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:

“To understand how bureaucrats and business leaders flout SEPA’s rules, take a trip to Lake Taihu, the source of drinking water to 2.3 million residents of the city of Wuxi. In the 1990’s, as industry sprang up on the lakeshore and Taihu grew more polluted, authorities ordered local factories to clean up their waste water. Then in 1999, local officials said the problem had been licked as factories installed treatment plants. But those new facilities were often idled as companies refused to shoulder the cost of operating them, and factories continued to dump untreated waste into the lake. The situation worsened, until this spring the lake turned an iridescent green. “I’m angry with the government because it can’t solve the pollution problem,” says Lydia Li, an executive assistant at a foreign-owned manufacturer in Wuxi. In May, she says, she had to buy nearly 50 gallons of bottled water after yellowish water smelling of sulfur started running from her tap.”

This example of Wuxi is a horrible example the highlights how environmental degradation impacts the socio-economic framework within China.

Not all imports are good of course, and some people may be surprised to know that China actually imports a lot of recyclable waste and garbage. Aya Yoshida points out that, “China is already the world’s second largest producer of plastics after the United States. Cheaper than virgin raw materials and of higher quality that domestically-generated waste, imports of waste plastics are rising exponentially, with import volumes reaching 4,096 thousand tons in 2004.” It’s important to realize that recyclable waste also incorporates a lot of garbage that is then left in China. For example, in Aya Yoshida’s paper there I a graph that displays Illegal shipments to China between 2003-2004 and on November 27, 1997, 15 tons of human hair were found from a destination unknown. Other examples include 47 tons of dirty gloves from Shenzhen, 3,400 tons of Waste Catalysts containing molybdenum, and 193 tons of agricultural waste,” and the list goes on.

However, addressing China’s environmental shortcomings and their socio economic implications would be useless without proposing policy changes and reforms to minimize the damage. Public awareness of environmental issues is low in China. This is at least in part due to the fact that, “China’s investment in education is less than half that of developed countries as a portion of gross national production. Despite holding 20% of the world’s population, China’s educational funding accounts for only 1% of world investment.” If China invests more in education there will be positive cascading effects that reach further than just environmental awareness. Other remuneration will surely arise from increased education such as fertility awareness and a higher skilled workforce.

China has a lower GDP than the U.S., Japan, and Germany, but much more serious environmental degradation problems. Therefore, China needs to invest proportionally more in environmental saving investments. As China continues its transition from a socialist economy to a market economy more market tools should be applied. One example would be eliminating subsidies for industries that are particularly detrimental to the environment, such as coal. Jianguo Liu and Jared Diamond also point out that China should, “set fair prices for ecosystem services that are now grossly underpriced, such as water; enhance emission trading to reduce pollution; impose more environmental taxes, such as a higher consumption tax on cars; compensating residents in and around nature reserves, such as those for endangered giant pandas, and incorporate direct and indirect environmental costs (such as pollution) as well as values of ecosystem services (such as wetlands) into accounting from local to national levels.”

As was addressed earlier in this paper, China has done a good job of curbing its population growth. However, it should also focus its attention on decreaseing household numbers, size, and consumption patterns of those households. More household space necessitates more superfluous products to fill them and energy to heat and cool them. People respond to incentives, and the Chinese government should provide incentives for people to share households and household resources.

There are a number of social factors leading to the increasing housing sq footage per capita. The two biggest factors are increasing divorce rates and declining multigenerational households. It used to be common for many generations to live in one household, with the younger generations taking care of the elders. However now as families become increasingly fragmented due to migration to cities, and changing family values, more old people are living alone rather than with their children and grandchildren. This problem of changing family values may prove difficult to change for the sake of decreasing housing sq. feet per capita, but the divorce rate can be curbed. Jianguo Liu and Jared Diamond point out that, “Divorces have increased sharply owing to simplified divorce procedures and wider societal acceptance of divorce. In 2004, more than 1.6 million couples filed for divorce, up 21% from 2003.” Divorces essentially increase the number of households and decrease household size, which in turn increases per capita recourse consumption and waste. If the government made divorce proceedings longer, and require mandatory marriage counseling and a waiting period, divorce rates would probably decrease as people might realize they can make their marriage work.

China certainly has the right and power to industrialize despite its pollution just as other countries of the world have done. However, it is imperative that China considers the implications of polluting its environment and real the socio-economic costs associated with China’s actions. We all get utility from the environment, biodiversity, and ecosystems so more should be done by all nations to help China protect its environment and progress in an environmentally sustainable manner. China’s per capita resource consumption and pollution are still much lower than in developed countries, but this may soon change due to China’s blistering economic progress. China is an economic wonder, but we hope that over the next century China will also become an environmental wonder and good example for other nations.

Bibliography:

Department of Nature Conservancy (SEPA) Report on China’s Ecological Issues (in Chinese) (China Environmental Science Press, Beijing, 1999)

Engardio, P., Roberts, D., Balfour, F., Einhorn, B. Beijing can’t clean up the environment, rein in stock speculations, or police its companies. Why the Mainland’s Problems could keep it from Becoming the Next Superpower. Business Week. July 23, 2007. Vol. 4043. Pg. 38.

Liu, J., Diamond, J., 2005. China’s Environment in a Globalizing World. Nature 435: 1179-1186

Liu, J., G. C. Daily, P. R. Ehrlich, and G. W. Luck. 2003. Effects of household dynamics on resource consumption and biodiversity. Nature 421: 530-533.

Yang, L., Stulen, I., De Kok, L. J. & Zheng, Y. Sulfur Dioxide. Environmental and Experimental Botany. Volume 57, Issue 3, October 2006, Pages 236-245

Ye, R. et al. Environment and Trade(in Chinese)(China Environmental Science Press) (Beijing, 2004)

Yoshida, A. The Economics of Waste and Pollution Management in Japan. China: The World’s Largest Recyclable Waste Importer. 2003

Figure 1. Obtained from http://ingrimayne.com/econ/resouceProblems/FreeRes2.html

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