Place Your Bet On The Future Of Energy: U.S. Or China

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Place Your Bet On The Future Of Energy: U.S. Or China

  • The first eight months of the second Trump administration have seen a sea change in energy policy.

  • Previously, under Biden, the federal government had undertaken a blowout of hundreds of billions of dollars of subsidies and incentives for so-called “renewable” energy sources, while simultaneously implementing dozens of regulations and restrictions to suppress the production and use of fossil fuels. President Trump has now reversed all of that.

  • However, please take note of an important distinction: although Trump and Congress have zeroed out nearly all subsidies and tax credits for wind and solar generation and for grid-scale batteries, they have not enacted comparable subsidies and incentives for fossil fuels. Instead, all sources of energy production now must stand or fall without subsidies, based on their ability to fulfill customer demand and to generate profit. All sources of energy are now on equal footing, and without subsidies.

  • Meanwhile, over in China, billions of dollars in subsidies have flowed for many years into developing the ability to produce the infrastructure for a wind/solar/storage energy system — things like polysilicon, solar panels, solar cells, wind turbine blades, wind turbine nacelles, and battery cells. As a result, China has become completely dominant in the world in manufacturing these and many related items.

  • So who is making the better energy bet?

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The Economic Record Of Socialism -- China

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  • China has proudly proclaimed itself to be a Communist country ever since Mao Zedong came to power in the late 1940s. I understand the term “Communism” in the context of a country like China to mean a socialist (state-directed and controlled) economic system with the additional element of political repression allowing no dissent from official orthodoxy.

  • China’s economic history is a bit more complex than just 75 years of tightly-controlled socialism. Its economy languished (including the usual mass deaths and starvation) for the first 40 or so years of Communist rule.

  • Next, under party leader Deng Xiaoping and successors from the mid-1980s for about 30+ years, China allowed a substantial private economy to emerge and flourish. During those years it experienced rapid economic growth, and in that very short period of time its economy became the second largest in the world after the U.S. (however, more like 70th place if ranked by per capita GDP).

  • Then in 2013, current strongman Xi Jinping came to power. In the most recent decade under Xi’s rule, the political repression has been greatly ramped up, the central planners have reasserted their pre-eminence, and the private economy has been gradually strangled.

  • So how is China faring under its most recent regimen of tightly-controlled socialism, central planning, and state-directed investment?

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So How Are Things Going In China?

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  • How are things going in China?

  • That is a question of great interest to everyone in the world, both inside China and out. Of all countries, China has either the largest or second-largest population (neck and neck with India at about 1.4 billion), and an economy that is a relatively close second to the United States in absolute production (although less than 20% as prosperous on the basis of per capita GDP).

  • China’s economy has clearly grown rapidly since the 1980s, but there is conflicting information as to whether that growth is continuing, or perhaps stalling out. If China is continuing its rapid economic expansion under the increasingly authoritarian regime of Xi Jinping, its enhanced economic strength could pose a growing threat to its Asian neighbors and indeed to the rest of the world.

  • But other information suggests that China’s economy is in grave distress, and that the country has entered into what could be a period of extended contraction and decline.

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Lessons From China On The Planned Economy

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  • It’s hard to learn what’s going on in China, and it’s getting harder. Data series that show anything unfavorable are suppressed or discontinued, and journalists who might write something negative are increasingly unwelcome. But there is every reason to think that China’s forty-year economic boom at the minimum is stalling out, and indeed its economy may be headed for a major crash.

  • The Wall Street Journal has two significant pieces on this subject in the last two days: from yesterday, a long front-page news article with the headline “China’s 40-Year Boom Is Over. What Comes Next?”; and today, a lead editorial “The Electric-Vehicle Bubble Starts to Deflate.” (Both are probably behind the pay wall.).

  • But before discussing those in more detail, let’s review the important background. China’s economy took off in the 1980s when then-leader Deng Xiaoping loosened state controls and allowed a private sector to grow and flourish. Current leader Xi Jinping, who assumed power in 2013, has reversed that policy and increasingly tightened state control and direction of the economy, particularly since his second term began in 2018.

  • Are there any lessons that we in the U.S. and the rest of the West should be learning here?

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