226the utilization rate had fallen to 992 h.

4 Discussion

The Chinese state’s intentions for wind power may have been good; however, state involvement led entrepreneurial activity astray. The incentives led to what Baumol (1990, 1996) would call unproductive entrepreneurship. Whether entrepreneurship adds value to society or is oriented toward rent-seeking or illegal activity depends on the relative payoffs (Baumol, 1996). Little economic activity in Chinese wind power added value; ﬁrms actually suffered losses that could have been avoided. For example, the decision to limit the presence of foreign components in turbines erased valuable international expertise and products left the market.

Most investments in Chinese wind power were made by Central State-Owned Enterprises (CSOEs). This partly explains why investments seem to have disregarded economic logic (Zhu et al., 2019). Because of the need to fulﬁll political goals, such investments suffer more political intervention than private ﬁrms, and performance varies (Fan et al., 2007; Du & Wang, 2013).

State ﬁrms must engage in “social” and “strategic” burdens like maintaining regional employment or engaging with sectors that are important to central government planning (Dong & Putterman, 2003). China’s CSOEs neither enjoy the beneﬁt of good investments nor do they endure responsibility for losses, since they have what Chow et al. (2010) call “soft budget constraints”, which are government Less from More: China Built Wind Power, but Gained Little Electricity

227transfers. When the central government controls economic activities and the decision-making price signals of ﬁrms are distorted, the basis of buying raw materials, and from whom, becomes politicized. Hence, the burdens laid on China’s CSOEs make it hard to distinguish between policy-induced losses and business losses (Liao et al., 2009). China’s CSOEs differ from the private market logic of proﬁt-maximization by following a political logic which, at ﬁrst glance, is not economically rational (Wang, 2014). A downside of not following proﬁt and price signals is that producers lose their main source of information. Proﬁts indicate value for customers and that scarce resources are used efﬁciently. When price is absent as a market signal or planners disregard signals, they have to depend on other measures (de Soto, 1992/2010).

Entrepreneurs should be guided by price signals, but market-distorting interventions (such as subsidies, price ﬂoors or ceilings, and capacity targets) undercut the ability of entrepreneurs to be active drivers of the economy, relegating them to optimizers of government goals. In an ordinary market economy, it would be illogical to erect a wind power plant without a grid connection. In China, poor localization has been common because of construction goals: When spending somebody else’s money, the cheapest means of goal fulﬁllment is to buy inferior products for inferior locations. Forced construction created questionable location choices, like the presence of plants in non-populated northern areas at end of the power grid and where the power grid structure was not appropriate for large-scale wind power (Han et al., 2009). Entrepreneurs are products of the market institutions in which they ﬁnd themselves. Institutions establish rules to promote behaviors by changing payoffs. Important institutions include (1) well-deﬁned and enforceable private property rights; (2) the rule of law; and (3) a moral code of behavior that legitimizes and acknowledges these traditions (Hayek, 1968/2002). Policies affect outcomes, but good policy under bad institutions can create unintended consequences (Evans, 2016).

A ﬁxed production goal can turn the entrepreneurial process on its head and lead to destructive creation rather than creative destruction. One problem with China’s emphasis on setting quantitative goals is that quality becomes less of a sales point and intense price competition hurts both technological development and the quality of the goods sold (Hayashi et al., 2018). Usually, competition improves quality, but when quantity is optimized and the proﬁt motive is distorted, an equilibrium with low price and low quality can materialize (Xingang et al., 2012; Luo et al., 2016).

A plan needs a goal, for example, an equilibrium state in which demand is satisﬁed. However, before reaching that rough equilibrium, market changes (individual preferences, the endowments of resources, and available technology) will make the plan obsolete, since even a small relative price change can make another option better (Kirzner, 1982, 1999). Information cannot be assembled beforehand by regulators and planners or an entrepreneurial state administrator. An energy system is a juggernaut that is not easily changed. The planning horizon will be decades-long, because that is how long it takes to initiate the construction of powerplants and to build them. Imagine planning the decade beyond 2007, when neither smartphones J. Grafström

228nor electric cars would be have been part of the plan. In 2007, both the electric car and what we call smartphones today were largely unheard of.

It is no exaggeration to say the Chinese wind power sector was—and is, it seems from the research literature—deeply regulated by planning and administrative practices. Some policies have been counterproductive, due to several competing and uncoordinated government entities (Lema & Ruby, 2007). Liao (2016) analyzed 72 wind energy policies from 1995 to 2014 and observed over 20 actors who issued policies independently or together. Policy came largely from ofﬁcials that regulated key economic and administrative issues, but not wind power.

5 Conclusion

This chapter has investigated Chinese wind power development in the twenty-ﬁrst century. Its main conclusion is that innovation cannot be enforced by mass efforts and that when the state lays out directions and clariﬁes objectives, these can be achieved but with severe and unexpected side effects. A key lesson for Europe is that while renewable energy has great potential, its development should occur through price mechanisms: emissions like CO2 should become more expensive, thus incentivizing innovation in other energy sources. As observed by Mazzucato (2015), the macro numbers looked good for Chinese wind power, but when investigating the micro-level data, the production aggregates were obviously a mirage. The production numbers presented in this chapter are a stark contrast to Mazzucato’s (2015) notion that China’s strategy of optimal economic development assured a win-win between the environment and proﬁt. Of course, this can exist, but it is not what is revealed in Mazzucato’s example. Just because wind power plants are built does not necessarily mean that electricity will be produced.

China emits a signiﬁcant portion of the world’s CO2, so efforts to reduce emissions, like wind power construction, are necessary, but large inefﬁciencies in investments lead to problems. The Chinese wind power sector demonstrates substantial economic activity but less value creation. Political favors from the ruling politicians carry more weight than actual value creation, and market actors have