It might seem odd to speak of China's economy as green when the country is far and away the world's largest producer and consumer of coal, but there is no question that Beijing is combining industrial and environmental policies in a way that is more radical than most, if not all, Western governments.
Moreover, given the sheer size of the Chinese economy, these policies are having -- and will continue to have -- huge impacts on commodity markets worldwide.
When China decides to act, it acts big. As a state-directed economy, the allocation of capital is often inefficient, creating bad debts, which are unlikely ever to be repaid, but to Beijing the ends appear to justify the means, and the outcomes are impressive.
Take for example the expansion of its refinery capacity, which grew from 5.4 million b/d in 2000 to 14.1 million b/d in 2016; China's massive coal plant capacity, where utilization rates are now below 50%; its production of solar panels; its deployment of wind and solar; and now its output of electric vehicles.
Its latest industrial endeavor has been the conversion of coal-fired heating in northern provinces to gas-fired heating. This program, known as the "2+26 cities program", resulted in millions of residential and commercial coal-to-gas conversions in the space of less than a year, resulting in a surge in Chinese LNG imports as demand for gas outstrips the domestic network's ability to supply it.
This has been a key factor behind the rise in spot LNG prices in the Asia-Pacific region to their highest levels since November 2014, adding a permanent new element of seasonal volatility to LNG markets worldwide, not to mention the impact it is sure to have on Chinese coal prices and imports.
However, it is Beijing's headlong rush into EVs that is perhaps its most ambitious policy and, in particular, its development of electric heavy-duty vehicles. This is a seemingly ideal policy that simultaneously addresses a number of key policy priorities, as its addresses the pernicious issue of urban air quality, overall greenhouse gas emissions and China's dependence on oil imports, all while offering domestic jobs and huge export potential. It is a policy worth throwing money at.
Again, China does not take small steps. The city of Shenzhen was on target to have completely electrified its city bus fleet of more than 14,000 by the end of last year. The number of e-HDVs in China is now estimated at around 500,000, mainly buses, while the rest of the world counts theirs in the hundreds. These e-HDVs displace over twice as much road transport fuel as the entire world fleet of light duty EVs, which now numbers more than 3 million.
These e-HDVs would not be produced without the huge subsidies provided by all tiers of government, subsidies which are simply too rich for a market economy.
China seems to be taking the same path as it did for its solar industry. Build volume at huge cost on the back of a subsidized domestic market and then release that overcapacity on to the world market. Then, as prices fall, rationalize, write off debt and consolidate what it hopes will be a significant share of the world car market, based on electricity rather than oil.
The only downside -- but a potentially a disastrous one -- is the sustainability of the bad debt built up by the inefficient allocation of capital. Otherwise, China is on a path to being the world's primary reaper of the "green dividend", as it displaces imported oil with domestically-generated electricity and capitalizes on a low-carbon economy based not on the import and export of energy commodities -- where it is weak -- but on the added-value of manufactured equipment, where it is strong.