When we talk about climate change moving industries to China we mean it - literally

To all of those ninnies out there that blather on about it being Australia's moral duty to slash our economic wrists by ratifying Kyoto while at the same time letting rampantly expanding new economies in India, China and Brazil off the hook to pump out as much CO2 as they like, can you please explain exactly how it will come about that there will be a net reduction in GHG emissions if we do so?

President Bush recently reiterated his opposition to mandatory caps on greenhouse gases. He argued that unless rapidly rising economies such as China and India also agree to caps, then any steps the US takes are in vain. "Unless there is an accord with China, China will produce greenhouse gases that will offset anything we do in a brief period of time," Bush has said.

The administration's critics claim the president is using China as a convenient excuse to maintain the status quo. Let's assume Bush's critics are right and that his argument is a rhetorical dodge. And let's assume that when Bush leaves office his successor embraces a significant regulatory assault on production of greenhouse gases (either through a cap-and-trade program or through stiff taxes on carbon). What is likely to happen?

A glimpse comes courtesy of James Kynge's extraordinary book, China Shakes the World: A Titan's Rise and Troubled Future - and the Challenge for America. Kynge tells the astonishing story of the Thyssen Krupp steel mill. This Ruhr River valley mill once employed 10,000 people in Dortmund, Germany. For many years after World War II it was one of the country's largest steel producers.

But competitive pressures from overseas killed the town's steel industry, and those jobs disappeared. Those German jobs may be all gone, but the German mill itself is still alive and kicking and churning out steel. But instead of doing it on the banks of the Ruhr, it is on the banks of China's Yangtze River.

Just a few years ago, over one thousand Chinese descended upon the Ruhr valley.

"They bedded down in a makeshift dormitory in a disused building in the plant and worked twelve hours a day, seven days a week throughout the summer. Only later, after some of the German workers and managers complained, were the Chinese workers obliged to take a day off, out of respect for local laws."

In less than one year, they successfully disassembled the plant and shipped the 275,000 tons of materials and equipment to China. A manufacturing entrepreneur and a former peasant farmer named Shen Wenrong had purchased the plant and reassembled it 5,600 miles away.

This is what could be called the Lego-fication of heavy industry. It made economic sense for Shen to do this because he had access to all the relatively inexpensive labor needed to run a big steel production facility; he just needed western technology. And so he bought it in Germany, broke it down as if it were a gigantic Lego set, and reassembled it in China. And he pulled this off faster and cheaper than it would have taken him to build an entirely new plant.

Serious discussions are now underway in Washington and other capitals about making the emission of greenhouse gases, such as those typically generated by heavy manufacturing industries, very costly. Supporters of increasing the cost of emissions argue that this will trigger innovation that will yield low or zero-emission technologies. And they may be correct in the long run.

In the meantime, what is likely to happen? If the cost of emitting is high enough, energy-intensive industries will thrive in areas where the cost of emitting is low. Today, that includes countries such as China. And if it is already cost-effective to dismantle and relocate heavy industry plants before severe emissions constraints are in place, we might see more such instances of that when the costs go up. The net effect on emissions will be unchanged, their point of generation simply moving somewhere else.

This is why some proponents of mandated emissions reductions besides President Bush acknowledge the importance of getting China on board if the United States proceeds with emissions restrictions. But how likely is it that China will go along?

Anything is possible. But after reading Kynge's deft and even-handed treatment of modern China, I am not optimistic that it is likely any time soon, for two reasons.

For starters, while there are many Chinese who are already rich or who are getting rich, the massive bulk of the Chinese population - more than the combined total of both Europe and the United States - is still enmeshed in extreme poverty. China's growth miracle, if it continues, will eventually pull these people out of poverty. But this will take a couple of generations, during which time their emissions will rise dramatically. China's short-run concern for its citizens' material well-being is likely to trump concerns about climate changes that could happen down the road.

Another reason is that China faces much more pressing ecological problems in the near term. Particulate air pollution is a large and persistent concern. And the nation's water problems are severe and growing. It will be costly to fix these problems. As China gets richer, it will begin to address them. But in prioritizing their environmental threats, these are likely to trump tackling climate change.

Would the United States and Europe be able to force China to lower its emissions? The only stick on offing is threat of a trade fight. Given growing protectionist sentiment in the United States, this prospect is not unimaginable. But given how costly trade restrictions can be in perpetuating human misery, this would be a large and nasty price to pay.

Not content with simply creating an environment in which business can thrive in China, things are so favourable there that they can pick up the whole freakin' steel mill and move it half way around the world.

The fact is that if a company in the Western world shuts down a factory and builds a new one in China that it will produce more CO2 and other particulate pollution than in the original country because Chinese pollution laws allow them to do so, thus saving money for the owners.

China's top three priorities are economic growth, economic growth and economic growth. That's why tax rates for overseas companies are 15% while for local companies it's 30%.

India, China and Brazil will do exactly what we did 50 years ago. Expand at a massive rate, pollute like crazy and then get their act together and sort things out. And that's the way it is.