The Great Leap Backward?

Elizabeth C. Economy

From Foreign Affairs, September/October 2007

Summary:  China's environmental woes are mounting, and the country is fast becoming one of the leading polluters in the world. The situation continues to deteriorate because even when Beijing sets ambitious targets to protect the environment, local officials generally ignore them, preferring to concentrate on further advancing economic growth. Really improving the environment in China will require revolutionary bottom-up political and economic reforms.

Elizabeth C. Economy is C. V. Starr Senior Fellow and Director for Asia Studies at the Council on Foreign Relations and the author of The River Runs Black: The Environmental Challenges to China's Future.

Clearly, something has got to give. The costs of inaction to China's economy, public health, and international reputation are growing. And perhaps more important, social discontent is rising. The Chinese people have clearly run out of patience with the government's inability or unwillingness to turn the environmental situation around. And the government is well aware of the increasing potential for environmental protest to ignite broader social unrest.

One event this spring particularly alarmed China's leaders. For several days in May in the coastal city of Xiamen, after months of mounting opposition to the planned construction of a $1.4 billion petrochemical plant nearby, students and professors at Xiamen University, among others, are said to have sent out a million mobile-phone text messages calling on their fellow citizens to take to the streets on June 1. That day, and the following, protesters reportedly numbering between 7,000 and 20,000 marched peacefully through the city, some defying threats of expulsion from school or from the Communist Party. The protest was captured on video and uploaded to YouTube. One video featured a haunting voice-over that linked the Xiamen demonstration to an ongoing environmental crisis near Tai Hu, a lake some 400 miles away (a large bloom of blue-green algae caused by industrial wastewater and sewage dumped in the lake had contaminated the water supply of the city of Wuxi). It also referred to the Tiananmen Square protest of 1989. The Xiamen march, the narrator said, was perhaps "the first genuine parade since Tiananmen."

In response, city authorities did stay the construction of the plant, but they also launched an all-out campaign to discredit the protesters and their videos. Still, more comments about the protest and calls not to forget Tiananmen appeared on various Web sites. Such messages, posted openly and accessible to all Chinese, represent the Chinese leadership's greatest fear, namely, that its failure to protect the environment may someday serve as the catalyst for broad-based demands for political change.

Such public demonstrations are also evidence that China's environmental challenges cannot be met with only impressive targets and more investment. They must be tackled with a fundamental reform of how the country does business and protects the environment. So far, Beijing has structured its environmental protection efforts in much the same way that it has pursued economic growth: by granting local authorities and factory owners wide decision-making power and by actively courting the international community and Chinese NGOs for their expertise while carefully monitoring their activities.

Consider, for example, China's most important environmental authority, SEPA, in Beijing. SEPA has become a wellspring of China's most innovative environmental policies: it has promoted an environmental impact assessment law; a law requiring local officials to release information about environmental disasters, pollution statistics, and the names of known polluters to the public; an experiment to calculate the costs of environmental degradation and pollution to the country's GDP; and an all-out effort to halt over 100 large-scale infrastructure projects that had proceeded without proper environmental impact assessments. But SEPA operates with barely 300 full-time professional staff in the capital and only a few hundred employees spread throughout the country. (The U.S. Environmental Protection Agency has a staff of almost 9,000 in Washington, D.C., alone.) And authority for enforcing SEPA's mandates rests overwhelmingly with local officials and the local environmental protection officials they oversee. In some cases, this has allowed for exciting experimentation. In the eastern province of Jiangsu, for instance, the World Bank and the Natural Resources Defense Council have launched the Greenwatch program, which grades 12,000 factories according to their compliance with standards for industrial wastewater treatment and discloses both the ratings and the reasons for them. More often, however, China's highly decentralized system has meant limited progress: only seven to ten percent of China's more than 660 cities meet the standards required to receive the designation of National Model Environmental City from SEPA. According to Wang Canfa, one of China's top environmental lawyers, barely ten percent of China's environmental laws and regulations are actually enforced.

One of the problems is that local officials have few incentives to place a priority on environmental protection. Even as Beijing touts the need to protect the environment, Premier Wen has called for quadrupling the Chinese economy by 2020. The price of water is rising in some cities, such as Beijing, but in many others it remains as low as 20 percent of the replacement cost. That ensures that factories and municipalities have little reason to invest in wastewater treatment or other water-conservation efforts. Fines for polluting are so low that factory managers often prefer to pay them rather than adopt costlier pollution-control technologies. One manager of a coal-fired power plant explained to a Chinese reporter in 2005 that he was ignoring a recent edict mandating that all new power plants use desulfurization equipment because the technology cost as much as would 15 years' worth of fines.

Local governments also turn a blind eye to serious pollution problems out of self-interest. Officials sometimes have a direct financial stake in factories or personal relationships with their owners. And the local environmental protection bureaus tasked with guarding against such corruption must report to the local governments, making them easy targets for political pressure. In recent years, the Chinese media have uncovered cases in which local officials have put pressure on the courts, the press, or even hospitals to prevent the wrongdoings of factories from coming to light. (Just this year, in the province of Zhejiang, officials reportedly promised factories with an output of $1.2 million or more that they would not be subjected to government inspections without the factories' prior approval.)

Moreover, local officials frequently divert environmental protection funds and spend them on unrelated or ancillary endeavors. The Chinese Academy for Environmental Planning, which reports to SEPA, disclosed this year that only half of the 1.3 percent of the country's annual GDP dedicated to environmental protection between 2001 and 2005 had found its way to legitimate projects. According to the study, about 60 percent of the environmental protection funds spent in urban areas during that period went into the creation of, among other things, parks, factory production lines, gas stations, and sewage-treatment plants rather than into waste- or wastewater-treatment facilities.

Many local officials also thwart efforts to hold them accountable for their failure to protect the environment. In 2005, SEPA launched the "Green GDP" campaign, a project designed to calculate the costs of environmental degradation and pollution to local economies and provide a basis for evaluating the performance of local officials both according to their economic stewardship and according to how well they protect the environment. Several provinces balked, however, worried that the numbers would reveal the extent of the damage suffered by the environment. SEPA's partner in the campaign, the National Bureau of Statistics of China, also undermined the effort by announcing that it did not possess the tools to do Green GDP accounting accurately and that in any case it did not believe officials should be evaluated on such a basis. After releasing a partial report in September 2006, the NBS has refused to release this year's findings to the public.

Another problem is that many Chinese companies see little direct value in ratcheting up their environmental protection efforts. The computer manufacturer Lenovo and the appliance manufacturer Haier have received high marks for taking creative environmental measures, and the solar energy company Suntech has become a leading exporter of solar cells. But a recent poll found that only 18 percent of Chinese companies believed that they could thrive economically while doing the right thing environmentally. Another poll of business executives found that an overwhelming proportion of them do not understand the benefits of responsible corporate behavior, such as environmental protection, or consider the requirements too burdensome.