Saturday, September 8, 2012

Is Environmentally Sustainable Economic Growth Possible in China?

                                                                           Pollution over Shanghai.

China has achieved miraculous economic growth over the past 30 years to become the world's second largest single-country economy. Since the introduction of market-oriented reforms began in 1979, economic growth has been the central task of the Chinese government. Economic performance is even linked to career advancement. Incentivized by both financial rewards and political futures, policy makers have a vested interested in growing the economy.

However, growing gross domestic product (GDP) at any cost has created a series of social and environmental problems, and consequently, economic losses. In 2008, pollution and environmental degradation accounted for 10.51 percent of gross national income, according to calculations based on figures provided by the World Bank. Though problems have been prevalent since the beginning of China's modern industrialization, environmental challenges have dramatically increased over the past three decades, raising both international and domestic concern. China is currently ranked 116 of 132 countries on the Environmental Performance Index, and since 2007, China has overtaken the U.S. as the world's largest greenhouse gas emitter. Rapid industrial development has depended upon increasing inputs of energy, natural resources, and environmental services. As a result, resource depletion and environmental pollution have become serious problems that require the rethinking of governmental policies.
Recognizing the unsustainability of its growth model, the Chinese government has called for a major policy shift to address the environmental impacts of economic growth. In fact, China claims it is one of the first developing countries to propose and implement sustainable development as a national strategy. The government has achieved substantial advancements in sustainable development, including poverty reduction and population control. These efforts are not pure political slogans; they are important policy experiments in sustainable development.
China still faces numerous challenges. Most of the country is in the early to middle stages of economic development and must deal with critical natural resource and environmental constraints. Significant economic and social structural problems also remain. The inadequacy of China's existing strategies can be explained in part through universal shortfalls of the concept of sustainable development, which is difficult to define and measure. According to 2012's Rio+20 Conference, any action that a country performs to improve social welfare can be counted toward sustainable development. However, the trade-offs among the economic, environmental, and social pillars are often ignored. For example, if poverty eradication is accompanied by environmental degradation, is this development pattern sustainable?
China also faces many of its own conflicting goals and trade-offs in sustainable development. The population living in poverty within rural areas numbered 122.38 million at the end of 2011. Though the government hopes to reduce the poverty rate by furthering economic growth, poverty and environmental problems are interrelated, and the worst-case scenario is a vicious cycle: on the one hand, poverty alleviation requires economic development that puts further pressure on the fragile ecosystem; on the other hand, the environment and natural resources can be constraints on low-income regions as they attempt to emerge from poverty. For example, deforestation, overgrazing, and overdevelopment of agricultural land lead to resource degradation and increasing natural disasters, which disproportionally occur in the poor regions and reduce their developmental capacities. Many are also concerned that because China is still at an early stage of industrialization and urbanization, addressing the key global environmental issue of reducing greenhouse gas emissions could increase industrial costs and slow further economic growth.
Contrary to traditional analyses, new economic theories and empirical evidence refute the idea that economic growth, openness, and the environment are inevitable enemies. While an increase in income will not automatically improve the environment, studies have failed to prove that economic growth and openness necessitate environmental degradation. This is good news for China, which is not likely to amend its quest for growth. If China implements the correct policies now, it may not have to slow down economic growth in order to avoid environmental deterioration.
These changes will not take root unless policy makers provide incentives and enact environmental regulations. Policy, not income, will lead to a better environment. For China to improve its sustainability model, new polices must be implemented that explicitly address trade-offs in sustainable development. Furthermore, the stringency of enforcement rather than the letter of the law determines the de facto environmental standards. Poor enforcement can partially explain the overall poor state of the environment and may be due to a lack of respect for laws or standards that have been set too high.
Perhaps most importantly, the selection of environmental policies depends on the preference of a country's citizens. Even in an authoritarian regime, the central government tries to reflect individuals' preferences in its decision making to maintain social stability. However, without a voting mechanism it is difficult for the central government to know median preference, and policy making is likely to be determined only by the information that can be observed. The government in China has thus paid more attention to problems that are more visible, such as air pollution in big cities. The Chinese government's preference always leans toward faster economic growth with lower environmental standards, which is not necessarily aligned with individual citizens' preferences. The public knows best its own preference for the combination of income and pollution, making public participation instrumental to sustainable development.
Although the Chinese government has taken important steps to address environmental concerns, new policies — such as the aforementioned — are needed to enforce and regulate systems that are both environmentally and economically sustainable. China will not amend its goal of economic growth, but if the correct policies are implemented and enforced, the country will not have to slow down or reverse its growth or return to autarky to address issues of environmental instability.
For a more comprehensive picture of China's current environmental and economic policies, as well as policy recommendations to facilitate an environmentally sustainable economic growth strategy in China, download the full Asia Society report, Delivering Environmentally and Socially Sustainable Economic Growth: The Case of China, which was made possible with support from the Bertelsmann Foundation.

By Junjie Zhang is a Senior Advisor at Asia

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