Chethana Janith, Jadetimes Staff
C. Janith is a Jadetimes news reporter covering science and geopolitics.
The Chinese government has been taking action to bolster domestic demand as it faces potential economic threats from the re-election of US President Donald Trump, who has threatened 60 per cent tariffs on Chinese products. A 'Global South Green Development Plan' or Green Marshall Plan could leverage China's industry leadership in green energy sectors to provide both technology and funding in order to facilitate the energy transition in the Global South, while simultaneously stabilising China's own economy.
China’s economic growth has been under downward pressure for both cyclical and structural reasons. In late September 2024, the Chinese government began to take decisive action to boost aggregate demand, and has also been promoting what it calls ‘quality productive forces’ in order to nurture new drivers of economic growth.
But the re-election of Donald Trump has cast another shadow over the Chinese economy. Trump’s campaign featured threats of placing 60 percent tariffs on Chinese products and imposing other measures to decouple from China.
There are at least three policy options that China can contemplate in responding to Trump 2.0.
The first, which is almost a consensus view, is that the government should significantly step up policy stimulus to build domestic demand ahead of the expected external shocks. The second, which is more controversial, argues that the best policy strategy for China is to maintain a free trade policy instead of retaliation in the face of renewed protectionism. And the third, which I have proposed, is that China should devise the ‘Global South Green Development Plan’ (GSGDP) to support the energy transition in the Global South and to help stabilise the Chinese economy.
Combating climate change is a global cause. While developed nations have contributed the majority of aggregate carbon emissions over time, emissions by developing nations have increased rapidly in recent years. Successful global green development depends critically on progress made in the Global South, which unfortunately lacks the necessary funding and technology. According to a United Nations study, developing countries have an annual shortfall of US$1.75 trillion in investment for the energy transition.
At the recent COP29 summit, developed nations failed to commit a satisfactory amount of public funding to support developing countries. To make matters worse, the new Trump administration will likely pull out from the Paris Agreement once again.
At the ‘The Bretton Woods System @80’ conference held in late May 2024 in Hangzhou, China, I proposed that China devise the GSGDP - or what’s been called a Green Marshall Plan - to step up its contribution.
During the past few decade, China has emerged as an industry leader in green energy sectors, especially electric vehicles, lithium batteries, wind turbines and solar panels. It is also recognised internationally for its commitment to green development. Its vast supplies and low cost of green energy products are valuable resources for the world’s energy transition. Just like the United States’ Marshall Plan after the Second World War, China can help green development in the Global South by providing both technological assistance and financial support.
The proposed GSGDP could achieve two immediate goals. One is to facilitate the Global South’s energy transition. While developed nations currently lack both the willingness and capability to lead global green development, China has advanced technology and vast production capacity that can help. The other is to stabilise China’s domestic economy. The United States and European Union are raising barriers against Chinese green energy products entering their markets. This could exacerbate China’s domestic overcapacity problem and weaken economic growth if China cannot find new markets for its green energy products.
In late August 2024, former director of US President Joe Biden’s National Economic Council Brian Deese published ‘The Case for a Clean Energy Marshall Plan’. While the initiative he suggests should be welcomed worldwide, the United States does not have obvious advantages in technology and products to shift the dial on the energy transition compared with China. With Trump becoming the next US president, Deese’s proposal is likely to be shelved for at least four years.
The Chinese government is somewhat reluctant to step forward and play a global leadership role in green development. China has a strong preference to remain part of the community of developing countries. This reluctance probably also reflects the government’s concern that it might be pushed to over-commit on both emission reduction and financing. But China already leads on both fronts. And additional commitments should be both manageable and beneficial.
It is clear that China alone cannot accomplish the mission of global green development. But China can play a vital role in mobilising global resources for this cause by working with other countries, particularly European countries, and international organisations such as the World Bank and the International Monetary Fund in mobilising climate finance.
Funding will need to be a hybrid package consisting of commercial investment, policy lending and government aid. Overall, the global green development program should be commercially viable - the cheap green energy products produced by China make this goal achievable. In addition to aid provided by governments, especially those of developed nations, national policy banks and multinational institutions should also provide low-interest long-term lending to countries in the Global South. Where possible, governments should facilitate market-based investment to support the energy transition.
If properly designed and executed, with international backing, the Green Marshall Plan could play a significant role well beyond supporting global green development and Chinese economic growth. It could serve as a vital pillar of the multilateral free trade and investment regime. China could also take this opportunity to reform its domestic industrial policy by pushing ahead with market-oriented reforms.
China and other countries with a strong interest in free trade and green development should work together to ensure an open international economic system for green energy products and beyond.
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