China’s policies and institutional systems with respect to resources and the environment

The market is the most fundamental means by which modem economies allocate resources. It improves the efficiency with which resources are allocated and thereby plays a decisive role in furthering the sustainable use of resources. However, in actual reality, numerous factors lead to imperfect markets, and this is particularly obvious in the realm of natural resources and the environment. The government, as the spokesperson for the public and as the guardian of public interests, is fully within its rights to regulate the exploitation and use of resources through the means of policies and institutional systems. Doing so is aimed at improving the long-term well-being of society at large by making resources more sustainable and making their use more efficient and fair. China’s current efforts, therefore, are aimed at ensuring that the market does indeed play a decisive role in allocating resources and, at the same time, that the government plays its own role more effectively.

Reforms aimed at market-oriented allocation of resources

Reform of pricing mechanisms and property rights are the key elements of reforms intended to Tnarketize’ resources in China. Both these are intimately related to the country’s overall economic stincture and institutional framework. After the establishment of New China (1949), China’s economic structure underwent a massive change. This change can be divided into two periods, namely, before and after the policies known as Reform and Opening Up (starting in 1978).

Resource allocation prior to Reform and Opening Up

After New China was established in 1949, it swiftly carried out a socialist revamping of the economy. By 1956, this process had been completed and a transformation from private to public ownership of the means of production had been achieved (‘public’ ownership included ownership by the state as a whole and ownership by collectives). A planned-economy institutional structure was then established in which the publicly owned sector was dominant in the national economy.

Natural resources are the foundation of and a key component of a nation’s economy. In terms of laws, therefore, China also set up the legal attributes of public ownership with respect to natural resources, in order to conform to the transformation of the country’s economic structures. Moreover, at that point China fully incorporated natural resources into the planned economy system. In 1954, New China promulgated its first constitution, in which it explicitly declared,

The State-run sector of the economy is a socialist economy that is governed by the system of ownership by the people as a whole. The State-run sector provides the material foundation for realizing the socialist reform of the country and is the leading force in the national economy. . . . Mineral resources, water resources, and other resources that are legally designated as State- owned, including forests and uncultivated laud, all fall under the system of ownership by the people as a whole.

The pricing and allocation of mineral resources were also then made completely subject to plans. This mineral resource sector of the national economy set up accounts with other sectors. As mere ‘accounting units,’ corporations had no autonomy or decision-making authority about production and operations. Some remnants of the nonplanned economy were retained in rural areas, but as com- munization of rural areas proceeded, the allocation of land and agricultural production also became more and more planned in nature. Farming families lacked the authority to make their own decisions about what to grow, how much of it to grow, and how to grow it.

The oiiginal intent of this kind of a command-economy structure was to centralize and thereby optimize the allocation of resources. While releasing the forces of production, and allowing them to develop, the idea was to overcome the inequalities and instabilities that were present in the capitalist economic system. In the period between the socialist revamping of China’s economy and the start of Reform and Opening Up, this goal was to a degree realized in China: the country established a fairly complete industrial system and a system for basic infrastructure, while income disparities were held at a fairly low level.

However, the implementation of the planned economy brought with it severe challenges, and an enormous price was paid in terms of other considerations. Under the planned-economy model, both corporations and individuals lacked the right to make their own decisions. Meanwhile, the egalitarian model of distribution meant that incentives were extremely distorted. Pricing mechanisms were suppressed to the point that they could not function at all in guiding the allocation of resources. The end result of these problems was that resources were used extremely inefficiently. In addition, the impact of unending political movements over a long period led to severe imbalances in China’s economic structure - the economy bordered on collapse, people’s standard of living was abysmal, and there were shortages even of daily necessities. The great majority of people were still rural, and this segment of the population was universally mired in poverty.

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