Future historians may look at the early 21st Century as the time when China and India emerged as the third and fourth of the great continental powers of the post–Second World War era. The first two are of course the U.S.A and Soviet (and to a lesser extent, post-Soviet) Russia. What made these powers great was their ability to project a more or less homogeneous economic, cultural, and political order onto a physical area that spanned a continent, or at least a good part of one.
Of the first two, America has of course so far been the more successful. Most observers would say that this is because America’s government, while closely involved with the economic life of the country, has a healthier relationship with the economy than Russia’s does. Actors in the American economy are, collectively, able to take fuller advantage than their Russian counterparts of the economic efficiencies possible under a more or less homogeneous economic, cultural, and political order spanning a large physical land mass.
China’s government, though a one-party dictatorship similar to that of Soviet Russia, appears to have in the last three decades achieved a realignment of the nexus of politics and economy which allows economic activity to flourish. Under the Soviets such activity was regarded as a political threat; China’s current leaders appear unthreatened by it. (I’ll deal with India in an upcoming post.)
Regardless of precisely how this state of affairs has come about, China’s internal market is about to turn into an economic force unprecedented in human history. China appears to have recognized how decisive internal-market efficiencies can be, and its economic actors are more or less free to operate in the biggest internal market in history.
To get an idea of just how China’s internal market is booming, consider this. According to a 2009 World Bank report, half a billion Chinese came out of poverty between 1981 and 2004—that’s billion, with a b. “Came out of poverty” means capable now of consuming the economic output of others to a greater degree than before 1981.
That period, 1981–2004, coincided with the greatest rural electrification drive in history. According to researchers at Stanford University, electricity has been introduced to over 900 million rural Chinese since 1950. Though China’s communist government began bringing electricity to rural areas in 1950, the period since 1981 has seen the real progress. In 1981, 98 out of every 100 rural Chinese households did not have a washing machine; 999 out of every thousand did not have a refrigerator. The corresponding figures for 2004 were three out of five and four out of five. That is enormous progress.
Electrification, above all, is the factor that defines rural China’s initial rise from poverty. Without electricity, those 900 million rural Chinese would still be living in pre-industrial conditions.
Of course, we cannot say that the half billion who came out of poverty are now rich. By western standards they are still very poor. Average rural household electricity consumption was 127 kilowatt-hours in 2004; in Canada, an average home uses more than 700 kWh per month. To repeat: three out of five rural Chinese households did not have a washing machine in 2004; four out of five did not have a refrigerator. There is still a long way to go.
That ought to give an idea of the magnitude of the economic expansion that is now occuring in China. It is actually in its early to middle stages. If you make basic electric appliances, you are looking at a growth market that simply dwarfs all others.
The same goes for makers of nuclear reactors. China did not get this far, and will not complete its historic electrification drive, by pursuing a policy of expensive electricity. By far most power in China comes from coal-fired generators. Coal is cheap. According to the Stanford researchers, 1.8 trillion of the 2.2 trillion kilowatt-hours China generated in 2004 came from coal-fired plants. The rest came from hydro and nuclear. That is no different from anywhere else. As I showed in “Ontario nuclear power subsidizes gas and renewables,” those three generation types are by far the cheapest where I live (Ontario, Canada).
When the other three out of five rural Chinese households finally get washing machines and refrigerators, what will power these appliances? According to Brian Wang of Next Big Future, China plans to add 120,000 megawatts of new nuclear generating capacity by 2020. That plan is already in motion as I write this. Last Friday, I had the pleasure of participating in a conference call with Jacques Besnainou, the head of Areva North America. He recently visited the Taishan site, where two 1,650 megawatt Areva EPRs are being built. (When I and some fellow pro-nuclear bloggers visited Areva’s heavy components plant in Dijon last summer, we saw the pressure vessel for one of the Taishan units.)
Besnainou pointed out that the Taishan EPRs are ahead of schedule and that the Chinese customer, the China Guangdong Nuclear Power Holding Co., is thinking of adding two more reactors of similar size at the same site. He added that those two additional reactors could well be EPRs. And if you’re the CGNPC, why not—two subsequent EPRs would apply lessons learned in building Taishan units 1 and 2, which have already benefited from the lessons learned at Olkiluoto in Finland and Flammanville in Normandy.
Besnainou also pointed out the centrality of cheap power to the Chinese economic phenomenon. That will give China a double advantage in world export markets: it has both cheap labour and cheap power. In North America, labour costs are high, he said, “and that’s good, because it gives workers here an excellent standard of living.” But North American energy doesn’t have to be expensive.
I agree totally. The problem is, we in North America are embarking on deliberate policies of expensive energy. I have pointed out the situation in Ontario, where the government plans to spend real money to add wind and gas generation into our electricity system, in spite of the fact that these are ruinously expensive.
Well, throw in the factor of a Chinese economic behemoth rising, and consider that that behemoth is fueled with cheap electricity and cheap labour. How will that affect Ontario’s competitive economic position in the world? As Jacques Besnainou said, we cannot and should not compete with China by lowering our labour costs. Which means we must not increase our energy costs.
But that is exactly what we are doing. Because we are deliberately raising electricity costs, it is inevitable that North American workers will see declining wages. That is because, in the industries in which they compete, the Chinese will be eating our lunch.
Just yesterday, CBC reported that the Canadian federal cabinet will approve the Mackenzie Valley Pipeline, which, if it gets built, will bring natural gas from the Canadian arctic down to southern markets. The feds are all about natural gas: they agree entirely with Ontario’s Gas First electricity policy. Gas industry lobbyists and professional “environmentalists” will point to the Mackenzie Valley Pipeline as proof of long-term gas supply, and say that Ontario has nothing to fear by pursuing its gas-first strategy.
But the pipeline won’t be built until the price of gas goes up to where it was before the recession: i.e., to over $6 or $7 per million Btu. That means Ontario gas-fired power will cost more than the 17 cents per kWh it costs today. We could and should be getting more electricity from nuclear plants, which produce power at less than 6 cents per kWh.
With that decision, the feds have virtually ensured China will start eating our lunch soon, and keep eating it for the foreseeable future. The same historians who identify the early 21st century as the time of China’s astonishing rise will find it remarkable that western governments deliberately pursued energy policies that undercut their own economies.