Clearing the Air With a Neighbor : Japan Is Spending Big on Technology to Improve China’s Environment

Since time immemorial, spring winds have blown yellow dust from China’s vast central deserts to the western shores of Japan.

Now, as China’s industrialization gains momentum, those same winds blow clouds of sulfur, nitrogen and carbon dioxide across the sea. Experts estimate that 50% of Japan’s acid rain is caused by Chinese industrial pollution.

Hiroyuki Fujimura’s dream is to make money fighting that 1,000-mile stretch of toxic clouds. He wants to clean the coal that goes into the cloud, and create fertilizer in the process.

With infusions of Japanese government money for environmentally minded business owners such as Fujimura, Japanese companies are getting a jump on their American counterparts in what promises to be a huge industry: cleaning up the world’s most populous country.

Here in the shadow of the waking giant, not only Japan’s environmental fate but perhaps its energy security--long a deep-seated worry--will depend on how China develops.

“Many people are not so excited about giving money to China,” says Asuka-Zhang Shouchuan, a Chinese working at Tokyo University’s Research Center for Advanced Science and Technology. “It’s a matter of security--to keep enough energy in Asia. China will use 80% of the energy in Asia, so technology is important.”

The prospect of China’s becoming motorized, for example, has Japan worried that oil prices would soar, threatening the regional economic expansion Japan is banking on for its own growth. Thus, the Japanese have a sizable interest in persuading China to use alternative fuels.

Likewise, they want to foster coal-cleaning technology not only to clear the winds from China but also so that both nations can use more of China’s cheap and plentiful low-grade coal without creating an environmental disaster.

So Japan is providing more than $430 million in funding from its “green aid” plan--with a planned increase of $186 million for fiscal 1996--to Japanese corporations such as Fujimura’s Ebara Corp.

Japan is building about two dozen demonstration projects in China, ranging from air pollution controls to waste-water treatment plants and a factory that makes paper out of straw.

All of Japan’s interests line up perfectly on this issue, said Peter Evans, an Asian energy consultant at the Massachusetts Institute of Technology.

“They are killing three birds with one stone: contributing to their own energy security, raising their international profile and promoting environmental business,” Evans said. “

The global environmental market currently stands at about $200 billion a year, and experts predict it could soar as high as $600 billion by 2000. Most of the demand will be driven by developing countries, from Asia to South America, as they struggle to mitigate the environmental damage caused by rapid industrialization.

Yet in sharp contrast to Japan, the U.S. role in Asian environmental markets has lagged, in part because of prohibitions against aid to communist countries under the U.S. Foreign Assistance Act.

In addition, there isn’t the environmental self-interest for U.S. companies that there is for Japanese ones. For firms like Kenetech Corp. of San Francisco, for instance, China may be no more attractive than, say, India--and maybe less so because of difficulty in obtaining financing.

“We just have other priorities,” says Clarence Grebey of Kenetech, which built a wind turbine in Inner Mongolia. “We are exploiting markets where we have inroads.”

The U.S. Environmental Protection Agency has come up with alternative ways to channel money to companies for such overseas environmental projects, recently earmarking more than $3 million--some portion of which will go to China.

But that will make scarcely a ripple alongside the cascade of funds flowing to China from Japan.

Whether the environmental business in China will prove profitable for foreigners remains to be seen. But Japan can’t afford to wait to find out. Indeed, it has begun to use foreign aid as a lever to influence China’s behavior toward the environment.

By regulation and tradition, Japan’s overseas aid loans must be requested by the recipient countries for specific projects. But Japan has recently begun to bend the rules. Last year, when China approached Japan with its wish list for yen-loan projects, it lacked a single environmental proposal. Japan demanded that China come up with some, and it came back with 15.

Kenichiro Ogawa, of the New Energy and Industrial Technology Development Organization, which coordinates Japan’s “green aid” funding, says that few of the technologies are new. Rather, mature technologies are modified to match China’s needs.

For example, it takes water to “wash” China’s dirty low-grade coal. Yet the country has severe water shortages. So two Japanese coal companies--Mitsui Coal Engineering and Sumitomo Coal--are working on a way to wash coal with as little water as possible before it is burned.

There is no question that China desperately needs clean and energy-efficient technologies, and that the market for those will be huge.

About 70% of China’s energy is from coal, burned in huge fire-spewing furnaces that spit 15 million tons of sulfur dioxide into the atmosphere each year. China plans to double its electric power output by 2000, and most of that will be generated by coal.

Rivers run black with industrial waste. Fish are dying, and some tributaries of the Yellow River are so polluted with chemicals they can no longer be used for irrigation. Acid rain blackens crops throughout China, and black snowflakes fall in winter.

In the heart of China’s industrial and coal-mining belt, smog becomes so dense in winter that cities in the region become invisible from above. Benxi, with a population of 2 million, disappears from satellite photos.

Today in China the Japanese see a mirror of their own experience: phenomenal rates of economic growth coupled with environmental disaster.

In the early 1970s, after a decade of double-digit growth, pollution became Japan’s hottest political issue. The government responded by passing some of the world’s most stringent environmental regulations, and it gave companies huge discounts on loans for investment in technology to address the problem.

Japan emerged as the world’s leader in anti-air pollution technology, and many economists believe that the transition to more efficient environmental technology propelled Japan’s second wave of economic growth.