Visit the Solar Institute for details of the 2011 Solar Symposium: solar.gwu.edu/Symposium.html

1. The China Secret:
Innovation, Energy, and Social Change in
the World’s Most Dynamic Economy
Dean Doug Guthrie
GW School of Business
April 26, 2011

2. Evergreen Solar plans to close its main American factory, in Devens, Mass., seen
here in September, and lay off 800 workers.
By KEITH BRADSHERPublished: January 14, 2011

3. Innovation and Change:
What Can We Learn from China
Top 10 of GDP (2010)
1. US $14.6 trillion
2. China $5.9 trillion
3. Japan $5.5 trillion
4. Germany $3.3 trillion
5. U.K. $1.8 trillion
6. France $1.5 trillion
7. Italy
8. Brazil
9. Canada
10. Spain
China is second only to the US when adjusting for Purchasing Power Parity*
(US=12.4 trillion; China=8.8 trillion).
*PPP is a statistic that adjusts for cost of living differences by replacing exchange rates with relative
measures of local purchasing power (i.e., the cost of purchasing one bowl of rice, or one bag or grain or
one general unit, with local currency in a given country).

5. Yet, China is winning the race for innovation in clean
tech… “China’s growth in renewables is astounding…
My conclusion is that we are barely in the race today.
My conclusion is China is winning.”
—John Doerr, Kleiner Perkins

6. What Drives Sustainability Innovation?
President Jimmy Carter, center, is surrounded by reporters and
photographers as he inspected new White House solar hot water
heating system located on the roof of the West Wing of the mansion,
over the Cabinet Room, on June 20, 1979. (Note: the panels were
removed in 1986.)

7. David Gray/Reuters
“[China’s]… investment last year of $34.6 billion in the renewable energy industry exceeded that of
any other country in the world. Even so, officials acknowledge that its green energy push will take a
long time to bear fruit. Li Junfeng, deputy director of the Energy Research Institute of the National
Development and Reform Commission, the top Chinese governmental planning body, has said that new
energy has become ‘the most dynamic sector in the country.’”—The New York Times

8. Yingli Green Energy Holding Co., Ltd (NYSE:
YGE)

9. Shenzhen, China: DuPont and Everbright Complete 1.3
MW Chinese Thin Film System
DuPont, through its wholly-
owned subsidiary, DuPont
Apollo and China Everbright
International have completed
an on-grid 1.3 megawatt
rooftop photovoltaic
installation at the DuPont
Apollo production facility in
Guangming New District,
Shenzhen. The project is
considered the largest single
structure thin film
photovoltaic rooftop
installation in China to date.

10. Evergreen Solar
Among the incentives the state offered Evergreen Solar
were a $15 million property tax break, a $7.5 million in
state tax break, $2.7 million through a subsidized lease
and $21 million in cash grants. Not to mention that the
state spent $13 million in construction on roads and
other infrastructure to support the plant.
When Lehman Brothers went
bankrupt in 2008, Evergreen lost
one-seventh of its outstanding shares
in a complex transaction involving
convertible notes. They were
ineligible for TARP funds… But
many other Western solar power
companies are also running into
trouble, as competition from China
coincides with uncertainty over
procurement prices; the Chinese
government often guarantees
procurement prices; the US does not.

11. Chicago’s South Side to Get Biggest Urban Solar Power Plant in US
by Brian Merchant, April 27, 2009
Business and Politics
“Where once there was an abandoned industrial site, soon there shall be the biggest urban solar power plant in the USA.
It shakes down like this: $60 million + 33,000 solar panels + 39 acres in the South Side of Chicago + Obama’s Stimulus =
one solid, 10 megawatt producin’ solar power plant. And it should be up and running by the end of this year. That’s right,
the stimulus is keeping the clean energy projects flowing—this time completely transforming unused acres in Chicago’s
inner city into a much needed renewable energy source. That stimulus sure can work wonders—emphasize can. This
proposed plant by solar company Exelon hasn’t been approved yet, it it looks about as promising as any solar project
inspired by the incipient renewable energy revolution…”

12. Breaking Down the Reform Process
The paradox of reform in China: if China’s institutions are
so weak, how do we explain China’s dramatic success?
Further, if a rapid transition to private property is the
cornerstone of building a successful market, how should we
understand China’s situation?
Key institutional features of the reforms:
1. Gradualism (experimentation)
2. Decentralization (competition)
3. Openness to foreign investment (interdependence)
4. Gradual emergence of a private economy
5. The “quiet” revolution of institutions

13. 1. Gradualism
(leads to experimentation and innovation)
• Contrary to popular belief, state
control and gradual reform have
increased some aspects of radical
social innovation.
• Gradual economic reform in China
has allowed for a degree of stability
while transitions occur.
• More importantly, gradualism allows
for experimentation with new
institutional forms in ways that are
often hidden from the public view.
• This has implications for political
and social change in addition to
economic change.
© 2007 Doug Guthrie

14. 2a. Decentralization
(leads to competition)
• Decentralization is also one of the
key features of economic reform
in China.
• To begin with, China was much
more decentralized than the
Soviet Union was. This meant that
local control could be much more
easily handed over to local
officials.
• Budget constraints were hardened
for municipalities and townships.
Local officials have incentives
aligned (“Local Governments as
Industrial Firms”).
• Local competition emerges.

15. 2a. Entrepreneurial Governments
15

16. 2b. Governmental Strategizing:
The Case of SASAC
True
owner,
(100%
since
2003)
70% of shares 50% acquisition 20%
90% overall (purchase made direct
(since 1999) August 25, 2008) shares
(since
2003)
9-10%
stake in
shares
(since
1999)
COMPANY NEWS: BERKSHIRE HATHAWAY INCREASES STAKE IN PETROCHINA (Aug. 30, 2008)

17. 2c. Cross Industry Strategizing and
Coordination
• Enticing foreign investment
– Cash and the export market
– Management and technology
– Political interdependence

18. 3. Foreign Investment:
Attracting Investors, Building Partnerships

19. Interestingly, we have built industries in this
way before; in fact, we led the world in it…

20. Institutional Innovation in China
• In the US, we should drop the silly allegiance to the beauty
of a free market; we don’t have the political will to live by
it, and our failure to do so creates distorted incentives
• We can learn a tremendous amount about innovation from
China’s state-led investment:
– China is a place of radical institutional change: It is
radical both because of the objective material changes,
but also because of the institutional innovation that is
occurring there
– Cross industry strategizing and state-led subsidization
of industry is a crucial part of industrial development
– This is not just a story of cheap labor; it is truly a story
of state-led innovation