Economic progress and energy consumption are proportional. Therefore it comes as no surprise that the United States, the European Union, Japan and the rapidly developing coastal regions in East Asia are having some of the highest energy consumption rates in the world. As long as only a tiny fraction of the earth’s population enjoyed a high living standard, the visible downsides were negligible. But today, a significantly larger portion of the world’s rapidly growing population is enjoying a high and energy intensive living standard and their number is growing quickly. At the same time, the world’s reserves of fossil fuels such as coal, oil and gas are gradually becoming depleted. And in addition, the negative implications of conventional energy generation for the environment are becoming more and more obvious.

The mega-trends of population growth, global industrialization and urbanization are intensifying climate change, resource scarcity and pollution. Unless a more sustainable foundation for economic growth can be found, the deterioration of these problems can undermine the basis of our prosperity.

Therefore, significant changes need to be made to the way we generate energy to make it more sustainable. This means increasingly tapping energy sources that are less harmful to the environment and not as scarce as many fossil fuels. But this diversification and enhancement of our energy mix takes a lot of time and money.

Hence, it is necessary to address the problem from the consumption side as well. Key to a quick, effective and feasible solution is to decouple economic growth and energy consumption. In other words, we have to seek ways to increase our prosperity while reducing our consumption of energy. Those two goals long thought to be in opposition can become complementary.

If there’s a tendency of growing energy demand, one can respond to it in two different ways:

1.) Building more power plants to increase the supply of energy. This approach ties up financial and natural resources alike.

2.) Making energy consumption more efficient to reduce demand for energy. These efficiency gains can soak up rising energy demand elsewhere without the need to build additional power plants.

Obviously, the second approach is smarter and more sustainable. By squeezing more out of every kilowatt-hour of electricity or gallon of gas, you eliminate waste. Eliminating waste benefits the society and the environment.

Buildings account for 40% of the total energy consumption and 70% of the total electricity consumption in the United States. The potential for savings is enormous. Thus, a “green” building can be significantly cheaper to operate than a conventional building.

Especially for businesses with large production facilities, energy is a major cost factor. Optimizations to the production process as well as to the lighting, water circulation and air-conditioning systems can trim a factory’s energy consumption. The resulting cost savings can quickly recover the initial costs of the energy conservation equipment.

When building a new factory, a design aimed at energy efficiency can bring down expenses for water and electricity even further. An optimal design reduces the need for artificial light by using natural light as well as occupancy sensors. Better insulation and facades that reflect a large share of the sunlight reduces heat absorption. In combination with measures to improve the air circulation within the building, less cooling in summer and less heating in winter  is necessary. Over the life of the facility, the achieved savings can match or exceed the initial construction costs. Another benefit is the lowered carbon footprint. Lower energy consumption translates into lower energy bills and lower carbon emissions. Consequently, a green factory is not only a question of environmental responsibility. From an economic point of view, green buildings are the best response to rising and volatile energy prices.

Private homes can take advantage of modern energy conservation technology as well.  By monitoring electricity consumption throughout the house to detect sources of energy waste, a household could cut its monthly energy bill when replacing inefficient home appliances and adjusting the thermostat to avoid unnecessary cooling and heating. As the construction of a smarter electricity grid advances, appliances can be timed to take advantage of cheaper electricity rates during off-peak hours.

Since energy prices are bound to increase in the medium and long term, the savings achievable through energy conservation efforts will increase and hence, demand for those technologies will help to support a domestic energy technology industry.

The global market for energy saving technology is enormous. China, a country struggling to meet its energy needs, is going to invest heavily into energy conservation technology for buildings. A massive immigration into the urban centers of the country is under way and the infrastructure, buildings and factories built today determine the energy consumption of the future. Instead of further increasing its reliance on foreign suppliers of fossil fuels, China will use every opportunity to reduce energy waste.

As the cloud cover waned I spent much of the rest of the three-hour flight watching the landscapes passing by beneath the plane. I saw humongous cities with large industrial estates – the Chinese version of urban sprawl with super highways reaching far into the outskirts of industrial towns – and the yellowish-gray smog that didn’t disappear until we reached less densely populated areas. After a while the mountain ranges of southern Sichuan province appeared. Mighty rivers and fields dominated the landscape for a long time until tiny factory buildings with the typical blue roofs you can find all across China appeared shortly before the arrival at Beijing’s state-of-the-art Capital International Airport. Leaving the aircraft and walking into the air-conditioned and light-flooded terminal, my first impression of Beijing formed: clean, sterile, artificial, perfectly organized and spectacular. Immigration inspection was the quickest I’ve ever experienced maybe except for Singapore. What caught my eye is that travelers are encouraged to rate the person checking one’s passport. There’s a tiny device at the immigration inspection counters with buttons with smilies on it. A laughing smiley, a neutral-looking one and a smiley with a frowny face. I chose the laughing one as I was very satisfied with the quick passport control.

The airport staff is extremely friendly, helpful and speaks perfect English. At several tourist information counters, you can have your hotel’s name written down in mandarin characters so you don’t encounter problems when using a taxi to reach your hotel.

Since I was participating in an international program for university students, I didn’t have to organize my own ground transportation but was taken to the hotel in central Beijing by bus with the other program participants. With the outside temperature at 95°F, sunshine and blue skies, low smog levels and relatively good traffic conditions, we enjoyed the bus ride past four (of the seven) ring roads that encircle Beijing. When entering the 300-tower Central Business District the new headquarters of CCTV (China Central Television) - a skyscraper that looks like two sevens fitted together designed by Dutch architect Rem Koolhaas - caught our eye as it is the number one landmark building in the CBD.

Our kind local guides gave us a brief introduction to Beijing, an overview of the city’s history, some advice on what to do and what to avoid and finally taught us a few useful phrases of Mandarin like Ni hao ma (Hello, how are you?) and Zai jian (Good bye, see you again).

To be continued…

the incredible view from Victoria Peak on the skyline of Hong Kong Island and Kowloon

Repulse Bay & The Great Buddha @ Ngong Ping on Lantau Island, Hong Kong

Staying in Hong Kong, visiting the buddha bronze statue and the Po Lin monastery on Lantau island is a must. A cable car connects the MTR station Tung Chung to Ngon Ping - the site of the monastery and the Great Buddha.

Repulse Bay is a beautiful beach on Hong Kong Island. It’s popular amongst tourists and Hong Kong residents alike.

Victoria Harbour by night from the shore of Kowloon

For more info and photos, check the page “Images” (http://www.whatmattersweblog.com/images/) and my post

Reporting on China I: Hong Kong, Macao

 Having returned from my two-and-a-half week trip to China, I’m going to report on my experiences in Hong Kong and the mainland in the coming weeks.

My first destination during this trip to Asia was Hong Kong. The former British colony which was returned to the People’s Republic of China in 1997 is boasting to be “Asia’s world city”.

There’s no point denying it, Hong Kong has the atmosphere of a world city. When flying into Hong Kong’s state-of-the-art Chek Lap Kok Airport on Lantau Island, you might be lucky enough the see the famous skyscrapers along Victoria Harbour sticking out of the typically Southeast-Asian landscape of mountainous islands and peninsulas covered with lush tropical vegetation. The airport itself is top-notch. The terminals are spacious, extremely clean and perfectly organized. The huge windows offering a nice view on Lantau Island invite you to grab a cup of coffee at Pacific Coffee Company and sit down for a while to enjoy the view. Immigration Inspection is fast and usually you’ll find your luggage waiting for you on the baggage claim belts before you make it there. The fast and convenient Airport Express train connects the airport with Kowloon and Hong Kong Station on Hong Kong Island. For just HK$ 100 it takes you right into the center of the city. When headed for the airport, you can check in at the Airport Express Stations in the city. Thereby you save time, get rid of your luggage before you get on the train and can enjoy a hassle-free ride to the airport.

Obviously Hong Kong’s number one attraction is the spectacular skyline on the northern shore of Hong Kong Island along Victoria Harbour. Every night at 8 pm there is a free light, laser and music show called “Symphony of Lights” which you can enjoy the best when standing at the vantage point right next to the Star Ferry pier on the Kowloon side of the harbor.

The lights on all major high-rises such as the Bank of China Tower, the International Financial Center, the HSBC headquarters, the Standard-Chartered Bank tower and many more start to flash in bright neon colors and green laser rays zig-zag the sky. The lights and lasers are synchronized with the Chinese pop music playing. Getting on a dinner cruise during the “Symphony of Lights” is a great opportunity to see the light show on the Kowloon side as well and to dine with a unique view.

Hotels in Hong Kong offer some of the best accommodation you can find. All major hotel chains are present in Hong Kong and since most hotels are located in the higher levels of high rises, you’ll most likely have a good view. I stayed at two different hotels during my stay: The Cosmopolitan Hotel located right next to the Happy Valley Race Course on Hong Kong Island and the Harbour Plaza 8 Degrees Hotel on the area of the former Hong Kong City Airport in Kowloon. In regard to the view and location, the Cosmopolitan was better as Hong Kong Island has most landmark buildings, huge shopping malls such as the Times Square Shopping Centre and due to the fact that only the narrow strip of land between the mountain slopes and the water is developed, you’re never far from the next MTR (subway) station. The surrounding of the Harbour Plaza 8 Degrees was less impressive since the area has been rather run-down as it used to be right beneath the entry lane of the former airport. However, many culturally-interesting spots and traditional neighborhoods with delicious and inexpensive food can be found in Kowloon. Due to the proximity of the former airport, most old buildings in Kowloon are below 20 stories, but the area is extremely densely populated and full of life. Especially the Mong Kok area featuring excellent shopping opportunities, night markets and a lot of night life places is worth a visit.

Mong Kok is perfect to try some local snacks and beverages. Desserts made from fresh fruits such as mango pudding, mango pan cakes and the infamous Asian bubble tea are a must.

Despite the international atmosphere and the British legacy from the colonial era, you might face difficulties when eating at local restaurants. Few of them have an English menu and surprisingly, many waiters and waitresses don’t understand English. Despite the potential language problems, I can only recommend you to try the Hong Kong cuisine. There are few places in the world where there is such a great variety of wonderful seafood dishes. I was lucky enough to have a local friend who showed me around, helped me ordering and advised me on what to eat. Thus, my stay in Hong Kong was an extraordinary culinary experience.

A world-famous landmark of Hong Kong is the Peak Tram to Victoria Peak. The tram which has been in service since 1888 climbs the steep slope of the mountain range on Hong Kong Island and reaches the top after approximately 15 minutes. The view from the Peak Tower is spectacular. This perspective completes your experience of Hong Kong’s unparalleled skyline. Especially during the hot and humid summer months, visiting the Peak - where the air is less humid and chillier than at the waterfront – is a great escape from the heat. For this reason and of course because of the view, some of the most expensive apartments on the planet can be found right here at Victoria Peak.

On the southern shore of Hong Kong island there are tiny fishing villages, satellite towns and nice subtropical beaches. The most famous one can be found at Repulse Bay.

For those who are staying long enough to make a half-day excursion to one of the outer islands, I’d recommend to visit the Great Buddha at Ngong Ping on Lantau Island and the Po Lin monastery. A cable car connects the Buddha site and the monastery to the nearest MTR station. By building the cable car, the shrewd monks turned a remote monastery into a major tourist destination. Dozens of souvenir stores line the trails to the Great Buddha.

Another possible destination for an excursion would be the former Portuguese colony Macao. High speed ferries from Hong Kong to Macao operate 24 hours a day. Going there during daytime, you can explore the tiny roads of the ancient Macao which reminded me of the historic inner city of Lisbon. Going to Macao at night you can visit some of the countless casinos and nightclubs of the island. Macao has already surpassed Las Vegas in terms of gambling revenue.

When wandering the busy streets of Hong Kong, soaking up the atmosphere, enjoying the sights and discovering this global business center that has a great deal of authentic cultural experiences to offer, many visitors from abroad headed to mainland China who spend a stopover in Hong Kong and started learning some Mandarin on the flight might find it confusing that the language spoken in Hong Kong is not Mandarin (the simplified standard Chinese dialect) but the traditional and hence more complicated Cantonese. In fact, many Hong Kong Chinese have difficulties in communicating when traveling to mainland China.

Comparing Hong Kong with other places I’ve visited, not only in Asia but around the world, I have the impression that Hong Kong’s economy is the freest, least regulated in the developed world. Private investments and initiatives are shaping Hong Kong’s future. It will be interesting to see how Hong Kong’s role changes in the course of the coming years facing massive competition by Shanghai. Hong Kong still has one of the busiest ports in the world after Singapore, but competition from the mainland is increasing.

Right now I’m sitting in the lobby of a hotel in Xi’an, the capital of Shaanxi province in central China.

Due to my tight schedule I haven’t been posting a lot in recent weeks, but I will report in detail on my experiences here in China.

I left for Asia about one and a half weeks ago. My first destination was Hongkong. Hongkong is one of two Special Administrative Regions in China. The city and the surrounding territories are part of China, however, they’re widely self-governing and unlike the mainland enjoy freedom of press and free elections.

Hongkong has been one of the most competitive economies worldwide for many years and is constantly among the leading countries in the United Nations Human Development Index.

Having been in Singapore a little more than a year ago, I was interested to see in what ways Singapore and Hongkong are different. Both had been British colonies - Singapore until 1965 and Hongkong until 1997.

While Hongkong has about twice the population of Singapore and one of the most impressive skylines in the world, Singapore is leading in regard to cleanness and air quality.

Hongkong appears to be busier and more dynamic than Singapore. A clear disadvantage is Hongkong’s exposure to the pollution of the bordering Shenzhen metropolitan area. A vast smog cloud is lying over Hongkong island, Kowloon and the minor islands part of the Special Administrative Region.

Comparing Hongkong to Singapore, I was surprised to find out that many citizens of Hongkong don’t speak English fluently. In addition to their native language being Cantonese and not Mandarin (the Beijing dialect that is considered standard Chinese), that is a huge drawback. In contrast, most Singaporeans speak English on a native speaker level and at least one other language like Mandarin, Thai, Malaysian, Hindi, …

Tuesday last week I left Hongkong for Beijing and on Saturday Iwas heading to Xi’an by overnight train.

In a few hours I will depart for Shanghai where I will visit the World Expo 2010 before I return to Hongkong at the end of the week.

There are many who predict that the increasing economic and political power of Asia will make the 21st century the “Asian century”. Given that several forecasts about China’s economic development see China overtaking the U.S. as the world’s largest economy in terms of GDP well before mid-century, there is a chance that Asia’s leading economies could dominate the world throughout the latter half of this century.

What people tend to forget is that China had been the world’s largest economy before 1890. However, in the 19th century, the spreading influence of European imperial powers, most notably Britain, began to destabilize China which had been isolating itself for many centuries. The ruling Qing Dynasty was weakened after its defeat in the First Opium War (1839-1842) against Britain. Forced to open up to foreign trade and to allow Britain to sell opium to Chinese people, China’s destabilization intensified and led to several rebellions against the Qing rulers and foreign colonizers, missionaries and diplomats. When the rebels and the Qing rulers sided in the Boxer Rebellion (1899 - 1901) against the foreign intruders, six Western nations, Japan and Russia formed the Eight-Nation Alliance to smash the uprising. What followed was a multipolar world in which Britain, the United States, Japan and several other European powers dominated.

After the two world wars, Europe was destroyed, impoverished and stripped off its political, economic and military power. The United States further strengthened its position as the world’s largest economy and took the lead in shaping the post-war world order. To contain the expansion of the Soviet Union, the U.S. also increased its military presence in the world.

While American lifestyle and ideals influenced much of the Western world and Japan throughout the Cold War, this trend intensified after the collapse of the Soviet Union when the United States emerged as the world’s only superpower. The American share of global GDP is almost three times as big as Japan’s - the current number two.

Despite China’s enormous population of more than 1,300 million people compared to around 300 million Americans, the country is still far from generating a GDP that equals America’s. And even if China manages to quadruple its GDP in the coming decades - what will be a challenge given the necessity to fix its environmental problems and maintain stability in a country with a population this big - the Asian superpower would still lag behind significantly in per capita GDP.

from : http://www.wikinvest.com/images/6/6e/10-03-15China1.jpg

Still, it is very likely that China will catch up in terms of total GDP before 2050. For one and a half centuries, China has given up its leadership position while suffering from colonialism in the first half of the 20th century and communism in the second half. But in the long run, this was just a temporary weakness.

The financial crisis has put a heavy burden on future growth in the U.S. and Europe. Out-of-control government and private debt are undermining economic stability and a solid recovery in the West.

China, in contrast, has huge currency reserves, solid growth rates and a rapidly growing domestic market. The financial crisis has not halted China’s race to catch up, but accelerated it. As exports nosedived as a result of the recession in the U.S. and Europe, China was forced to stop its reliance on exports for growth and tapped the huge potential of its domestic market. Consequently, China’s GDP is growing at a rate between 8 and 9 percent even though China is experiencing its first trade deficit in 70 months. In March, the worth of China’s imports exceeded the worth of its exports by around $360 million. (San Francisco Chronicle: China’s Surprise Trade Deficit Means Nothing About The Yuan-Dollar Peg)

China has become a major motor of growth in a world that is slowly pulling out of a deep recession.

The recent meeting of Treasury Secretary Timothy Geithner with a Chinese official earlier this weak during which the U.S. assured it would not officially allege China of manipulating its currency,  has helped to create an environment that would allow the Chinese government to allow its artificially undervalued currency, the yuan, to rise slightly against the U.S. dollar without admitting to be bowing to pressure from Washington. -> http://www.thestar.com/business/article/792608–diplomacy-could-cool-yuan-as-hot-topic

If tensions between Washington and Beijing over trade policy ease off, China can work towards a more balanced foreign trade that doesn’t create too high surpluses or deficits. In the long term, a moderate appreciation of the yuan towards other currencies can make the Chinese currency the next number three reserve currency of the world after the dollar and the euro.

China is constantly transforming itself. As the country struggles to find new sources of growth to create jobs for the millions of migrant workers moving to urban areas, it has to leave more space for private initiatives and participation. Numerous private enterprises are forming that are becoming global players by targeting key international growth markets such as telecommunication, clean energy technologies and electric mobility.

One of those highly innovative high-tech companies is Huawei, a networking and telecommunications equipment provider with research and development centers inside of China as well as in Silicon Valley, Dallas, Stockholm, Moscow and Jakarta. The company based in Shenzhen has become the world’s number two in the mobile equipment industry with a market share of 20%. (Reuters: http://www.reuters.com/article/idUSLD56804020091113)

Another private Chinese enterprise which is becoming a successful global player is the battery and car producer BYD (Build Your Dreams), also headquartered in Shenzhen, Guangdong Province, China. Founded in 1995 by Wang Chuanfu, the wealthiest man in China as of 2009, the company has become one of the top four manufacturers of rechargeable batteries worldwide. Now BYD is investing heavily in electric cars. BYD’s goal is to become the world’s largest auto maker in the medium term, primarily by selling electric cars at a competitive price. The huge advantage of BYD is the company’s expertise in producing rechargeable batteries. The battery is the most costly and most complex component of an electric car. It determines the driving range, price and duration of recharging. The company has developed a promising lithium iron phosphate battery that is used in the e6 all-electric car. -> http://en.wikipedia.org/wiki/BYD_e6

Skeptics of the company’s claimed goals may want to hear that investment legend Warren Buffet has acquired a 10% stake in the company for $230 million. (Warren Buffett takes charge)

In the coming years, Western companies of all industries will have to face increasing competition from China. While in the past, China’s low labor costs and nonexistent enivronmental standards gave it an edge over Western labor-intensive industries, the new wave of Chinese global players will target innovation-intensive industries and compete by bringing cutting-edge technology to Western markets at an affordable price.

Jacobson and Delucchi furthermore argue that if electricity generated from renewable energy sources were used to fulfill all energy needs ranging from driving to heating/cooling homes, illumination etc., global energy consumption could be one third lower in 2030 than otherwise.

Jacobson of Stanford University said, “If you make this transition to renewables and electricity, then you eliminate the need for 13,000 new or existing coal plants.”

This new piece of research shows the feasibility of the transition to a new system of energy generation and consumption. The transition can be carried out immediately, using existing technologies. Even though it will be expensive, inaction is no good alternative.  The continuation of our heavy reliance on imported oil and other environmentally risky fossil fuels is patently unsustainable. Next to the environmental costs of tolerating a steady increase in the concentration of carbon dioxide in the atmosphere, the adverse economic and national security consequences of today’s fossil fuel energy system are costly.

Solar, wind and marine energy are abundant, environmentally friendly, economically feasible and strategically important to a steady supply of safe, affordable, clean energy.

http://news.stanford.edu/news/2009/october19/jacobson-energy-study-102009.html

Tokyo Tower, (C) Maximilian Staedtler, WHAT MATTERS WEBLOG

The Tokyo Tower - one of the many landmarks of the Japanese capital - is the bright highlight of Tokyo’s breathtaking night skyline. When I took this photo from the Tokyo World Trade Center in June of 2009, I was inspired by the amazing atmosphere of the city. The endless concrete jungle with over 35 million inhabitants becomes all the more appealing when the gray concrete facades vanish and leave a sea of millions of little flashing red dots. I have seen many skylines during the last year, but Tokyo’s was the most mind-boggling of all. Even Manhattan appears tiny compared to Tokyo. 

The Tokyo Tower itself has been the tallest building in Japan ever since its construction was completed in 1958. As the Japanese use to say, it looks like the Eiffel Tower in Paris, only more beautiful and more impressive. And needless to say, it is slightly taller than the original from France.

Now the Tokyo Tower is set to lose its title as Japan’s tallest artificial structure to the new Tokyo Sky Tree which is currently under construction and expected to open for the public in 2011.

The new tower - which will be a broadcasting tower just as the Tokyo Tower - will stand 2,080 feet (634 m) high, almost twice the height of the Tokyo Tower. The site of the new one is in the outskirts of Tokyo, on the shore of the river Sumida, just behind the famous Asahi Brewery in Asakusa.

Here’s the view on the Asahi building from the top of the hotel I stayed at. The Tokyo Sky Tree is being erected just half a mile behind the Asahi building.

Asahi Brewery Building on the shore of the Sumida River, Tokyo, Japan

The boat you can see on the river is the so-called Asakusa-Odaiba water bus which links the artificial island of Odaiba in the Bay of Tokyo with the cultural hotspot of Tokyo, Asakusa. I can only recommend taking a ride on this futuristic boat. The view from the boat is fantastic and one gets a good idea of the cityscape of modern Tokyo.

More information on the water bus: http://www.sunnypages.jp/travel_guide/tokyo_leisure/water_busses/Asakusa-Odaiba+Direct+Line/1875

For more information about my trip to Japan, check out Category Japan:

http://www.whatmattersweblog.com/category/japan/

For further reading:

Japan in Deflation - don’t underestimate the Japanese consumer!

The strengthening of the dollar is obviously not accompanied by a strenghtening of the overall economy. Unemployment is still at 9.7%, President Obama just recently proposed his $ 3.8 trillion budget resulting in the largest budget deficit in U.S. history and there are still several unsolved problems out there like the weak housing market, out-of-hand private debt and rising credit card defaults. In addition, the next financial time bomb (ranging from Dubai times 10 to Dubai times 1000 (if the Chinese housing bubble were to burst)) might just be around the corner.

While America is indeed gradually recovering, it still has no concept of how to find a new foundation for growth in the post-depression world. Financial services can’t be expected to contribute as much to growth as they had done before the crisis. The U.S. industrial base won’t be able to fill the gap. The necessity for grand-scale structural reforms are hard to deny. In my opinion, the best bet for the future would be the clean power technology sector. But in order to get the energy technology revolution going, it will take significant investments by private companies and venture capitalists, rising oil prices or a set of government incentives and disincentives that would support the creation of a new powerful industry in the U.S. and make these new technologies competitive by forcing up prices for conventional dirty fuels which are jeopardizing both, national security and climate stability.

In this difficult economic environment, a strong dollar is anything but a blessing. The European export-oriented companies in the automobile industry, the energy sector or the health care sector managed to be competitive with their American counterparts when it took more than $1.5 to buy one euro. Now with one euro only costing around $1.36, many European businesses find it pretty easy to steal market share from their U.S. competitors.

Exports are crucial to the picking-up growth of the U.S. economy; exporters are major job creators. As American domestic demand will take years to recover, American corporations are seeking to meet foreign consumers’ demand. President Obama is determined to double exports over the next 5 years and thereby create 2 million additional jobs. But with a strong dollar making American products and services more expensive abroad and imports cheaper for American consumers, the foreign trade deficit is more likely to grow than to shrink.

 The destabilizing consequences of America’s habit to spend more money on products it imports than it is making by selling products to foreign consumers are becoming more and more obvious. While the U.S. already ows mind-boggling sums to China and oil exporting countries, it also increases its reliance on these countries to finance its budget deficit.

On the one hand, a stronger dollar would help to prolong the willingness of the Chinese to continue buying U.S. treasury bonds, but on the other hand, a reduced reliance on foreign lenders through more fiscal discipline and more balanced foreign trade would undoubtedly be more sustainable in the medium and long term.

Another consequence of a stronger dollar usually are lower oil prices. What at first sight might be beneficial to consumers and businesses alike, lessens the pressure on the U.S. to reduce its dependence on foreign oil and instead, produce more energy domestically and create millions of local jobs by harnessing domestic energy sources such as the sun, wind and the tremendous energy saving potential.

Finally I want to share my view on the crisis in the eurozone. While it is true that several European economies such as Greece, Spain, Italy and Portugal have been living beyond their means since they were able to borrow in euros - and Greece even had to cook the books to be admitted to the eurozone - I don’t see the 16-nation bloc breaking up. Wealthier member states such as France and Germany do have a strong interest in the stability and  integrity of the eurozone because a significant share of their exports stays within the single currency market. Besides, inaction by the larger members in the event of a default of a fellow eurozone member state would likely trigger panic on financial markets, harm other eurozone members that otherwise were able to take care of themselves if credit markets stayed calm and the bottom line were that the refusal to support a single state would lead to the necessity to bail out half a dozen states to avert a meltdown. Last but not least, Greece could still turn to the IMF as a measure of last resort - even though France and Germany oppose outside interference, partly for political reasons (the IMF’s director Dominique Strauss-Kahn could be a competitor for France’s President Sarkozy in the next election).

Related Posts:

tax increases or inflation: please choose one

http://www.google.com/hostednews/ap/article/ALeqM5iZnfNIDibBZ2lgBu_KVRX_wauO2AD9DQNFFG1

http://www.finance-weblog.com/50226711/strong_dollar_good_weak_dollar_bad.php

http://www.buzzle.com/articles/obama-budget-sets-records-highest-ever-budget-deficit.html

Just recently it became public that Chinese officials refused to authorize Sichuan Tengzhong Heavy Industrial Machines of China to purchase Hummer from GM.

It is quite revealing to see how actively China is trying to become a leader in the green energy technology business. Tengzhong might have faced some difficulties and financial risks had the takeover been successful, even though there probably would have been enough newly rich Chinese willing to buy a Hummer at a price covering production costs and still leaving a huge profit margin.  Most likely, however, the deal was canceled because China is seeing the benefits of building a strong and innovative clean tech sector as compared to the disadvantages of investing in a declining industry that unnecessarily wastes scarce resources.

 As the Japanese government has been doing for decades, the Chinese leadership is directly (through regulation, decrees and state companies) and indirectly (through incentives and disincentives) steering its economy by withdrawing support from “sunset industries” and supporting “sunrise industries”.

The auto industry is in no way considered a sunset industry by the Chinese given they’re adding more than 11 million new cars a year to their car fleet, but especially since the number of cars in China is increasing so quickly, the country needs to limit the growth of emissions and fuel consumption. China belongs to those countries heavily subsidizing gasoline to make driving affordable for their citizens. Because of the prospect of rising oil prices, energy shortages and higher consumption, China is struggling to find an “exit strategy”. Furthermore, subsidized gasoline benefits those with the biggest gas-guzzlers disproportionately high.

Cars running solely on electricity combine several advantages for China.

First, they have no tailpipe emissions and therefore can reduce the smog Chinese cities are infamous for. During the 2008 Olympics in Beijing, the government banned millions of cars from the capital’s streets to reduce air pollution. The ban worked and most Beijing residents appreciated the step. Were two million of Beijing’s cars replaced with electric vehicles, the effect would be the same.

Second, electric cars reduce overall energy consumption as electric motors are manifold more efficient than conventional combustion engines. Even if all of the electricity needed to run an electric car fleet were generated from burning oil and coal, the environment would still benefit. In addition, China  could save billions by relying on domestic energy resources instead of imported oil.

Third, developing electric cars and bringing them to markets across the world is a golden opportunity for China. Chinese auto makers would hardly manage to catch up with their American and European competitors in regard to conventional propulsion technology. In this field, China clearly lags behind. But when it comes to electric cars, the race is still open. Battery technology is at the heart of an electric car which might even give Chinese companies an edge over their competition.

BYD (short for Build Your Dreams) is a leading battery manufacturer based in Shenzhen which began the development of production of all-electric cars in recent years. Warren Buffett’s investment of $230 million into the company is an encouraging sign that the company is on the right track. BYD is preparing to establish itself as a leading global electric car brand by launching the production of affordable, mass-produced electric cars. By the end of this year, BYD’s 205-mile range all-electric e6 which can reach a top speed of 87 mph is expected to hit the U.S. market. It can be charged at home or at a network of charging stations BYD intends to build at supermarkets, fast-food restaurants and office buildings.  The company further plans to become China’s largest automaker by 2015 and eventually, become the world’s number one.

China’s efforts could prove to be vital to the global breakthrough of electrically-powered personal mobility. As the Chinese car market is important to global auto industry heavyweights such as Toyota, GM and Volkswagen, these companies are definitely working on several electric car models. This week, BYD and German luxury car maker Daimler signed a memorandum of understanding to produce electric cars together in China. (New York Times: BYD Links Up With Daimler to Build Electric Cars in China)  If China one day decided to ban imports of foreign non-electric cars, e.g. for environmental reasons, global sales of electric cars could soon hit more than 10 million units per year. As battery technology moves down the learning curve and mass production brings down production costs, the electric car revolution might just be around the corner.

In May I will travel to China and tell you more about how this new global superpower is developing.

For further reading:

China: A developed, green economy by 2050?

 Sources: 

http://www.foxnews.com/leisure/2010/02/24/gm-kill-hummer-brand-sale-falls/

http://www.marketwatch.com/story/warren-buffett-looks-to-electric-car-in-byd-stake

http://www.byd.com/press.php?index=0

While the Obama administration had no choice but to spend more than a trillion to avoid a sequel of the Great Depression, it is evident that the United States will have to drastically reduce its deficits in order to recover economically and politically.

During a BusinessWeek interview, Obama said:

 “our real problem” is neither the spike in stimulus spending of the last year — as many Republicans charge–or the sharply lower tax collections from hard-hit businesses and individual taxpayers. “The real problem,” he said, “has to do with the fact that there is a just a mismatch between the amount of money coming in and the amount of money going out. And that is going to require some big, tough choices that, so far, the political system has been unable to deal with.”

http://thecaucus.blogs.nytimes.com/2010/02/11/obama-may-consider-tax-increases/

Generally there are four ways of reducing public debt:

1. Strong long-term economic growth
2. Higher taxes
3. Spending cuts
4. Inflation

1.) DEBT REDUCTION THROUGH GROWTH

-> check out my post American Time Bomb

I hope that growth in the U.S. will pick up again soon and remain stable for a longer period of time as future downturns could severely affect the recovery from the financial crisis. Martin Feldstein, Professor of Economics at Harvard University, expects “that the [U.S.] economy will fully recover over the next decade” as he explained in his article America’s Growth in the Decade Ahead. Furthermore, he predicts the average annual growth rate for the coming ten years to be around 1.9 percent,  similar to the one of the previous decade. Professor Feldstein also expects unemployment to be halved during the next 10 years as the cyclical recovery progresses.

It is true that economic growth can reduce the relative public debt of a country. As can be seen on the chart below, the public debt’s share of GDP had been reduced from 94.1% in 1950 to 58% by 2000, even though the total debt had grown exponentially.

Debt reduction through growth is possible, depending on the government’s ability to create an environment that supports - and even more important, doesn’t stand in the way of - the creation of new industries which can create jobs, revenues and new export markets. For more on this, read my post things look pretty bad, don’t they? yet there’s reason to be optimistic from October 22nd.

However, given the longer lasting effects of the crisis, the enormous debt burden and structural problems of the U.S. economy that so badly need to be addressed but are apparently not big enough to push Congress to set aside foolish partisan politics, focusing solely on economic growth won’t be enough to bring down deficits and bring debt under control.

2. & 3.) TAX INCREASES & SPENDING CUTS

Now we come to what the government can directly do to effectively reduce deficits. Obviously, the “mismatch” between tax revenue and federal spending  Obama mentioned, is the core of the immediate problem. The simple truth is that most recent U.S. presidents were too quick at spending and too slow at working out ways of how to pay for it. Especially after the budget surpluses of the Clinton era, U.S. government spending got out of control.

Fiscal Year 2010 U.S. Government Spending

When taking a look at this Graphic from Wikipedia, I conclude that any meaningful short-term reductions in spending must come from major cuts in the following budgets since they make up almost three quarters of all spending: Social Security (accounting for 19.63% of the budget), Defense (18.74%), Unemployment/Welfare (16.13%), Medicare (12.79%), and Medicaid (8.19%). Obviously, there are no ways to save on Medicaid or Medicare. Reducing the Social Security budget would be another mission impossible. Unemployment and Welfare spending in the U.S. is already relatively low compared to other OECD countries, and given the record-high unemployment as an immediate effect of the financial crisis, reductions in this budget would be tough as well. So what’s left? - Defense!

Of course many argue that the United States needs to fund the Department of Defense properly to maintain peace in the world and security in America. Nevertheless, I don’t see any meaningful way of reducing the budget deficit without cutting the budget of the Pentagon. Wars are extremely expensive, and the U.S. is currently involved in two major wars. At the end of the day, America has to find new ways of protecting itself from outside attacks that require significantly less money. After all, America’s military budget of $ 663 billion (or $ 533 billion, depending on who does the math) is approximately one and a half times the federal budget of Germany ($ 442 billion), the largest economy in Europe. (http://www.bundesregierung.de/Content/DE/Artikel/2009/12/2009-12-16-bundeshaushalt-reg.html)

Besides, the U.S. has to force its partners and other military powers to take a more active role in the maintenance of global peace and security. Due to its military actions, the United States has faced harsh criticism over the past decade. America’s military offensives have strengthened anti-American groups throughout the Muslim world. By cutting its military expenditures by 40%, the U.S. could possibly achieve the same level of protection from terrorist and cyber attacks as today and in the process, push the European Union, Russia, China and India to assume more responsibility for the security of this planet we share. Avoiding armed conflicts is in the interest of these countries as well. And finally, ask yourself, where else could we save money if not on defense? Cutting budgets which account for between one and three percent of the total budget by as much as 40% does not get as anywhere close to the reductions we need.

Consequently, in my view, the United States government has to freeze spending on 4 of the 5 biggest posts of the budget and reduce the defense budget by as much as possible. Additionally, the remaining posts ranging from Interest payments to Agriculture to Energy to Commerce to Homeland Security to Veterans’ Affairs to  Treasury to Transport, etc…. will have to be examined one-by-one and either frozen or reduced if possible. Some posts will inevitably rise in the coming years such as Interest Payments due to the sky-rocketing debt burden of more than 12 trillion dollars.

Tax increases appear to be off the table for most American voters, Republican Congress members and even some economists. On the one hand I perfectly understand this sentiment and I absolutely agree that the least efficient way of using money is to hand it over to the government. On the other hand, the United States depends on a functioning government that funds education, infrastructure and vital public agencies sufficiently. What is important though is that the government needs to be extremely careful when it comes to increasing certain taxes. A few percentage points too much and the resulting effects on the economy could lead to further turmoil and a surge of anger from voters who are fed up with seeing their money being wasted across the board.

4.) INFLATION

If tax increases and spending cuts can’t be agreed on in Congress, the inevitable consequence will be high inflation. Throughout the decades, inflation was the tool countless governments used to increase the competitiveness of their economies in the short term, make up for failures of domestic economic policies and shrink the debt burden. Nonetheless, inflation is no good solution to the problem. As inflation goes up, so do interest rates which in turn accelerates the accumulation of public debt. Another downside of inflation is that those who’ll be hit the most are some of the hardest working and most vulnerable members of society. Low to middle income families will suffer enormously from picking up inflation rates.

Whether fiscal responsibility can be restored so that the necessary spending cuts and tax increases can be implemented is vital to the long-term health of the American economy. Above-average inflation rates are almost impossible to avoid, but if spending cuts and tax increases fail in Congress, the resulting massive inflation would eat up people’s few remaining savings and a growing share of their income. In this case, only an unexpected, powerful economic boom could avert an inflation-debt-crisis.

http://thecaucus.blogs.nytimes.com/2010/02/11/obama-may-consider-tax-increases/

http://www.reuters.com/article/idUSN3116401620100201

http://www.business-standard.com/india/news/martin-feldstein-america%5Cs-growth-indecade-ahead/383967/

This is the second post of the question-by-question analysis of the survey results:

Question 3: Will electric cars outnumber conventional cars within the next 25 years?

Even tough slightly more than half of the people I surveyed do not expect electric cars to outnumber conventional cars within the next quarter century, I have no doubt that there will be an enormous market for electrically powered vehicles as soon as they become available in large quantities, at an affordable price and with a sufficient driving range.

Question 4: Would you buy an electric car if it were sufficient for you daily use?

90 percent of respondents said they were willing to buy an electric car if it were sufficient for their daily use. As I’ve said before, electric cars have huge potential. In the course of the creation of my research paper “On the Threshold to a New Energy Age“, I came to the conclusion that next to the high initial purchase price, the limited driving range of all-electric vehicles was the main reason the majority of people still don’t consider electric cars a viable alternative to gasoline-powered cars. The good news is that both hindrances can be overcome as technology advances and the benefits of mass production bring down production costs. Range won’t be an issue anymore in the future, since advancing battery technology, other energy storage media and the construction of a recharging infrastructure (electricity sockets in the parking lots of shopping centers, fast food restaurants or office buildings, quick-charging stations in downtown areas and along major highways) will enable drivers to recharge their cars’ batteries cheaply and conveniently at many locations and at the same time, can drive further on a single charge.

This is the first post on the question-by-question analysis of the survey results:

Question 1: Do you own a car?

This was the first surprise for me when analyzing the outcome of  the survey. More than half the people I surveyed own a car.

Given that the vast majority of survey participants lived in or close to major cities in the United States and Asia, I did not expect many of them to actually own a car. Check out my post Survey Results for more information on the breakdown of survey participants by location.

Furthermore, I found out that most Singaporeans (except one) and Japanese I surveyed did not own a car. Many of them did not even have a driver’s license.

Question 2: Do you plan to buy a new car within the next 5 years?

About one third of respondents indicated they had plans to buy a new car in the next five years. Again, I was surprised by the higher-than-expected share of people planning to purchase a new car in the medium term. However, I have to add that a considerable number of those who indicated in the previous question they did not own a car were planning to buy their first car soon. This might have pushed the number up a bit.

In addition, I asked the third with plans for buying a new car whether they thought it would be a conventional car with a combustion engine or a car with a different propulsion technology. This is how they replied:

Although the overwhelming majority of almost 80 percent replied they were going to buy a car with a combustion engine, it is remarkable that more than 20 percent see themselves buying a car with either an electric motor or some other technology.

Whether combustion engine or not, there are many different power sources available next to gasoline or diesel. Bioethanol and hydrogen are two alternatives for the common combustion engine. Electricity generated from any energy source (nuclear, solar, wind, wave or geothermal energy; energy from burning oil, coal, gas and biological matter) can be stored in the batteries of electric cars to power the electric motor. Another option would be to replace the battery with a fuel cell that converts hydrogen into water and oxygen. The byproduct - electricity - could then be used to power the car.

The Question-by-Question Analysis continues tomorrow. In the meantime, you can take a look at the “Energy Survey” page at http://www.whatmattersweblog.com/energy-survey/

In the coming days I will publish the results of the question-by-question analysis. The questionnaire contained 14 questions. 73 people took part in my survey. More than three quarters of participants came from the United States. I interviewed the remaining quarter in Japan, Singapore, Germany and Portugal.

All questionnaires had been distributed and returned between April 2009 and September 2009.

You can find the survey results on the Main Menu page “Energy Survey”:

http://www.whatmattersweblog.com/energy-survey/

Check out the  ‘RP: New Energy Age’ Category for the downloadable version of my 50-page research paper and further commentary on the survey results:

http://www.whatmattersweblog.com/category/rp-new-energy-age/

Click on the images for higher resolution.