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The importance of being earnest - the green economy and sustainable development in China

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The importance of being earnest - the green economy and sustainable development in China
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     A  s   i  a   P  o   l   i  c  y   B  r   i  e   f   2   0   1   2   /   0   2  The Importance of Being Earnest The green economy and sustainabledevelopment in China  China’s past economic development model has notbeen sustainable, at least in environmental terms. Inrecent years, the Chinese government has dedicatedconsiderable time, planning energy, policy and rhetoric to “green” issues. However, there is a risk that this trend will be stalled by struggles related to pendingeconomic problems and the upcoming leadership transition. Consequently, the international communityshould acknowledge China’s achievements in terms of environmental policy and cooperation as one way of serving the global public interest. Asia Briefings November 2012 Doris Fischer* Opinions about China are mixed, but mostpeople would agree that China’s economicdevelopment over the past 30 years hasbeen impressive. Economic development wassrcinally triggered by economic reformsstarting in the late 1970s, and was givenfurther impetus in 1992 as leaders ofciallysought to establish a socialist marketeconomy. China’s accession to the WorldTrade Organization reafrmed the value of itseconomic reform strategy, and increased thenation’s attractiveness and importance as ahost for global production. As a result of thisprocess, China experienced an average realgrowth rate of 10.1% between 1990 and 2011,became the world’s second largest economy,and captured a large and growing share of global trade that made it the world’s largestexporter in 2010. To a significant extent,this striking past performance explainstoday’s widespread optimism about China’seconomic future.However, this impressive developmenthas carried a serious cost, as the countryhas pursued a strategy prioritizing growthover the preservation of natural resourcesthroughout most of the last several decades.Growth was imperative because it was deemeda necessary condition for development * Dr. Doris Fischer, Professor and Chair, China Business and Economics, Würzburg University, Germany     A  s   i  a   P  o   l   i  c  y   B  r   i  e   f   2   0   1   2   /   0   2 02 and the maintenance of political stability.Environmental protection and investments inimproving resource efciency seemed likelyto undermine growth. The results of thisgrowth imperative are visible in China’s dailyurban life in the form of severe air pollution,poisoned soils and bad water quality, but arealso felt globally as a result of China’s highabsolute levels of greenhouse gas emissions,among other issues. China’s CO2 emissionsare rapidly growing, and will continue to do so,if per capita levels follow the German, Japaneseor U.S. example (see gure 1). In addition,energy and resource security have becomemajor concerns. The pressure exerted by theseeconomic development externalities demandsa somewhat more pessimistic perspective onChina’s economic future.The two aspects of China’s developmenthighlight a dilemma. The fast economicdevelopment of the past was successful inraising the incomes and living standards of most Chinese, especially those living in theurban centers and coastal production hubs.China’s average per capita income has todayreached the lower-middle-income countrylevel. Chinese citizens clearly aspire to more,and hope that future economic developmentwill continue to raise incomes and livingstandards. But what if past developmentwas not only accompanied by low wages,extensive use of resources and degradationof the natural environment? What if China’seconomic success actually relied on low wages,low environmental and social standards, andextensive resource use? This raises questionsas to the essence of the Chinese economicdevelopment model and whether the modelcan be maintained – and if the answer is no,whether it can be practically changed. 2468101214161820 U  SAChinaIndiaGermany 02002 2003 2004 2005 2006 2007 2008 2009 2010 Japan Figure 1: CO2 per capita emissions in tons (2002–2010) Source: OECD/IEA Enery Balances of Non-OECD Countries (2012 edition)     A  s   i  a   P  o   l   i  c  y   B  r   i  e   f   2   0   1   2   /   0   2 03China’s policies forenhancing environmentalsustainability The Chinese government is well awareof this dilemma, and has in recent yearsgradually put numerous environmentalpolicies into place.However, implementation has representeda major weakness in these policies. Whilelegislation at the central level has madeconsiderable progress, implementation at thelocal level has been rather weak. Exampleslike the following are common: In 2009, theMinistry of Environment halted dam projectsalready under construction because they hadbeen begun by local governments withoutobtaining the required environmental approval.In 2010, the nal year of the 11th Five Year Plan,the central government was forced to realizethat local governments had widely ignored theplan’s energy intensity targets.The Chinese system of cadre promotionhas long been blamed for this weak recordof environmental policy implementation.Cadre promotion is based on an evaluationof achievements, among other factors. Thisformalized evaluation attaches great importanceto economic growth within a candidate’s localconstituency, both directly, as GDP growth ratesare taken as a proxy for a locality’s economicgrowth, and indirectly, in that employmentrates and social stability tend to reect aregion’s growth. This latter point is taken quiteseriously, as the failure to ensure local stabilitycould result in serious problems for the politicalsystem as a whole. Thus, maintaining socialstability is arguably even more important forcadre promotion than growth per se. However,economic growth is usually viewed as the bestway to preserve social stability. A consequenceof this system is that local governments andcadres have been reluctant to implement socialand environmental policies deemed likely toslow growth.The cadre system gains even moreimportance against the background of constantregional rivalry. Local governments strive toattract investment, especially foreign directinvestment, as this has been an importantfactor in driving local growth, employment andprestige. The economic reforms implementedin China since the 1980s have given localgovernments new rights to approve investmentdecisions. At the same time, the centralgovernment has encouraged local governmentsto compete with each other. To a certainextent, this has created incentives for a raceto the bottom in terms of social, labor andenvironmental standards.However, while the cadre promotion systemis important as one explanation of weakimplementation, blaming it alone distracts fromthe core underlying dilemma: Environmentalpolicies do in fact tend to increase theimmediate costs of production, as they aimat internalizing previously externalizedproduction costs. As such, environmentalpolicies present a challenge to the past Chinesedevelopment model, which to a large extentrelied on extremely low production costs. Thelevel of decentralization within the Chinesesystem supports the impression that thecentral government was serious in its effortsto propagate environmental policies, while thelocal governments failed in implementation.A more accurate estimation of the situationsuggests that the central government simplyleft the problematic aspects of balancing growthand sustainability to the local governments inthe course of policy implementation.  Translating sustainabilityconcerns into drivers ofgrowth In responding to the core growth-sustainability dilemma, recent Chinesepolicy concepts have gone beyond mereenvironmental protection. During the rstdecade of the new century, the Chinesegovernment developed the idea of translatingsustainability concerns into drivers of growth.Since 2003, the ofcial formulation for this hasbeen a “scientic approach to development.”     A  s   i  a   P  o   l   i  c  y   B  r   i  e   f   2   0   1   2   /   0   2 04 The goal here is to strive for a developmentmodel driven by knowledge, science andtechnology, while at the same time stressingenvironmental sustainability, energy securityand energy efciency. The activities associatedwith this model would be used to establish newcore national competencies and competitiveadvantages. This developmental vision impliesthat China can create a substitute for itsprevious growth model, which was based onlabor-intensive export-oriented production. Thisswitch would – allegedly – allow China to cut theunsustainable levels of resource consumptionthat threaten its natural resource base.The most recent shift in China’senvironmental policies has entailed a newfocus on climate change mitigation. Thecountry’s policies on this issue gainedglobal attention in the run-up to the 2009Copenhagen climate summit. By this time,strong voices in China had begun to arguethat the country should strive for leadershipin the climate change mitigation eld as abasis for future development and internationalinuence. While this did not initially representmainstream opinion in Chinese politicalcircles, a consensus eventually emerged thatthe global interest in low-carbon developmentmodels provided China with an opportunity.Low-carbon technologies, green growth andsimilar concepts seemed to be important forfuture development and competitiveness,especially as green growth targets promised toshow strong overlap with policy targets relatedto energy security. The latter goals are deemedessential within China; achieving green growthin a way that contributed to energy securitythus held considerable appeal.Under this perspective, environmentalsustainability and low-carbon policies ceased tobe viewed simply as costly targets endangeringdevelopment, but rather represented a meansof promoting international competitivenessand long-term development. Consequently,the current 12th Five Year Plan (2011-2015)strongly emphasizes this new growth model.The timeliness of this perspective wasconrmed when many industrialized countriesalso stressed the importance of green sectorsand technologies in their efforts to overcome 500,0001,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,00002009 2010CoalOilNatural Gas Nuclear Hydro Geothermal, solar, wind etc.Biofuels & waste  Figure 2: Electricity generation in China, by energy source (2009–2010) Source: OECD/IEA Enery Balances of Non-OECD Countries (2012 edition)     A  s   i  a   P  o   l   i  c  y   B  r   i  e   f   2   0   1   2   /   0   2 05 the global nancial crisis. Since that time, aglobal “green race” has emerged, inuencing,for example, discussion worldwide in the run-up to the Rio+20 summit earlier in 2012.In concrete terms, this new developmentconcept has resulted in quick policy adjustmentsin China. To highlight just one example, thecentral government has augmented its targetsfor climate change mitigation efforts andrenewable energy deployment (particularlywind and solar) several times over a rathershort period (see table 1). The developmentof new and renewable energy sources hasbecome a strategic issue, supported bydedicated industrial policies. The use of renewable energies for electricity generationroughly doubled from 2009 to 2010, which isquite impressive. However, this increase wasoutpaced in absolute terms by increases in theuse of coal and hydroelectricity (see gure 2).Comparable attention has further been devotedto other sectors and technologies related toenvironmental sustainability, green growthand low-carbon development, with electric carsbeing just one prominent example.The new policies have changed theattitude of local governments. Because thecentral government is emphasizing this newdevelopment concept clearly, supporting itwith signicant funding, local competition inthe area has emerged. Cities dedicated to low-carbon development, electric mobility andother experiments have been identied andencouraged to compete for solutions. Overall,an impression has been created that the newparadigm eliminates any implied contradictionbetween environmental policy goals anddevelopment, allowing instead for developmentdriven by competitiveness in the greentechnology sector. Naturally this has helped totrigger implementation of environmental goalsat the local level.Today, however, the policies supporting the“green race” face challenges associated withrapid implementation, rather than with theslow movement of previous years. Renewableenergy deployment, especially in the caseof wind energy, has overtaken the currentelectricity grid’s capability to manage inputs.Some low-carbon cities have invested inprojects that appear green but have not in factcontributed to decreasing carbon footprints.The solar photovoltaic cell manufacturingindustry faces serious overcapacity problems,while other projects such as support forelectric vehicle technology have consumedsignicant quantities of central and localgovernment funding without producing thehoped-for technological leap forward. In sum,the strategies and policies implemented todate have not produced the intended results,even though local governments have at leastnominally followed their spirit.In this context, the current economicand political situation carries serious risks.China’s economic growth rates are declining.While this decline remains within thepredicted range, lower growth rates haveled to serious nancial difculties for somelocal governments and nancial institutions.The economic development path of the past10 years turns out to have relied not only onlow wages and export-oriented production,but also on cycles of signicant government-supported investment and a policy bias towardstate-owned and state-backed companies.Central and local governments have eachplayed an active role in steering China’seconomy, inuencing investment choices andmanipulating competition.In the current situation, with growthprospects weak and a central leadershiptransition underway, the Chinese government’sstrong role within the economy has comeunder considerable criticism. Many economistshave called for reforms that would put Chinaback on a path of reform and liberalization. Thepolitical priorities of the future governmentelite are not yet clear. However, it is likelythat the new central government will opt fora more liberal approach, enacting policiesencouraging the private sector while limitinggovernment intervention.Ironically, this perspective leavesconsiderable uncertainty as to the future of China’s “green” development. Will the new
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