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.

This, however, only works sometimes. Greater energy efficiency can bring economic benefits, and investments to reduce pollution, such as in building wastewater-treatment plants, are expenses that can be balanced against the costs of losing crops to contaminated soil and having a sickly work force. Yet much of the time, charting a new environmental course comes with serious economic costs up front. Growth slows down in some industries or some regions. Some businesses are forced to close down. Developing pollution-treatment and pollution-prevention technologies requires serious investment. In fact, it is because they recognize these costs that local officials in China pursue their short-term economic interests first and for the most part ignore Beijing's directives to change their ways.

This is not an unusual problem. All countries suffer internal tugs of war over how to balance the short-term costs of improving environmental protection with the long-term costs of failing to do so. But China faces an additional burden. Its environmental problems stem as much from China's corrupt and undemocratic political system as from Beijing's continued focus on economic growth. Local officials and business leaders routinely -- and with impunity -- ignore environmental laws and regulations, abscond with environmental protection funds, and silence those who challenge them. Thus, improving the environment in China is not simply a matter of mandating pollution-control technologies; it is also a matter of reforming the country's political culture. Effective environmental protection requires transparent information, official accountability, and an independent legal system. But these features are the building blocks of a political system fundamentally different from that of China today, and so far there is little indication that China's leaders will risk the authority of the Communist Party on charting a new environmental course. Until the party is willing to open the door to such reform, it will not have the wherewithal to meet its ambitious environmental targets and lead a growing economy with manageable environmental problems.

Given this reality, the United States -- and the rest of the world -- will have to get much smarter about how to cooperate with China in order to assist its environmental protection efforts. Above all, the United States must devise a limited and coherent set of priorities. China's needs are vast, but its capacity is poor; therefore, launching one or two significant initiatives over the next five to ten years would do more good than a vast array of uncoordinated projects. These endeavors could focus on discrete issues, such as climate change or the illegal timber trade; institutional changes, such as strengthening the legal system in regard to China's environmental protection efforts; or broad reforms, such as promoting energy efficiency throughout the Chinese economy. Another key to an effective U.S.-Chinese partnership is U.S. leadership. Although U.S. NGOs and U.S.-based MNCs are often at the forefront of environmental policy and technological innovation, the U.S. government itself is not a world leader on key environmental concerns. Unless the United States improves its own policies and practices on, for example, climate change, the illegal timber trade, and energy efficiency, it will have little credibility or leverage to push China.

China, for its part, will undoubtedly continue to place a priority on gaining easy access to financial and technological assistance. Granting this, however, would be the wrong way to go. Joint efforts between the United States and China, such as the recently announced project to capture methane from 15 Chinese coal mines, are important, of course. But the systemic changes needed to set China on a new environmental trajectory necessitate a bottom-up overhaul. One way to start would be to promote energy efficiency in Chinese factories and buildings. Simply bringing these up to world standards would bring vast gains. International and Chinese NGOs, Chinese environmental protection bureaus, and MNCs could audit and rate Chinese factories based on how well their manufacturing processes and building standards met a set of energy-efficiency targets. Their scores (and the factors that determined them) could then be disclosed to the public via the Internet and the print media, and factories with subpar performances could be given the means to improve their practices.

A pilot program in Guangdong Province, which is run under the auspices of the U.S. consulate in Hong Kong, provides just such a mechanism. Factories that apply for energy audits can take out loans from participating banks to pay for efficiency upgrades, with the expectation that they will pay the loans back over time out of the savings they will realize from using fewer materials or conserving energy. Such programs should be encouraged and could be reinforced by requiring, for example, that the U.S.-based MNCs that worked with the participating factories rewarded those that met or exceeded the standards and penalized those that did not (the MNCs could either expand or reduce their orders, for example). NGOs and the media in China could also publicize the names of the factories that refused to cooperate. These initiatives would have the advantages of operating within the realities of China's environmental protection system, providing both incentives and disincentives to encourage factories to comply; strengthening the role of key actors such as NGOs, the media, and local environmental protection bureaus; and engaging new actors such as Chinese banks. It is likely that as with the Greenwatch program, factory owners and local officials not used to transparency would oppose such efforts, but if they were persuaded that full participation would bring more sales to MNCs and grow local economies, many of them would be more open to public disclosure.

Of course, much of the burden and the opportunity for China to revolutionize the way it reconciles environmental protection and economic development rests with the Chinese government itself. No amount of international assistance can transform China's domestic environment or its contribution to global environmental challenges. Real change will arise only from strong central leadership and the development of a system of incentives that make it easier for local officials and the Chinese people to embrace environmental protection. This will sometimes mean making tough economic choices.

Improvements to energy efficiency, of the type promoted by the program in Guangdong, are reforms of the low-hanging-fruit variety: they promise both economic gains and benefits to the environment. It will be more difficult to implement reforms that are economically costly (such as reforms that raise the costs of manufacturing in order to encourage conservation and recycling and those that impose higher fines against polluters), are likely to be unpopular (such as reforms that hike the price of water), or could undermine the Communist Party's authority (such as reforms that open up the media or give freer rein to civil society). But such measures are also necessary. And their high up-front costs must be weighed against the long-term costs to economic growth, public health, and social stability in which the Chinese government's continued inaction would result. The government must ensure greater accountability among local officials by promoting greater grass-roots oversight, greater transparency via the media or other outlets, and greater independence in the legal system.

China's leaders have shown themselves capable of bold reform in the past. Two and half decades ago, Deng Xiaoping and his supporters launched a set of ambitious reforms despite stiff political resistance and set the current economic miracle in motion. In order to continue on its extraordinary trajectory, China needs leaders with the vision to introduce a new set of economic and political initiatives that will transform the way the country does business. Without such measures, China will not return to global preeminence in the twenty-first century. Instead, it will suffer stagnation or regression -- and all because leaders who recognized the challenge before them were unwilling to do what was necessary to surmount it.

{Footnote 1} The original Associated Press story that was the source for the statement was mistaken and has been corrected. In fact, the EPA, citing a model saying that Asia contributes about 30 percent of the background sulfate particulate matter in the western United States, estimates that Asia contributes about one percent of all particulate matter in Los Angeles.