China’s State Council has approved new policies stimulating growth of new energy automobiles this week, including tax reductions for and direct subsidies to clean-energy car producers, and financial support for the construction of charging stations, 21st Century Business Herald reported.

This would be good news to Craig Bouchard, 59, who recently ventured into the electric car business in China through Cambelle-Inland, a U.S.-China investment firm he founded this year. His plan is to produce electric trucks for inner-city deliveries (a cash carrier, for example) and small electric vehicles that Chinese farmers can use to work their crops in the field (picture a golf cart with thicker wheels).

Though still at a very early stage of investment, Bouchard has recruited a group of celebrities to join the board as advisers, including Quincy Jones, who was music director for the 2008 Beijing Olympic Games, and Yue-Sai Kan, the first Chinese American to host a live broadcast from China and a fashion icon there. He’s met both Jones and Kan through a third board member, Clifford Perlman, former CEO of Caesars Palace casinos. Riding on their extensive Chinese connections, Bouchard is hoping to “meet people that matter” and to more adeptly navigate the Chinese government infrastructure - both are difficult but unavoidable tasks for any foreigner who wishes to hop on China’s growth wagon.

You would be absolutely right to think that none of these people seems to be an expert in car-making. Neither is Bouchard, who made his fortune from a 19-year banking career at the First National Bank of Chicago and later in the steel industry. With his brother James Bouchard, he co-founded steel distributor Esmark, a $4 billion business by 2008 that’s best known for its hostile takeover of Wheeling Pittsburg Steel Corporation. Later he founded another steel distributor Shale-Inland, revenue of which he says grew by 100 fold to $900 million in just three years.

Bouchard’s idea for the electric car project sprung from frequent business trips to China in the past two decades. As he watched the country’s bicycles replaced by gas-fueled cars and blue sky turned grey, Bouchard began to see electric cars as one solution, with tremendous monetization potential, to China’s deteriorating air quality. “The government will do anything that takes gas burning cars off the road,” Bouchard observes, recounting how his friend in Shanghai paid $15,000 for a license plate, under new policies meant to limit car purchases.

The Ministry of Science and Technology seems to favor electric cars in particular - the Minister has put on a show of driving a small electric car to the National People’s Congress meetings this year. The 2012 Development Plan of Energy Saving and New Energy Automobile Industry set the goal to increase China’s production capacity of electric vehicles to five million by 2020. Licking their lips at the market’s potential, Tesla opened its first dealership in China in January, and Detroit Electric announced its partnership with Geely in April. Domestic manufacturer BYD , backed by Warren Buffett’s investment and on tens of millions of government subsidies, has been selling the country’s first electric vehicle, the “e6,” since 2010.

But the reality of the electric car market hasn’t been as rosy. Figures released by the China Association of Automobile Manufacturers showed that less than 13,000 electric cars and have been sold in China in 2012. As Forbes contributor Jack Perkowski revealed from recent interviews with local car assemblers, “none are counting on electric vehicles for any meaningful amount of growth anytime soon.” High cost of research and production, and difficulty with building sufficient number of charging stations in Chinese cities’ high-density residential complexes, are among the principal reasons for the slow growth of the private electric cars market.

But Bouchard sees the market’s limitation to have little impact on his own business model. He argues that his target clients-corporations and even governments in the cities, and farmers in rural China-would have no problem finding space to build electric charging stations. The price issue wouldn’t be as prominent either, as rural household income rises and his company tries to construct cheap models for farmers. Bouchard says two initial designs of the vehicles have already been completed by a U.S.-based partner. He is also in discussion with two Chinese machine-manufacturers in China that have access to “extensive” distribution network of dealerships. A fourth partner from the U.S. is working to improve the technology of electric vehicles by either extending the battery life or increasing their speed. “What I aspire to is to be in business somewhere from one or two years from now,” says Bouchard.

The seed capital for the investment solely came from Bouchard and his partner Raj Maheshwari, the only other executive of Cambelle-Inland and the founder of Charlestown Capital Advisors, a financial advisor and merchant bank. Increasing expenses will be supported by “a very large private equity raise,” says Bouchard, though he declined to clarify the exact scale.

Perkowski, however, is suspicious of the new venture’s potential. The prospect is murky for building affordable electric vehicles, which probably means a couple thousand dollars apiece for each rural household. “It comes down to cost,” says Perkowski, “China has very rational consumers. They will only buy something if it meets functional need but is also affordable.” If the price is too high, Bouchard would have to rely on subsidies, which have been subject to swaying local government preferences. Perhaps the State Council’s new policy to directly subsidize carmakers will change the situation.

 

Follow me on Twitter @Hengshao90.

 

Quincy Jones, the Grammy-winning record producer, was named a director of Cambelle-Inland, the New York company housing the Chinese investments of Craig Bouchard, former CEO of steel producers Esmark Inc. and Shale-Inland Holdings LLC.

Yue-Sai Kan, the first Chinese-American host of a nationally broadcast television show in China, and Clifford Perlman, former chairman of Caesars World Inc., joined Jones on the board of New York-based Cambelle-Inland, the company said in a statement today.

“Doing business in Asia is very much about personal relationships,” Bouchard said in an e-mail. “Our board members have earned the trust of very senior business leaders in places like China, Japan, and Korea. It’s going to be fun working with them.”

Bouchard in December stepped down as CEO of Houston-based Shale-Inland, a steel distributor. Bouchard and his brother James founded Esmark Inc. in 2003 and expanded the company with acquisitions, including the hostile takeover of Wheeling-Pittsburgh Steel Corp., before selling it to Russia’s OAO Severstal for about $775 million in 2008. He is also CEO of Sherman Oaks, California-based Signature Group Holdings Inc. (SGGH), an investment company.

To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

 

Craig BouchardThe competitiveness comes naturally. Bouchard was raised in a houshold which embraced and thrived on a ‘winner-take-all’ attitude and where the former Inland Steel put food on the table.

No matter the weapon of choice—the nearest pillow, a blazing fastball, a crushing backhand or a highstakes proxy vote—Craig Bouchard loves a good fight. And over a career spanning more than three decades and stints as an investment banker, chief executive officer of a risk management software company, dealmaker, takeover artist, financial wizard, steel mogul, author and entrepreneur, he’s made a habit of winning.

“I grew up in a large family — five boys and two girls. It was a very competitive house. We grew up playing sports,” Bouchard recalled recently.

“For me, business activities are a lot like sport,” said the co-founder of Esmark Inc., founder of Shale-Inland LLC, founder and chairman of Cambelle-Inland LLC and, since June of this year—and after a high-pitched proxy fight—chairman and chief executive officer of Signature Group Holdings Inc. “You play hard, fight hard, love everybody when you are done and go on to the next fight in the morning. It’s just like that.” The competitiveness comes naturally. The son of Robert C. (Bob) and Helen Clancy Bouchard, both employees of the former Inland Steel Co., Craig Bouchard was raised in a household that embraced and thrived on a winner-take-all attitude.

In an October 1963 Midwest Industry Magazine cover story, Bob Bouchard, then sales manager of Inland’s Kansas City, Mo., district, said he never let his sons beat him at chess, checkers, ping-pong or anything else. “I don’t play that way,” he said. “I’ve never competed in anything when I wasn’t out to win.”

Fast forward 50 years and Craig Bouchard is fresh from his second successful proxy fight and was quick to point out in early August that the stock in Sherman Oaks, Calif.-based Signature Group Holdings Inc., a diversified enterprise with principal activities in industrial supply and special situations finance, had more than doubled to $1.40 per share since he took the reins in June.

Ask Bouchard what the market likes about him and he’s quick to answer: “Honesty and growth. That’s a strange and unusual combination on Wall Street.”

Bouchard is characteristically bullish on Signature Group’s future. “It is a company with roughly $80 million of cash, $900 million of net operating loss carryforwards and a very healthy electronics distribution business,” he said. “The assets will help us continue to acquire profitable companies. My goal is to make another Fortune 500 company.”

Backing Bouchard’s efforts is legendary investor Sam Zell, who provided strong support to Bouchard’s hostile slate and growth plan for the company.

Bouchard did not show up in Signature’s boardroom unprepared for battle. “This is my second hostile. I learned from the first time around,” said Bouchard, who co-founded Esmark in 2004 with his younger brother, James. “Building Esmark—it seems like 20 years ago—we filed a hostile proxy to throw out nine of the 11 directors of Wheeling-Pittsburgh Steel Corp. It took six months, but we were successful.”

That success not only landed the Wheeling, W.Va.-based steelmaker in the Esmark stable but marked the first hostile reverse tender merger in Wall Street history. Two years later, Esmark—including Wheeling-Pitt and Bouchard’s original steel distribution company—were sold to Russian steel giant OAO Severstal as part of a purchase agreement valued at about $1.25 billion, including the assumption of debt.

Bouchard moved on, and in 2010 founded Shale-Inland, a leading master distributor of stainless steel pipe, valves and fittings, and stamped and fabricated parts to the U.S. energy industry. The company, which is publicly traded in the bond market and has recorded revenues approaching $1 billion since its inception, is the first of an expanding family of companies named after Inland Steel and one of Bouchard’s three daughters, Shale.

Bouchard exited Shale-Inland in late February 2013, citing a desire to explore opportunities in China. He is reluctant to address in detail what prompted his change in direction but is positive on its performance and future prospects. Asked about his investment, he smiles and says: “I’m saving that material for my next book about Wall Street.

“Shale-Inland is positioned perfectly where I wanted it, the leading master distributor of pipe valve fittings into the energy patch,” he said. “With 47 plants in the United States, thousands of customers, and doing business globally, it will do fine. “I had bigger aspirations for the company so I turned the reins over to a few good managers,” Bouchard said. “I remain one of the largest shareholders and expect Shale-Inland to provide me a good return on my investment. My time now is limited and my highest priority now is to the public shareholders of Signature Group Holdings. And, of course, China matters.”

Only weeks after the official announcement that Frank Riddick, former chief executive officer of Chicago-based JMC Steel Group Inc., would replace Bouchard, China Gerui Advanced Materials Group Ltd. announced it had retained Cambelle-Inland LLC as an adviser for its strategic planning and expansion in North America and around the world. A Delaware company based in Naples, Fla., Cambelle-Inland was founded by Bouchard to house his investment activities in China and named after another of his daughters, Cambelle.

High-powered, well-connected and Chinasavvy, Cambelle-Inland’s board of directors consists of Raj Maheshwari, who also is president and chief operating officer; music industry legend Quincy Jones, a composer, producer, 27-time Grammy Award winner and producer of the Beijing Olympic ceremonies; Cliff Perlman, former chairman and chief executive officer of Caesars Palace in Las Vegas; and media mogul Yue-Sai Kan, often cited as one of the most powerful women in China.

Zhengzhou, China-based China Gerui, which Bouchard described at the time of the tie-up as “the pound-for-pound profit champion of the Chinese steel market,” is a Nasdaq-traded, niche and high-value-added steel converter specializing in high-precision, ultra-thin, high-strength cold-rolled steel products.

 

Quincy Jones and James Koch

The company he keeps. Bouchard has named music industry legend Quincy Jones (second from left) to an all-star board of directors of Cambelle-Inland LLC. Economics professor, two-times coauthor, teacher, mentor and career-long friend James V. Koch (right) claims to have learned more from his former student “than I ever taught him.”

 

“China Gerui wants to diversify their product base and their customer base,” Bouchard said, citing one of the factors spurring the team-up. Another is to use the tandem as a ready-made platform to pursue and help facilitate Cambelle-Inland’s investment plans in China. “Cambelle-Inland captures American/Chinese flows of commerce,” Bouchard said simply. “As everybody knows, you take China and the United States and you’ve got most of the world’s future economy. There are other countries that matter. But in terms of world commerce, being important in China and being important in the United States is a notable achievement. That is the goal of Cambelle-Inland.”

Predictably, Bouchard, who spent several years in Hong Kong in the 1980s as a managing director of an investment bank in Beijing, is thinking big. “Cambelle-Inland wants to take on the world’s largest industrial pollution problem: the pollution in the inner cities of China,” he said. “We have orchestrated discussions with several companies interested in offering an electric vehicle both to the farmers in China and to the inner cities. There are about five companies involved. We will eventually get involved with the design and distribution of the vehicle.”

A rough time frame? “I’m hoping that within the next 12 months we will make progress. There is a lot of work to be done. We are still in the early stage, but the prospects are good,” he said.

Although it’s early in the game, Bouchard goes so far as to say that the vehicle will incorporate “Western” know-how, be priced in the $2,000 to $4,000 range and could find its way to other developing countries. “It is Western technology, Western ideas, applied to a Chinese problem with Chinese participation, “ he said. “If we are successful, you will find these vehicles in India, Indonesia, Mexico, Thailand and other parts of the industrializing world.”

Although Bouchard’s high-octane energy level, entrepreneurial interests and drive have distanced him recently from direct contact with the mill floor, he remains an astute student of the North American steel industry and its fortunes from a global and investment standpoint. Bouchard is negative on each, and puts China squarely at the center of the industry’s plight. “In the steel industry, China is the difficult problem because of their 200 million tons of excess capacity. That amount is twice what is consumed in the United States. It is a huge structural constraint that is going to continue to darken the industry globally,” he said.

Bouchard disagrees outright with those who believe that China will put its own house in order and pare capacity. “There is not an optimal solution,” he said. “Some suggest the Chinese will get a handle on it, consolidate and bring capacity down. I suggest that is not going to happen. There are 6.9 million people in the world working for steel mills. Four million of them live in China. If you think the Chinese are going to lay off those people, given the current level of economic activity, think again. We will continue with this structural problem.”

Bouchard, who said he would not invest in the steel industry today—“the input providers have made all the money”—does not see a light at the end of the tunnel. “With continuing excess capacity, we will see a very stable, not growing, band of hot-rolled prices,” he said. “That being the case, our current capacity utilization—75 percent or in that neighborhood—is likely to continue. We are looking at a dull steel market for many years.”

Asked about the recent fusillade of trade cases filed by U.S. producers, Bouchard was blunt bordering on radical. “If you look at the world right now, where are the good markets for steel? Comparatively speaking, the U.S. is a good market, Japan is a good market and Russia is a good market. China is not a good market, and Europe, in general, is not a good market,” he said. “We’ve got lots of ‘not good’ markets. Where are people going to sell steel? In the United States, Japan and Russia. You can expect imports to come here as long as we allow them to come.

“You could look to two outrageous solutions to the import problem,” he said. “One is to open up the borders, have no tariffs but trade only with those countries that allow free trade. The other is to allow no imports. Period. And tariff everything to death. That’s the closed-door solution. Most people would view both of those as impossible. I think either would be better than being stuck in the middle, struggling to survive without much money in our pocket.”

 

The made-in-China label isn't such a deal breaker anymore.

After being burned by a series of high-profile failures, Chinese companies are learning to navigate the delicate political and regulatory landscape for takeovers in the U.S.

Major U.S. companies remain essentially unattainable to Chinese buyers. So are many firms that can be tied to national security or critical technologies. Still, Chinese firms are stepping up their investments in the U.S. by targeting smaller companies, going after minority stakes and avoiding the most sensitive acquisition targets.

China hasn't given up on big deals. The Committee on Foreign Investment in the U.S., a government group that reviews foreign acquisitions, is expected to decide in coming weeks whether to approve two multibillion-dollar deals by Chinese firms. A Cfius spokeswoman declined to comment.

The deals getting the green light so far are smaller. Last week, U.S. regulators approved the Chinese acquisition of a U.S. battery maker despite political resistance and an initially icy reception. Wanxiang America Corp., a unit of China's Wanxiang Group, is paying $257 million to buy A123 Systems, a U.S. government-backed maker of lithium-ion batteries, after an early attempt at a purchase collapsed.

"You just need to understand the rules, follow the rules, be very transparent and let them make the decision," says Pin Ni, president of Wanxiang America, who started the U.S. offshoot out of a home office in Chicago.

Last year, Chinese buyers agreed to spend more than $10 billion in 46 deals to acquire U.S. companies or stakes in U.S. firms, according to Dealogic. The volume was higher than the Chinese total from 2009 through 2011 combined. The tally included the sale of Kansas City, Mo.-based movie-theater chain AMC Entertainment Holdings to Wanda Group for $700 million.

The U.S. still trails Canada, where Chinese firms announced $23 billion worth of deals for Canadian companies or stakes last year. The total includes the pending $15.1 billion acquisition of Canadian oil-sands operator Nexen Inc. by Cnooc Ltd., the Chinese state energy giant.

The Nexen deal requires U.S. approval, since Nexen owns significant assets scattered across the U.S. coast of the Gulf of Mexico. Last month, Nexen and Cnooc extended the deadline to complete the deal to March 2 from Jan. 31 to allow Cfius time to deliberate. Authorities in Canada, the U.K., European Union and China already have approved the takeover.

Most of last year's U.S.-China deals involved small companies or the purchase of minority stakes. Many bigger takeovers get ruled out by potential Chinese bidders because they don't think the transactions will be approved, say bankers and lawyers who advise the companies on deals.

In a 2005 deal that became a symbol of anti-Chinese sentiment, Cnooc abandoned its $18.5 billion attempt to buy U.S. oil producer Unocal Corp. amid what Cnooc called "unprecedented political opposition." Congress at the time inserted a provision into an energy bill that would have delayed the takeover for months. Unocal was later acquired by Chevron Corp.

Some big Chinese acquisitions still are being stymied.

Superior Aviation Beijing Co. abandoned in October its $1.79 billion bid to buy the corporate-jet and propeller-plane operations of Hawker Beechcraft Inc. because it was too complicated to separate those businesses from the Wichita, Kan., company's defense business, which would have been off limits, people familiar with the deal said at the time.

A congressional report published in October warned U.S. business against working with Chinese telecommunications firms Huawei Technologies Co. and ZTE Corp., saying their equipment could become a vehicle for Chinese spying in the U.S. Both companies have rejected the allegations, and Huawei called the findings politically motivated.

Despite those stumbles, Chinese companies are pressing ahead.

"With the dollar being so cheap, the North American market stable, the richness of natural resources here and the large amount of Chinese capital, a significant amount of that capital is headed this way," said Robert Profusek, a partner at Jones Day who heads the law firm's mergers-and-acquisitions practice.

To avoid clashing with U.S. regulators, many Chinese companies are going after investments of less than $500 million, focusing mostly on closely held companies. Chinese firms sometimes aim for joint ventures or less-formal partnerships rather than all-out acquisitions.

But Chinese firms are getting more ambitious. Cfius signed off last month on the $118 million takeover of Complete Genomics Inc., a Mountain View, Calif., DNA sequencer by China's BGI-Shenzhen. That was the first acquisition of a publicly traded U.S. company by a Chinese firm.

A123 Systems was an especially sensitive deal because the Waltham, Mass., company got nearly $250 million in grants from the Department of Energy in 2009 to build a factory in Michigan. A123 filed for Chapter 11 bankruptcy protection in October, but Wanxiang America's first try at buying the battery maker flopped because of regulatory concerns.

On Wanxiang's second try, more than two dozen members of Congress wrote to Cfius to urge careful scrutiny of the deal. They argued that taxpayer-funded technology would land in the hands of a Chinese buyer.

To salvage the acquisition, Wanxiang agreed to sell off A123's business that sells batteries to the government while keeping the unit that sells commercial batteries. The Chinese company has said it intends to keep the Michigan factory in operation.

The Chinese company did extensive legwork to size up parts of the business that could be sensitive to U.S. officials and hired U.S.-based law firm Sidley Austin LLP to help manage the process, Mr. Pin says.

The biggest China-U.S. deal announced last year still needs approval from U.S. regulators. American International Group Inc. wants to sell up to 80.1% of its aircraft leasing business, International Lease Finance Corp., to a consortium of Chinese financial-services firms for $4.23 billion. Anticipating potential U.S. regulatory hurdles because of the deal's size, the consortium hired U.S.-based lawyers, a New York public relations firm and structured the deal in two parts. In addition to the initial stake, the group has the option to buy another 9.9% later.

Write to Sharon Terlep at sharon.terlep@wsj.com

 

By Moshe Silver | Managing Director, Hedgeye

This week Hedgeye Risk Management hosted a conference call with Dr. Melanie Hart, head of the China Energy and Climate Policy program at the Center for American Progress. Dr. Hart is a recognized expert on Chinese technology and regulatory matters and a Mandarin speaker who resides part time in China.

China is prominent on the world economic radar for a large number of reasons. 1.4 billion reasons, to be exact. A lot of people who consume lots of everything. When China’s economy strengthens, much of the rest of the world benefits. A major policy shift affecting Chinese manufacturing and transportation would have a global impact. Dr. Hart says we are witnessing that shift right now as new regulations issued in 2012 will dramatically change Chinese industry as they are implemented on a schedule set to run through 2015.

The Problem

China’s official environmental policy used to consist of trying to convince the world that things were going well. The global public relations blitz surrounding the 2008 summer Olympics in Beijing highlighted “Blue Sky Days,” a metric the government continued to track through most of 2011 as they kept telling their citizens “the air is getting better, the air is getting better.”

But the air wasn’t getting better. In the face of the official “Blue Sky” count, ordinary Chinese were blogging photographs of distinctly Nasty Sky Days. While official figures counted most of the year as being “Blue Sky Days,” bloggers tracked fewer than 100 acceptable days a year.

The US embassy in Beijing installed an air quality monitor in 2009 to test for “PM 2.5 particulates” within the embassy compound. PM 2.5 measures “Particulate Matter,” which can be made up of a nearly infinite range of substances, chemicals and gases – in a heavily industrialized region, most of them are either bad for you, very bad for you, or really seriously extremely bad for you. Says the EPA:

Particle pollution includes “inhalable coarse particles,” with diameters larger than 2.5 micrometers, and “fine particles,” with diameters that are 2.5 micrometers and smaller. How small is 2.5 micrometers? Think about a single hair from your head. The average human hair is about 70 micrometers in diameter – making it 30 times larger than the largest fine particle.

Size comparison
Source: EPA website

Take a look at the graphic and decide how much of this you want your family breathing in every day. All right, then. Neither do the Chinese.

Beijing residents figured out how to access the Twitter feed on the air quality monitor at the US embassy. Ordinary citizens started re-blogging embassy Twitter messages to places where others could read them. By 2011 a crisis erupted: here was proof that the authorities’ “Blue Sky” statistics were false. The embassy readings indicated “extremely hazardous” levels of PM 2.5 particles and other pollutants.

So the Chinese government did something few Western observers would have anticipated: they acknowledged that air quality was unacceptable and committed to new policies to aggressively clean up the environment.

Dr. Hart says this was a simple political reality driven by the average middle-class Chinese urban resident – a group comprising over 300 million people – a sizeable constituency even in a country where “One Citizen, One Vote” is considered a quaint notion. Most of them are not English speakers and get their information primarily from the state-run media. But they are well aware of the environmental situation and are sophisticated about monitoring air pollution levels. They are plugged into blog networks and other sources of news about the environment. They all know exactly what “PM 2.5” means and use the term routinely in their conversation.

The Party Takes The Clean Air Pledge

Once they acknowledged that there was a problem, Dr. Hart says the Party swung into action, to tremendous effect.

Starting in early 2012, Beijing started publishing accurate air quality readings, urging citizens to monitor the government’s progress. In early 2012 the Ministry of Environmental Protection rolled out new air quality standards and a set of directives covering residential areas. Under a formal 5-Year Plan, emission targets are set for 2015, and again for 2020.

The 2012 national standards for coal plants set emissions control standards comparable to, or better than those in the US and the EU. New plants must be 100% in compliance, while existing plants have only until the end of the initial five-year stage, in 2015. This may strike us as odd here in America where the worst polluters can get a court order allowing them to continue to run their plants, or simply violate federal rules and pay a fine much smaller than the profits they earn from their improper behavior. Something to be said for central planning?

This unprecedented plan is focused on residential centers. Dr. Hart says the Party recognizes they can’t clamp down on all emissions nationwide without disrupting economic growth, so they developed a 12-year plan covering 13 broad regions and 117 cities, with urban pollution reduction targets of up to 10%. Each city must develop its own plan for emissions reduction and in the next phase, cities and regions will be linked to ensure air quality improvement along broad geographical corridors.

Beijing itself has all but completely eliminated coal consumption, replacing it with natural gas. Five remaining coal plants are all marked for closure and Beijing will soon be the world’s largest all-gas powered city. The city has also imposed rigid vehicle restrictions, making it exceedingly difficult to get a new vehicle permit, and permitting drivers to go out only every second day, using odd / even license plate numbers.

The central government is absolutely serious about this, says Dr. Hart, but they want the cooperation of the citizenry. The government acknowledges this is a problem that took many years to develop, and which will therefore take time to clean up. At last November’s Party congress, outgoing general secretary Hu Jinao coined the expression “ecological civilization,” an expression that has taken root as a key political concept. Dr. Hart says this is a highly significant development, signaling a deep commitment at the highest levels of government, one that is being brought forward under the current general secretary Xi Jinping.

Steps this year include a reassignment of high Party officials to key regulatory posts where they will have the authority to implement change. The national electricity regulator has been moved under the authority of the national reform commission, for example, and there are rumors that the once-powerful electricity monopoly will be broken up into more manageable units.

What Will Change Look Like?

Apart from citizens enjoying an increasing number of Blue Sky Days, Dr. Hart says big changes will start to become apparent in 2014 as the 2015 deadline for full implementation approaches. New regulations have been issued at the rate of one every month since February of 2012, and numerous industrial facilities have already been relocated or shut down. A big push to complete the retooling should carry through 2014.

The message from the central government to the cadres is clear: “You can not mess this up.” Implementation will be tracked at the local level, and meeting environmental targets will be the key to promotion through the party ranks. In Chinese political culture, promotion within the Party hierarchy is the ultimate bottom line.

In terms of its economic impact, this has already led to consolidation in heavy industry. Cities have made conscious policy changes to force small operators out of business, since larger facilities have greater economies of scale and are better equipped to adopt increased environmental controls.

Some industry has moved to Myanmar, a country with which China has a long commercial relationship, giving rise to concerns that China is merely shifting their pollution to Someone Else’s Back Yard. Among the policy initiatives at the central government level are new rules that will require stiff pollution controls in all Chinese-owned facilities, even outside the national borders.

The government is installing monitoring equipment across the country that reports air quality levels directly to Beijing. Air quality is hard to certify and easy to fake. And as the local cadres see their path to either advancement or ignominy dependent on improving local air quality, there is high incentive to lie. Cameras on central government monitors have already caught local officials tampering with the devices, and the government is pursuing companies that keep shifting production just out of range of the monitoring posts.

A significant international development is seen in complaints lodged by the Japanese, who say Chinese pollution is blowing across the open water and flowing into Japan. The Chinese government, answering only to the political pressure from its own citizens, has basically told the Japanese, “If you buy us new technology, we’ll be happy to use it.” This will bear watching over the next year; there may be increasing political pressure from China’s neighbors as the five-year plan advances and major polluters find themselves scrambling to meet a looming 2015 deadline.

Finally, a major wild card will be China’s domestic natural gas industry. China has been watching the US shale gas business with great interest – observers estimate that China has substantially larger shale gas reserves than the US. There are high hopes for a natural gas boom as the nation moves away from coal power – but there are a number of potential problems.

China’s shale gas deposits are much more difficult to access than those in the US, and their chemical makeup is harsher. The highly corrosive output damages drilling equipment and will make refining more costly. China also lacks an extensive pipeline infrastructure and has significantly less water resources for the fracking process.

Yet, with all these challenges, China’s leadership is dedicated to building a successful natural gas business and has put key experts in positions of authority to do everything possible to make this succeed.

Conclusion

Dr. Hart says the government will “absolutely not back away” from their air quality goals.

First, the Party does not accept defeat. The existence of a written five-year plan is a major commitment – indeed, an unshakeable one. Having set the mechanism in place for ordinary citizens to monitor air quality, there will be no return to “Blue Sky Days.”

Secondly, Chinese are used to a High-Low society where the wealthy buy things the average citizen can’t afford. European designer clothes and shoes. Million-dollar luxury apartments. Imported food and wine. Bottled mineral water. But clean air…? There are some things money can’t buy.

It may prove difficult to attain all targets exactly on the projected schedule, and Dr. Hart says the next significant update should come from this autumn’s Party plenum. She will be watching closely for any significant policy updates which could signal the level of success they are having in overcoming barriers along the path.

 

Staff Reporter | Friday, 22 February, 2013, 7:50pm

More than half of the underground water of Chinese cities is either “poor” or “very poor”, a state television station reported on Thursday.

China Central Television reported that 55 per cent of the underground water of Chinese cities is rated level four or five on Thursday, quoting a study by the Ministry of Land and Resources.

The programme about environmental protection said the data underscored the country’s continuously increasing water pollution plight. In recent years, residents in a number of areas in China have encountered water pollution caused by toxic chemicals, resulting in so-called “cancer villages”, the programme said.

Wang Canfa, head of the Environmental and Natural Resources Law Research Institute under the China University of Political Science and Law, said government investment in environmental protection has not caught up with the country’s rapid economic development over the past few decades.

“We need to allocate at least 2.5 per cent or 3 per cent of GDP to environmental protection in order to see positive results. But so far, only 1.6 per cent has been invested,” Wang told CCTV.

Liu Junmin, deputy director at the Research Institute for Fiscal Science, said the lack of clarity of division of responsibilities on treating environmental issues between the environmental protection ministry and water resources ministry hindered government efforts.

Water pollution came under the spotlight this week when local residents in Zhejiang challenged environmental officials to swim in polluted rivers.

This unique way to raise public attention reflected public discontent over authorities’ inaction in the matter, an expert said.

 

Posted: 01/22/2013 12:31 am EST

BEIJING, Jan 22 (Reuters) - New plans to reduce air pollution in Beijing fell flat on Tuesday, judging by initial online reaction, as the capital's mayor unveiled measures to ease the chronic problem that has triggered growing public anger.

The smoggy metropolis' already notorious air pollution hit a record earlier this month, with pollution 30-45 times above recommended safety levels, blanketing Beijing in a thick, noxious cloud that grounded flights and forced people indoors.

The issue has caused widespread public outrage, alarming the ruling Communist Party which values stability above all else, and has so far failed to rein in pollution despite repeated pledges to get tough.

Speaking at the opening of the annual session of the city's largely rubber stamp legislature, Beijing mayor Wang Anshun said the government would take 180,000 old vehicles off the road this year and control the "excessive" growth of new car sales.

The heating systems of 44,000 old, single-story homes and coal-burning boilers in the city centre will also be replaced with clean energy systems, Wang said in a speech carried live on state television.

"We will speed up the construction of a beautiful city with blue skies, green earth and clean water," he said.

However, comments on China's popular Twitter-like microblogging site Sina Weibo suggest Wang will have his job cut out for him convincing people the government is finally serious about tackling pollution.

"These plans are just dreams," wrote one user.

Others said the phasing out of old cars would make little difference in a city where about 250,000 new cars hit the road every year, albeit with supposedly higher emissions standards.

"These 'old cars' are what the ordinary people drive. You people can only dare talk about this subject when you start phasing out all the cars officials drive," wrote another user.

Wang added that Beijing would cut the density of major air pollutants by 2 percent this year and improve the monitoring and public release of information about air pollution.

"We will proactively push for the use of new energy-saving technologies and products and promote green, low carbon production and lifestyles," he said.

Pollution levels in Beijing regularly exceed 500 on an index that measures particulate matter in the air with a diameter of 2.5 micrometers. A level above 300 is considered hazardous, while the World Health Organisation recommends a daily level of no more than 20.

This winter's pollution has been so severe that even usually pliant state media has criticised government inaction, partly because it can't be hidden from the public unlike other sensitive subjects such as high-level corruption.

Smoke from factories and heating plants, winds blowing in from the Gobi Desert and fumes from millions of vehicles can combine to blanket the city in a pungent shroud for days. English-speaking residents sometimes call the city "Greyjing" or "Beige-jing".

Other major cities, particularly in northern China, have experienced similar problems. (Reporting by Ben Blanchard; Editing by Ken Wills)