Finding ways to help China become more energy efficient and reduce its pollution and greenhouse gas emissions is one of the top energy and environmental priorities in the world. It represents the ultimate win-win opportunity. Success on both fronts would reduce the impact of China's growth on global energy markets and on atmospheric CO2, while improving China's economy and its air quality. GM has just announced a significant step in this direction, with the establishment of a new R&D center near Shanghai, as part of a $250 million investment in the country. The potential Chinese market for hybrid and electric cars and alternative fuels is enormous, though it is not clear whether this will improve GM's profitability in China, rather than merely solidifying their position there.
Shifting China's growing personal transportation sector onto a more sustainable basis as rapidly as possible would benefit everyone. If the technologies involved in the new GM R&D center could be introduced quickly enough, China could end up with one of the world's most efficient vehicle fleets, capitalizing on conditions that form the counterpoint of our situation. Instead of being handicapped by the inertia of an installed base of 250 million vehicles, China is at a sufficiently early stage of growth that its first 100 million cars could still be dominated by hybrids and other advanced technologies. In the process, experience curve effects would flow back to developed countries, reducing the manufacturing costs and improving the reliability of all such cars, everywhere. But as fast as China's car output is growing, this window will begin to close within a few years.
The resulting energy savings from such a shift, relative to the status quo alternative, could amount to several billion barrels of oil over the next 20 years, or a daily volume comparable to the entire US ethanol program in 2007. It would also reduce China's CO2 emissions by at least 1%, or much more if the outcome of this effort were something novel, such as a cheap, bare-bones electric car designed to appeal to the entry-level buyer who currently rides a bicycle.
Pundits such as Tom Friedman of the New York Times have been pointing to the challenge of greening China as a great opportunity for which US industry is well equipped and from which it could benefit enormously. While I see the same opportunity, I'm less convinced of the prospect of translating those benefits to the bottom lines of US companies. "Cleantech" is certainly the new darling of venture capital and other investors--as noted in the Wall Street Journal's special section on Monday--but if it follows a path similar to "high tech", it could turn out that the profits accrue more to the implementation than to the owners of the technology itself: to the equivalent of cellphone service providers, rather than handset makers. Why would cleantech not end up every bit as competitive globally as PCs and other devices have become?
Local factors will come into play, as well. In China you are only as good as your partner. GM has fared well in this regard so far, but there is no guarantee that Shanghai Automotive Industry Corp. or Liuzhoue Wuling Motors Ltd. won't emerge in a decade as major global competitors, armed with GM's latest technology. Depending on GM's fortunes elsewhere, it's not beyond the pale that GM's car business could ultimately go the way of IBM's PC business, which was bought out by its partner, Lenovo.
Improving China's automotive technology will have all sorts of consequences, some self-evidently positive, others less so; some foreseeable, others either unintended or entirely unknown. Despite all that, GM looks wise to steal a march on its competitors in this regard, because the alternative is not just leaving things as they are. The world can't accommodate a half-billion Chinese driving conventional SUVs, and GM's global competitors can't be more than a quarter-step behind them in pouring their best resources into the world's fastest-growing large market for cars.