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China's Growing Economic Strength in the 21st Century

China's 12th five-year plan (2012-2017) has a targeted annual GDP growth rate of 7% and the development of renewable energy with an investment of $640 billion to constitute 15% of China's energy needs by the year 2020, building housing for 36 million families and the promotion of social equity and rural development. China's overall prospects are explicated given specific caveat concerning China's distinctive pragmatic and cautious approach of implementing a market system along a political control by a one party system -- its longevity and stability will be subject to conjecture.

China's successful macroeconomic management during the 2007-2009 global great recessions was marked by a rapid recovery after exports dropped by 18% causing 21 million workers to be laid off, but 98% readily found jobs as the economy bounced back up and the unemployment rate dropped to 4% with a $586 billion stimulus package directed at creating employment.

Given China's performance, it is estimated that its per capita income will converge to that of the United States by 2040. Its GDP is already second to that of the United States. China envisages a population of 1.39 by 2020

Along with these impressive goals comes a significant focal shift in regards to China's targets for sustainable energy with the purpose of environmental safety. These new objectives, which would not only bolster alternative energy research and development but could also cause a shift in the world's leading energy initiatives, have the potential to alter global energy markets over the next few decades. According to the plan, which was only recently approved by the National People's Congress, the Chinese government will for the first time provide subsidies to local governments to encourage foreign and domestic investment in renewable energy sources, primarily hydroelectric and wind. These efforts are in part of a greater mission to achieve a 15% energy output of non-fossil fuels by 2020, a goal that would rival those of both the EU and the United States. This initiative, known as Strategic Emerging Industries, includes several sustainable energy developments with the goal of environmental protection and clean energy.

The 12th 5-year plan's emphasis on establishing a global hub for the creation and development of renewable energy has the potential to radically transform the world's energy markets. The goal of achieving 11.4% of non-fossil fuel energy consumption by 2015, followed by 15% in 2020, if achieved would essentially reshuffle global energy market. China could offer virtually unmatchable prices on alternative energy sources to the rest of the world decreasing global dependency on traditional oil producing nations. The reason this 5-year plan is so important is because of the repercussions it may have on both American and European alternative energy markets. In the previous 5-year plan, the Chinese government focused on establishing clean energy technologies such as solar, wind and biofuels. Presently, Chinese companies have emerged as leaders in both solar and wind power, due in part by the government injection of $309 billion to the industry during 2006-2011.

By increasing investment in non-fossil fuel energy sources in the 12th 5-year plan to $630 billion, the Chinese government will drastically reform energy dependency on fossil fuels both domestically and globally. Energy independence has a two-pronged definition; to eliminate imports from and dependency on oil producing nations, as well as eliminating fossil fuels for a cleaner and safer environment. Currently, the United States and Germany both have broad and sophisticated alternative energy markets. Germany is one of the world leaders in wind energy technologies, with goals for a 20% decrease in fossil fuels along with 20% of total energy consumption to be from renewable energy sources by 2020. The United States has similar goals, which both nations hope to achieve and chances are that they will. The fact of the matter is that although the Chinese aren't going to be the world leaders in renewable energy production and consumption within the next decade, the goals that they have put in place call attention to the drastic shift in global government policy towards safer, greener and renewable energy sources. China is one of world's largest consumers of fossil fuels and by restructuring its energy needs it will cause a serious shift in global markets away from traditional energy powerhouses such as OPEC to more environmentally friendly energy sources, whether they be based in Hong Kong, Silicon Valley or Frankfurt.

By being a world leader in energy subsidies, China is setting the bar for other governments to match. President Obama's agenda on Energy and the Environment has called for an 80% reduction in greenhouse gas emissions, serious cuts in imports of oil from the Middle East and Venezuela, and most importantly significant growth in the alternative energy sector stimulated by government subsidies. Policies such as these will increase the number of sustainable energy producers, drive down the price of energy, which will allow developing nations to more easily achieve energy independence themselves through domestic alternative energy markets. This shift in approach towards sustainable energy is the first step towards completely restructuring long-term worldwide energy consumption, which will be one of the main focuses of the global economy during the 21st century and beyond.

*Nake Kamrany is Professor of Economics and Director of Program in Law and Economics at the University of Southern California. George Milanovic is a Research Associate in Economics at USC and a member of the Global Income Convergence Group (GIC-G) in Los Angeles.

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