China and Plastic Bags–Another Chip on the Table

Credit Suisse and the author, Henry Mo, have given me permission to paste some of Henry’s remarks on his recent visit to China in our blog. Dr. Mo is a member of the well regarded CS economics team based in New York. The observations he makes reinforce a view expressed earlier in this blog, that China, for many reasons, will be an active participant in the reduction of carbon usage.  The risk to the US is that China will make reductions that the US appears incapable of making and will leapfrog the US technologically, if and when it chooses.  We are getting many wake-up calls but seem to keep pushing that snooze button. Please read Henry’s remarks and go back and read “China and Electric Cars—The Stakes Have Been Raised.”

“I have visited China periodically over the past few years and have observed palpable buoyancy in the country every time. My recent trip is no exception, and the impression is even stronger with China being one of the few major economies that will likely expand this year. However, what impressed me the most this time was not the beautiful skyscrapers in Lu Jia Zui Financial Center in Shanghai, nor the stunningly gorgeous Olympic stadiums in Beijing, but the improvement in soft infrastructure, especially related to environment protection.

My first impression is the ban of super-thin plastic bags, introduced on June 1, 2008 to protect the environment and cut waste. Under the rules, the state forbade the production of ultra-thin plastic bags and banned supermarkets, shops, and open markets from supplying free bags to customers. Obviously, persuading 1.3 billion people to give up plastic bags is not an easy job. Equally, any success would make a big difference in protecting the environment when multiplied on a China scale.

One year after the ban, I observed a lot of changes in consumer behavior. Many shoppers now carry their own bags. Not being aware of this policy, I had to buy plastic bags at my first shopping trip during this visit. To save money, I brought bags with me when I went shopping next time. According to a survey released on May 20 by the China Chain Store and Franchise Association, plastic bags used in supermarkets have been reduced by 66% nationwide since the ban.

This means that about 40 billion plastic bags have been saved, or the equivalent of 1.6 million tons of petroleum. It is well known that the Chinese government is very good at building hard infrastructure, such as roads, airports, ports, etc. It strikes me that the government is equally efficient at building soft infrastructure, if it chooses and is willing to do so.

Despite the fact that all three cities that I visited still have massive construction sites, especially Shanghai, who will host the World Expo next year, I could smell the improvement in air quality. To be sure, air quality is still poor by western standards, but it has been better since my last visit. I also observed more blue sky and less smog, and noted that there were more “green zones” and rivers reserved or built among the newly constructed office and community buildings. 

In Beijing, the air quality improvement is also due to driving restrictions adopted for the Olympics and further extended after the Games.  To curb emissions from transport, cars are now banned from metro roads one day per working week, depending on the last digit of their license plates. From a micro point of view, the number plate-based measure may not be efficient, as it takes 930,000 of Beijing’s 3.6 million cars off the roads on a daily basis. But it is effective on a macro level. Indeed, daily emissions have been reduced by 10% since the ban, according to the China Daily. It has also been reported in the press that the city will ban all non-green vehicles from the city centre beginning in June. 

In Chengdu, the capital city of the Sichuan province in southwestern China, the air quality improvement appeared to be significant since my last visit in late 2007. As per my conversations with local officials, the primary reason for the improvement is that Chengdu has placed more emphasis on balancing environmental concerns with development after being selected by the Central government as one of the two pilot reform cities to deliver coordinated rural and urban development in June 2007 (the other city is Chongqing, also located in southwestern China). In addition, the wide use of CNG (compressed natural gas), an alternative energy that is virtually emission-free, also contributes to the improvement in air quality. It has been reported in the press that almost all taxis and buses, plus an increasing number of private cars are now using CNG as fuel. In addition to being environment friendly, CNG costs less than half the price of petrol, as a local taxi driver told me.

While China has made some progress in environment protection, there is still a long way to go for China to improve its soft infrastructure, such as legal, regulatory, and financial system, etc. The economic payoffs from building up soft infrastructure may not show up in the GDP figures in the short term, but will be reflected in the long-run growth, as well as the quality of growth, and eventually lead to more sustainable growth.”  Henry Mo

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About Jack Rivkin

Jack Rivkin retired in 2008 as EVP, CIO, Head of Private Asset Management of Neuberger Berman(NB) and from NB's Executive Management Committee. He was also on the Lehman(LB) Council on Climate Change(CC) and the NB CC Fund Advisory Board. He has been engaged with the United Nations and other entities on policy issues related to Private Capital and CC. He is an Associate Fellow of the Asia Society. He has continued on the NB Mutual Fund Board and with his CC responsibilities. He began his investment career in 68 as an analyst at Mitchell Hutchins(MH), and became Director of Research(DOR) there. After Paine Webber(PW) acquired MH, he served as DOR; CFO of PW; CEO of PWMH-the equity trading and investment arm of PW; Chmn of MH Asset Management and President of PW Capital. 87-92 he was DOR and, subsequently, Head of the Worldwide Equities Division of LB. 93-95, he served as a Vice Chairman and DOR at Smith Barney (now Citigroup). He was an EVP with Citigroup Investments 94-01, responsible for private equity investments. He was also an adjunct professor at Columbia University teaching a course in Security Analysis. He joined NB in 2002. He is the co-author of “Risk & Reward—Venture Capital and the Making of America’s Great Industries,” Random House, 1987. He is a regular guest on various media. He is the principal subject in a series of Harvard Business School cases describing his experience as DOR and Equity Head at LB. He has served as a director of a number of private companies and the NYSSA. He is currently a director of Idealab, Dale Carnegie, Operative, World Policy Institute and other private companies. He is a member of the Economic Club of NY, the Anglers Club, Theodore Gordon Fly Fishers, and a lifetime member of Trout Unlimited. He continues to be an active private equity investor when he isn’t fly fishing. Mr. Rivkin earned his Professional Engineering degree from the Colorado School of Mines and his MBA from the Harvard Business School

2 thoughts on “China and Plastic Bags–Another Chip on the Table

  1. China has a “command economy.” As a result, if the central government wants to implement an environmental standard or rule, it gets done. In the U.S., with the many government agencies (i.e., federal, state and local) sometimes working at cross purposes, it is more difficult and time consuming to get standards or rules implemented. In addition, since most environmental expenditures are “unhappy expenditures” on the part of the violating entity, it is difficult and time-consuming to coerce such spending. Finally, despite publicity, legislation, rules, standards and agencies, the actual spending requires enforcement at the local, state or federal level. Enforcement requires significant funding, and often even government agencies are unable to get the dollars they need to staff and enforce compliance with new standards and rules. The comparison of China’s activity in the environmental arena with the same activity in the U.S. is truly comparing apples and oranges.

    • You are right, Bill. It is apples and oranges relative to how the two countries can get things done. That won’t be a very good excuse when China owns all the intellectual property for the “Green Century.” We have so many tools at our disposal. Maybe HR 2454 is a step in the right direction. There are elements that are just another farm subsidy bill, but it is a step in the right direction. Let’s see what the Senate does.

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