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Millennium Post

China, the Smart State

In Urumqi, capital of north west China's Xinjiang province, visitors are met with a routine greeting, 'Ours is a black, white and red economy.' This strange mix of coal, milk and tomato production gives Xinjiang its paradigm along with a quintessential Chinese trait that equates economy with identity.

From the vast grasslands of the north to the industrial clusters of the prosperous south, the romance of China can be experienced only through the periscope of its meticulous planning. Rabindranath Tagore, during his visit to the country in the mid-1920s, was mesmerised by the sight of laboring Chinese workers at Hong Kong port. In an essay on his China travels, the poet notes, that the country will rule the world in future, 'for here is a people whose labour reflects rhythm, dedication and perfect co-ordination.' Not only is China's labor force disciplined, it upgrades with an alacrity that is truly exceptional. Only here is it possible for a shoe unit labourer to train himself to be an electronics factory worker within a span of 10 years. And for Chinese policy-makers to shift gears from turbo-charged manufacturing to an economic model driven by sustainability.

Xinjiang, more infamous around the world for ethnic unrest than industry, is in fact a greenhouse for China's experiments with ‘circular economy.’ In his book, A Global Redesign: Shaping the circular economy, writer Felix Preston argues that reusing resources makes good business sense and it is possible to put a value on circular economy - in which waste from one product is used in another. If China succeeds in converting this no-waste circular economy concept into a large-scale profitable model, there are some lessons to be learnt from its top-down approach – implemented as of now through its state-owned enterprises or SOEs.

One of the first batch of companies in China to carry out the circular economy mission was Xinjiang Tianye Group, a state-run chemical company, born as recently as 1996. Listed in Shanghai and Hong Kong, Tianye, with its plants and headquarters near Urumqi, is a crucial lynchpin in China's 50-year plan to achieve sustainability. Its mercurial leader, 65-year-old Chairman Guo, who quite unsurprisingly holds a Communist Party post, is all passion when he talks of converting a highly polluting chemical industry into a beacon of renewable resource.

Tianye takes full advantage of the province's abundant coal, salt and limestone resources to produce power, caustic soda, cement, PVC, fertilisers, soy milk and tomatoes – integrating the province’s obsession for ‘black, white and red economy’ with its vast recycling blueprint. The company uses coal from its own reserves to run its power plants and calcium carbide from its limestone quarries for PVC production. From the carbide slag, it goes on to produce cement and works an advanced water management system to feed the massive agricultural lands under its supervision. Using products from its own plastic processing units, Tianye manufactures innovative agricultural film, equipment and fittings that promote drip irrigation. The icing on the top, as employees proudly point out, are the 30,000 tons of annual tomato production and truckloads of soy protein milk.


50 YEAR VISION


Xinjiang Tianye’s experimental crucible is important for a country that is trying to come to terms with its heavily polluting industrial past. China’s rapid industrialisation in the last decades has engendered serious problems of depletion of natural resources, degradation of major ecosystems and pollution extending far beyond its borders. Since this model of development is now considered unsustainable, and resources are simply not available to provide its aspirational population with Western standards of consumption, the challenge for planners is to work out an alternative that enables employment, while ensuring social and political stability.

China has ambitious development targets - by 2050 a larger population of 1.8 billion people is expected to earn a minimum monthly income of USD 1300 and at least 80 percent of the country will be urbanised. To meet these demands and restore the health of ecosystems, the only option is for a ‘circular economy’ model to work efficiently. Both state owned and private enterprises have a role to play, but China’s policy-makers know that the biggest steps need to be taken by the state companies, who have the deepest pockets and long-term commitment to sustainability.


SMART PLAYERS

Often viewed as relics of a failed Soviet-style economic experiment, controlling all resources and vital sectors, China’s state companies do not fit into any of the stereotypes. Economists define a Chinese state-owned company as one of the 150 or so corporations that report directly to the central government. Thousands more fall into a grey area, including subsidiaries of these 150 corporations, companies owned by provincial and municipal governments, and companies that have been partially privatised yet retain the state as a majority or influential shareholder. For instance, the oil company China National Offshore Oil Corporation and the Chinese utility State Grid Corporation of China are clearly state-owned enterprises. But computer maker Lenovo and the appliance giant Haier are less clear-cut cases, in which the state is the dominant shareholder.

Now, as China's economy matures and companies make aggressive acquisitions abroad, the line between state-sector and corporate entities has blurred considerably. SOEs no longer enjoy excessive patronage and cheap credit line in an effort to make them compete globally. Also, between 1994 to 2005, at least 3,658 state companies were allowed to fail in rigorous restructuring exercises. Over the past decade, tens of millions of workers have been laid off by state-owned companies striving to become leaner organisations.

Contrary to popular perception, SOEs enjoy a good deal of operational freedom. It is common for them to freely sell physical assets such as hospitals and school buildings, that do not contribute to core business, for a profit on the open market. In fact, the government’s intricate involvement in society gives China’s state-owned enterprises freer rein to deal with tough issues.
 
The transition from a ‘black’ to ‘green’ economy will not be simple in a country like China. But in order to achieve this turnaround in an almost overnight manner, the country has what it takes – state capitalism of the smart kind.

Suranjana Roy Bhattacharya is a freelance journalist based in Shanghai.
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