Environmental protection and 'civilized' development

After years of heavy industrialization, China’s environmental challenges are nearing a tipping point. There are many sources generating pollution, particularly factories and power plants that have driven the national economic growth but have also polluted the air, water and soil. It has come to the point where environmental hazards could lead to a significant risk to China’s society and economy, if not corrected in a timely manner. In a bid to tackle these challenges, China’s government has declared a “war on pollution” and introduced a number of green initiatives (Song, 2018).

Action to control the problem of pollution includes (1) the campaign on ‘less coal, cleaner air’: China has taken steps to dismantle coal-fired power plants, reduce overall emission levels and cut particulate-matter emission rates. Huge progress has been made on air quality, and there are now fewer smog days in China’s largest cities (Song, 2018); (2) establishing better governance and regulation: The former Ministry for Environmental Protection has been transformed into the Ministry of Ecology and Environment (MEE), a new entity with broader, clearer responsibilities. The new ministry will oversee all water-related policies, for example, from ocean resources management to groundwater. Previously, these responsibilities were scattered among different departments. The ministry is also in charge of policies on climate change (ibid); (3) funding a greener future: China needs an estimated additional RMB 40.3 trillion (S6.4 trillion) to KMB 123.4 trillion ($19.4 trillion) to finance the transition to a greener economy. It has started collecting an environment tax to help fund its environmental policies and is also trying to attract more green investment (ibid). (4) Overcoming domestic environmental resource constraints and achieving economic transformation and sustainable development: China has started to explore a concept it calls ‘eco-civilization’ to balance the relationship between humanity and nature, which includes economic development, population, resources and the environment. Major tasks include substantially decreasing energy use and carbon dioxide emissions per unit of GDP, significantly reducing total emissions of major pollutants and increasing the rate of forest cover (The Climate Group, 2014).

In terms of resource protection and conservation, there have been a number of top-down initiatives implemented by the central government in recent years. For example, one key area of reform is to establish property rights institutions (i.e. between the ownership of state and user rights of farmers on natural resource assets) and use regulation systems (i.e. clear stipulation of the rights and obligations in managing natural resource assets between the state, the local authority and individual farmers) for managing natural resource assets. These are the fundamental pillars of the eco-civilization system. In China, natural resource assets are owned by the state. However, the user rights of some natural resource assets have not been clearly defined, which can lead to mismanagement and over-exploitation (The Climate Group, 2014). By establishing property rights, institutions responsible for natural resources, the ownership of water, forests, mountains, grasslands, wasteland, beaches and other natural spaces, should be clearly registered for purposes of effective supervision and tracing accountability for the development and utilization of these assets.

Another change involves establishing a system for paid use of resources. The low price of resources in China does not properly reflect market supply and demand, resource scarcity, ecological and environmental damage or the cost of repair. This has inevitably caused over-exploitation and wasted resources (The Climate Group, 2014). By reforming the prices of resources by imposing resource taxes, and other incentives or disincentives, unreasonable demands for resources will be reduced. The cost of resource development will increase accordingly, which can contribute to a more rational and orderly exploration and use of resources.

In the area of eco-environmental protection, more initiatives have been implemented in recent years. For example, there has been an effort to establish a new system for developing and protecting Chinas geographical space (The Climate Group, 2014). Resource and environmental carrying capacity refers to the scale of economy and population that the resource endowments and ecosystem within a certain geographic space can support at a steady pace. In some parts of China, the scale of economy and the population have gone beyond the limits of its resource and environmental carrying capacity. Under the current growth model, the development of geographical space is out of control, eco-space and agricultural land are shrinking, groundwater has been over-extracted and pollutant emission levels are beyond the self-purification capacity of the environment. As part of the supervision of the system for developing and protecting China’s geographical space, a functional zoning strategy' will be formulated based on the resource and environmental carrying capacity of the region in order to implement differentiated environmental protection policies in different functional areas. Monitoring and early-warning mechanisms for the carrying capacity of resources and environment have also been established. When the carrying capacity of resources and environment in a region is reached, a warning will be issued and restrictive measures will be taken to prevent serious irreversible consequences caused by resource exploitation (The Climate Group, 2014).

In addition, drawing ecological ‘red lines’ is another restrictive measure for ensuring the strictest eco-protection is in place in important ecological functional zones, sensitive terrestrial and marine areas and other designated vulnerable areas (The Climate Group, 2014). The Ministry of Environmental Protection and other ministries completed a nationwide ‘ecological red line’ review in 2014, and this has been put into practice since then (Song, 2018). Based on this review, governments have also implemented eco-compensation mechanisms in major ecological functional zones and established ecological compensation systems across regions. This is based on the nature of the public goods and externality of eco-products, and is in accordance with the ‘polluter pays’ principle that those who benefit from the polluting activities should compensate others. Under the new rule, all levels of government need to purchase eco-products in order to finance the ecological environment, a requirement that could be seen as new development model with the emphasis on eco-compensation, protection and rehabilitation, as well as regional development (The Climate Group, 2014).

At the firm level, the governments have also adopted a strict control system of environmental pollutant emissions for all enterprises. The control system includes targets for total emissions from major pollutants according to their total land capacity. The emission reduction targets for major pollutants are specified in national development plans which are broken down and assigned by local governments to all regions and then assigned to the enterprises that produce pollution. At the same time, the central government has also directly specified the total quota for emission reduction ofSOEs.

In addition to these policy initiatives, there are a number of new enablers to facilitate the realization of the new government environmental targets. For instance, the establishment of climate finance has provided more funding in urgent areas. In China, large funding gaps still exist in the areas of environmental protection and climate change. To bridge this gap, China has established the China Clean Development Mechanism Fund (CCDMF) as a national climate fund that supports low carbon growth and climate resilience in China. The CCDMF is a revolving fund that receives regular capital injections from levies collected by the government on clean development mechanism projects in China (UNCC, 2020). Another example is the establishment of the carbon market. In the past, the Clean Development Mechanism (CDM) enabled developed countries to offset their own emissions with low-cost emission-reduction projects in developing countries. China has been an active participant in the CDM, allowing it to secure about S9.3 billion in climate finance since 2004. However, participation has also lowered the potential of China’s low-cost emission-reduction projects, and furthermore, China has not been able to acquire the technology and skills for high-cost emission reduction projects in the process. China therefore has to develop a domestic national carbon market. Currently, China has seven regional carbon trading trials that are spread across the developed eastern coast and less affluent inland areas. By 2015, these covered 2,000 firms, with annual carbon allowances totalling 120 million tonnes (Zhang, 2016). The central government has called for the acceleration of China’s carbon market rollout with a transition to a national emissions trading system (ETS) market from the seven regional pilot markets (Baker, 2019). A timeline was proposed: by 2018 the infrastructure of the market was to have been developed, while simulation ETS trading was to have begun in 2019. In 2020, described as a ‘deepening and perfecting period’, spot trading of allowances is expected to begin in earnest (Baker, 2019).

Green urbanization is another challenge for maintaining sustainable development. The rapid urbanization of China in the next 10 to 20 years will continue to place pressure on resources and the environment. New, high-density, resource- and energy-efficient ‘green towns’ need to be built as a result. This green urbanization initiative could provide development space and market capacity for green construction, green transportation and clean production for high-energy-consuming industries. It could also contribute to the wide application and reduced costs of new clean energy sources and new clean technologies (The Climate Group, 2014).

Clean technology innovation has been an important aspect of MIC2025. According to the government plan, by 2050, 65 percent to 70 percent of primary energy production will come from clean energy sources (The Climate Group, 2014). China’s new energy industries, although fast growing in recent years, still lack core technologies due to the constraints imposed by under-developed independent innovation capabilities. Therefore, the government has been promoting international collaboration of technology' innovation in resource recycling, renewable energy, smart grid and other key areas. Specific examples include putting greater effort in applying global technology resources through international and regional technology exchange and cooperation in various approaches, encouraging, initiating and organizing international technology' cooperation plans, supporting enterprises and research institutions to establish overseas research institutions, supporting international academic institutions and multinational corporations to establish research institutions in China in order to attract global technology talents to start businesses in China and encouraging cooperation in civil technology' in order to promote clean technology innovation (ibid).

Green trade can be seen as another important area. Over the past 30 years, while China’s GDP has been growing at an average rate of 9.9 percent, the annual growth rate of China’s foreign trade has been even higher at 16.3 percent (ibid). This impressive expansion in trade has come at a high environmental cost to China. The reason for this is mainly due to the composition of China’s exports. The majority of the country’s exported products come from industries that are highly polluting and/or highly resource-intensive. With the world economy recovering following the GFC and demand for goods increasing, China may experience even greater energy consumption and carbon emissions if it does not change the structure of its exports.

Green trade involves dealing with global divisions of labour, which requires the international community to confront and resolve challenges together. On one hand, this means China must implement a green-trade strategy' and accelerate the development of sustainable economic, production and consumption models. On the other hand, China also needs to help build international environment and trade coordination systems together with other countries (Song, 2018; The Climate Group, 2014).

An equally important area is green investment, with the increasing China-outbound FDI annually in first position among developing countries and fifth position in world terms. However, the social and environmental impacts caused by China’s overseas investments and cooperation initiatives have raised growing concerns from the international community, partly due to China’s lack of environmental enforcement and the necessary experience in management and communication. In the current international context where environmental problems have become global concerns, joint efforts should be made by governments, investors and businesses to establish a stricter and more specific system of green social responsibility for foreign investment (The Climate Group, 2014). It is timely and important to develop globally unified standards covering major industries in order to regulate enterprises’ outbound investments and overseas business activities, which enable the international community to work together to address regional and global environmental problems.

Although there have been many important policy initiatives addressing the challenges of environmental issues, citizens’ responses to those initiatives, particularly among the business communities, have been mixed. Overwhelming support for the government to take action on climate change and environmental problems has been dominating the media, including social media. However, criticism has been focusing on the enforcement mechanisms and the way of handling implementation processes. For example, a national survey indicated that ‘the one-size-fits-all approach’ in environmental governance is problematic (CCICED, 2019). In September 2018, the MEE issued the ‘Guiding Opinions on Further Deepening the Reform to Delegate Power, Streamline Administration and Optimize Government Services in Ecology and Environment and Promote High-Quality Economic Development’, a document addressing the one-size-fits-all concept and setting out the relevant requirements for banning the approach, advising local governments to abstain from the approach in its environmental protection. The document points to the lack of flexibility and autonomy for local government to implement the new rules as well as a lack of possibilities to treat firms differently according to their different situations (CCICED, 2019). Other criticisms focus on further improvements for policy implementations, including the following:

  • (1) The property right system for natural resource assets should be perfected.
  • (2) The subject of property rights of natural resource assets should be clearly defined. (3) A unified survey, monitoring and evaluation of natural resources should be carried out. (4) The unified registration of the ownership of natural resources should be accelerated. (5) The restoration of and reasonable compensation for the natural ecosystem should be promoted. (6) The regulatory system for natural resource assets and the legal system concerning property rights of natural resources should be perfected (ibid).

The people we interviewed responded to the previously mentioned new environmental policies with some concern, particularly with regard to the increase in production costs. The manager of an SOE producing herbal medicines stated:

Given that the process of traditional medicines could have environmental impact, recent tightening on environmental policy also adds some challenges for this sector in adopting more environmentally friendly practices with new technology and equipment. The overall costs have been increasing.

Another small private engineering company owner also shared similar views:

The most influential policies are promoting domestic creative production with high value-added products and environment protection policy. The first one encourages us to continue our ongoing improvement of adopting foreign best practices and technology, and the second one adds to our costs in using more environmental protection equipment. Government enforcement on the environment has been intensified in recent years and they come to the factory to check everything randomly without advanced notice, including waste treatment, energy control, water recycling etc. We also need to make the factory area greener by planting trees.

Based on these comments, we can see the overall policy initiatives on environmental protection are positive, but coming to the grass-roots level of individual firms’ business operations, concerns regarding the increasing costs are common in China.

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