the prospect of having to rely increasingly on importing food to meet domestic demand. What magnifies China’s challenges is the size of its population, which has the potential to create shocks on global markets. If China cannot meet demand with domestic supply, global prices of certain food commodities will undoubtedly continue to rise. Should prices rise too much, affordability will become a crucial issue around the world. While farmers may benefit the most from this situation, worldwide consumers will be on the receiving end. China’s challenge, to a certain extent, will become the world’s challenge.

 

 

China’s growth in domestic food production in the last thirty years is an astonishing feat, yet the country’s deteriorating quality and dwindling availability of natural resources mean that this growth is still not adequate. Pollution must be minimised. Arable land must not be sacrificed for urban sprawl. Land policies should reward profitable agricultural enterprises. Together, these actions could alleviate pressure on China’s agricultural sector.

 

 

Companies able to navigate China’s shifting agricultural landscape will be primed to benefit from this key market. China’s agricultural players desire advanced labour-saving technology and will undertake joint ventures to attain it. Agricultural exporters around the global will benefit from increasing levels of demand for agricultural commodities and increasing flows of capital from China.

 

 

Map of new proposed Coal power plants...

Map of new proposed Coal power plants 2012

To maintain its economic growth and provide for its massive population, China must reconcile two powerful, converging trends: energy demand and resource scarcity. Below is a graphic of Global proposed new power plants as of 2013

 

 

 

China-Kazakhstan.

China-Kazakhstan.

China and Kazakhstan share a vast border of 1,700 km in the North Western province of Xinjiang. As with each of the post-Soviet republics on its western border, they have had border disputes dating to the collapse of the Soviet Union in 1990. A 1998 treaty signed between the two countries ended border demarcation issues by resolving disputed areas near the Baimurz pass and the Sary-Charndy River. To help conclude negotiations, China offered to invest in one of Kazakhstan’s biggest oil fields, construct a 3,000 km pipeline connecting the two republics, and establish a 15-year program for joint economic cooperation.

Since then, Kazakhstan has become a strategic ally in securing China’s long-term interests in the post-Soviet region. Kazakhstan’s oil, natural gas and minerals reduce China’s excessive reliance on imported oil from the Middle East. Furthermore, diplomatic relations with Kazakhstan play a key role in combating Uighur nationalism in Xinjiang province – cultural ties between the Kazakh people and the Uighurs (a Turkic ethnic group) have raised concerns in China of a potential separatist movement. While cooperation with Kazakhstan affords China a buffer zone between it and Russia, an alliance with China also helps Kazakhstan balance the heavy geopolitical influence of its Northern neighbor.

 

The following is a time line of mutual development projects and agreements:

 

  • The People’s Republic of China and Kazakhstan first formed diplomatic relations on January 3, 1992. Since then, both countries have kept close ties and solved border disputes.

 

  • In 2001, China and Kazakhstan were co-founders of the Shanghai Cooperation Organisation (previously Shanghai Five, 1996), along with Kyrgyzstan, Russia, Tajikistan and Uzbekistan.

 

  • In 2005, China and Kazakhstan established a strategic partnership. Bilateral cooperation has expanded to trade, energy, science and technology, culture and even education.

 

  • In 2007, Kazakh president Nursultan Nazarbayev announced that further strengthening ties with China is one of Kazakhstan’s most important foreign policy initiatives in upcoming years.

 

  • In 2008, both Nursultan Nazarbayev and Wen Jiabao paid visits to China and Kazakhstan respectively. Agreements were made to expand cooperation beyond extractive industries.

 

  • KazStroService completed the second leg of the Kazakhstan-China oil pipeline, between Kenkiyak and Kumkol, on July 1, 2009. The pipeline is China’s first direct method of oil importation from Central Asia and has a capacity of 10 million tons per year. Construction of Line C of the pipeline is scheduled to begin this year, and will begin to supply China with natural gas by January 2014.

 

  • As of 2011, both countries have cooperated within the UN and SCO, and cemented bilateral agreements through documents such as the Good-Neighborly Treaty of Friendship and Cooperation, the China-Kazakhstan Cooperation Strategy for the 21st Century and the Blueprint for China-Kazakhstan Economic Cooperation and Development.

 

  • China and Kazakhstan will jointly build a 1,050 km long, high-speed railway connecting Astana and Almaty by 2015.  The railway will run at a maximum speed of 350 km/hour and will service up to 5 million passengers annually.

 

  • China and Kazakhstan built the first trans-border, international free trade center in Eurasia in 2011. The center, which lies on the border of China and Kazakhstan in Horgos (Xinjiang province), was inagurated along with a railway connecting Horgos – Ah Teng Corey.

 

  • Kazakhstan extradited Arshidin Israil, a Chinese citizen of Uighur ethnicity, to China on May 30, 2011. The abolition of Israil’s refugee mandate upheld the Kazakh-Chinese extradition agreement of 1996 and helped solidify bilateral relations between the countries. Israil was wanted by Interpol on terror charges; China has promised that he will not face capital punishment.

 

  • Kazakhstan has begun supplying China with electric batteries worth around $30 million USD annually. In April of 2012, Kainar AKB supplied a first shipment of around 1 million batteries to FengFan Co. Ltd. Kainar AKB is the largest battery manufactuer in Central Asia – its products are regularly used in automobiles, as well as agricultural and military equipment.

 

  • The Development Bank of Kazakhstan (DBK) and China Eximbank agreed to invest $500 million together on energy cooperation, beginning in June 2011. The announcement followed an individual loan agreement of $1.5 billion in October of 2009.

 

  • From a $5 billion credit line for energy cooperation, China's Export-Import Bank agreed on a $1 billion construction plan for the Atyrau oil refinery, a major hub for the massive offshore Kashagan deposit now under development. This falls into the profile of Kazakhstan's program to modernize the country's three oil refineries at a cost of up to $4 billion. Chinese companies already produce 20% of all the oil produced in Kazakhstan.

 

  • 2011, Kazakhmys PLC signed a memorandum of understanding with the China Development Bank Corp. to secure a US$1.5 billion loan facility to develop a copper project at Aktogay in Kazakhstan. Further negotiations will be undertaken to move the MOU to a full loan agreement by the end of 2011, the company said in a press release. The loan will be in addition to the existing China Development Bank's US$2.7 billion loan facility, which is being used for the development of a major copper project at Bozshakol and a series of mid-sized projects.

 

Bi-lateral relations and trade between these two countries will only increase over the next few years, dominated by the energy sector which already has seen 7 billion in loans from China for various projects. Whilst there is little cultural connection with China (Kazakhstan's people have long felt a deep connection to Russia, in language, culture and lifestyle) the investments speak for themselves and provide Kazakhstan with access to deeper political ties to a world power. However in the minds of ordinary Kazaks there is a fear of loosing their identity and culture to their neighbor.

 

 

We believe this relationship truly represents the much used ‘win win’ nature of Chinese investments in emerging countries. All that remains if for the two countries to agree on the nationality of their Weightlifters.

 

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