Published March 12, 2014
Publisher's Note: Everyone knows that energy drives global politics – unless something else does that week. As the planet watches Vladimir Putin send masked Russian infantry into Ukraine, the strategists are calculating natural gas supplies, prices, and pipelines to figure out the endgame.
This week, Asia Editor Scott Foster takes a close and detailed look at country plans and hopes in the worlds of sustainability and energy, from vendor to customer, supply source to demand center. While some may find too much detail here, others will delight in their first exposure to who and what are really running things today in Asia, and which other parts of the world are involved.
Whether you are watching China in Turkey, Singapore's lead in Smart Cities, or the Japan-Russia defense pact, all of it ultimately keys off energy, all of it matters, and, in my view, all of it is fascinating and useful. – mra.
Asia Letter, Q2 2014
By Scott Foster
"They don't care about the [Palestinian] issue. They want to talk about three things: Israeli technology, Israeli technology and Israeli technology."
– Israeli government official on the subject of a recent visit
by Chinese politicians. From "Israel: Trading Partners,"
in the Financial Times, January 3, 2014.
Israel's Economy Minister, Naftali Bennett, "is closing Israeli trade missions in Sweden and Finland and opening missions in China, India and Brazil." ( Ibid.)
"Everyone in China has probably heard of me by now."
– Oleg Bakhmatyuk, Ukrainian agricultural magnate,
quoted in the Financial Times, November 5, 2013
"I know Japanese Prime Minister Shinzo Abe and the ruling Liberal Democratic Party are right-wing, and I'm just like any center-left person in Europe or the U.S., but I'm all for Abenomics. That is because the implicit goal of the policy mix is the welfare of the general population. I wish we had something like this in Europe."
– Emmanuel Todd, French historian and demographer;
quoted in the Nikkei, January 26, 2014
Smart Cities: Urban Development Planning in Asia
"Portland demonstrates a true balance of smart urban growth and affordability. We are looking forward to a long-term relationship with Portland's leaders in creating urban models for the future."
– Yasuo Onozawa, President and CEO of Smart City Planning Inc.;
quoted in Sustainable Business Oregon, January 23, 2014
In January, the Portland [Oregon] Development Commission, on behalf of the city's "We Build Green Cities" initiative, signed a Memorandum of Understanding (MOU) with Smart City Planning Inc., a Tokyo-based venture dedicated to environmentally friendly urban development. Led by Mitsui Fudosan (Real Estate), Smart City Planning is a consortium of 25 major Japanese companies plus LG CNS of South Korea and HP Japan.
Under the MOU, a team of We Build Green Cities companies led by ZGF Architects has entered into a contract with Mitsui Fudosan to provide planning and design services for an energy management system in Kashiwa-no-ha Campus City, a smart-city project located northeast of Tokyo on the Tsukuba Express railway line. [Disclosure: Scott's brother is a partner at ZGF. – Ed.]
The plan is to build an energy-efficient, low-carbon academic city and entrepreneurial center focused on healthcare and agriculture, 30 minutes from downtown Tokyo and two stops away from Tsukuba Science City. Smart City Planning is also working with Russian developers in St. Petersburg, Nizhny Novgorod, and Krasnoyarsk.
There are several smart-city projects underway in Japan – the largest and most prominent being in Yokohama, with others in Toyota City, Kyoto, Kitakyushu, and elsewhere. The Yokohama Smart City Project grew out of the need to modernize the city's housing and water, electric power, and transport infrastructure. The Yokohama Partnership of Resources and Technologies (Y-PORT), run by the city's International Technological Cooperation Division, works with local and other Japanese companies on urban renewal projects in India, Indonesia, Vietnam, the Philippines, and other countries in Asia.
Every year, a Smart City Week exhibition and Asia Smart City Conference are held in Yokohama. The exhibition features the products and displays of electronics, construction and engineering, renewable energy, and other private companies, as well as industrial, governmental, and academic institutions, from Japan and around the world. Toshiba, Hitachi, Mitsubishi Electric, and other Japanese electronics and engineering conglomerates are seeking to develop integrated markets for home, commercial building, factory and community energy management, and water, transport, logistics, and IT systems.
In 2013, participants in the Asia Smart City Conference – which is supported by Japan's Ministry of Foreign Affairs, the Ministry of the Environment, and the Japan International Cooperation Agency (JICA) – included the cities of Bangkok, Cebu, Colombo, Da Nang, Dhaka, Hue, Ho Chi Minh, Iskandar, Kandy, Kitakyushu, Makassar, North Sumatra, Seberang Perai, Penang, Phnom Penh, Suva, Ulaanbaatar, Vientiane, Yangon, and Yokohama, plus the Asian Development Bank, the World Resource Institute, and the OECD.
Japan's Ministry of Trade, Economy and Industry (METI) sees smart cities as a way to help Japanese corporations develop new markets overseas. It defines a "smart community" as a "new concept of urban development with a … combination of smart grids, renewable energy, urban transportation, water treatment, recycling, information and communication technology and other environmental and system technology where Japan has an advantage." In a publication entitled "Launching International Feasibility Studies on the 'Smart Community' Concept," METI notes that:
Strong promotion of overseas development of infrastructure and systems through public-private cooperation will enable Japan to contribute to environmental issues in Asia and other emerging countries during their rapid growth, and further, throughout the world in general. At the same time, it is an extremely important approach in Japan's industrial strategy.
The Nikkei BP Clean Tech Institute has a more limited definition of the smart-city market, which includes smart grids, solar, wind and other renewable energy, storage batteries, next-generation vehicles, EV chargers, and IT systems – but not water, waste disposal, roads, railways, airports, or other basic infrastructure. It estimates that smart-city–related demand will grow from hardly worth mentioning in 2010 to a cumulative total of more than US$40 trillion by 2030. Based on a study of 100 smart-city projects (out of more than 300 worldwide), Nikkei BP forecasts that America, Europe, China, and Asia ex-China will each account for about 20% of the total value.
With its attractive, clean, and well-ordered urban development, traffic control, and efficient water management system, Singapore probably ranks as the "smartest" major city in Asia. The Singapore Sustainability Alliance (SSA), a "smart community made up of government agencies, industry verticals, business chambers and NGO partners as well as Singapore-based companies and academic institutions and research centres," aims to "develop Singapore into a leading regional and global hub of sustainability solutions and adoption of sustainable business practices, with robust capabilities across clean energy, environment & water, built environment, urban mobility, green IT as well as urban planning."
The Sustainable Development Business Group of the Singapore Business Federation serves as the SSA's secretariat. Founding members include the Singapore Economic Development Board, the Sustainable Energy Association of Singapore, the Waste Management & Recycling Association of Singapore, and the Singapore Water Association. Areas of expertise include clean energy and energy efficiency, environmental management, green IT, sustainable manufacturing, sustainable supply chain and logistics, sustainable water solutions, waste management and recycling, and sustainable business practices.
Sino-Singapore Tianjin Eco-City is the second joint urban development project conducted by the governments of Singapore and China. (The Suzhou Industrial Park was the first.) Beginning with a Framework Agreement in 2007, it aims to build a Singapore-like city of 350,000 people by 2020. Its goals are to build a city that is commercially viable, affordable, compact, and environmentally sustainable, with business parks and services located near residential areas to shorten commutes (land use planning); emphasis on public transport, bicycles, walking, and separation of motorized and non-motorized traffic (transport planning); and parks, other greenery, and bodies of water in and around the city (green and blue network planning). As stated on the Master Plan website: "The green network will comprise a green lung at the core of the Eco-city and green-relief eco-corridors emanating from the lung to the other parts of the Eco-city."
"IE Singapore [International Enterprise Singapore, formerly the Singapore Trade Development Board] is involved in the Tianjin Eco-city project as part of its wider mandate to grow Singapore's external economy and supporting the overseas growth of Singapore-based companies," states Tianjin Eco-City's homepage. But the project is not exclusive.
Hitachi, the Japanese electrical and industrial conglomerate, is developing the city's smart grid, home energy systems, electric-vehicle charging system, and other environmentally friendly urban infrastructure. Hitachi is also participating in the Sino-Singapore Guangzhou Knowledge City project, with plans to establish a Smart City R&D Center to promote its energy management, renewable energy, transportation, and other relevant technologies.
Unfortunately, all this effort is being suffocated by the world-leading air pollution created by the Chinese government's national economic policy. China's air pollution – now darkening the sky in Seoul, a problem in Japan, and measurable even in Portland – has reached the point where smog can be seen and masks should be worn inside China's new high-speed railway cars when travelling through the countryside.
In the cities, air pollution is making life almost unbearable. On top of that, in its World Cancer Report, the International Agency for Research on Cancer of the WHO estimates that China leads the world in prevalence of lung, esophageal, liver, and stomach cancers, and may add 1 million new cases of lung cancer per year by 2525. Perhaps by then, government measures to reduce air, water, and soil pollution – and smoking – will have had some effect, and the idea of Chinese "eco-cities" will not be simply a sad joke.
Dr. Martin Murphy, founder of the nonprofit organization CEO Roundtable on Cancer-China, notes that while there is no "irrefutable evidence" linking air pollution and the prevalence of lung cancer, "we have strong evidence that if you smoke and breathe polluted air, the likelihood of developing cancer is a degree of magnitude greater" ( The Wall Street Journal, March 10, 2014).
With time, the smart-city concept is likely to spread all over Asia, creating large opportunities for private design and engineering firms in the context of government and public-private planning. Fortunately, the American example attracting attention in Asia is Portland, not Detroit.
[Sources: Smart City Planning Inc.; Sustainable Business Oregon; Portland Development Commission; ZGF Architects; City of Yokohama; Toshiba; Hitachi; Japan Smart City Portal; Japan Ministry of Trade, Economy and Industry (METI); Nikkei; The Wall Street Journal; Government of Singapore; Sustainability Singapore Alliance; International Cleantech Network; WHO.]
Environmental Social Governance: Why Not?
"China and the United States will work together ... to collaborate through enhanced policy dialogue, including the sharing of information regarding their respective post-2020 plans to limit greenhouse gas emissions."
– "U.S.-China Joint Statement on Policy Change"
(Reuters, February 15, 2014)
"This is a unique, cooperative effort between China and the United States and we have hopes that it will help to set an example for global leadership and global seriousness on the issue of next year's climate negotiation.
"China and the United States will put an extra effort into exchanging information and discussing policies that will help both of us to be able to develop and lead on the standards that need to be announced next year for the global climate change agreement," Kerry said.
– US Secretary of State John Kerry (Reuters, February 15, 2014)
In other words, while efforts to reduce the emission of greenhouse gases and toxic industrial pollutants in Europe, the United States, Japan, Australia, and elsewhere are being negated – or more than negated – by emissions in China, India, and other "developing" countries [developing into what?], the Americans and Chinese governments have committed themselves to talking about the problem in a friendly manner.
"… [S]tandards … need to be announced," of course, but if and when they are agreed upon, will they be enforced? At present, the issue is being dealt with in accordance with the Chinese principle of non-interference in the affairs of other countries. Will the new standards be as effective as the laws against theft of intellectual property?
When I was working as a sustainability analyst at a major international investment bank (which shut the research down after a couple years because there was no money in it), our calculations of the environmental impact of corporate activities included both publicly traded companies and their supply chains. A company that outsources production to China, for example, may be very clean at home but have a very dirty supply chain. If that parent company were taxed in accordance with the environmental impact of its global supply chain, incentives to pollute would be reduced and incentives to bring jobs back to countries with adequate environmental regulation would be increased.
"We will declare war against pollution and fight it with the same determination we battled poverty."
– Chinese Prime Minister Li Keqiang, speaking to
the National People's Congress, March 5, 2014
However, in addition to declaring war on pollution, the government of China is also targeting 7.5% GDP growth and a 12% increase in military spending. A good Maoist might see a "contradiction" in this list of priorities. In 2013, "only three of the 74 cities monitored by China's own environmental authorities measured up in terms of air quality…" ( The Wall Street Journal, March 9, 2014).
Meanwhile, Indonesia is on fire again due to slash-and-burn agricultural practices used by palm oil and paper & pulp plantations. The smoke has closed schools and airports, caused respiratory problems for thousands of people on Sumatra, and made life unpleasant in Singapore and Malaysia. The situation is bad enough – and the pressure from Singapore and Malaysia strong enough – that a majority of the Indonesian parliament, heretofore more interested in defending national sovereignty, has agreed to ratify the ASEAN Agreement on Transboundary Haze Pollution.
[Sources: Reuters, AFP, The Wall Street Journal, Eco-business.com, Nikkei.]
Turkey and East Asia
Turkey is on a campaign to diversify its trade and sources of foreign investment away from the European Union. The share of Turkish exports going to the EU dropped from 58% in 2003 to 39% in 2013, while the share going to the Middle East rose from 11% to 28%, and the share going to Asia-Pacific rose from 2% to 7%.
Trade with China increased by more than eight times during the same period. Obviously, given the size of the East Asia economies, that is where the greatest potential for further growth lies; and that is where the Turkish government has been focusing its efforts. A Free Trade Agreement with South Korea took effect in May 2013, and FTA and/or economic cooperation agreements are being discussed with India, Thailand, Malaysia, Singapore, Indonesia, and Japan.
The Turkish government is also looking to East Asia for investment, technology, and participation in infrastructure projects, so far with great success. Test runs on the Ankara-Istanbul high-speed railway, built by China Railway Construction Corp., began in January. Last October, Japanese Prime Minister Abe attended the opening ceremony for Bosphorus Strait Railway Tunnel, which was built by Japanese general contractor Taisei.
Japanese engineering company IHI is building what will be the world's fourth-longest suspension bridge, across Izmit Bay on the new highway between Istanbul and Izmir – and renovating the first and second Bosphorus bridges, which it built 40 and 25 years ago, respectively. South Korean companies Hyundai Engineering and Construction and SK Engineering and Construction are building the third Bosphorus bridge. SK Engineering and Construction is also leading the Bosphorus roadway tunnel project, which is the largest overseas project undertaken by a South Korean company since Colonel Gaddafi's Great Man-Made River project in Libya.
On the industrial side, Mitsubishi Heavy Industries (MHI) of Japan and Areva of France have been chosen to build Turkey's second nuclear power plant. (Rosatom and ZAO Atomstroyexport of Russia were selected to build the first.) Mitsubishi Electric won an order to supply Turkey with two communications satellites, in part due to its willingness to transfer technology (which Alcatel and Lockheed Martin were reportedly reluctant to do).
Last September, Turkey chose China Precision Machinery Import and Export Corp. (CPMIEC) to supply it with a new missile defense system. This annoyed NATO – and not only because CPMIEC has violated US economic sanctions against Iran, Syria, and North Korea. Turkey now says no final decision has been made and that it would prefer a supplier from a NATO country – provided it would accept joint production in Turkey and the transfer of technology.
Turkey is developing a new battle tank with South Korea, but wants to power it with engines from Japan's MHI. Turkey is also interested in working with Japanese companies on other military equipment and technology projects. The Abe government is facilitating this by easing restrictions on arms exports.
Japan and Russia
Prime Minister Abe and President Putin have met five times over the past year. They have lots to talk about: Japanese investment in Russia (natural resources, auto production, medical equipment and services, other industrial projects), Russian oil and gas shipments to Japan, joint military exercises and security issues, and confidence-building measures aimed at signing a permanent peace treaty ending WWII. First things last. It is a formality, but a formality that both sides say is important. (The Soviet-Japanese Joint Declaration of 1956 ended hostilities between the two countries.) Last November, Japanese Foreign Minister Fumio Kishida mentioned a "new page for Japan-Russia cooperation in security and defense." [Who might this be aimed at?]
A peace treaty means a deal settling the dispute over the southern Kuril Islands – occupied by the Soviet Union at the end of the war – which Japan calls its Northern Territories. In 1956, the Soviet Union proposed returning the smaller islands (Shikotan and the Habomai islets) while keeping the larger islands of Kunashir (Kunashiri) and Iturup (Etorofu). Japan accepted the deal, but the US blocked it by threatening to keep Okinawa.
Since then, Japan has claimed all four islands. Russia is again offering to return two. Particularly after his well-publicized visit to Yasukuni Shrine (the Chinese and Koreans howled with indignation; the Russians apparently didn't care), Abe may have the conservative credentials required to compromise. Or maybe the issue will again be kicked into the future, with both sides smiling and talking about progress being made.
In any case, economic deals are coming one after another. President Putin plans to visit Japan next autumn. If he's not too busy.
China and Ukraine
Last year, a $3 billion contract with China made Ukraine the world's third-largest exporter of corn after the US and Brazil, and helped make China Ukraine's second-largest trading partner. The corn deal came after shipments from the US were rejected due to contamination with genetically modified corn not approved by the Chinese government.
Ukrainian efforts to promote agricultural trade with China are being led by Mr. Oleg Bakhmatyuk, founder and CEO of UkrLandFarming, the largest agricultural producer in Ukraine and one of the largest in the world. In addition to corn, UkrLandFarming is a major producer of wheat, barley, sugar beets, beef, dairy products, and eggs. Mr. Bakhmatyuk recently negotiated export and investment deals with China's state grains trading company, private Chinese companies, the Singapore investment company Temasek, and Cargill, which has taken a 5% stake in UkrLandFarming.
[Sources: Republic of Turkey Ministry of Economy; China.org; The Korea Economic Daily; Nikkei, Reuters, the BBC, Financial Times, Agrimoney, Farm Plus, UkrLandFarming, Taisei, IHI; MHI; "50 Years from San Francisco: Re-Examining the Peace Treaty and Japan's Territorial Problems," by Kimie Hara, in Pacific Affairs, Autumn 2001.]
Chinese Agricultural Imports: Abandoning Self-Sufficiency
The Chinese government has been forced to abandon Chairman Mao's and the Communist Party's goal of agricultural self-sufficiency. A richer population able to afford a better diet, large-scale migration to the cities, urban sprawl, and the degradation of soil and water resources are all contributing to the development of a new and more rational policy based on better use of agricultural resources, modernization of agricultural technology, and an increase in imports, particularly of grains. Major beneficiaries should include Australia, Canada, the United States, and Ukraine. China is already the world's largest importer of soybeans, and its imports of rice and corn are hitting record levels.
New Chinese agricultural policy guidelines announced in February aim to stabilize grain production at a level 9% below the 2013 harvest and "pay more attention to food safety and quality." Due to the factors mentioned above, the former target is questionable, while the latter is an urgent necessity.
Last summer, the Guangzhou Food and Drug Administration announced that nearly one-half of the rice samples it had taken from restaurants and cafeterias contained cadmium in excess of government limits. Other examples of food contaminated by industrial waste, agricultural chemicals, and polluted irrigation water are almost too numerous to count. One Chinese blogger wrote: "Now before every meal must we all first wonder: Does this rice have too much cadmium? Are the vegetables laced with pesticide?" Anonymous Chinese sources mentioned in international press reports estimate that as much as 70% of China's agricultural land may be contaminated. This, in turn, suggests that the Chinese government's policy of promoting domestic production of vegetables and fruits may have limited success.
[Sources: Reuters, The New York Times, Tencent, Financial Times, Farm Plus, US Department of Agriculture.]
Fukushima: The Problem That Won't Go Away
"Risks posed by the heavily contaminated water at the Fukushima Daiichi nuclear power plant will be minimal in about seven years if the current water-processing equipment operates as planned."
– Conclusion of a Japanese government expert panel,
reported in Nikkei, December 4, 2013
Just as the Japanese Olympic athletes entered the stadium at the opening ceremony of the Winter Olympics in Sochi, a message appeared on television screens in Japan: "Earthquake in Fukushima, No Tsunami Expected."
There have been several small earthquakes off the coast of Fukushima recently – none big enough to cause serious damage, but all reminders of a problem that won't be going away anytime soon. Fortunately, there have been no reports of disruption to the work of moving the spent fuel rods from the storage pool in the damaged No. 4 reactor building to a presumably safer pool about 100 meters away. This job, which is being done by crane, is likely to take until the end of this year. The entire process of decommissioning is expected to take 30 to 40 years.
Public-opinion polls in Japan consistently show a majority of respondents in favor of abandoning nuclear power altogether, but gradually, in a managed process that takes into account the nation's financial difficulties (electric power companies near bankruptcy, large national debt), trade and current account deficits caused by fossil fuel imports, and the small contribution of renewables to the energy mix (an estimated 12% to 13%, of which about 9% is hydro-electric).
Elections – for the National Diet, the Tokyo assembly, and, most recently, Governor of Tokyo – have been a let-down for single-issue anti-nuclear candidates. On February 7, Tokyo voters gave Masuzoe Yoichi, a former Health Minister who supports Prime Minster Abe's plan to restart nuclear reactors, 2.1 million votes. Utsunomiya Kenji – a lawyer backed by the Communist Party who campaigned on a broad platform of social issues, as well as opposition to nuclear power – and former Prime Minister Hosokawa Morihiro, who aimed to turn the governorship into a platform to oppose nuclear power nationwide, received just under 1 million votes each, with Utsunomiya slightly ahead.
General Tamogami Toshio, former Chief-of-Staff of the Air Force and prominent right-wing nationalist, received just over 600,000 votes. Polls showed nuclear and other energy issues ranking third in importance in the minds of voters, after health & welfare and the economy & employment.
Meanwhile, all of Japan's 54 nuclear power plants have been shut down for inspections and surveys by geologists to determine whether or not there are any active faults nearby. This is a useful exercise, but the fact remains that the entire Japanese archipelago can be regarded as an active fault zone. Nevertheless, if nuclear power plants are not turned back on, Japanese consumers, who have already seen their electric power rates go up by 15%, could lose even more of their disposable income; electric power companies could require a hugely expensive bailout; and Prime Minister Abe's financial and economic revitalization policies might fail.
In February, a draft of the Japanese government's new Basic Energy Plan was made public. It refers to nuclear power as an "important base-load electricity source" and does not include the previous plan's commitment to eliminate nuclear power completely over time.
Following the completion of safety inspections, the restart of several reactors seems likely to begin this year.
[Sources: Japanese press and TV news; Japanese Ministry of Economy, Trade and Industry (METI); The Wall Street Journal.]
About the Author
Scott Foster is a research analyst and writer who has worked for American and European investment banks in Japan and Korea for more than 25 years. He is currently a partner at TAP Japan, an investment consultancy in Tokyo; and an alliance partner at Translink, a global corporate finance advisory headquartered in Europe.
Scott holds a BA from Stanford University (1976) and an MA from the Johns Hopkins University School of Advanced International Studies (1982).
I would like to thank Scott Foster for taking the personal time to create this detailed review of the intersection of trade, policy, and cultural issues and differences in Asia, focused on energy.
I also want to thank Sally Anderson for putting all of these thoughts into perfect shape.
Your comments are always welcome.
Mark R. Anderson