Can China Afford its Belligerence?

A US arms deal with Taiwan doesn't seem like an issue that should affect green business in Asia, but it well could, and perhaps it ought to. China has been threatening the United States with retaliation over its US$6 billion defense package, including Patriot anti-missile systems, helicopters and advanced communications equipment, cutting off bilateral military contacts and threatening to sanction US defense firms.

But while China has been the beneficiary of the heretofore soft American approach, it has hardly played a full game of diplomatic give and take. Indeed, China has shown no compunction about supplying arms to outlaw states like North Korea and Somalia, if Somalia could be said to exist as a country.

But the question is who needs whom more. In terms of clean technology, for instance, China has been reliant on all other nations opening their doors to its companies. It has been reliant on the US stock exchange where its leading solar and wind manufacturers have sought to list. It has needed technology from foreign developers and cash from foreign private equity funds. It is the largest recipient of Clean Development Mechanism funds globally while remaining the world's largest polluter.

And the single biggest boost to Chinese hopes in this area has been the US market. Of the green technology in Washington's US$787 billion economic stimulus package, Chinese companies have won sizeable chunks of these benefits, while the US taxpayer has watched as US solar and wind turbine companies have gone to the wall or shifted production to China.

Most recently Danish company Vestas has announced the building of the world's biggest wind turbine manufacturing site in northeastern China. Less than a year ago it closed the only wind turbine manufacturing plant in the UK.

China's official rhetoric is often for the consumption of its own people. It stood by the free trade mantra, loudly haranguing the US for "Buy American" provisions' in its stimulus package, but then enacted a "Buy China" policy in its own. As the recession developed last year, so did the rhetoric of superiority and while China will overtake the US as the world's major economy some time, it hasn't done so yet.

There is a certain amount of pragmatism underlying the rocket rattling. Complaints about US arms supplies to Taiwan have been going on for decades while on the other hand business and political relations with Taiwan have continued to improve. In the weeks before the current spat, Taiwan's Council For Economic Planning And Development gave a thumbs up to an idea offered by consultancy McKinsey & Co that suggested that the United States and China, as the top two largest energy users, importers and polluters, should jointly develop electric vehicles, photovoltaic and carbon capture and storage (CCS) devices. It regarded Taiwan's industry of photovoltaic and electric car parts manufacturers as having a need and responsibility of joining the big two.

At the CommonWealth Economic Forum in Taipei, C S Kiang, Sustainable Development Technology Foundation chairman and founding dean of the College of Environmental Sciences at Peking University , called on Taiwan to participate with both the US and China in developing green technologies, along with numerous other speakers that called for greater co-operation between Taiwan and China.

It is not hard to imagine that US-policy makers and companies are seeing little benefit from any growing relationship with China. In spite of the gentle Obama approach, his visit to China yielded little but humiliation, whether in university meetings with specially picked audiences or being sidelined from meetings. China has been less than helpful in talking with North Korea or Iran on their nuclear plans. It has repeatedly been caught hacking US government computer systems. It did little to help finalize an agreement at Copenhagen and has refused to revalue the renminbi, resulting in a US$2.5 trillion reserve so huge that it has trouble digesting it..

China has been making business difficult for foreign firms and trumpeting its ability to show two fingers to everyone not Chinese. At the same Forum in Taipei, Jack Ma, chairman of Alibaba, an internet company, took great delight in telling the audience that he hadn't heard from Yahoo! since Alibaba criticized its US shareholder as "reckless" in supporting the position adopted by Google in China. The traditional idea of "face" apparently does not apply to non-Chinese.

Foreign firms are increasingly pointing to the fact that China can develop its clean technology cheaply because Chinese companies can deliver without cumbersome regulations and complaints from citizens at the building of new projects, and the availability of cheap state loans targeted at what Beijing considers pillar industries.

And all this happens in the week that New Horizon Capital, a fund operated by Wen Yungsong, the son of Prime Minister Wen Jiabao, expects to finish raising its third US dollar denominated fund, part of which will invest in 'new energy'. Its first two funds raised about US$600 million, the majority of which came from overseas companies. There is little doubt that this largest of funds will expect to derive huge inflows of foreign investment.

For anyone who has visited China or done business there, it is apparent that it's rarely a fair playing field for a foreigner. But both people and companies put up with a lot of trouble because that's the price you pay for big opportunities. On the other hand there are only so many snubs and insults people take, especially from a country, which in spite of its ultimate economic promise, still has its hand out looking for favors.

If China is spoiling for a trade fight that begins with retaliation against US defense firms, the west is in a considerably stronger position than a country, whose reliance on foreign markets, technology and investment remains substantial – and with 700 million poverty-stricken peasants in the countryside, depending on 10 percent average annual growth to keep them from getting too restive.

Gerry O'Kane appears in Asian Correspondent and blogs at http://asiancorrespondent.com/green-business-blog