Silicon Hutong

Why Land Reform is a Tech Opportunity

In the Hutong

There's something about a high-fiber snack...

16:23 hrs.

In the flurry of news about plans to reform land use in China, much of the coverages focuses on the new potential for Chinese farmers to either pay to farm the land of others, or to indeed expand their own plots by renting more land, thus building scale and offering the greater potential for profit. I think a lot of people noted this, and after checking to ensure that neither Monsanto, John Deere, nor DuPont was in their stock portfolio, dutifully forgot it.

There is, however, more to this story.

Not Your Father's Land Reform

While the idea of land reform gets folks in the agriculture business dreaming about China's vast farmlands changing from a patchwork of tiny plots to a more orderly quilt of massive farms, that dream is both unlikely and overrated. The omnivorous Tom Barnett notes an important point Callum MacLeod makes in his article in USA Today:

"China is the opposite of the USA, which has an abundance of capital and land. In China, labor is abundant, but it is short of land and rural capital, [said Li PIng, of the Seattle-based Rural Development Institute.]

In short, don't count on Hebei starting to look like the upper San Joaquin Valley anytime soon.

But let's take a closer look at Li's point.

• China has abundant labor. Yes, and that is not likely to go away soon, massive urbanization notwithstanding. America has under 6 million people living and working on farms. China has around 700 million. You could literally cut China's farm population by 90% and still have too many farmers to replicate the efficiencies of U.S. farms.

• China is short of land. Yes, and that is not likely to change anytime soon, either, unless China plans to invade and cultivate the Siberian steppes. Whether taken as a ratio of land under cultivation to the total national land mass, or as a ration of arable land to population, Chinese agriculture is land-deficient.

• China is short of rural capital. Yes, it is now. This, however, unlike the previous two conditions, can change. And therein lies the real opportunity behind China's land reform.

AgriBusiness with Chinese Characteristics

Regardless of how much you change China's agricultural land use rights, you're always going to have too many people cultivating too little land, which means that the future of Chinese agriculture is not about vast wheat fields or free-range beef ranching. You have to find another model.

At the most basic level, this means that China's farms will find prosperity with crops that demand a great deal of human attention, and that will capture market prices that will allow farmers to compensate their workers accordingly. But more labor working fewer valuable plants is only half of the answer. There is a shortage of water available to farmers in a growing proportion of the country. Air pollution, soil degraded by poor irrigation practices, and lousy infrastructure still hamper the industry.

At the same time, consumer demand for higher value farm products means that for most farmers their real opportunities lie with crops they are not accustomed to cultivating. With some exceptions, China's successful farmer of the future will be a small- or medium-sized agribusiness focusing on high-value cash crops or horticulture (flowers and foliage.)

So when Li Ping talks about rural capital, we need to think beyond cash: China's farmers also need equipment to address environmental and infrastructure challenges, as well as the know-how to get the most out of whatever size plots of land they can cobble together under land reform. Which, in turn, means that land reform is the first step to liberating the value of Chinese farmland, rather than the last.

Chinese AgTech

I would love to say that technology is a panacea that will clear up all of these challenges, but if I did, I'd be wrong. Nonetheless, there is a growing range of opportunities for technology to help turn the more entrepreneurial of China's farmers into agribusinessmen. Just a few of these include:

* Drip irrigation: China's shortage of fresh water is already bad, and it is going to get worse. Chinese farms will only be sustainable if they use exactly as much water (and fertilizer, and nutrients) as they need, and no more. Drip irrigation is the best, most practical solution today. As aeroponic techniques develop beyond space travel and dorm-room cultivation of cannabis sattiva, they may eventually supplement drip irrigation, but likely only for specialized applications.

* Greenhouses and Nurseries: beyond the vagaries of pests and weather, the challenges of China's environment is likely to drive the production of cash crops - not just flowers - into greenhouses. We see a lot of this around major cities and in centers like Kunming, but expect this to expand. This involves more than just covered farmlands: it also means temperature monitors and controls, irrigation systems, air-quality management systems, and harvesting.

* mAgriculture: few Chinese farmers can afford laptops, but many more can afford mobile phones to monitor their crops, the weather, and market prices, as well as to take orders, capture opportunities to sell at higher prices, and make payments on supplies and micro-loans. Farmers will need inexpensive yet rugged and waterproof handsets with large buttons, long battery life, and possibly even solar charging capability. They will also need easy-to-use service bundles to include information access and mobile banking.

* Training: there is just no way to get millions of farmers into schools. Raising skill levels in new crops, new tools, and agricultural economics is going to involve a combination of traditional low-tech methods and some experimental efforts in using remote training via satellite TV and possibly the Internet.

* Finance: once you have the land, you need the cash to develop it and to finance your first crop. Traditional methods of agricultural banking in China, including banks and farm co-operatives, won't be enough. Micro-finance, in all of its forms, can be most economically administered using technology. That doesn't mean a computer on every farm, but it does mean loan officers in rural areas equipped with at least hand-helds to help manage payments and collections.

These only touch the surface, and there will be specific opportunities around specialized crops, but you get the point. As we slide gently into global recession, technology firms have an opportunity with Chinese land reform to begin developing - or at least researching - how to deliver products to help solve some of the challenges implicit in China's next green revolution.

Cough Cough, Bang Bang

Starbucks Pacific Century Plaza

Noticeably fewer locals, noticeably more visitors

1355 hrs.

Recreational pyrotechnics are as integral a part of Chinese holidays as gratuitous gifting, constant partying, and excessive drinking. Catastrophic factory accidents and an annual toll of those killed and wounded by fireworks have driven the government to occasional fits of regulation. Each time, however, regulators back off, responding either to a general backlash or to implicit pressure from the massive cottage industry that has grown up around fireworks in China.

Officials now have another reason to rethink fireworks: air quality.

Oooh, Pretty colors...(wheeze)...

In a July 4th article in the Los Angeles Times, Marla Cone notes:

Scientists in India found that airborne barium increased by a factor of 1,000 after a huge fireworks

display there. Strontium, which creates red, and copper, which forms a blue hue, can also be toxic.

"The use of heavy metals like barium or strontium should be reduced or, if possible, avoided," said

Karina Tarantik, a chemist at the University of Munich in Germany whose lab is working on cleaner

pyrotechnics.

Much of the new research has been propelled by concern over perchlorate, which has been used since

the 1930s to provide oxygen for pyrotechnic explosions.

Perchlorate, which has contaminated many drinking water supplies from military and aerospace

operations, can impair the function of the thyroid gland by blocking the intake of iodide. Fetuses are

most at risk, because thyroid hormones regulate their growth.

Because of legal restrictions on the sale and use of fireworks - not to mention some understandable paranoia about wildfires - Los Angeles on July 4 cannot compare with any Chinese city on a national holiday. Nonetheless, the Southern California Air Quality Management District (AQMD) notes that on July 4 particulate levels in L.A. increase 100-fold and do not return to normal levels for nearly 24 hours.

One wonders what a similar measurement would render in Chinese cities, especially in the winter months when weather seems to trap particulates in a layer near the ground.

A Technology Solution

The article explains how one heavy user of fireworks, Disneyland, has turned to the Los Alamos National Laboratory for help in developing cleaner fireworks. With some experimentation, the lead materials chemists took an "entrepreneurial leave" from the lab to found DMD Systems and produce the cleaner fireworks. Voila. Cleaner fireworks for about the same cost as other US-made fireworks.

Of course, these are much more expensive than the Chinese-made types, which are well on their way to being branded "dirty" fireworks.

The entire issue points up another opportunity for China's domestic innovation efforts. If a tiny US company can come up with fireworks that produce mostly water, nitrogen, and carbon dioxide, there is no reason that China cannot turn its efforts to finding a substitute for its gunpowder-based pyrotechnics. I would bet that a determined effort could do better than DMD Systems.

That would help preserve a robust export industry (98% of consumer fireworks and 80% of professional fireworks used in the US are made in China), but it would also head off the growing issue of fireworks and air pollution in China. Yes, I know, there is an emotional attachment to using gunpowder because, after all, that was a Chinese invention.

But it is time for China to re-invent gunpowder. A billion sets of lungs depend on it.

Responsa: E-Waste, Some Interesting Processes

Jingshun Road
Watching all of the workers return from holiday
1518 hrs.

Spenser left a comment on an earlier Hutong post about processes that are being developed for managing the growing piles of discarded electronics and computers.

I mentioned in the note that China's rust belt northeast would be a logical place to seed China's own recycling/demanufacturing/remanufacturing and other environment-related sectors.

Spenser correctly noted that it would be silly - and wasteful - to set up such facilities in China and ship our waste there.

He's right, so I should clarify my point.

No way should America move its e-waste to China - the idea is to recycle the e-waste near source, then transport the resulting raw materials to wherever they should go. This ensures the best use of energy in the process, and also keeps third-world countries from getting the impression (correct or not) that we are exporting our garbage to them. Doing so tends to piss off the natives and trash our global relationships. (No pun intended.)

At the same time, I am profoundly aware of the NIMBY factor in all of this, and the possibility that a highly motivated group of people in the US or Europe could discover some implicit dangers (real, speculative, or imagined) to having such processing take place in one's neighborhood. If that happens, electronics recycling will wind up someplace else.

Naturally, this would be a shame, not only because it would waste energy and turn other countries into our garbage dumps, but because such activity could be far better regulated in the US, and location in developed economies would not only drive innovation in process, it would ensure the fastest diffusion of those innovations through the recycling industry.

(Indeed, I think this will be a driver for manufacturers toward "design-for-recycling" and "design-for-remanufacture.)

All of that said, I still see recycling, demanufacturing, and remanufacturing as major potential industries for Asia generally and China specifically, if for no other reason than Asia is a major consumer of electronics in its own right, thus a growing source of e-waste. As the pile of discarded mobile phones, computers, televisions, and the like expands here, the case to process it grows as well.

After all, nobody wants to see containers of Asian e-waste landing at U.S. ports, either, now do they?

Crosspost - Lies, Damned Lies, and Green Marketing

In the Hutong 
Watching the CNY exodus 
1817 hrs.

While we're on the topic of the environment, if you are getting tired of companies - or competitors - making unsupportable environmental claims about their products, you'll love the green paper "The 'Six Sins of Greenwashing" over at the website of environmental marketing consultants TerraChoice.

Anyone want to translate this into Chinese?

Cross-post: Olympic Skies

In the Hutong 
Playing with my new iPod Touch 
1420 hrs.

Over at The New York Times, Jim Yardley, Joseph Kahn, Keith Bradsher, and David Barboza are ten articles into a periodic series entitled "Choking on Growth," covering how China is responding to its environmental challenges. The most recent is Jim's piece dealing with the challenges of cleaning up Beijing's air for the Olympics and beyond. The real challenge, Yardley notes, is the long-term problem.

Read the full series, including:

• The superb if depressing overview article;

• Jim's look at China's silent and immense water supply problem;

• Joseph Kahn's excellent coverage of the saga of Lake Tai's green algae bloom;

• A hard look at the human costs of China's hydroelectric dam projects;

• The fate of centrally-dictated energy conservation policies;

• A case study of the challenges of wildlife protection in China;

• The role of trucks as culprits in the nation's environmental challenges;

• An issue of food safety emerges as China's fish farming goes industrial in scale; and

• The environmental effects of China's go-west effort.

Making Old Jets Green Again

Lobby of the China World Hotel, Beijing
Surrounded by the Chindians
1439 hrs.

It's getting to the point where you can't go a day without hearing another recycling story. This pictorial essay on CNET today walks us through the recycling of airliners that have exceeded their economical service life.

(The whole concept of "economical service life" is, of course, highly relative. I think Aloha Airlines is flying 737-200s that are nearly 40 years old, while much younger aircraft have already gone through the shredder.)

The U.S. leads in this field because a) there are lots of large surplus airports in relatively remote areas, and b) the country has a highly developed recycling industry, and c) the costs of getting chunks of old planes to said recycling facilities - and getting recycled material to customers - is still low.

Let's see: South Asia recycles ships. America recycles planes. What about China going into the business of recycling railroad rolling stock?

Anyway, what is interesting is that products made from recycled materials are now no longer just paper and beer cans. There are companies coming up with ways to use recycled wood, rubber, and even carbon fiber composites. The green/sustainability direction the world economy is taking has created new incentives for the recycling business to invest in new technologies.

If recycling is a growing business, one that is ready to pay for innovations, it is clearly another direction in which China could consider investing its "independent innovation" efforts.

E-Waste: Some Interesting Processes

In the Hutong
Seeking quiet
1105 hrs.

One of the areas I see undergoing major changes because of technology is the recycling industry. I have some strong opinions on the topic, but at the moment, that's all I have, so I'm reading about it rather than writing.

Lori Yalem, and old friend in Los Angeles and a recycling/waste management consultant, pointed me toward two companies who are doing some interesting work in the area - admittedly in North America - who are developing some interesting process for handling e-waste, turning old computers into their component materials to ease recycling and cut down on the material wasted in the process.

One of them is MaSeR (Material Separation and Recovery), based in Ontario, Canada. The other is Cascade Asset Management in Wisconsin.

I'm still digesting a lot of this, but one of the things that strikes me is how so many of these environmental industries are popping up in parts of the North America largely bypassed by the economic boom of the last decade and a half. Yet another sign that China's rust belt northeast would be a logical place to seed China's own recycling/demanufacturing/remanufacturing and other environment-related sectors.

Solar Technology May Finally Be Ready to Take On Coal

Starbucks @ Fortune Plaza Beijing
Realizing that coffee is the new opium
0930 hrs.

Just as Silicon Valley was the nursery of the transistor industry, the microchip business, and the personal computer, it appears that the fertile ground at the south end of the San Francisco Bay will also nurse CleanTech.

The San Jose Mercury News is reporting that San Jose based Nanosolar is now shipping a thin film solar cell that can produce a watt of electricity for less that $1 - cheaper, apparently, than coal (at least in developed economies.)

While the American in me is delighted that the product is made in California, the businessman in me thinks that if Nanosolar could produce its solar panels in China, they could drop the cost to the point when even Chinese companies start to see he virtue of adopting solar over coal.

They may be here sooner than later. Despite a huge local subsidy to put their HQ and first production facility in San Jose, I suspect they are going to find demand exceeding their 430 megawatt annual capacity fairly soon. With rivals setting up here, China is probably an inevitable part of their plan.

Congratulations, Nanosolar. Get through that IPO (which we just know is coming) and then come swing by China and start looking for factory sites. When you come through Beijing, we're buying lunch.

China and An Inefficient Truth

Somewhere in the CBD
Cafe crawling
1535 hrs.

Over in the UK, the environmental organization Global Action Plan has produced a sobering report on the amount of energy used by information technology. The full report, entitled An Inefficient Truth, along with a more quickly digestible executive summary, can be accessed at their website.

The general point is not new: IT is an acknowledged and growing source of energy suckage. What makes this report so compelling is the factoids that it cranks out.

Any fair assessment of the situation would suggest that all of this noise is driven in part by a growing group of enviro-luddists who generally see technology as something of an unnatural scourge. It would also be wrong to suggest that the industry is indifferent to the issue of the energy used by computers and other technology devices.

What I derive from the growing battle between green and tech is that the technology industries have much to gain by focusing their justly vaunted engineering prowess on making their companies, their processes, and their products meaningfully more sustainable.

Inefficient Informatization?

The central government has been actively encouraging the widespread adoption of information technology for over a decade, seeing in the microprocessor an answer to China's discouraging productivity and an elixir for the nation's ailing state-owned enterprises. The audience bought the messages: a survey completed by The Economist Intelligence Unit and SAP in 2004 found that something like 95% of China's executives had seen the future of their businesses, and it was information technology.

If you believe the statistics, China is adding computing power and Internet users at remarkable rates. As "informatization" (the government's term for economic transformation via information technology) spreads, China looks to follow the rest of the world down an economic path lined with power-sucking machines.

It remains remarkable that the nation's policymakers have yet to draw a connection between their commitment to creating an innovation-based economy and the opportunity implicit in the nation's (and the world's) need for more efficient, more sustainable servers, laptops, desktops, and handhelds.

I do not expect that to last for long.

Efficient Action

There are some very intelligent people just below the director general level in the Ministry of Information Industries, in the State Environmental Protection Agency, the National Development and Reform Commission and other bodies who already see the connection. The challenge is forging them into a bloc to share information and to begin polling industry on what is possible in this regard. A good step would be putting An Inefficient Truth into the hands of one of these quiet crusaders and letting it circulate.

Hmm...

Meantime, this is a superb opportunity for companies who are already focused on dropping energy use in laptops and data centers to stand up and get proactive. Not to name names, but Intel, Apple, HP, Dell, and the leader of the greener computer pack - Lenovo - should publicly take the lead in calling on themselves and others to do more in China in this regard.

Efficient Informatization belongs alongside Independent Innovation. This is one area, however, where the foreigners can and should claim a lead, and use that as a starting point for action that would be both financially rewarding and environmentally responsible.

We need one more ingredient to fire up the greening of IT in China, and that would be an NGO who would be acceptable to all parties to coordinate the effort. My first thought comes to the United Nations Development Program, mostly because I worked with them on an electrical appliance efficiency program about eight years ago and their efforts have borne fruit.

Any ideas about who else might complete the triad?

Harbinger of a Green Tech Gold Rush

Somewhere beneath the Ascott Beijing
Shearing the Wolf
1446 hrs.

One need only look around this amazing, frustrating, enchanting country to realize that we are slowly killing the environment, and it is slowly killing us, and that something (a lot of things, actually) need to be done to change this.

The attention of the world's growing cadre of green technology and clean energy companies was bound to wake up to the China opportunity at some point, and it seems that these nascent industries already see China as a massive opportunity. They are certainly being told as much by otherwise credible sources of business information. CNET networks' BNET Report in my mailbox this morning said:

"Dirty China could lead to clean profits. China has the green. It's just not green...yet. And that's exactly where the opportunity will be for American business as the pressure builds for the pollution-ridden country to clean up its act."

Not so fast.

There will be opportunity for companies selling green tech in China. First, however, local businesses need to get motivated. Despite the ugliness in the nation's environmental situation, there is a lot of resistance among companies, local governments, and farmers to cleaning up their respective acts. For most businesses in China, It just doesn't pay to be green, not yet, and until it does do not expect businesses to shell out the cash needed to make their businesses more sustainable.

Second, consumers need to wake up. Most consumers are far more interested in improving their lifestyles - or just getting by - than they are in environmental protection. Most of China has an environmental consciousness level that approximates pre-Earth Day America. They will not drive the greening of China until they have a clear picture of the alternative, and see a path to a better life that coincides with sustainable living.

Even the central government - arguably the strongest force for change - is sending out conflicting messages about the environment. While they understand that something has to change, they see enough economic and political risk in moving smartly to protect the environment that they are largely paralyzed, resigned to half-measures and token efforts. Most Americans don't realize that the nature of government has changed in China. Decisions are reached by consensus. Policy is no longer made at the whim of a single individual. Change cannot simply happen as quickly as it once did.

If history is any guide, what is likely to build widespread local support for greentech and clean energy is the growth of a large domestic sector in those industries. When you can make the case to the government that every job lost in dirty industries is one (or two) gained in clean ones, and that the investments in sustainability will not mean another river of capital flowing offshore, you will see things change very quickly. Government will become an advocate of environmental cleanliness, and the propaganda machine will kick into motion to help raise public support for more sustainable lifestyles.

None of that means opportunity for American businesses in particular, but none of that by definition excludes American business. It just means that a green tech company should not expect to land in China, set up shop, and start printing money, regardless of what the hype-mongers at BNET and elsewhere might think.

CleanTech Forum XV is Coming

In the Hutong
Hiding from Expat Trick-or-Treaters
1647 hrs.

For those of you with an interest in clean technology and not otherwise occupied on the day, the Cleantech Forum is coming to Beijing on December 3-4. The real interest here will be for firms looking for interesting venture opportunities, as well as for the usual suspects seeking to sell their services to said firms.

Check out the information below:

Registration - Cleantech Forum XV, Beijing , December 3-4

Program - Cleantech Forum XV, Beijing , December 3-4

Tip of the hat to Dennis Best for the heads-up.

Beijing's Hybrid Hypocrisy

Starbucks Pacific Century Place, Beijing
Digesting raw fish
1254 hrs.

Here in the Hutong we are looking for ways to lower our carbon footprint while enjoying the conveniences of modern life. Tired of driving a car that is getting too small for the family, not wanting to own two cars, wanting a tough vehicle, and at the same time seeking to lower our carbon footprint, our natural instincts are to look for a vehicle that will give us more room and yet move us to a more sustainable lifestyle.

Despite all of the hype at the Shanghai Auto Show earlier this year, there are not a ton of options out there. The Prius is too small, so that was out. Our eyes naturally reached the Lexus RX400h as being a pretty good combination, an SUV with a hybrid drive.

Until, that is, we saw the price. For a car that fetches around $43,000 in the U.S., the dealer in Beijing was quoting us RMB 816,000, a tidy US$109,156. Trying very hard to make a sale, the dealer hinted that the standard RX400, without the more environmentally-friendly hybrid drive, could be had for around RMB 700,000, or a full US$16,000 less.

Is there a price difference between the two vehicles? Certainly there is - somewhere around $4,000, if US prices are any indication.

But what this means is that in China, in a nation where air pollution caused by automotive emissions is becoming a serious threat to public health, an environmentally-conscious car buyer is taxed by the government an extra 16-20% for wanting to make a better automotive choice.

Clearly, somebody very senior in government is not thinking this through.

Granted, from a policy standpoint, the fewer cars with large engines that are on the road, the better. And granted, from the same standpoint, the more domestically-produced cars (rather than imports) on the road, the better. This is the reason that imported cars with engines larger than 3 liters are already subject to a whopping 100% tariff.

But if someone is going to buy that imported vehicle, from an environmental standpoint it makes more sense to do everything practical - up to and perhaps including actually subsidizing that purchase - to encourage the consumer to make the right choice. At the very least, you would not want to penalize the buyer any more than the actual cost differential of the vehicle.

I cannot believe the problem is with the environmental bureaucracy. This sounds like a simple case of the General Administration of Customs doing their jobs and collecting as much money as possible for imported vehicles. To bring about a change, somebody very senior in government needs to get involved.

This sounds like something that, if the large automakers handle correctly, could redound very much in their favor, both publicly and among their dealer community. What I suspect, however, is that the major hybrid-makers (Toyota, Ford, GM, Honda) are not interested in fighting this battle.

The big question is - why not?

Cross-post: Green Guards

"Xi'an Marks the Spot: The state of China's student activist movement" by Dongli Zhang and Nathan Myeth, Grist 17 October 2006

A fascinating article suggesting that the government is allowing - if not encouraging - the growth of a student-based environmental activist movement in China.

It makes sense for two reasons. First, it's a relatively safe direction in which to channel the political discontent of China's students. Second, it becomes a boogie-man the government can use to help bring to heel local officials whom, for reasons of self interest, refuse to strictly enforce environmental regulations.

All of which sounds good, and which promises to be interesting to watch. Best case scenario would be for these kids to do some real good in raising awareness, saving a few species, serving as hard-to-corrupt watchdogs, and perhaps even solving a serious problem or two. China could use it.

But political movements, no matter how benign their roots, can take unpredictable courses. I can't help but be concerned that eventually a lot of these kids are either going to a) wind up in jail, b) wind up as tools of the government, c) wind up as pawns in a political struggle, or d) become a force of nationalism.

I hope not. I really hope this movement gets China thinking about cleaning up its environment the way the environmental activists in the U.S. managed to do during the late 1960s and the 1970s.

Originally posted 19 October 2006