China’s Environmental Degradation: Socio-Economic Grounds for Concern

Submitted By John L. Walker

China is the world’s most populous country and ranks fourth largest in terms of area. The economy, which is already huge, is also growing at a blistering rate. According to the International Monetary Fund, China’s economy is the second largest in the world in terms of Purchasing Power Parity, fourth largest in the world in terms of GDP, and the fastest growing economy with growth rates hovering around 10%. Unfortunately, all this prosperity comes at an immense price. China’s environmental problems are among the worst in the world, and are likely to only get worse. These environmental issues are a big problem for China because they have real socio-economic implications for the Chinese people and China’s economy. The goal of this article is to bring light to these environmental problems, display their socio-economic ramifications, and provide suggestions that will help China cope with these problems so that its economy can continue to prosper throughout this next century.

In today’s world, China is known by many as the ‘world’s factory’ and this term is quite accurate. Unfortunately, being the ‘World’s Factory’ often means exporting goods while leaving pollutants behind on China’s factory floor metaphorically speaking. For this reason many people accuse the world of outsourcing our pollution to China. Recently China has focused on its comparative advantage which is a large work force, and has created a largely manufacturing based economy. The mainland’s astonishing ability to assemble people and capital is the reason China, “is an export juggernaut in everything from T-shirts to TVs, has the world’s fastest-growing consumer market, and has amassed enough wealth to snap up South American mineral reserves, IBM’s PC division, and a big stake in private equity firm The Blackstone Group.” China is the world’s largest producer of, “steel, cement, aquaculture food and television sets, and is the second-largest producer of electricity and chemical textiles.” This side of China’s economic prowess has awed the western world in the past few decades and has made the country a buzzword on everybody’s tongues.

China’s comparative advantage and economy are heavily influenced by its enormous population, and this immense population has enabled the country to accomplish astounding economic growth. The population has more than doubled in the past half century, but the rate of population growth has slowed. This decreasing rate of population growth is due to a number of factors, but primarily the decreasing birth rate brought on by policy changes such as the one-child-policy established in 1979. 1.3 billion people, or 20% of the world total, certainly provide a large workforce and market. More people lead to more consumption and production but it also leads to additional pollution and waste which of course negatively affect the environment. There is an old environmental truism that states, the most environmentally conscious decision one can make in their life is not to have kids. Higher populations have more of a strain on the environment, so a decreasing rate of population growth is a step in the right direction environmentally speaking.

Interestingly, even though the rate of population increase has slowed, “the number of China’s house-holds grew almost three times as fast as its population during 1985-2000, because average household size decreased from 4.5 to 3.5 people.” Environmentally and efficiently speaking, this has actually worked in the opposite direction of a declining population growth rate because smaller households consume more resources per person. Each additional household is a boon for the economy, think for instance more houses means more demand for appliances to fill them and more energy to heat them, but these same exact factors also negatively impact the environment as it adds to waste accumulation, urban sprawl, and energy consumption (Primarily cheap yet dirty coal in China). In this way the increasing per capita house floor area is a double edge sword, excellent for the economy yet with significant environmental consequences.

Despite China’s large economy and GDP, the country actually has a per-capital GDP that is much lower than other countries – ergo there is a large potential to increase. With ever-increasing affluence China is demanding more luxury items such as meat and cars, both of which bring along a lot of pollution. Consider for instance that, “China’s per capita consumption of meat, milk, and eggs increased four-, four-, and eightfold, respectively, between 1978 and 2002.” With increased meat and dairy products comes more agricultural wastes and animal droppings, “which are (already four times the output of industrial solid wastes), fish droppings, fish food, and fertilizers for aquaculture, all of which increase terrestrial and aquatic pollution,” and eutrophication.

Similarly, China’s transportation system and number of motor vehicles have grown explosively. The market for automobiles is so expansive in China that, “in 1994 after the number of motor vehicles had increased to six times the 1980 figure, China decided to make car production one of its four ‘pillar industries’ to stimulate economic growth, with the goal of increasing production, (especially of cars) by another factor of four by 2010. This would make China the world’s third-largest vehicle manufacturer, after the U.S. and Japan.” Cars of course emit CO2 which is a detrimental greenhouse gas that has sparked much concern over global warming. Car pollution is quite noticeable, especially in big cities such as Beijing, which has generated concern over air quality for the 2008 Olympic Games. In addition, with more cars there is the obvious implication for increased highway expansion which will further encroach on the natural landscape and promote urban sprawl.

There is good reason to worry about China’s environmental challenges. Consider for instance that, “Of 142 countries for which environmental sustainability was evaluated, China ranked 129th.” The consequences for environment degradation affect socio-economic losses, heath costs, and even increasing rates of natural disasters. It is impossible to put an exact price on the cost felt by society, but there are a number of poignant examples that will get the point across. We will start small and work our way up: consider, “the annual loss of $250 million arising from factory closures due to water shortages in a single city, Xian.” Or mull over the fact that, “losses of crops and forests due to acid rain amount to $730 million per year.” Increasing in cost there is, “the $6 billion cost of the ‘green wall’ of trees being built to shield Beijing against the sand and dust, the annual direct losses due to desertification ($7 billion). The losses from pollution and ecological damages ranged from 7% to 20% of GDP every year in the past two decades.” Then there are the health costs. “About 300,000 deaths per year are attributed to air pollution. Average blood lead levels in Chinese city dwellers are nearly double those considered to be dangerously high and to endanger children’s mental development.” There are certainly grounds for concern.

The numbers presented above can seem alarming, but it is important to remember that zero pollution is not the ideal level of pollution. We get utility out of our polluting goods such as cars. Therefore, economically speaking, the ideal level of pollution is where Marginal Social Cost and Marginal Social Benefit intersect. The government’s role is usually to step in when private interests are overexposed, and bring levels back down to the social optimum. When supply exceeds the margin cost to society as in figure 1 below, there is a dead weight loss represented by the area to the right of q0, above the green line and below the blue line.

China’s transition from a socialist to market based economy has not been a seamless one, and it is still often the case that many Chinese companies have financial ties to city or township governments. This means the government may not conduct itself solely as an entity focused on servicing the public good. When incentives for private optimums are present a dysfunctional government administration may seek wealth generation. Business Week provides an insightful yet pessimistic example displaying the inefficiencies within Chinese government that is best left in their own words: