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Economic Boom, Environmental Bust

Author: Elizabeth C. Economy, C.V. Starr Senior Fellow and Director for Asia Studies
October 22, 2004
National Post

China is in a race against time. Decades of unfettered development have delivered the country its much-vaunted economic miracle -- but at a devastating cost to the environment. Now the environment is beginning to bite back. Skyrocketing rates of air pollution, water scarcity and desertification pose a serious challenge to continued growth. China's leaders are beginning to acknowledge the threat, yet have not demonstrated the political will to change course. The result is that China's juggernaut economy is now in danger of stalling.

China's environmental crisis is evident everywhere. The country's air quality is among the worst in the world: According to the World Bank, 16 of the world's 20 most polluted cities are on the mainland, and acid rain affects one-third of China's agricultural land. The country is already one-quarter desert, and that desert is advancing at a rate of 1,300 square miles per year.

The most serious environmental challenge, however, is providing clean water to the Chinese people: 60 million people have difficulty getting enough water to meet their daily needs and 10 times that many drink contaminated water on a daily basis.

The social, political and economic consequences of China's environmental crisis raise the stakes of inaction dramatically. Over the next 15 years, as many as 30 million Chinese will be forced to migrate because of lack of access to water or arable land. An estimated 300,000 Chinese die prematurely from respiratory disease related to air pollution every year; and communities all along China's major river systems suffer from high rates of cancer, stunted growth, diminished IQs and other pollution-related maladies. As the Chinese people realize the impact of pollution on their well-being, they are protesting -- both peacefully and otherwise -- for change. In a recent survey, Chinese think-tank analysts, scholars and government officials ranked the environment among the top five sources of potential major social upheaval in China before 2020.

It is the dramatic effect the country's environmental problems are having on Chinese economic productivity, however, that is finally making Beijing take notice. All told, according to the World Bank, environmental degradation and pollution cost the Chinese economy the equivalent of 8% to 12% of GDP annually due to crop and fishery losses, factory closings and increased medical care. The Chinese media have been publishing statistics that bear out such analysis, reporting that during 2003, acid rain caused US$13-billion in economic damage; dust storms inflicted US$6-billion in costs; and water scarcity was responsible for US$14-billion in lost industrial output.

Of course, the impact is felt most directly at the local level. In the tributaries of the Yellow River, pollution has all but eliminated the once-plentiful shrimp and fish, and cost local economies more than US$1-billion in medical expenses. Shanxi Province, a coal-mining and heavy-industry bastion, announced this year that accounting for the impact of environmental degradation and pollution on its economy would virtually negate GDP growth for the past decade.

China's leaders are beginning to recognize the need for action. But the response so far has been weak. Rather than adopt tough measures to produce real change in the near term, the leadership continues to rely on ineffectual long-term campaigns orchestrated by Beijing. A 10-year campaign to clean up the highly polluted Huai River, which traverses one of China's most fertile regions on the eastern seaboard, cost billions and achieved no measurable improvement. Such campaigns fail because they rarely engage local officials, offer the necessary incentives to change behavior, or provide effective follow-through and enforcement.

Beijing could make real headway by taking three steps:

First, increase its investment in environmental protection from 1.2% of GDP to at least 2.2%, the amount that experts have said is necessary just to keep the situation from deteriorating further.

Second, raise the price of scarce natural resources such as water, now grossly undervalued in many regions of the country. This would alleviate some of the scarcity and pollution issues by promoting conservation and encouraging waste-water treatment.

Third, enforcement of existing policies must be strengthened. Often, environmental-protection officials are stymied by powerful local interests who have a political or financial stake in the operation of a polluting enterprise, no matter the long-term costs.

China's media, environmental non-governmental organizations and individual citizens are taking action. In recent months, for example, environmental NGOs have publicized the devastating public-health situation in some of China's villages along the Huai River, brought plans for more than a dozen dams throughout the country to a standstill and initiated mass-based lawsuits against businesses and officials who fail to adhere to environmental laws.

Unfortunately, China's environmental movement remains constrained in size and efficiency by Beijing's demands that NGOs register with a government oversight body, have their memberships and activities approved and refrain from establishing branch affiliates in other parts of the country. (This month, China's Ministry of Civil Affairs intimated these restrictions might be lifted -- a welcome development.)

Ultimately, the choice rests with Beijing. If China doesn't act now to contain and reverse the environmental fallout from its rapid growth, the nation's economic miracle may well turn to dust.

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