China’s crisis: a development perspective (part one)

China’s growth has lifted over 200 million people out of poverty, but raised a new set of problems. In the first part of a wide-ranging essay, John Warburton & Leo Horn survey the country’s ecological state of affairs.

China’s graduation to middle-income country status and its emergence as an aid donor and world power is arguably the most outstanding developmental achievement of the past five decades. This remarkable transition has been neither smooth nor linear, but punctuated by societal convulsions and underpinned by widespread environmental degradation. China’s environmental crisis is now one factor threatening to jeopardise future domestic growth prospects; it is also increasingly impacting other developing countries. The sheer pace of change is taking us into unchartered territory.

Environmental problems are not new to China. However, few would deny that two historical shifts in the last 50 years greatly exacerbated environmental degradation. The first were the particular attempts during Chairman Mao’s rule to dominate nature; the second phase, from 1978, follows the “opening up and reform” policy and is characterised by transition from a state-administered and closed economy to a dynamic and open market economy, based on export-driven manufacturing, with very little environmental oversight or accountability.

Market-oriented reforms have been a driving force behind China’s phenomenal economic success. The numbers speak for themselves. Since 1980, China has had the highest sustained rate of economic growth in the world. Gross national income quadrupled in real terms, bringing huge benefits to its population. Over 200 million people have been lifted out of poverty, accounting for three-quarters of global poverty reduction.

However, the transition from an administered to a market economy also throws up new problems and challenges. A hallmark of transition is the prevalence of market failure. Market failures are key drivers of environmental degradation and growing social disparities. Environmental market failures have given rise to a developmental model that is at once wasteful in the use of scarce natural resources and highly polluting. China’s “extensive” mode of growth, characterised by high levels of investment and resource consumption, low efficiency and high levels of waste and pollution, is pushing up the costs of economic performance.

China is the world’s fourth-largest economy, and currently accounts for approximately 5% of world GDP, yet it absorbs close to a third of the global supply of coal, steel and cotton, and close to half of its cement. China is now the second largest energy consumer after the US, with nearly 70% produced from coal combustion. In 2005, China used more coal (2 billion tonnes) than the US, India and Russia combined, and is currently building a 1 gigawatt coal-fired power plant every five days. From being a net exporter of oil merely a decade ago, China is now the world’s third largest oil importer and second largest consumer. With double-digit growth rates the Chinese economy is expected to quadruple within 15 years, to become the world’s third largest in size. The resources needed to feed change on this scale are simply staggering.

China is one of the world’s worst polluters on a local as well as global scale. Concentrations of both air and water pollutants are among the highest in the world, causing damage to human health and loss of agricultural productivity. According to recent reports from the State Environment Protection Administration (SEPA) and the World Bank, air and water pollution costs China 5.8% of its GDP. Sixteen of the world’s 20 worst polluted cities are in China, and two-thirds of its inhabitants breathe air of sub-standard quality. Despite widespread water scarcity, more than half of China’s rivers are severely polluted, with one-quarter so polluted that they cannot even be used for industry or irrigation. Around 300 million people in China lack access to clean drinking water. Land too is scarce: 58% of China’s land area is classified as arid or semi-arid and only one-fifth of China’s cultivated land is classified as high quality, yet more than 12% of this land has been lost in the last decade due to industrialisation and urbanisation with measurable impacts on China’s ability to be self-sufficient in food (a somewhat vague notion, but still a government priority).

These problems are exacerbated by weak environmental governance, patchy implementation and lax enforcement of environmental laws and regulations. On paper, China has some of the most advanced laws, for example, for renewable energy, clean production, environmental impact assessment and pollution control. “In theory, we have solved the problems”, said Pan Yue, a vice minister of the State Environmental Protection Agency. “Now, the challenge is to make this compulsory.”

One of the biggest challenges is overcoming institutional fragmentation and related coordination failures. Historically, the challenges of administering a vast territory with a large and diverse population required the development of an extensive, rigid and well-disciplined government bureaucracy. Although the vertical channels of action and information function impressively well for the purpose of executing central plans, there is poor organization and little communication (let alone policy coordination) between ministries and agencies. Coordination failures tend to be more pronounced in the management of environmental resources that span many jurisdictions, where responsibilities are divided artificially by sector boundaries and administrative regions and levels.

It is the case almost universally that environmental policy concerns fail to carry sufficient weight in economic planning and policy processes.

China is no exception. There is an embedded pecking order evident in the relative resources commanded by various agencies. Although environmental protection has become a clear policy priority for the government, SEPA is grossly under-resourced to carry out its responsibilities: less than 300 staff are employed full time compared to 17,000 in the Environmental Protection Agency of the USA (a country of comparable size).

Weakness at the centre is mirrored at the local government levels. Compliance with environmental laws and regulations is in fact weakest at the local levels, particularly in poor regions where the priority is to grow, and environmental “clean up” is relegated to a more prosperous future. This is due in part to chronic shortages of budgetary (and human) resources to deal with many environmental problems at local levels. It also has to do with weak incentives for environmental performance for local government officials. Many local governments are reluctant to act because they depend on polluting plants to generate both tax revenue and jobs.

Finally, there is considerable ongoing debate around the extent to which China lacks, and therefore will need to develop, independent regulatory institutions and structures to help with the transition to a free-market economy.

A wider perspective

Despite this bleak situation, there are various reasons why one should be careful in criticising this environmental state of affairs.

First, China’s per capita use of resources is still very low. For example, according to the Global Footprint Network, China’s ecological footprint, at 1.36 hectares per person, compares to a world average of 2.3 hectares, and 9.57 for the US. Economic growth is fundamental to China’s future, and it clearly has a right to grow.

Secondly, the formidable trends earlier described are symptoms of China’s integration into the global economy. With a low-cost production base and high-volume capabilities, China has become the workshop of the world, and it is contributing about one-third of global GDP growth. Export trade rather than domestic consumption is driving China’s growing pollution and resource demands. The average Chinese in fact consumes very little: 48% of Chinese GDP goes to savings. On the other hand, China is the world’s third largest exporter, after the US and Germany. Tellingly, 40% of China’s energy goes into producing exports for western markets. Thus there is a huge global interdependency, in which most parts of the world benefit from the goods China produces at hugely competitive prices, while China is left with the “bads” such as pollution and a depleted environment.

(This is also a little-acknowledged contributory factor to the success that certain developed countries such as the UK have had in de-coupling their economies from carbon emissions, by shifting manufacturing, and its associated pollution, to China.)

Thirdly, other countries have gone through such phases of industrialisation and associated pollution and inefficient resource use, including the US a century ago, and Japan more recently. China is still in the midst of its industrialisation drive, and by 2015 it will have completed its first round of industrial modernisation, by which time it will be at the same level as most of the western countries in 1960. Historically, these western countries, drawing upon either their own natural resources or those of their colonies, were able to develop without concern for environmental limitations. In this respect, the increasingly strong statements by the Chinese leadership to address the crisis are highly commendable, since they come at a time when the per capita income is only US$1,700, far less than the income level of most OECD (Organization for Economic Cooperation Development) countries when they began to address environmental issues.

Which leads to the fourth point, namely that China has responded to the environmental crisis, and is responding ever more strongly. There are some encouraging examples of effective pollution control over the last 10 years. The World Bank’s 2007 Country Economic Memorandum for China indicates that there have been some improvements in overall urban air quality, albeit from a very low baseline and in river water quality in southern China.

Likewise, China has taken some bold steps to control some international pollutants of concern. For example, under the Montreal Protocol, China has adopted more than 100 policies and measures to reduce ozone-depleting substances (ODS), accounting for half the total amount of ODS eliminated by developing nations. Of the few specific targets in the current macroeconomic Five Year Programme (2006-2011), the majority are environmental. These include a reduction in energy intensity by 20%, a reduction in emissions of major pollutants by 10% and 70% of all municipal waste-water to be treated. The government is beginning to introduce appropriate incentives to support the strong environmental rhetoric, such as tax breaks for energy-saving technologies.

Electricity and water prices are gradually increasing, at least in urban areas, although still not enough to truly reflect scarcity value. Environmental criteria are starting to be introduced into the system of management performance, which decides whether officials receive promotion and pay increases, thus making local officials more accountable for their environmental performance both upwards to higher levels of government and downwards to their local populations. And finally, environmental expenditures overall are rising significantly, with an anticipated doubling of expenditure on environmental protection in the current eleventh Five-Year Programme period.

Finally, it should be acknowledged that China’s one-child policy since 1979, albeit controversial and with some negative social impacts such as an ageing population, a skew towards boys, female infanticide and incidents of forced sterilization, has resulted in a population some 300 million less than would otherwise be the case, and a fertility rate that is more equivalent to that of OECD countries than a middle-income country.This is a point that China has been emphasizing at recent international negotiations around climate change.

John Warburton is the senior environment adviser for the UK Department for International Development (DFID), and is currently based in China. He is an environmental professional with 20 years of experience in the public, private and voluntary sectors, and has been working on the integration of environmental sustainability into development planning in many countries in Africa and Asia.

Leo Horn is national coordinator for the UK-China Sustainable Development Dialogue, and an environmental economic consultant to the
World Bank. He was previously working as an environmental economic adviser at DFID China, as well as seconded expert to the China Council for International Cooperation on Environment and Development (CCICED), a high-level advisory body to the Chinese Government. He holds degrees from Oxford, Cambridge and Sussex Universities, in Economics and International Relations.

The opinions of the authors are their own, and are not necessarily those of DFID.

Homepage photo by husar

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