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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 343 of the energy talks podcast. I'm energy journalist, Marcum Hislop. I recently came across a foreign affairs article titled China's real economic crisis, why Beijing won't give up on a failing model by Zoe Liao, who is the Maurice r Greenberg fellow for China studies at the Council on Foreign Relations and the author of Sovereign Funds, How the Communist Party of China Finances Its Global Ambitions. Her argument, if I understand it correctly, is that, quote, in many crucial economic sectors, China is producing far more output than it or foreign markets can sustainably absorb. As a result, the Chinese economy runs the risk of getting caught in a doom loop of falling prices, insolvency, factory closures, and ultimately, job losses, end quote.
Markham:Regular listeners know that we've been arguing for the past year or so that China's clean energy industrial policy is driving the global energy transition and will do so for the foreseeable future. Is this hypothesis tenable in the face of doctor Liu's analysis? She joins me today to discuss that question. So welcome to the interview, Zoe.
Zoe:Thank you, Markham, for having me.
Markham:I think this is going to be a a fascinating discussion because as I mentioned to you off air, Canada has not caught up to the US in its perception of how China is using industrial policy, particularly around clean energy as part of its drive to become a geopolitical superpower rivaling the US. And that's a key point. The Americans get it. You're based I think you're based in Washington. Correct?
Zoe:I'm based in New York.
Markham:Oh, okay. My condolences to Donald Trump. I'm kidding. But then you understand. I mean, you're plugged into this argument, and and, in a way, I you know, when I see American policymakers and advisers to the Biden administration discussing this in speeches, they get it.
Markham:No question about it. It's a big driver in the, US clean energy industrial response, the inflation reduction act, and all of those other, pieces of legislation. So maybe let's get started with an overview of your article, if you won't mind if you don't mind.
Zoe:Sure. So you first of all, I have to say that, I really I really appreciate the opportunity to write a Fulfony Affairs. And, as many writers know, authors do not get to choose the title. So that that's the caveat there. And for this particular article, I re what I really tries to do is to, provide a, overview or, a macro perspective about, China's so called overcapacity phenomenon and a lot of the domestic origins of China's overcapacity.
Zoe:And more importantly, I explain why, China's overcapacity is an oh, it has been an a re a reoccurring issue rather than, the first time ever. And then I also try to explain why, merely tariffs, would not necessarily be, the, a way to solve the problem or in some cases may make it even worse.
Markham:Let's talk about the extent of the problem. I mean, I've been reading, Bloomberg does a lot of work on this and is kind of my go to source, on a day to day basis. And they've been talking about how on the clean energy side. So we're talking, when, solar panels, wind turbines, batteries, electric vehicles, heat pumps, that kind of technology. The, overcapacity sometimes is 2 to 3 times global demand.
Markham:Or certainly it it yeah. I mean, it really is quite staggering, isn't it?
Zoe:Yes. But, again, the the in terms of measuring overcapacity, the extent to which certain manufactured manufacturing product is exceeding the demand of market, the answer, varies. And at least in the context of renewable, energy sector, Chinese diplomats and the Chinese officials oftentimes say, at least to international audience, there is no such thing as overcapacity. But if you talk to Chinese entrepreneurs and the Chinese people who work in the industry, they would say, well, they do recognize there is a the problem of overcapacity. But that does not necessarily mean that, China simply produce across the board too much stuff.
Zoe:It's not necessarily that way. Instead, this there is this structural issue, meaning at the lower end, of the product, there there is a overcapacity problem simply because in the early in the early days, China threw out industrial through industrial policies. The government has been able to mobilize domestic resources from local level, to, individual entrepreneur level, as well as the entire banking or financial sector try to support, the initial development. And then as the industry, the innovation, the competition driven innovation as well as, businesses scale up, you end up having, you know, new technology, new production, upgrade fast way much faster, than, the new manufacture manufacturing product, or facilities can be, build out. In other word, a lot of the so called overcapacity really, concentrate on lower end, of the manufactured product, especially for EVs or, for that matter, batteries and solar panel.
Zoe:But on the higher end, there is a lot of insufficient supply, if you will, especially on things related to a higher, requirement for IP.
Markham:That's actually a very interesting point that they, because there's been a big, debate between the US and China for a while now about, semiconductor chips. And the US has been restricting the supply of both chips and the technology to make those chips at the higher end, but letting not, not restricting China's access or inability to make chips at the lower end, which China now does at a in great quantity and at very low prices. And that same kind of concern is being shown with these other products. But China has has driven down it's it's hard to understand, if you're not paying attention to the data, how much things have changed in the last 12 to 18 months. So for example, I was looking at some Bloomberg data the other day that showed that China now makes a solar panel at 9¢ a watt or below.
Markham:And for comparison's sake, Europe is about 22¢ a watt, and the US is at 40¢ a watt. I mean, that's an amazing competitive advantage for Chinese, suppliers. On the other hand, they're only using, like, 38% of their industrial capacity. You know, there's all of that, like, 1 third of what they actually could make, but the market can't absorb it. What are the implications of that for global markets and for China and US relations?
Zoe:I think, first first of all, there are the way, I I think about renewable transitions and the the way that China has been able to drive down the manufacturing prices. I guess, if the focus if the grant if the focus is on, how to make energy transition affordable, if we only focus on the cost part of that, then I think having, China providing cheap and good quality, clean energy product is not necessarily a bad thing. And given that China is investing a lot or has invested a lot, and, for a the majority of developing countries, they do not necessarily need the best or the most advanced, the newest version of all these technologies. So a lot of the matured product is actually not not not necessarily bad. But now we are in an era where geopolitics and the domestic issues, labor unions, a lot of these things caught up with, the idea of, the role of China may potentially crush not just industrial base, but also cause job losses in, advanced economies or for that, American market sees.
Zoe:So the intersection between, I guess, the rising, role of China in clean energy transition and other domestic politics is really why, why I personally think there is this domestic backlash, in Europe or in the United States in terms of the concern. It's not just about a cost. It's really about how people see their personal lives might be might be impacted.
Markham:This I agree with you. And the speeches that I've read from, Biden and, administration policy makers, I'm thinking secretary of commerce Gina Raimondo, national security adviser Jake Sullivan, former Biden economics adviser Brian Deese, who I should mention is is now advising Kamala Harris. So she becomes president that there's a continuity there in terms of policy. And, US treasury secretary, Janet Yellen. I mean, they've all talked about how in in the, 2020, 2021, there was this big wake up call.
Markham:The pandemic showed the United States how vulnerable it was to you to Chinese supply chains. And and and if there was ever going to be a military conflict with China, America had basically given away its industrial base to China starting in the 19 eighties. It had deindustrialized, shifted over to a service and finance oriented economy. But when you need to make bombs and guns and tanks and planes and all of that kind of stuff, now that capacity is over in in China. And that was perceived as a very, very serious geopolitical national security and military threat by American policymakers.
Markham:Hence, you have the US in infrastructure act in 2021. You have the inflation reduction act in the chips act in 2022. You have other less well known, pieces of legislation and programs that come out of the Department of Energy or come out of the Department of Nash of of Defense. And and there's this, like, whole of government approach now at the national level in the US to respond to China. And because clean energy is perceived as the energy of the future, they can't be left behind.
Markham:They cannot have China dominating that industry because that will leave the United States vulnerable. Is that a fair read of the situation?
Zoe:Markham, I think you are right in terms of, you know, identifying, the the impact of of COVID and the the COVID COVID, triggered supply chain shock. I wanted to put a footnote there in the sense that, yes, you know, globalization has been driving this kind of global optimization of resource allocation. Hence, for a long period of time in global development, we see, supply chain orient deploying supply chain industries or companies deploy supply chain featuring or prioritizing economy of scale or efficiency. And this is the background, especially since China joined the WTO in December 2021. China's rise actually benefited a lot from this global distribution, of a supply chain featuring or prioritizing efficiency.
Zoe:However, efficiency in a way also means or, economy of scale also means well, that is concentrated risk. Finance 101, you do not put all your x in one basket. But that is kind of the wake up call you were talking about when COVID happened. People started to realize that becomes a risk. But I wanted to say that a lot of this so called supply chain diversification, it really does not merely start because of COVID or start of it actually started predate COVID, especially given that as the China as the Chinese economy develop, China climbs up the value chain.
Zoe:And if you look at the labor cost, actually, China's labor cost has been, rising in the past decade. Hence, I would've I the the the the the one qualification mark I would've put in there in terms of industrial industrial supply chain, the a lot of those diversification predated, COVID. But when COVID happened, and in particular before COVID, there was the there was US China trade war escalation, and then when Russia, president Putin invaded Ukraine, that actually accelerated a lot of the.
Markham:One of the things we have to recognize as well is that China is no longer just producing at the bottom end of the value chain. China has done an extraordinary job in particularly in those key, industries. Like, batteries would be a classic example. CATL and BYD, the 2, big Chinese battery companies, by themselves, control over 50% of production and distribution around the world in batteries. And they're not alone.
Markham:I mean, there are other Chinese battery companies. So, that is, what they've been doing I mean, they are at the forefront of battery innovation, And they're, you know, they're already they they brought they, the the switch from, lithium ion, NMC batteries, so the high end nickel manganese cobalt batteries, over to, lithium iron phosphate that started in China and now is spread to other manufacturing. Now we're talking about sodium ion batteries, so plentiful, easy to manufacture, a little heavier, but, nevertheless, cheap and and plentiful raw materials. Solid state, looks like it's going to be coming out of China first even though there are some other European and American, startups that are active in this space. I mean, on and on, China is the is not just leading the manufacturing scale up and the learning curve associated with this.
Markham:It's the innovation space and the science space that they're increasingly dominating, and that has set off alarm bells in Washington. Is that an a fair comment?
Zoe:I think that is a a fair comment. But the concern from, Washington policy making circle is not necessarily that China is, leading the innovation curve, but also the dominance of China across the entire supply chain. Right? You're talking about the the, the lithium ion battery and so on and so forth. So if we think about the the supply chain, China was, China, produced about, or not produced.
Zoe:China refined sand processing about 60% of lithium. And also about 90% of rare earth minerals also comes from China in terms of refined and refinery refined refining and the process capacity. So from that perspective, I would say, going back to your earlier point, it really is China's dominance across the entire supply chain combined with the fastest speed of innovation. Now, the kind of over secure the the bigger background of about a lot of this concern is that the over securitization of the issues, the idea that China's innovation capacity, and, in particular, the way that China acquires advanced technology may have the potential to empower the Chinese military. That is the bigger concern from, the from America's military industrial complex.
Zoe:Then finally, I I wanted to mention very quickly in terms of, you know, the the west, the the perhaps the the limits of a lot of this technology restriction restrictions. This is not the first time that China is facing, rising, restrictions. Or from Beijing's point of view, this is they view this as Western Containment. Because if you think about when China was established back in 1949, it was established under extreme international isolation. And guess what?
Zoe:Even in those days, China was able to, develop their own or detonate their own atomic bomb and hydrogen bomb. And that had happened under in extreme international isolation. So there is no there is no reason to believe that China in the current stage of international western, isolation, would not, develop their own, technology.
Markham:There is, the the Xinhua, and I hope I'm pronouncing this correctly. Xinhua News Agency, x I n h u a, for those who are listening. It's, state owned and often has it's almost like the Pravda, of, China, from where I sit anyway. But very often, they run articles which are essentially are it's like they've, you know, been, dictated by the, the Chinese party, the, sorry, the communist party. And the arguments that in response to the US that you've mentioned that China makes are described by this news agency.
Markham:It's a wonderful source. If you wanna know what China thinks, the their, Google will translate them for you, and it's a great insight into the the narrative responses from China. No. No. No.
Markham:This is not global overcapacity. We're doing wonderful things for for global consumers. We're driving down price. We're actually providing more choice than Western Purdue on and on and on. And and you can see the ideological conflict playing out in their in the comments that are coming out of that that news agency.
Markham:And, and I think the point that I wanted to make, in response to your comment was that that the the articles in that in Xinhua talk about how China intends to respond. How it intends to to shift some of its export capacity into emerging economies in Latin America, in Africa, particularly in Asia. And so there is a a very well thought out response to the conflict that's going on, the trade war and the and the political conflict with the United States and, to a lesser extent with Europe. Is is that a fair thing to say?
Zoe:Yeah. I think that is a fair to say in the sense that, yes, you know, Xinhua News Media, it it is a state media, and, it tends to, tell the China story and tell China story well through the Chinese lens. In terms of, you know, the in terms of the argue in terms of the argument of to what extent China is trying to shift its over domestic industrial capacity overseas, I do I do think that, it's a fair statement in the sense that, even if you talk to Chinese scholars, they view, for example, the Belt and Road Initiative as a way to, yes, on the one on the one hand, to sort of help global sales to develop. But then on the other hand, the the the, BRI started in the background of China's 4,000,000,000,000 RMB stimulate in the back in the, during the global financial crisis, which lead to a lot of overcapacity throughout steel, cement, and a and a lot of these sectors. So and, in fact, over the past decades, China has issued the government has issued over a dozen of policy guidelines to set to encourage companies to encourage companies to go out, invest overseas, and especially in the in in terms of their manufacturing capacity.
Zoe:Something new, I would say, in in this time would be that it's not just a government encouragement, but also firms, because of fierce domestic competition, because of the thin margins that drive down, due the the the fierce domestic competition drive down margins, force companies to go out, seek market share overseas, and perhaps try to establish, manufacturing capacity overseas because of rising tariffs?
Markham:You know what? I was trained as a historian actually back in the day, and I remember the 1953 when, the US Marines landed in Guatemala, because the the, Dole Fruit Company, its assets were challenged there. And the the the the US has done of its own version of this after World War 2. This is not an this is not like it. And and prior to that, the the, the British Empire, the interests of the government and the interests of the industrial, the business class, were intertwined, and both worked to further each each other's ambitions.
Markham:And so to see China, China's government, and China's industrial companies working together like this, it shouldn't be a surprise to anybody. This has been going on for centuries. This is how how, you know, big comp big countries operate like this. And so what here's my take on president Biden's recent, tariffs because he brought in a 100% tariffs on Chinese EVs and then lower tariffs on other products like solar panels and batteries and so on. I think if I'm China, I'm saying, okay.
Markham:You know, I'll compete there. I'll go set up a plant in Mexico or maybe we'll even you know, if I'm an EV maker or a battery maker, we'll even set up we'll we'll build plants in the United States. We're fine to do that. We'll we'll compete with you guys. We're we're but go ahead and protect your domestic market.
Markham:Look at all the emerging markets that you're ignoring because you're busy you're busy trying to build up your capacity and build new battery plants and help your domestic manufacturers shift from internal combustion engines over to EV. That's fine. But we're gonna go over we're gonna go over to Brazil. We're gonna go to Thailand. We're gonna go to Turkey.
Markham:We're gonna go to all those places that you are now too preoccupied to worry about those markets, and that's where we're gonna plant our flag. And so I and that largely goes unnoticed. And so I've I'm watching China very, very carefully because I think in a decade, it's gonna look the global landscape around clean energy industry and deployment is gonna look very different than it does today.
Zoe:In many ways, Markham, I I agree with you, especially in terms of the trajectory of China going forward. Yes. You know, you I I've written articles talking about, you know, the difficulties in terms of Chinese domestic economy and the structural, issues. But the the the the, in if we look in terms of, where China fits in the, you know, world going going forward, I do see that, especially on the lower end of on the lower end and relatively cheap clean energy product, that's where we where China can perhaps fit in in terms of providing developing countries who, cannot necessarily afford the top end, product. But going back to your point about Biden's tariff, I would say that perhaps there is a reason for the Biden administration to impose tariff.
Zoe:And I I don't necessarily see the tariff itself is, is so detrimental to US China trade. Part of the reason is because, it's only about 4.2% of US import from China, back in 2,020, 2023. But I think the the problem the the what the the incentive of the tariff really is to protect the future, of EVs and batteries and things like that. Right? So from that point of view, going back to your point about whether China cares about US market, and perhaps China is going to perhaps, you know, China would focus on developing countries.
Zoe:And I would just say for the US market US market is one of the largest market in the world, and perhaps, you know, trading within United States is not really just about selling selling goods to the United States. But also there is the it fits into the broader stream brought broader, relationship. And, for a long period of time, academics, at the least, used to say that countries who democracies don't fight each other, and countries who trade with each other don't fight with each other. The concern that I have for rising protectionism and the west, concerted effort trying to, isolate the China is that I'm afraid, an isolated China would have little to lose. Hence, yet a contentious scenario, they would have, less incentive to deescalate.
Markham:That raises the interesting question of are we headed to a cold war 2.0 where China, Russia, and and their allies are aligned against the, we'll call them the, you know, the west, the the democracies in in in North America and and Europe and maybe Japan and and Korea. And and they're duking it out for industrial and geopolitical supremacy, and the much of the battleground is is in, the emerging economies, the global the global south. Are we headed for a cold war 2.0?
Zoe:Unfortunately, I personally don't I understand why people tend to use the framework of cold cold war, but I personally don't like to use that framework. Part of the reason is because right now, China really is very much integrated into the global economy. And if you think about supply chains, it is literally impossible to cut China off from, you know, any part of the supply chain. It's literally impossible. So from that point of view, this is different from cold war in the sense that, like, if we compare China with the Soviet Union, the Soviet never was, to this extent, integrated to the global economy to the extent that China has.
Zoe:Therefore, I don't think this is a we are heading towards Cold War 2 point o, specifically because the scenario is different. The premises are different. But then, because, you know, like, I think the the English is saying is that generals are always fighting, for the last wars. And, in this particular case, I think the west and in particular, the United States, part of the US, sentiment is that, you know, if we can't win the cold war, we can win this one. But I think there is a you are a historian.
Zoe:You know that there is a huge amount of debate whether it is the Soviet that lost the Cold War or is the US won. So I personally do not necessarily, agree with the Cold War framing.
Markham:I came across an article by, Liza Tobin, who's the senior director of economy at special competitive studies project. And she's important because she served on the National Security Council staff as China director during both the Trump and Biden administrations. But she wrote an article that I thought, was consistent with yours, and the title is China's Brute Force Economics, waking up from the dream of a level playing field. And your article talks about the relationship between the, national policies, but also, you know, at the provincial and the local level as well. It's not just it's not like the Chinese national government sits around and directs companies to do this or to do that.
Markham:There are all sorts of very complex interplays between the national government, provincial governments, local governments, different policies, different state owned entities, how they behave. And you make a point about how the, industrial elite, the, the, the managers, the owners are interwoven with the the party, the the communist party. And how does that all work? Maybe you could just give us an an insight.
Zoe:Yeah. Thank you, Markham, for your careful read of the article. The, the way that I always think about how China differs from, the west is that, you know, investor democracies, you know, again, here in the United States, we are having a campaign. We're having an election year, and it is a very expensive business. In a way, you know, in the west, is money influenced politics, but again, China is the other way around.
Zoe:It is politics influence money. The idea is that, you know, it's really the connection and, rather than rather than, money itself, that influence, where the flow of capital or resource allocation. I will give you one concrete exam or give you two example, since you mentioned the BYD earlier. And BYD is, you know, the now is by a lot of matrixes, perhaps, you know, representing not just China's innovation power, but also, the sheer production force of China that can dominate the world. But guess what?
Zoe:This, there is this institution, and this is public information people can search online. Central Huijin, this institution, this China gov Chinese government owned investment institution, Central Huizin owns about 10% of BYD's publicly floated share. So that's the kind the the level of intricacy there. That's one example. And then the the other example that I want to give is, Ma Yuen, or Jack Ma and, and Alibaba.
Zoe:People all consider him, at least for a long period of time, as China's innovate as China's innovation token or or a innovation a beacon of Chinese innovation that China has a a lot of people want to be be with be like him in China. But the success of Jack Ma is very much linked to state of support as well back in 2014 when Alibaba was able to list on New York Stock Exchange. It at the crucial moment, it received the, capital injection from Chinese, sovereign funds or China Investment Corporation, a consortium led by stadium state led state owned institutional investors. So from that point of view, I do see, you know, the the the interwoven relationship between the business elite and the party state, and in particular, for the channeling of of capital. And fast forward, since president Xi Jinping came to power, he really emphasized this state led investment model.
Zoe:And not just in terms of the Chinese government owned investment institutions, or we can call them sovereign funds. But he wanted to make sure that a lot of these state owned enterprises, they may not necessarily provide produce the best, the top line product, but they are cash rich. So we want to make sure that there is this state led investment model.
Markham:I read a a German study about, China's, clean energy industrial policies, and their their subsidies were deemed to be 2 times to 9 times higher than the western governments were providing for their, you know, battery plants and EV manufacturers. And I don't know why we would be surprised about this because, industrial policy was very popular in the west prior to 1980. And between the the second world war in 1980, we had all sorts of national chap. Hyundai in Korea is a direct result of Korean industrial policies. This same is true in Japan.
Markham:In Canada, we had Nortel, and we had, Bombardier, which a direct result of national industrial policies. Then along came Milton Friedman and Ronald Reagan and and Maggie Thatcher and in Canada, Brian Mulroney, and now we we went to this free market, where government is a facilitator, government is not an in doesn't intervene. It doesn't and and the China has pivoted back to this aggressive industrial policy, very complex. There's lots of support for these various and the west, I'll I'll I I don't talk about the US, which I think is is much more advanced than than Canada, but, someone who I will you know, to protect the guilty, he's an expert in industrial policy, and he was contacted by the Canadian finance department. And they said, we need you to help us tell us you need we need you to contract with you to tell us what industrial policy is.
Markham:We've forgotten how. We don't we don't do it anymore. All the people who used to do it be prior to 1980 retired and and moved out, and now we have all these free market economists. We don't know how to do industrial policy, and it's reflected in Canada's, really, I won't get into the details, but in my opinion, pathetic approach to clean energy industrial policy. The Americans when I look at the, you know, people like Jake Sullivan, I look at Brian Deese, I look at the the academics that are working in this field, is much more advanced.
Markham:Europe is much more advanced around the the development of the the theoretical base and, around industrial policy. And this is where the China and US and Europe are slugging it out, Is the role of industrial poll the role of the state, again, what role does it play in national economies going forward? Is that a useful frame for considering what we're talking about?
Zoe:Markham, I think you you raised my favorite my favorite, intellectual exercise or intellectual struggle, which is the role of, or, state market relations. Right? And you talk it a lot you go you go go back to, to to history, you know, the Reagan market Reagan structure era. And you talked about I find it interesting that you mentioned the lack of industrial policy in in Canada. In a way, I would say, perhaps in the United States, it used to be for a long period of time, at least in Congress, it used to be a taboo to talk about industrial policies.
Zoe:Right? People would be like, this is, like, this is this is blasphemy if you wanted to talk about industrial policy, you know, free market state. But that doesn't you are absolutely right. That doesn't mean, you know, western economists do not know how to do industrial policy. In fact, if we we think about the founding fathers, Alexander Hamilton is a very much industrialist.
Zoe:He's a very much industrial policy person. And, I I I wanted to the way that I try to frame this, I I I I wanted to quote my favorite political economist, Karl Palangi, in his great transformation book. He talked about and I quote him. He said, you know, laissez faire is planned. Planned is not.
Zoe:Right? But this plan is not necessarily in the context of, you know, input, output table, but really is about having a vision, having a strategy. Where do you want this to go? Now if we think about the entire China's reform and open up exercise, I do see it as the role of state in the changing role of state in government the changing role of state in market in the sense that when there was no marketing institution, the state had to come in and build up the institution. But the problem becomes to what extent.
Zoe:Right? To what extent? When you build a lot of these institutions without contemplating the end goal, meaning without the cons contemplating an exit strategy, then the problem becomes you as you build up the as the state constantly build up marketing institutions, you also create a state related institutions and a vested interest. As a result, it becomes, oxilified and hard to, remove the rule of state so that the market can be fully in function. But then again, I don't think anyone of us would want a market to be in full place without the rule of the state, in a sense that, you know, capitalist is prone to crisis.
Zoe:Part of the reason is because the lack of state intervention.
Markham:Mariana Mazzucato, the American, economist, makes this point in her 2016 book about
Zoe:entrepreneurial
Markham:status. Yes. Yes. Yes. And what she says is, and I love quoting this slide, she says, do not listen to what the Americans say.
Markham:Look at what they do. And what they do is, and they've done this for decades, long after 1980 in fact, is that they the government puts a tremendous amount of money into basic science. I mean, this is an area where the US still leads by leaps and bounds, and then it puts money into commercializing. So you take you've got your work in the lab on the bench. Now you wanna commercialize this new technology.
Markham:So the American government will help fund or fund entirely the work that goes into the first demonstration project at a small level. Then it will do the help with the first pilot project, and then it will help, if if needed, scale it up. And it essentially derisks the private sector derisks that new technology until the point where the private sector, all of that capital that flows through Wall Street, looks at it and goes, okay. We're ready. The private sec we're ready to put private, capital into this.
Markham:Now we'll scale this thing up whether it's fracking or whether it's, you know, pick a pick a new technology. And the role of the American government is hidden in all of that free market, rhetoric, that free market narrative. But the American government has been doing this behind the scenes, well, right out in plain sight, to be honest, for for decades. We just don't talk about it that way. And but but Muscado does, and I think that's been a major, contribution to our thinking about this.
Markham:So the Americans are really much more advanced in if they're responding to China than maybe we might have thought.
Zoe:I really enjoy reading, professor Mazukato, and her a lot of her her research is, is fantastic. And the point that you you raised, I I agree. But I wanted to put a foot put a footnote there in the sense that a lot of America's innovation happens within the military industrial complex. If you think about GPS, the Internet, and a lot of the things, it really happens in the in in inside the military industrial complex. Right?
Zoe:And, what what you described is really, about is really fits into the broader category of the role of the state in the different stages of investment, in technologies. For some technology, perhaps without a government without state support or state nurturing, it would simply not happen because it's super risky. And because the nature of investment, the investment landscape these days is really about catering to, not just your monthly or quarterly performance return, but also your shareholders. So from that point of view, I do see the role of the government in, nurturing science and technology and innovation. And in a way, China has been borrowing a playbook from the United States, especially in terms of how the government, finance science and innovation.
Markham:Well, isn't that this is fascinating. The more we talk about this, the more China looks like the US and vice versa. They they
Zoe:You know, you're absolutely right. This is why I sometimes when sometimes I do have difficulty with with with some of my friends saying that, well, US and China are dramatically different ideologically and so on and so forth. But if you ask me, I would say that it they, the experience of China is very much similar to that of the United States in terms of how, companies operate and in terms of, you know, how people appreciate the culture.
Markham:Yeah. That's fascinating. Now let's Zoe, this has been a a a fascinating discussion, that we've been having. And but let's pull pull back just for the the last part of the interview. And where do you see the clean energy part of this?
Markham:Because, of course, that's what, energy media reports primarily on the energy global energy transition. Clean energy, technologies like wind and solar and EVs are at the heart of that. So where how are we to understand the growth of those technologies, over the next decade, especially, you know, given things like the International Energy Agency is talking about peak oil demand in 2030 and tripling of solar and, capacity by by the end of the decade, all of those kinds of things. What role will China play in the energy transition going forward, do you think?
Zoe:To directly under answer your question, I do think that China plays play a problem solving role in the sense that, the in a sense that, the clean energy transition really face a dramatically different problem compared with the existing the traditional hydrocarbon, energy system in the sense that, oil and gas, and hydrocarbon, they are geographically concentrated. So the problem to solve is a distribution problem, how you distribute oil and gas in the global market. But if China steps in, and the China has the has the capacity as well as the technology to solve the reintegration problem in the sense that on the one, you have to generate renewable inner energy individually, yeah, a fragmented market, and then how you try to reintegrate into a national grid. And, actually, China along the entire supply chain, China provide the solution. So that this is where I see China fits in.
Zoe:And if if we are focusing on making this, in energy transition affordable, I I don't see problem with China providing the cheaper product and of good and at at good quality. But the problem becomes, you know, it's really about the geopolitics and national security.
Markham:I wanna make this point, to to tie up our our interview, Zoe. It comes out of conversations with, professor, Doine Farmer, Santa Fe Institute, Mike Andrade, who's a favorite thinker of mine in Canada, who's the CEO of Morgan Solar. And that is, of all the energy transitions we've had over the centuries, this is the first one that is technology led, not commodity led. And once it's a technology led transition, it's a whole different beast. We, you know, Vaclav Smil, if you want to read Vaclav Smil's 50 books, they're entertaining and as an energy transition, you know, as a scholar, he's first rate.
Markham:But those are all commodity led transitions. And that frame is actually a detriment when you start thinking about a technology led transition like this one. It's a different theory. It's different practices, different policies. Everything is completely different about it, and that's why I think China gets it.
Markham:And now they just finished the 3rd plenum. And what did China say? We have three things that we're gonna concentrate on. Solar, batteries, and electric vehicles. That's the new three things.
Markham:It used to be shoes, in fact, and and furniture and appliances, whatever it was. Now it's those three things, and I think China gets it. Do you think China gets it?
Zoe:I do think China gets it in the and the chai Chinese at least, China has a lot has some of the best, engineers and assign and a scientist. But the problem now becomes if the if the if the domestic competition keeps going, because of industrial policies, then fierce competition is going to drive down, profit. And as companies face a thinner and thinner profit margin, and if they wanted to survive the price war, they would have to lower the quality of, the product. So that becomes a that becomes a a systematic challenge to, Chinese industries.
Markham:So the I guess the the way to frame this is, Liza Tobin's concern about, China's brute force economics. What you've just raised is do those brute force economics then break the system?
Zoe:The to what extent it will break the system, I'm not exactly sure because China does have a when China is good at handling crisis for so many for at least from economic and financial point of view. So but to what extent this time is going to be different given that the entire global system and global environment is not necessarily as benign or not as as friendly, to China as it was, when China first joined the the WTO.
Markham:So we've got a good I I I think this the conversation has illustrated the complexity of the issues we're dealing with, in terms of China's role in the energy transition and the geopolitical competition with, the US and and Europe and their allies. Zoe, this has been fascinating. I can't wait to get you back for further conversations in the future. Thank you very much for this.
Zoe:Thank you, Markham, for having me.