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Conference Call with Elizabeth Economy

Speaker: Elizabeth C. Economy, CV Starr Senior Fellow and Director for Asia Studies at the Council of Foreign Relations
Presider: Gideon Rose, Managing Editor of Foreign Affairs
September 6, 2007
Council on Foreign Relations

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GIDEON ROSE: Thank you.  Welcome everybody to another foreign affairs conference call.  We are very fortunate today to have with us Dr. Elizabeth Economy, who is the CV Starr Senior Fellow and Director for Asia Studies at the Council of Foreign Relations, author of many books including “The River Runs Black”, the definitive work on Chinese environmental issues for the moment, and the author of a major new piece in foreign affairs “The Great Leap Backward: The Costs of China’s Environmental Crisis.”  We are going to get right to Liz without further ado.  She has a long resume and distinguished set of positions which we are not going to bore you with.  You can check that yourself.  It is good to hear her thoughts.  As to the piece itself, we figured that half our readers care about China and the other half care about the environment so we can go two for out there by lumping them together. 

            Liz, let me kick you off by saying or asking you, assume that everybody has read your piece but for those who haven’t, what is the basic environmental crisis that’s taking place in China today?

ELIZABETHECONOMY:  Now, thanks Gideon.  It’s a pleasure to be here, to have the opportunity to chat with all of you.  I think the environmental crisis in China, probably it’s useful to think of it in three different ways.  The first is, surely in terms of the environmental impact inChina .  Second, how is what China is doing, with regards to its development and environment practices affecting the rest of the world?  And then third, what are sort of the secondary impacts of China ’s environmental problems on other issues that are very important to the Chinese leadership like future economic growth, health issues, certainly social stability.  So if I could, I’d like to just take a minute or two to talk about each one of those. 

            Certainly the most immediately apparent problem, in terms of China ’s environment, when you step off a plane in Beijingor in many, many other Chinese cities is the quality of China ’s air. Chinahas 16 of the world’s 20 most polluted cities in its land.  About a quarter of its land and a third of its agricultural land are affected by acid rain.  Over 75% of the people that live in the major Chinese cities that the Environmental Protection Administration there monitors are breathing polluted air on a daily basis.  No mystery as to why this is.  Of course coal is the most important source, but we can talk more about that if people are interested. 

            From air, I think that looking at China’s land; here too, I think many people are surprised.  China is roughly the same size as the United States, but already about a quarter of its land is technically classified as desert and the desert is advancing at the rate of about 1,900 square miles per year.  So it sometimes again surprises people to know that it’s only 125 miles outside Beijing, the desert, and affects about 400 million people because the desert advances.  Entire villages are sometimes consumed in sand and people have to migrate.  SoChinafaces a problem of tens of millions of environment refugees within its own borders because of this land degradation and desertification problem. 

            And last, and probably the most important from the perspective of China’s leaders and really from the Chinese people, I think for the Chinese people as well, is the problem of China’s water and access to clean water and both in terms of water pollution and absolute scarcity.  China has the fourth largest reserves, freshwater reserves, in the world.  But inefficiency in the way that it uses it and just polluting without thinking about it has caused some very serious problems, to the point that now two thirds of China’s major cities, about 660 some odd cities are considered water short, 110 of them seriously water short.  About 190 million people are drinking water that’s contaminated and making them sick.  So that’s sort of the beginning, trying to lay the land of what China looks at, what the Chinese leadership sees when it looks at its own environmental landscape. 

            Globally of course, regionally what Chinais doing domestically has an enormous and growing impact on the regional and global environment. JapanandSouth Korea have long suffered from acid rain from Chinaas well as from the yellow dust storms that sweep across theGobiDesertand dump tons of this yellow toxic dust on their land.  Globally now we’re seeing the serious impact of China ’s actions. Chinais the largest or second largest contributor to virtually every global environmental problem, whether we’re talking about ozone depletion or global climate change, marine pollution (inaudible) and certainly illegal trade in timber.

GIDEON ROSE: Why is it all happening?  Is it just the consequences of rapid economic growth on a large scale, or is there something about the way the Chinese are going about all this?

ELIZABETHECONOMY:   Certainly growing at a rate of 10%, 12% per year for over two decades, it’s got to be difficult to do that and to protect the environment at the same time.  But I think China is a special case to some extent, given the political economy really of the country, so that it has both a highly decentralized system where local officials have been basically permitted to run their own show, and that generally means that they want to grow their own economy and not really protect the environment.  You have a system that hasn’t put in place the economical and political incentives to make it easier for these officials to do the right thing.  Raising the price of water to make it useful for them to build and actually use wastewater treatment plants for example, conserve water.  You have fines that are set too low.  Factories simply would rather pollute and pay fines than actually put into place pollution prevention technologies that are more costly up front. 

            Then there is the political side of things too.  There is really no benefit to date for local officials to do the right thing in terms of protecting the environment.  The upside all comes from showing that you have very dramatic and impressive economic growth, that you are raising the standard in the short term, building the standard of your people.  And again, looking outside the formal political structure, the Chinese leadership is worried.  It’s worried about if it lets the media and NGOs and the court system, the sort of the elements of environmental protection that we here in the United States and other countries take for granted as an important part of fighting the good fight on this issue.  They are worried that if they let them loose, really let them loose, that they are going to get a push for broader political change.  And so they are really not willing to untether them.  So it’s a combination, I think, of factors within the political economy that make it this way.

GIDEON ROSE: What, if those are such deep structural reasons, what if anything will have to take place for it to change, and how likely are those changes to occur?

ELIZABETH ECONOMY: Well, I think on the positive side, China’s leaders in the past, I don’t know, three or four years probably, somewhere in the middle of who’s in town wonder about first term of office  have recognized that the environment matters.  They see it far more clearly than their predecessors, Jiang Xing (sp?) and Deng Xiaoping.  So you do have a new commitment at the top.  We have seen that they have set a number of very impressive targets for improving energy efficiency for increasing the role of renewables, moving away from coal, trying to decrease water consumption, all sorts of increasing investments in environmental protection. 

            But if they really want change, they are going to have to put into place the kinds of incentives that I (inaudible) earlier, which is to say that they are going to have to be willing to force local officials to raise the price the water, which many are even reluctant to do because they fear social unrest.  They are going to have to be willing, and they are in the midst right now of discussing a new law on the level of pollution fines and it’s getting a lot of debate and a lot of push back because some people want to set the fines higher.  They are going to have to be willing to do that.  They are going to have to improve the enforcement structure.  You know, they have got 300 people in Beijingthat work for the State Environmental Protection Administration to oversee a country of 1.3 billion people.  It’s simply not tenable.  So they really need to invest more in the human capital involved in environmental protection. 

            And finally, I think they really also do need to jump in feet first and let the environment NGOs and the media and the legal system do their jobs.  Because, again without transparency, without official accountability you are simply not going to get the kind of improvement that I think the Chinese leadership wants to get on this issue.

GIDEON ROSE: Where do we go from here?  I mean, they’re going to stop the factories for a few months for the Olympics and presumably they will get through the Olympics okay.  But then after that, what, is the desert going to go and take over Beijingitself?   Where do things look five years down the road?

ELIZABETHECONOMY:   I wouldn’t presume that they are going to make it to the Olympics okay at all frankly.  I think it’s one of the great disappointments for many people that when Beijing won the Olympics in 2001 and promised a clean Olympics, you know a lot of people would run around and say that this was going to have a transformative impact on China’s environmental practices and China was going to leap frog technologically, et cetera.  The Olympics was going to provide a great spur.  That clearly hasn’t happened and frankly it hasn’t even happened for Beijingalone.   So we have got doctors now saying if you have got respiratory problems, stay home.  I think until the day that the head of the Olympics committee saying we might have to postpone some of the events depending on the air quality, the Chinese have now said we are not going to be able to provide clean water to everybody in Beijing , just to the OlympicsVillage .  So I think, are they going to make it through, maybe yes, maybe no.  I mean, they will make it through, but it’s certainly not going to be a showcase of a clean Olympics. 

            But beyond that, the five years, seven years, you know, I have been looking at this issue for perhaps 15 years now, a long time, and again I do see a new commitment, something different from what I have seen before.  You have new actors at the grassroots level.  Actors who are sort of technologically proficient, technically proficient, know the issues.  You have lawyers now engaged in the environment.  You didn’t have that 10 years ago.  So things really are transforming at the grassroots level.  I think for me to be truly optimistic about the next five to seven years though, it would require Beijing to loosen those reigns and let those people really come to the fore. 

GIDEON ROSE: Okay.   Well a lot of interesting stuff there to unpack and go into further.  Let’s at this point start throwing it out to our questioners and let’s have at it. 

OPERATOR:   Okay.   At this time we will open the floor to questions.  If you would like to ask a question, please press the star key followed by the one key on your touch tone phone now.  Questions will be taken in the order in which they are received. 

            Our first question comes from Zhen Nui of Shanghai Daily. 

ZHEN NUI:      Hi.  May I ask?  Hello?

ELIZABETHECONOMY:   Yes, please ask a question.

ZHEN NUI: Okay.    First of all, thank you for your presentation about the crisis of China .  Actually, I have two questions.  First, do you think that the potential crisis, potential conflict China with their members is over the water crisis or water pollution?  That is the first question.  Second, since this problem is so dangerous, how will theUSgovernment respond?  Do you think there is the possibility that the USlawmakers will put some legislation such as environmental standards when they import Chinese products?  Okay.

ELIZABETHECONOMY:   Okay, thank you.  Just so I understand the second question is exactly what?  I’m sorry, about the US government?

ZHEN NUI: Response to this crisis.

ELIZABETHECONOMY:   ToChina ’s environmental crisis, not the product safety crisis.

ZHEN NUI: Yeah.

ELIZABETHECONOMY:   Okay, fine.  Thank you for both those questions.  I think in terms of the water issue, both in terms of how Chinasort of uses its rivers, many of which flow into other countries.  China has seven major river systems both in Southeast Asia, they go, and also to Russia of course.  I think we have already seen small conflicts arising over China ’s water usage.  Practices and China’s pollution practices, we had the Harbin disaster a couple of years ago which affected Russia.  We had concerns in the Mekong region about Chinese dams in China’s west and southwest and what that is doing to fishing industries and water levels in Cambodia and Vietnam.  So, and I recently heard something about China and Kazakhstan and water concerns in Kazakhstan about China’s practices.  So I think we have already run into or begun to see some problems emerging.  I think that China is fortunate, quite frankly, in the sense of its neighbors all for the most part have been willing to negotiate with China quietly.  I think with the exception of the Harbin disaster, where the Chinese government was silent and then the Russians got reasonably upset, I think there is an element of not wanting to call China out, and you see this not only in the water issue but also in terms of air quality with Japan and South Korea where everybody knows the source of the problem but no one really wants to say China is to blame.  Rather, they spend a lot of time trying to engage Chinain research and efforts to determine the source of the problem, to do studies on how we can all work together and cooperate to address the problem.  And frankly, China is the most powerful actor in the region and when it comes to the water China controls the resources there.  So I think there will probably continue to be those low lying conflicts but I don’t anticipate, unless something changes politically, that they are going to blow it into much more.

            In terms of the US government response to China’s environmental challenge, I think the United States at different levels has been very actively engaged with China.  The US government has not been as active certainly as the Japanese government, which has been extremely engaged with China, not even probably as useful or helpful as the Canadian government.  But I think the USgovernment is very interested.  There is just not much money in the USgovernment to put behind a lot of joint projects.  So most of the energy, quite frankly, that takes place in the US/China relationship when it comes to the environment, happens through multinationals and through environmental NGOs here in the United States many of whom, if not all of the major NGOs in the US, whether you talk about in DC Environmental Defense, Conservation International, et cetera.  On and on they are all very deeply engaged in China .  I think for a long time the environment has been viewed as a very important area of cooperation.  TheUSgovernment has almost always talked about the environment in the context of the bilateral relationship as a win-win kind of game.  So I think that for the most part, it’s a plus; with climate change it could be a negative but given our own administration at this point, you know we are both trying to do a little as possible.

ZHEN NUI: Okay, thank you.

OPERATOR:   Thank you.  Our next question comes from Deborah Zabarenko of Reuters.

DEBORAH ZABARENKO: Hi, this is Deborah, just feeding on that last question about the US response.  This month we are going to see a sort of environmental meet-a-thon in which China will be only one of the participants in the UN climate change meeting on the 24th and then in Washington a couple of days with the biggest major greenhouse gas emitters in which China may be number one.  What do you see Chinabringing to these international meetings?

ELIZABETHECONOMY:   Well, you are right.  And of course you probably know that the first of these is happening right now at APEC and that the Australians and the US, that they have been trying to push this idea of, you know, voluntary obligations and China supposedly in a few days is coming forth with a proposal on sustainable forestry to add to the element of the climate change response, sort of a global proposition.  But I haven’t seen any details of it to date. 

            What do I expect China to bring to the table?  I think that China has a pretty well articulated position at this point, which is that it is a developing country.  It’s not planning to sign on to any targets or timetables for greenhouse gas emissions and that it will do what it can in line with its own domestic targets for reducing energy intensity and for enhancing the role of renewables within China itself.  It wants to be a constructive player, yada, yada, yada.  So I think that is what China is going to bring to the table. 

            I think if we want to get more out of China, then we have to do a better job ourselves.  If you look in the past at what has brought China to the table, on ozone depletion for example, you had to have to strong international consensus and we don’t have that right now.  I mean, we have the United States, probably still the largest contributor overall to greenhouse gas emissions just not maybe CO2, but being really quite a recalcitrant player and so we have no credibility, truly, and no ability to unify all the states to bring pressure to bear on China.  There is no sanctioning mechanism, which was present in ozone.  There is a funding mechanism but it would probably have to be more significant to getChinaon board.  So it’s not that China never agrees to sign on to international environmental agreements, or that sort of have restrictions or have targets.  It will, but the circumstances surrounding it have to be right.  And until those circumstances are right, I think Chinais going to do as little as possible.

DEBORAH ZABARENKO: Thank you.

OPERATOR:   Thank you.  Our next question comes from Jim Landers of Dallas Morning News.

JIM LANDERS: You talked a bit about the Olympics.  I wonder if you would expand on that some.  I mean it seems like an awful lot of people want to use this to highlight problems in Chinese behavior.  I would guess that some of these NGOs you talked about are going to want to do the same thing.

ELIZABETH ECONOMY: Yeah, I think for the most part, environmental NGOs are not interested in using the Olympics as sort of a whipping boy kind of thing, or sort of highlighting the negative aspects of where China is today.  Most environmental NGOs have been working, both in China and outside China, have been working very hard to get Beijing to where it wants to be before the Olympics.  I think more to your point, human rights NGOs, certainly the Darfur issue obviously, I think Falun Gong, there are many, many non-governmental groups that I think you are quite right, that they want to use the Olympics to highlight the negative aspects of China’s political system and how its government leads.  But I don’t think the environment is one of those areas really.  I do think it’s an important marker;  for someone like me it’s an important marker because what it does is it demonstrates that even in, sort of Beijing has used the Olympics as its coming out party, right.  There is nothing probably more important to it than that.  It’s almost impossible to imagine that it couldn’t get to a place, frankly, with the environment by the Olympics.  But what it does signal, I think, again for someone like me, is that the idea that what Beijing says goes, right, which has been promoted frankly a lot in India and other places by certain people, is simply not the case and it is so important for us to understand on any number of issues.  Whether you are looking at intellectual property rights or product safety or the environment, public health, whatever it is, if we are going to try to work with China, it’s critical to understand that dealing with Beijing or listening to what Beijing says or the targets that it sets is only a very small percentage of what actually is needed to make this system work.  So I guess I don’t think anybody is hoping that they can’t get it right on the environment for the Olympics.    

 

JIM LANDERS: When you were talking about the possibility of events delayed because of air pollution and what not.  I mean that would, I imagine, be pretty embarrassing for them if something like that happened.        

 

ELIZABETHECONOMY:   Absolutely.   I mean I think they are.  I think they are desperately afraid and like I said I think they are going to sit on tenterhooks.  They are going to do everything they can.  You know, interestingly, when they first announced, it was just few months ago, it was an announcement that they were going to shut down, require all the factories to shut down, which was not part of the test that they did recently.  There were factories in Beijing that said we are not going to shut down for the duration of the Olympics.  We will slow our production down.  But we are not shutting down, which was another I think very interesting insight into China today.  I think, because anyone who has been looking at this country for a while would have, including me, would have assumed that this is such an issue of national pride, that everybody will do whatever it takes.  And in the end I think they will probably shut down.  But still the idea that economics could trump national pride for the Olympics is, I think, shocking.  So yes, I think you are quite right, it would be very embarrassing and take away significantly from the spectacular spectacle that Beijing really wants to put on for the world and for its own people, if in fact they have got to delay an event because of the air quality.

OPERATOR:   Thank you.  Again, if you would like to ask a question, press the star key followed by the one key now. 

GIDEON ROSE: While we are waiting for one, let me follow up on that.  I mean I find that one of the reasons this is so fascinating is because, as you said, it’s an issue not just to the environment and maybe the consequences, but it’s the 64,000 dollar question about China’s future and the future of its political development, and economic development for that matter.  There is a major debate going on that you know and everybody else has followed about what the future holds for China .  Can its system progress without evolving in some kind of radical disruption in the offing or shut down or is it going to muddle through, or will we be able to see a sort of authoritarian state maintain control even if it gets stronger?  How do you see the broader question of the political future of China, not just on the environment, but how is this a microcosm of what China is going through in general with its growing pains and institutional crisis of government? 

ELIZABETHECONOMY:   Right.   I think as you were pointing out and I think as I suggested earlier, the environment is really only one of several issues that teach us about the current challenge of Chinese governments.  When you are looking at a system that is truly endemically corrupt, it seems to me there is no way forward.  And frankly corruption plays a significant role in all these issues, not just the environment obviously but IPR and product safety, health problems, et cetera.  So when you are looking at this and you try to think how could China begin to address it, I honestly think that it can’t move forward.  The country can’t move forward without some element of real political reform.  And there is no way that Beijing is capable of simple plucking out all of the factories that are polluting and ignoring the laws, or all of the officials that are doing backhand deals on any one of those issues.  And it really hasn’t gotten to the point where I think the top, top leaders are willing to say that.  But certainly within the communist party, within the central party school, within many, many government agencies, there are people who believe that there has to be more reform.  And again there are a lot of bottom up pressures today in China that were not there 10 years ago.  Maybe they were there in 1989, certainly some in the mid-80s, late 80s, ‘87, ’88.  But I think between sort of the development of grassroots activism, not just on the environment but on a lot of other issues, as well as the beginnings of local some elections and people who are pushing for electoral reform, I think that change will come.  I think that all we are missing, frankly, is that one Chinese leader like Jiang Jing, or the sort of Gorbachev or someone who is willing to tap into those not so latent forces anymore and bring them to the fore.

MALE SPEAKER: Let me actually follow up on that.  That is a very interesting point you made, an impressive, an important point.  There are people who worry that the leader could take things forward by externalizing the issues or by drawing up some kind of nationalist backlash against foreigners and effectively try to explode rather than reform.  Is that something you worry about at all?  Or is what you are saying, it’s so obvious that the problems are domestic that they will be solved eventually.  Do we have to worry in geopolitical terms about a China that deals with its internal problems by externalizing them? 

ELIZABETHECONOMY:   No of course we have to worry about that.  And frankly, it’s one of the things that just in the past year or so we have seen, to bring us back to the environment, that we have seen with the environment, has been this argument that I first heard maybe a year and a half ago or so, in an international conference, that the international community is to blame for most of China’s environmental problems, because we have made China the manufacturing center of the world, and thus the pollution capital of the world and, therefore, it is incumbent  on the international community to take care of this.  Not simply to lead, which had been the argument previously, that they wanted multinationals to lead in terms doing the right thing on the environment, but now that the international community is fundamentally responsible for the problem.  I think you can see this point most directly with pollution that a friend of mine, he is an environmental activist in China, (inaudible) developed of companies.  He drew this from local records of companies that had been cited for water pollution.  Initially, it was about 3,300 companies.  Now it’s up to 5,000 or 6,000 companies that he has on his pollution of factories.  Initially, about 33 of them were multinationals or owned or sourced to and now they are up to about 90 multinationals, on a list of about 6,000.  Yet the only companies that Ma Jeng (sp?) and his team go after and what gets all the press, or most of it anyway, are the multinationals.  So I think that there is a sense even among the best of China’s environmental leaders and activists that somehow China is being taken advantage of and that they are going to call these multinationals to account.  So I think that it is not at all impossible that things will move in the wrong direction and that to the extent possible China will blame the international community for any number of its problems and then seek to develop some nationalism.  But I also know, and we have seen in the past, that the Chinese leaders quickly get worried if the nationalism starts to spiral out of control.  So they do recognize that it’s a very dangerous game to play.

OPERATOR:   Thank you.  Our next question comes from Joe Wei of the World Journal.

JOE WEI: Hi, this is Joe Wei from World Journal.  I have two questions.  Ms. Economy, if you had the chance to talk to the local provincial officials in China, how did you convince them, or did you see any sign along the way your 15 years since starting, did you see any provincial local official realize the environmental crisis in terms of resulting from their economic development?  What kind of rationale are you going to level with them in order to make them to change some, the way they try to preserve the local economic growth.  And my second question is while everybody talks about the Beijing Olympics, this seems to many of us that it is a window of opportunity from the outside, can extend some pressure into the Beijing leadership and to change anything.  Nothing really happened after the people were dealing the Olympics.  What kind of international pressure or mechanism can be built in right now so that after 2008 the international organizations still can have some voice to bring pressure to Beijing?

ELIZABETHECONOMY:   Are you still talking about the environment or more broadly?

JOE WEI: You know, actually it’s more broadly.

ELIZABETHECONOMY:   That is what I thought.  Okay.  So in terms of your first question, which is an interesting one, local and provincial officials.  In my work in the past several years in China, I have had many occasions to travel throughout the country and to meet with local officials.  And one of the things that I found, in terms of understanding why it was that some areas of China localities seem to be doing a much better job on environmental protection than others, is that a lot of it boiled down to three factors.  The first was, simply, the nature of the local leader.  You know, the man, right, and whether that person, for whatever reason, seemed to have an interest in the environment.  Maybe because he, mostly it was he, wanted to attract international investments, international trade shows.  He felt as though making his area beautiful and clean would be good for getting the international community interested.  That is one aspect of it.  The second of it was they tend to be the relatively wealthier areas, so it could Dalian or Xia Mung (sp?) or Chengshang.  All of these areas are relatively wealthier parts of the country so they had more money to invest in environmental protection and they did.  So, you know, an area like Shanghai, for example, might invest 3-4% of its local revenues in environmental protection, whereas in, Long Zho (sp?) it might be 1% or something like that.  I’m just tossing those numbers out.  I think that Shanghaihas actually said they want to do about 4%. 

            And then the third sort of reason that you find some places in China do a better job is because they have stronger ties to the international community, which means that most of the areas where you have better environmental protection are the coastal cities and it’s because sometimes Japan has a special relationship with Dalian.  Like the Japanese did a lot of capacity building in Dalian; or in Chengshang, Singapore took a very active interest in the urbanization process and beautification or whatever.  So there were strong ties with the international community working to educate the people, to develop local codes and to invest money as well.

JOE WEI: You are not suggesting the adoption process from every country.

ELIZABETHECONOMY:   The adoption process, no.  So I think that I have seen, certainly, local officials who take a lot of pride in how they have not only been able to quote “grow their economy” but also protect their environment.  But this probably is limited to about 10% of Chinese cities at this point in time.  And in some cases you are dealing with regions that are still absolutely quite poor, and the thought of building expensive wastewater treatment, or even using the treatment plant sometimes, not even the building.  Maybe Beijingwill put the money in for building it, but even using it is more costly, simply isn’t tenable.  Much of rural Chinastill doesn’t have piped water, for goodness sake.  So at that point I think you are dealing with a whole different set of issues.  But when you are talking about cities that have grown that are wealthier, then I think they have to be thinking in terms of their long term growth.  And I think that is one of the things we haven’t chatted about but one of the sort of most important things that is beginning to come to the fore for local officials is when sort of the rubber meets the road and absolutely they see that the environment is beginning to bite back into the economy or to impinge on local economic growth.  For example, they don’t have enough water to run their factories.  Now that’s a problem.  That happened in Xian (sp?) in 2004 or 2005.  So that’s the kind of thing that can serve as a wake up call for a local official.  Things have to change at that point.  If in fact you see that all your crops are polluted and spoiled then you need to do something about the water pollution.  So I think those are the kinds of issues that begin to make local officials change their minds. 

            I’m sorry, I’m going a little bit long on this, but unfortunately, Beijing, Tan Ye (sp?), Xi Ba (sp?) have tried to push this idea of a green GDP as a means of providing an incentive for local officials to do the right things.  And so that you would evaluate the local official not only on the GDP growth but also on how well they protected the environment is measured by this green GDP.  And this was a project that was a couple of years in the planning, and has been a couple of years in the execution and at this point in time seems to be all but dead because of such political opposition.  So I think that is an unfortunate thing that has just happened. 

            To your second question about the Olympics and how do you ensure that pressure can continue to be brought to bear past the Olympics on issues of let’s say good governance, broadly.  I think that the most important, sort of role that the international community can play is in strengthening the role of civil society in China .  And that means supporting Chinese NGOs across the board, doing training for lawyers.  I think those are the people that can help to bring about change from the bottom up, are some of the most important actors in Chinatoday, from my perspective.  And then, of course, there are all the exchanges in other things but I don’t see the Beijing leadership as particularly responsive to direct hard hitting pressure, except if you can develop a very broad consensus from countries like the United States, Europe and developing countries like Africa and others.  I think that when China’s image is seriously at risk then I think, and I can’t just say it’s just the United States trying to contain us, but you can engage a much broader swath of countries.  I think at that point you have the potential to pushBeijing .

OPERATOR:   Thank you.  Our next question comes from Garrett Mitchell from the Mitchell Report.

GARRETT MITCHELL: Elizabeth , first of all I want to say that I thought this was a superb piece.  I would describe it almost as a page turner on what some would describe as pretty dry subject matter so I congratulate you and it was really very helpful.  The last two questions that really anticipated what I really wanted to (inaudible).  But let me see if I can come at it from a slightly different point of view.  And that is, I have been thinking about how change might come about most effectively in China .  I have been thinking about the American model on this same subject, where Washington has really been sort of a lagging force and NGOs, private sector, and the states have really been where the action has been.  I guess my question, which is repetitive to some extent of the prior two questions, is do you see that same sort of I will call it partnership, that may be slightly formal, of the provinces, of the multinational corporations and the NGOs.  Is there that same capacity in China for them to really do a sort of bottoms up approach on the environment? 

            And the second, and related question is, depending upon what your answer is, what I’m particularly interested in understanding is you talk a lot about the need for the international community to change its strategy about making progress with the Chinese on these issues.  Where, if you are counseling the international community on this, I’ll sort ask the Archimedes question, where do you put the lever, where do you apply the leverage?  Do you deal with Beijing ?  Do you deal with the individual provinces?  How do you do that?

ELIZABETHECONOMY:   Okay, thanks very much and thanks for the compliment on the piece.  Gideon, I hope you too that down.  Okay, bottoms up approach to the environment within China , you absolutely have that.  In fact, if there was anything that sustains me when I look at this issue, it has sustained me over the past 15 years as I watched the statistics get worse and worse, has been just the dramatic rise in citizen activism on the environment.  And it can be farmers.  It can be lawyers who are pressing lawsuits on behalf of pollution victims.  They are amazing people.  It can be my friends who are activists, even doing the pollution map but working on dam issues and energy conservation issues.  So there is absolutely a bottom up effort on environmental protection in China .  And in fact, because of the true weakness again of the State when it comes to the environment, and I know that sometimes it’s hard to wrap your mind around it because we all think of China as this authoritarian state and so whatever Beijing says should just happen, it just doesn’t work that way.  And so the bottom up in many respects is the only way to go.  I mean they are funding for environmental protection.  Funding for these NGOs is 90% from the international community.  The funding at the local level, I think Beijingprovides about 10% of the overall environmental protection budget that is needed for the country.  That is nothing.  And of that, half of it gets siphoned off into things that are not related to the environment.  So to the extent that there is going to be an effective approach, it has to be bottom up, and there are definitely many people in China who are committed to doing just that. 

            So in essence, my answer to your second question, which I tried to talk a little bit about in the piece, really just builds on that understanding of the Chinese political system.  And of course, you can’t just engage at the local level.  You can’t simply go in and start doing whatever you want.  NGOs have to be registered inChina , and it doesn’t work very well for international NGOs andBeijingis cautious when it comes to them.  It’s worried about, call it a revolution.  There are all sorts of challenges, frankly, in doing environmental business in China .  But the truth is that when you look at environmental NGOs in the US like NRDC and Environmental Defense, it’s all done from the bottom up approach.  It’s all done with helping local officials, or even helping inBeijingto write new regulations that make sense.  Then it’s educating the local officials, so that they understand what needs to be done.  You take building energy efficiency, it means educating the developers and the urban planners.  It means engaging the corporations that are making energy efficient windows and new forms of insulation.  It means signing, it means thinking about how you are going to get these things enforced, but enforcement is so weak.  All of these things happen at the local level.  So you have to talk to Beijing.  There is just no way you go in to do a major project in China without talking to the State Environmental Protection Administration, which by the way is an extraordinarily talented and energetic group of people by and large, just very, very small.  But you have to start there and then you have to pick your local partners very, very well and pick those mayors or those governors, for example, in Jian Xu (sp?) province, that really do want to turn things around because that is the only way you are going to get something done.  You have to have the political support.  Plenty of environmental cooperative efforts have floundered, not because of lack of money. Chinacan be a money pit.  They floundered because you have the international community going in with what it thinks is a great idea and basically trying to pull the Chinese along and the Chinese not really understanding what it is it’s trying to get done and maybe just seeing that it seems like in the long run it is just going to cost them more money. You can’t have that.  You have to have environmental officials who are committed to wanting to change the way they are doing business.  So when we are talking about the sort of discreet projects, I think there is a lot of opportunity.  It is a long and difficult road and you have to have an enormous amount of patience.  I think when we are talking about big issues like global climate change, then the US government clearly has to be involved but we are just not where we need to be.  So that requires us to change and us to lead first.

GARRETT MITCHELL: Thanks.

OPERATOR:   Thank you.  Our next question comes from Avram Goldstein of Bloomberg News.

AVRAM GOLDSTEIN: Hi.   What advice do you have for CEOs of multinational companies on how to proceed as they continue this feverish pace of investment into Chinese manufacturing, especially if you can foresee the day when the government is going to be blaming them for many of these problems?  And secondly, what kinds of multinational companies, and which ones, have been the most frequent violators of the environmental laws that your activist friends have been tracking?

ELIZABETHECONOMY:   Well, you can actually get the list.  But in the US , I think Pepsi was listed for sure.  I feel like maybe DuPont but don’t quote me on that.  And I know, for example, there was a great story that Ma Jang told me when I was just in Chinaa month ago about Carlsberg beer, where they had a plant in Xing Jiang (sp?) and weren’t treating their wastewater.  And Ma Jeng contacted them and said, you know, you need to take care of this, and they didn’t get back to Ma Jeng.  And then he said you need to take care of this.  And then he sicked CCTV on the company and they did an expose.  And the next thing you know, Carlsberg is building its $4,000,000 wastewater treatment plant in Xing Jiang.  So you can look and see.  I mean we are talking again about 90 multinationals and I would guess maybe 10 of them are US maybe, maybe not even that many.  I think it is also important when we are thinking about the role of multinationals to understand that a company like Wal-Mart, for example, might source maybe 20,000 – 30,000 factories down its supply chain.  And it doesn’t even know.  And you can argue that it ought to know, but it may not even know where the paint is coming from for a certain toy that it’s selling, or the plastic that covers the toy or whatever.  So I think that it’s a really difficult task to try to identify or assign culpability in many respects, especially if you have a case like Mattel, where supposedly they were providing lead free paint in some instances, which then the Chinese factory owners were selling to others at a higher price and then were using the leaded paint at a lower price.  It’s a very, very significant challenge to get around that situation. 

            My advice, frankly, and I have talked to multinationals so I can tell you exactly what I say to them, and I have even taken one to China, is to engage at every level of the system.  So it’s not simply anymore about getting by in for whatever you want do from Beijingor even from the local governments.  You have to be talking to Ma Jeng from the get go.  You have to be talking to Greenpeace Beijing from the get go.  These are the most interested actors and they have their eyes targeted on MNCs.  In some ways you can say it’s bad and other ways MNCs should be operating they way they operate everywhere else.  So my biggest piece of advice is simply do the right thing from the beginning.  Don’t try to cut corners anymore.  It’s not enough simply to do labor checks.  You have got to do environmental checks as well with your factories and that has been much slower to develop for many, many multinationals.  So I think that is really my biggest piece of advice is that you have to be engaged on the ground.

AVRAM GOLDSTEIN: Are there any particular companies or industries that you see already doing that?

ELIZABETHECONOMY:   Oh sure.  I mean, there a number of companies that are top of the line, like Coca-Cola knows what it’s doing in China .  I think Shell, it’s had some problems, but it knows what it’s doing inChina .  And these are companies that have invested significant resources in corporate social responsibility in the environment.  So they work very hard.  There are companies that really push the envelope in lots of different ways.  They use the best technologies; they are active in their local communities on the environment.  They support environmental NGOs perhaps.  They invest in environmental education.  They work with the state education commission or other NGOs to provide environmental education sort of across the board.  They see the environment as a way for them to be recognized as good corporate citizens and important leaders.  And as I mentioned in the article, Beijingrewards this.  They love this stuff.  There are all sorts of environmental awards.  They get a lot of press for it.  So if you do the right thing, if you’re willing to put the money into it, you can get rewarded for it.

AVRAM GOLDSTEIN: Thanks.

ELIZABETHECONOMY:   Sure.

GIDEON ROSE: Okay.   We’ll take just one more question, if we have one.

OPERATOR:   At this time we have no questions.

GIDEON ROSE: Okay, well, since we are just at the hour mark now, we are almost there, let me wrap this up.  Everyone has busy lives and they have to go on and write their pieces and other things.  Thank you all for participating.  Thank you, Liz, for your usual fine job and we look forward to having future conversations about future subjects, Chinaand the environment and all the rest of the world.  Thank you all.  Take care.

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