Congressional Testimony: China's Environmental Challenges

September 22, 2004

Testimony by CFR fellows and experts before Congress.

Statement of Elizabeth C. Economy
C.V. Starr senior fellow and director, Asia studies, Council on Foreign Relations
Subcommittee on Asia and the Pacific
House International Affairs Committee

September 22, 2004

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Mr. Chairman and members of the committee, I would like to thank you for inviting me to discuss China’s environmental challenges and their implications for the United States. I would like to focus my remarks on four key points:

  • First, China’s economic miracle over the past two decades has produced an environmental disaster with skyrocketing rates of air and water pollution, severe land degradation, and increasing resource scarcity.

  • Second, this environmental crisis is engendering a range of other social, political, and economic challenges within China.

  • Third, China’s environmental enforcement remains unequal to the challenge.

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  • Fourth, there are significant opportunities for the United States to assist China’s environmental protection effort in ways that serve core U.S. political and economic priorities.

I. Economic miracle to environmental disaster

China has received significant international acclaim for its rapid economic growth. Over the past two decades, China’s GDP has increased at a rate of 8% or more annually and has propelled hundreds of millions of Chinese out of poverty. Yet this economic development, coupled with a weak enforcement apparatus for environmental protection, has also resulted in a range of devastating consequences for the environment.

In terms of air quality, China’s overwhelming reliance on coal for almost three-quarters of its energy needs has made its air quality among the worst in the world. In 2001, the World Bank reported that 16 of the 20 most polluted cities in the world were in China, and in 2002, almost two-thirds of Chinese cities tested failed to achieve standards set by the World Health Organization for acceptable levels of total suspended particulates, which are the primary culprit in respiratory and pulmonary diseases. Acid rain, resulting from sulfur dioxide emissions from coal burning, affects over one-fourth of China’s land, including one-third of China’s agricultural land, damaging crops and fisheries throughout affected provinces. China’s dramatic growth in automobile use poses the greatest future threat to China’s air quality. China today has over 20 million cars, trucks, and buses; 20 million agricultural vehicles, and 50 million motorcycles. By 2020, conservative estimates suggest that China will have 110 million cars; critically, national standards for carbon monoxide and nitrogen oxide are well below those in the United States. Foreseeing the challenge, the Chinese government is putting into place fuel efficiency standards that exceed those of the United States, and working to experiment with higher standards.

Unregulated economic development has also contributed to the devastation of China’s forests. China’s forest resources rank among the lowest in the world— forested land accounts for approximately 16% of China’s land compared to 24% for the United States. This deforestation has contributed to biodiversity loss, soil erosion, and much of the horrific flooding that China experiences on an annual basis. As China has become a major source of furniture and other wood products in the international market, this too has driven an increasingly profitable but environmentally problematic illegal logging trade. The Chinese government’s efforts to crack down on domestic illegal logging have encouraged Chinese logging companies to expand into Burma, Indonesia, and the Amazon, where they have gained a reputation for evading local logging regulations.

Deforestation, along with the overgrazing of grasslands and over-cultivation of cropland, has also dramatically changed the geography of the country, contributing to the rapid desertification of China’s north and west. China, which is roughly the same size as the United States, is now more than one-quarter desert, and desertification is advancing at a rate of roughly 1300 sq. miles annually. In addition, twenty to thirty sand and dust storms now plague northern China annually. In March 2002, one two-day storm dumped more than 30 tons of sand on Beijing before moving on to South Korea. These suffocating dust storms reduce visibility, slow traffic, and exacerbate respiratory problems. They travel frequently to Japan and Korea and have even affected the United States in years past.

The most serious environmental challenge China confronts, however, is access to water. This stems from both growing demand and rapidly increasing levels of pollution. The country’s annual per capita water supply is 25% of the global average. By 2030, the per capita supply is expected to fall from 2200 m3 to below 1700 m3, the World Bank’s definition of a water scarce country. During that same period, water demand is expected to jump from 120 billion tons to 400 billion tons annually. Already, about 60 million people in China find it difficult to get enough water for their daily needs. The search for water has led to overpumping of groundwater along much of China’s coast, and the resulting subsidence is necessitating the relocation of thousands of people. Climate change and overuse have also contributed to serious water shortages in much of China’s interior provinces: in Qinghai, the Chinese government reported that by 2001, 2000 lakes and rivers had dried up with severe consequences for local industry, hydropower, and the volume of water in the Yellow River. Water pollution poses an equally serious problem. Approximately 700 million people drink contaminated water on a daily basis. More than three-quarters of the water flowing through China’s urban areas is considered unsuitable for drinking or fishing. Much of China’s pollution stems from industrial waste water from paper and pulp mills, printing and dyeing factories, chemical plants and other small, unregulated township and village enterprises. Agricultural runoff is also a severe problem.

To put it simply, the environment is under stress on every front.

II. Transforming the Social, Political and Economic Landscape of China

China’s pollution and environmental degradation are also transforming the social, political, and economic landscape of China by incurring costs to Chinese economic productivity, engendering waves of internal migration, contributing to wide scale public health problems, and leading to social unrest.

  • China’s leadership is just now awakening to the fact that its environmental practices are exerting a profoundly negative impact on the country’s economy. The World Bank reports that the cost of environmental pollution and degradation in China is equivalent to 8-12% of GDP annually. Lost days of work, contaminated crops and fisheries, and industry closures due to lack of water all contribute to such costs. In the past year, China’s State Environmental Protection Administration has begun to calculates these costs on its own, arriving at figures that support the World Bank’s estimates: for example, the government announced that in 2003, water scarcity had cost China $28 billion in lost industrial output; acid rain had cost the economy $13 billion; and desertification cost China more than $6 billion. In September 2004, officials in Shanxi province claimed that if the costs of environmental degradation and pollution were incorporated into calculations of the Shanxi domestic product, they would negate all growth for the past decade.

  • No secondary impact of China’s environmental crisis is as tragic as that of public health. Chinese and western analysts suggest that 300,000 people die prematurely in China annually due to respiratory disease caused from pollution (excluding smoking). Entire communities along China’s major river systems report staggering rates of cancer, tumors, stunted growth, spontaneous abortion and diminished IQs due to the high level of contaminants in the soil and water. The relationship between environmental pollution and public health was brought into sharp relief by a World Bank report that indicated that SARS was most potent in areas where the levels of air pollution were the highest.

  • China must also now settle tens of millions of farmers and others who are forced to migrate in search of arable land and access to water. During 2001-2020, Chinese and western analysts estimate that China will have to accommodate 20-30 million environmental refugees. This is likely to strain urban sanitation and other services in several of China’s major cities. As migrants become integrated into the local economies and become consumers, they also will contribute to China’s energy challenge. Urban residents on average consume 250% more energy than their rural counterparts.

  • The specter of social unrest provides yet another reason for China’s leaders to pay greater attention to the environment. In the mid 1990s, the Central Committee of the Chinese Communist Party published a report acknowledging that environmental degradation and pollution was one of the four leading causes of social unrest in the country. More recently, in September 2004, a survey of Chinese scholars and think tank analysts reported that China would likely experience serious social unrest as a result of a combination of social challenges including environmental problems, corruption, a weak financial system, poverty and unemployment. Occasional media reports of violent protest by farmers who can’t access water and citizens who have not had their environmental concerns addressed effectively lend support to such studies.

III. China’s Environmental Protection Strategy

China’s environmental protection strategy is modeled on its approach to economic reform: maintain a small central bureaucracy; devolve authority for environmental protection to local authorities; encourage private initiative; and seek financial, knowledge and managerial assistance from abroad.

China’s State Environmental Protection Administration (SEPA) is the chief government agency with responsibility for the environment. SEPA boasts a highly talented and committed staff, but it is grossly understaffed and underfunded. There are only 300 full time employees in SEPA (compared to 6000 in the US EPA). China reportedly devotes 1.3% of its GDP to environmental protection, which places it well within the bounds of other countries at its same per capita GDP, but Chinese scientists estimate that the country needs to invest at least 2.2% of GDP just to keep the environmental situation from deteriorating further. Moreover, Chinese environmental experts argue that some of this funding is lost to corruption or siphoned off for infrastructure development masquerading as environmental protection. In early 2004, SEPA announced that the government had failed to deliver on US$9 billion of investment in pollution control projects promised in the Tenth Five Year Plan (2001-2005). A new Vice-Minister of SEPA, Pan Yue, has been very aggressive, however, in using the media to take SEPA’s case directly to the people in order to bring to bring public pressure on recalcitrant ministries and ineffectual local officials.

Much of China’s environmental protection effort relies on initiative by local officials— an approach that has produced a patchwork of environmental protection. Wealthier regions with highly proactive mayors or governors and strong ties to the international community tend to invest more in absolute terms, as well as a greater percentage of their local revenues into environmental protection. Shanghai, Dalian, and Zhongshan exemplify such regional environmental activism. At the same time, many of the wealthier areas that are reporting improvements in their environment are simply offloading their polluting enterprises to nearby poorer regions. In these regions, local officials remain consumed with economic development at all costs and are willing to contravene environmental protection laws to protect polluting enterprises. Local environmental officials, beholden to local governments for their wages, office space, and benefits, are relatively powerless. SEPA periodically sends inspection teams to crackdown on violators. Results from these inspections indicate that about 1/3 of Chinese enterprises use their pollution control equipment effectively, about 1/3 have the equipment but do not use it because they perceive it as an unnecessary expense, and the remaining third have never put into place the mandated pollution control technology. Environmental officials also acknowledge that many enterprises are shut down for the duration of the inspection and reopened when the inspection is over.

The third prong of the Chinese government’s strategy is to engage the international community in its environmental protection effort. China has been extraordinarily successful in attracting foreign assistance to tackle its environmental challenges. China has long been the largest recipient of environmental assistance from the World Bank, the Global Environmental Facility, and the Asian Development Bank, although that may be changing as China no longer qualifies for the lowest interest loans from the World Bank. International Non-governmental Organizations as wide ranging as the Natural Resources Defense Council, The Nature Conservancy, World Wildlife Fund, and Greenpeace have poured financial and human capital into China in an effort to raise the capacity of the country’s environmental officials and help China rethink its development strategy.

Multinationals have also played a significant role in China’s environmental development. Certainly some multinationals have taken advantage of China’s relatively lax environmental enforcement, and mainland officials have openly criticized South Korea, Taiwan and even China’s own Special Administrative Region Hong Kong for exporting their most polluting industries to China. Yet many other multinationals are making a substantial contribution to China’s environmental protection effort in a variety of ways.

  • Royal Dutch Shell, for example, dramatically raised the environmental bar by hiring ERM to conduct an environmental impact assessment for a joint venture project with Petrochina to bring natural gas from Xinjiang to Shanghai (a joint venture Shell never realized). Shell’s EIA forced the pipeline to be rerouted in several places to avoid endangering rare species. Shell has also become renowned for its support of environmental NGO activity.

  • Johnson and Johnson supports tree planting efforts in Western China and offers an annual environmental leadership award.

  • Other companies work closely with Chinese environmental officials to try to raise standards or ensure their enforcement in an effort to make their products competitive in the Chinese or international market.

  • The South Africa-based Manganese Metal Company has been working with Chinese officials and businesses, conducting environmental impact assessments and hosting international symposia, to try to transform the highly toxic process by which China manufactures manganese metal. Their efforts helped spark new activity by the Chinese NGO Green Volunteers of Chongqing to undertake field work on the local manganese metal producers’ impacts on the environment and nearby residents’ public health.

  • Corning is similarly working with the State Environmental Protection Administration officials to help meet NOX standards throughout China.

The most dramatic transformation in China’s environmental protection effort over the past decade, however, has certainly been the development of the environmental non-governmental sector. Since 1994 and the founding of the first environmental NGO in China, Friends of Nature, there has been a spectacular increase in both the number of environmental NGOs in China and in the range of activities they undertake. Environmental NGOs have evolved from organizations devoted almost exclusively to environmental education and biodiversity protection to those willing to criticize the government openly on issues such as misappropriation of funds or to launch campaigns to prevent the construction of large scale dams. In one recent such campaign, Chinese NGOs garnered over 15,000 signatures on the internet to prevent a dam from being constructed on the Nu River in Southwestern China. Non-governmental organizations frequently use the media and legal system to enhance their efforts.

China’s environmental movement is also at the forefront of political reform. Many Chinese environmental NGO leaders founded their NGOs with a desire to advance democracy in China; still others have come to believe in the necessity of democracy for effective environmental protection. Many of them have strong training in journalism or the law which affords them important institutional mechanisms for advancing environmental protection. Through their activism, these NGOs have become a significant force for greater political openness, transparency and accountability in China’s political system.

China’s NGOs have many allies in their effort to push the Chinese government to pay greater attention to environmental concerns. They have forged strong linkages with their international counterparts. For example, Chinese NGOs participate in workshops organized by the International Rivers Network, the INGO that spearheaded the international campaign against the Three Gorges Dam. And within China, the development of a cadre of environmental lawyers and the gradual strengthening of the rule of law have allowed for NGOs to use the legal system and citizen-based lawsuits to pursue their goals.

For the most part, the Chinese government welcomes and even actively seeks the participation of China’s citizens in environmental protection, as long as it does not take on an obviously political tone. Still, Chinese NGOs are carefully monitored: they are required to have a government sponsor, report on all their activities, list their sources of funding, and are not permitted to have branches in additional cities. Some NGOs avoid these strictures by registering as businesses or simply not registering at all.

IV. America’s Policy Interests and Responses

For the U.S., China’s environmental problems present both a challenge and an opportunity. China’s environmental practices, like those of the United States, have a profound impact on its neighbors and the rest of the world. China is one of the world’s largest contributors to ozone depletion, global climate change, and biodiversity loss. Chinese logging companies are also becoming a significant player in the illegal trade in tropical timber.

How China responds to its environmental challenges, moreover, has critical implications beyond those for the global environment. China’s economic, social and political future is being shaped by the balance it is striking between environment and development. For the United States to anticipate the China of 2020, it must understand China and the environment.

Engaging in China’s development issues therefore offers the United States the opportunity to advance not only environmental protection but also core political priorities in the U.S.-China relationship: the advancement of human rights and democracy, the development of a more transparent legal system, and greater access to the Chinese market for U.S. goods and services.

There are several steps that could be taken to raise the profile of the United States in helping to shape China’s future environmental, political, and economic development:

  • Lift the ban on United States Agency for International Development involvement in China. Although USAID indirectly funds some rule of law and public health programs in China, with its broad emphasis on governance, public health, rule of law, and poverty alleviation, it could be far more effective in addressing China’s most pressing needs and the United States’ most direct interests. USAID also has developed a highly effective model for promoting energy efficiency and conservation in India— supporting zero emission automobiles, for example— that could be replicated in China.

  • Fund the Clean Energy Technology Export Initiative, which is a multi-year technology partnership between the government and the private sector to facilitate the export of clean energy technologies. A key advantage of this program is that it can marshal interagency coordination and provide a clearinghouse for U.S. companies with clean technology. This program has been successful, but its inadequate funding limits effectiveness in seeding key market opportunities for U.S. companies that have emissions technologies.

  • Remove restrictions on the Overseas Private Investment Corporation and the U.S. Asia Environmental Partnership, both of which would provide assistance to U.S. businesses eager to gain a foothold in China’s environmental technologies market. This market is currently dominated by Japan and the European Union.

  • Support increased funding for the Trade Development Agency. The overall budget for the TDA is quite small compared to the demand for TDA’s programs. The budget should be increased and there should be funds targeted exclusively for China.

  • Enhance existing efforts to promote the rule of law and environmental Governance. The State Department’s Democracy, Human Rights and Rule of Law program has embraced the environment as one of its primary targets for assistance in China. And the U.S. Embassy in Beijing has thrown its (limited) economic weight behind supporting environmental governance in China. Coupled with work by organizations such as the American Bar Association and the Woodrow Wilson Center, the United States has established an important foothold in this area. Given the long term reform benefits of these nascent efforts, however, significantly greater resources— through training, education, and exchange— should be provided to strengthen both the legal and NGO sectors in China. Here, too, the opportunities for public-private partnership are significant.

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