Modern China: Financial Cooperation for Solving Sustainability Challenges
Cary Krosinsky
264 pages, Palgrave Macmillan, 2020
Modern China provides an on-the-ground perspective of what’s happening in China today on the back of its recent economic rise, its desire to solve environmental challenges, and the new positive dynamic for change created by China’s need for foreign capital. Financial cooperation between China and the West has the potential to help solve global societal challenges such as inequality and climate change. Successful transformations that help foster a sustainable future are only possible when countries collaborate and are economically vibrant, and the book provides recommendations on how to best take this forward including ways to create stronger relationships for the purpose of resolving present-day tensions.
The book also highlights how China has recaptured its previous role as an innovating nation, something the country excelled at when creating things like gunpowder and the printing press as part of an overview of its complex, sometimes chaotic five-thousand-year history. China’s recent rise also includes having become a global leader on the development of green finance mechanisms and policies. With an increased focus on infrastructure, education, health care, and varying aspects of clean energy technology, many investment opportunities are emerging across private equity, venture capital, and fixed income with case studies of success highlighted in the book. All of this creates an opportunity for positive change, and with China’s environmental challenges having become clear to its own people, a dynamic has unfolded placing pressure on the government to provide meaningful solutions. China changes faster than any country in the world, creating an opportunity for ongoing, positive transitions that would benefit from further encouragement. Modern China is a call for just this sort of increased cooperation, making a clear, cogent case for collaboration through trusted relationships placed front and center for the future of global economic vibrancy and the betterment of global society. — Cary Krosinsky
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Asia is something like half of the world’s economy, home to over two thirds of the world’s largest cities and China is the dominant player in the region. The Financial Times recently declared without hesitation that “the Asian Century is set to begin.” Few doubts remain that this will come to pass, with China likely to become only more influential on the back of its recent economic rise over the past forty years. The implications of this present-day balance between East and West may not sink in quickly and is often viewed in a competitive light.
It would be easy then for a tremendous opportunity to be lost, the possibility for renewed cooperation and the potential power for combined inspiration and innovation to help solve the world’s most significant environmental, social and economic challenges.
Although global politicians at times avoid these challenges, or actively set policy courses directly away from what is necessary, within the scientific community the imperative to take action is clear as is the global mandate before us all and that is:
If we really care about solving the global climate change challenge before us all, the need to cooperate with China is the new imperative of our times. It’s impossible to see a way forward where we successfully solve for climate change, let alone many of the other more pressing societal issues of the day without China’s direct engagement and involvement.
None of this will be easy, but it’s time to get on with what we need to do together to achieve a necessary low carbon future.
The need to help Asia with its low carbon transition becomes even clearer when you consider that China uses half of the world’s coal, and that coal represents roughly 40 percent of the global carbon footprint and that Asia’s carbon emissions will become something like 50 percent of the global total as soon as 2030.
In developing countries, transitions away from coal are particularly challenging. ASEAN countries such as Indonesia have understandable societal demands from its poorer populations making it particularly difficult financially to convert away from the cheapest energy sources. This dynamic makes a full, global, low carbon transition even harder to achieve at necessary pace and scale, and it is therefore of the essence that this receives more focus, specific planning and coordination. Rather than ignoring this, we need to dive in and find a way together.
The essential transition needs to become fully implemented globally across financial and economic systems, implemented specifically in the form of lower carbon transportation, more efficient industrial processes, buildings and waste streams and especially through the increased generation of electricity from lower carbon sources, as well as the implementation of sustainable agriculture techniques and related innovations while also minimizing deforestation.
This sort of systemic approach turns out to also be the best way forward for regional economic success, especially for countries that choose to lead the way on developing new technologies that enable this transition and on this front the race is on and no country has arguably been as all in on this transition as China.
There are other present-day economic realities where more cooperation would be helpful including as regards levels of slavery which continue to be embedded at unacceptable levels within supply chains of large companies producing much of what we globally consume.
Economically suffering US farmers have also been unable to sell easily into Chinese markets during the recent trade war. Such Chinese markets include what is now the world’s largest middle class willing to pay more for food they can trust.
Sitting on the outside and complaining about problems or exacerbating tensions isn’t nearly as effective as building trusted relationships and working together to find mutually beneficial solutions and better economic conditions.
The race is also on as pertains to the creation of all sorts of new, enabling technologies such as 5G and 6G to follow, fintech, as well as blockchain, battery storage, new forms of energy and even carbon capture and sequestration, and there are also opportunities for more creative methods such as involves open global innovation and the creation and use of new materials.
The death of traditional industries such as the newspaper and music industries are likely just harbingers of what is to follow more generally across automobile and truck manufacturing, within shipping, and as regards methods of production of consumer goods and the continuing use of plastics.
Perhaps more than anything, we need more people who want this transition to occur, and maybe hardest of all will be changing the ongoing decisions of the average person. People make up roughly two thirds of the global footprint when you consider choices of transportation, regional energy mixes and the ongoing consumption of food and goods.
The average voter in many countries decides who sets or doesn’t set supportive policies which can make or break the speed of the necessary transition. Especially in the United States, the collective voice of individual investors and voters in aggregate is a critical determining factor in this regard.
The good news is that in China, none of this is an issue.
The Chinese government is on the hook to deliver better results to justify its keeping control, and therefore wants and arguably needs to meet the increasing demands of its middle class, including the air, food and water quality conditions often taken for granted in more developed parts of the world.
Helping China with its successful transition becomes a necessary paradigm for making global progress on climate change and can also become an important case study for the world to learn from. Any alternative scenario makes solving the global climate challenge that much harder and that much less likely to achieve.
Consumption in the West, outsourced over time to China and Asia more generally, is also at least partly responsible for the local environmental degradation which has resulted as a side effect, so we bear some responsibility for ensuring this all gets resolved.
Fortunately, consumer tastes are also starting to change with companies such as Tesla and Beyond Meat emerging as chic and financially successful, specifically due to their being seen as providing better solutions to transportation needs and the production of food respectively, as specifically connects to the necessary transition.
The global unicorns of the future may well be those which help establish better sustainability and financial outcomes at the same time, creating a positive dynamic for investors who increasingly want to be seen as enabling better societal outcomes and not miss out on the next big trend, and this is a global opportunity for investors and entrepreneurs, and a key component of the new cooperation paradigm.
In fact, a lack of cooperation may be one of the only ways we won’t succeed at achieving the necessary transition and this can’t be stressed strongly enough, none of this will be possible without economic vibrancy.
We also need governments to create and keep in place the right policies that help support necessary action on lowering carbon emissions. Instead, increasingly nationalist governments are being voted into office and are turning away from climate action at a time when it is needed the most. Such voting results have arguably been due to a lack of good jobs and a general sense of feeling threatened by modernity, not only as experienced in recent UK and US elections, but also manifesting at times in otherwise primarily progressive countries as has been seen with the “Gilet Jaunes” movement in France, and German political dynamic have increasingly slowed their climate response. This is also important in China, a country which actually does listen to its citizens, adopts, learns and changes arguably faster than any country in the world, but China can’t act on its own.
The sustainable transition then needs to be explained more clearly as to how it will specifically benefit the average person and their families everywhere versus the alternative which will be worse for everyone.
It is essential to understand that China will only accelerate on the necessary transition if it itself is economically vibrant; otherwise things will not move forward at the pace that is in effect globally required.
Business school case studies are rife with examples of companies which innovated but didn’t combine that innovation with the necessary business model to successfully achieve scale for the implementation of solutions. Similarly, countries won’t have the financial well-being to fully transform without economic vibrancy, the sort of conditions which allow for investing with confidence at necessary scale.
China as a case study of transition success would allow the country to help transform Asia’s other economies, providing an example others can learn from. It is also our contention that if you have concerns about any of China’s behavior, more success at driving positive change will come by welcoming China into a community of cooperative nations, and even better, becoming an ongoing investor who can make reasonable demands for your capital rather than by isolating China and making it defensive and more likely to generate worse reactions internally.
Trapped by existing debt, China in fact now pretty much requires foreign capital to enable its own sustainable transition, creating an important vector for positive change through the parallel establishment of minimum standards such as the NY State Common Retirement Fund have committed to developing recently for example. Environmental and social covenants on investment can relate to minimum standards as part of increasing methods for performing reliable and thorough due diligence across asset class.
In this way, developed country investors can help China’s transition, and once successful, other developing countries can then transition as well, learning from the China example, allowing them to compete, innovate and thrive.
There is almost certainly no other way out of the climate crisis in front of us, and we will suggest best ways forward for investors and others interested in solving these challenges of our time in the recommendations and case studies to follow.
It’s also important to truly understand China, including its five-thousand-year history, and while there’s endless detail that can be covered on this, our book provides a perspective on how China’s thinking and ethos have come to be what it is and there is much that makes a lot more sense once you take a walk in China’s shoes.
Something most also don’t realize is that China has not typically started or participated in world wars, has not done so for a long time and doesn’t appear to have particular ambition for that sort of activity, but does understandably demand respect. China has long wanted to protect its borders and its sovereignty and to keep from falling into the sort of chaos the country has experienced many times throughout its history, let alone times not that long ago when it was being overrun by foreigners. The Great Wall is just one piece of ancient evidence of this.
China does however have an innate sociology that builds trusted circles and relationships and through gaining trust can come the potential for mutual success potentially at a very high level and this is what is needed now at scale to solve societal challenges.
China is also extremely transformative and entrepreneurial and learns quickly when it makes a mistake. If we care to solve climate change, those of us in the West have to be much less locally minded and myopic and think more holistically on a global basis. We all need to recognize that this something of a left brain/right brain sort of thing, whereby Asia is half the possibility, and arguably more than half of the potential from a transformation potential perspective. This is an entrepreneurial moment, and a moment to involve as many people and countries as possible to successfully and fully transform all of global society.
This really does need to be an all-in movement; one that leaves no one stone unturned in the search for economic systems which can best thrive in what will otherwise be a climate challenged future. How do we get there?
Let’s see if this book can least help lead the way a bit towards establishing common goals and pathways forward for us to achieve what we need to do together.
The West isolating China and making it the enemy only makes this transition harder and less likely to occur, reducing the opportunity for successful global transformation.
The time to come together and cooperate for global success is now, and we likely won’t get another chance.