Balancing China’s development

China’s leadership has recognised the need to fight environmental degradation and reduce the country’s widening income gap. A green GDP index may help, argue  Zheng Yongnian & Chen Minjia, but can it be enforced?

Since the reform and open door policy of the late 1970s, China has achieved a consistently high level of economic growth, with an average annual growth rate of over 9.5%. But the ruthless pursuit of GDP growth has been highly inefficient, causing widening income disparities and environmental degradation on a colossal scale, and resulting in insufficient industrial innovation.

These consequences put into question not only the sustainability of China’s development, but also jeopardise social stability in the country. In recent years, income disparities and environmental degradation have led to an increasing number of social protests, especially in the coastal regions. The Chinese Communist Party has tightened its political control in order to maintain stability, but the leadership also understands that it must adjust China’s development model if it is to cope with the undesirable consequences of rapid economic growth.

Environmental issues in China are becoming increasingly political, and the country is entering an era of environmental politics like many other countries before it. Demands for a healthier environment from the prosperous eastern coastal regions have become increasingly difficult to ignore.

Since the Hu Jintao—Wen Jiabao leadership came to power, China has been searching for a new development model which focuses on sustainability and social justice. China’s 11th Five Year Plan (2006-2010) and the recent Sixth Plenum have both shown ‘building a harmonious society’ to be top of the leadership’s agenda.

The “green GDP” campaign is the means by which the leadership is enforcing its new policy orientation. While green GDP is not yet a widely accepted concept, the Chinese leadership is using it to try to change traditional opinions on economic development among its party cadres and government officials.

Green GDP is a figure for gross domestic product which takes environmental damage into account, and it can be expressed as a simplified calculation:

Green GDP = GDP – the costs of natural resource consumption – the costs of environmental depletion

In practice, a green GDP accounting method usually includes five natural resource consumption costs, including arable land, mineral resources, forest, water and fishery resources, and two environmental depletion costs, environmental pollution and ecological degradation.

In the light of the overheated state of the economy since 2003, green GDP is also considered to be a way of controlling local officials’ economic activities. The green GDP concept is also in line with the essential political objective of using the “scientific development” model to build a “harmonious society”. Therefore, as one observer has pointed out, the combination of social trends, macroeconomic overheating and political factors has created the conditions under which green GDP has become fashionable.

China’s State Environmental Protection Administration (SEPA) and National Bureau of Statistics (NBS) recently published their first green GDP accounting report based on local experiments. However, the result remains contentious.

The concept of green GDP has not yet been scientifically justified, and how to include factors such as environmental damage and public satisfaction is very problematic. Local governments have different ways of calculating their green GDP, leading to a lack of consensus on the meaning of green GDP at the national level.

Furthermore, out of the usual 20 categories of environmental pollution, SEPA and NBS only managed to include the costs of 10, and included no ecological degradation costs at all, due to the difficulty of obtaining data and the limited techniques. It is clear that green GDP, both as a concept and a practice, is still at an early stage in China.

According to the “China Green National Accounting Study Report 2004”, environmental pollution cost China 511.8 billion yuan (about US$64 billion) in economic losses, accounting for 3.05% of the year’s GDP. The environmental costs of water pollution, air pollution, solid waste and pollution accidents accounted for 55.9%, 42.9% and 1.2% of the total costs respectively. The report also estimated that to treat this pollution, China would have had to spend as much as 287.4 billion yuan, equivalent to about 1.8% of the GDP in 2004. However, in 2004 the actual investment in waste and pollution treatment was only about 190 billion yuan. The gap between these figures cannot be ignored.

In recent decades, local GDP growth rates have been the indicator by which the central government evaluates the performance of local government officials. This evaluation system has provided the incentive for local governments to pursue local economic growth regardless of negative consequences such as environmental damage and social conflict.

Policy implementation in the provinces has always proved a difficult task for the Chinese central government. They have to provide sufficient incentives for local governments to induce them to follow central policies. As repeatedly emphasised by SEPA deputy director, Pan Yue, there is a need for the central government to introduce a new system for evaluating the performance of local governments, which would provide an incentive for government officials to change their behaviour. The old evaluation system consists of three parts with 17 items, of which only one concerns the environment. This is not sufficient to induce local government officials to take the environment into account in their decision making.

In August 2004 the Ministry of Personnel issued a research report on “The Assessment of the Chinese Government’s Efficiency”, and released an evaluation system. This system contains three parts and 11 items, each of which has three indices. It aims to improve government efficiency and states that its goal is public satisfaction. The environment still comprises only one item, but its relative importance seems higher, since it is now one out of 11 items, rather than one among 17.

An experimental version of the new evaluation system is being carried out in three provinces: Inner Mongolia (north China), Sichuan (central China), and Zhejiang (east China). The new system is expected to give substantially more weight to environmental concerns and relate them to officials’ performance in several ways:

1) local citizens’ assessment of the quality of the environment;

2) measurement of changes in quality of air and drinking water;

3) forest coverage rate in the local area;

4) local government expenditure on environmental protection;

5) the number of environment-related complaints and lawsuits;

6) the enforcement of the environmental laws.

As a long term strategy for the Chinese government, the green GDP movement in China is certainly gaining momentum. However, when it comes to enforcement, the central government will surely face daunting obstacles from local governments or even from different departments at the central level due to the divergence of their interests.

For example, during the two-year period of research leading up to the publication of the “China Green National Accounting Study Report 2004”, several provinces were extremely reluctant to cooperate with SEPA to carry out the work, or employed various ‘strategies’ to make the green GDP index factually meaningless.

Li Deshui, then the director of NBS, questioned the necessity of calculating the green GDP for China in May 2005, two months after the start of the national programme. Li’s suspicion showed a degree of inconsistency between NBS and SEPA.

When put into practice, green GDP accounting methods meet tough technical difficulties. It is very complicated, for example, to calculate the cost of pollution or the value of natural resources lost. This is one of the main reasons why a standardised green GDP accounting method has not yet been developed anywhere in the world. The technical loopholes would leave space for bureaucratic infighting in China, which would further make the future of green GDP in the country ambiguous. Seeing the technical problems, NBS, which previously questioned the necessity of the green GDP, further argued that allowing zero or even negative GDP growth for some regions could be more practical than implementing green GDP, for the sake of preventing environmental damage by short -term behaviour. 

China’s efforts with the green GDP campaign shed some light on the direction of China’s economic development for the future. However, most importantly, economic development remains the “hard truth” at the most fundamental level. How will green GDP as a concept evolve in China? Will the leadership be able to enforce it? To what degree will it improve China’s worsening environment? All these questions are yet to be answered.


Yongnian Zheng is professor and head of research at the Nottingham University China Policy Institute


Minjia Chen is a research associate at the China Policy Institute

© Copyright China Policy Institute December 2006