China’s Geography: The Physical Story

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Introduction

With a total area of nearly 9,600,000 square kilometers, China’s landmass is slightly smaller than that of Europe. It stretches about 5,000 km from east to west, and about 5,500 km from north to south. China has land borders with 14 nations including Afghanistan, Bhutan, Myanmar, India, Kazakhstan, Kyrgyzstan, Laos, Mongolia, Nepal, North Korea, Pakistan, Russia, Tajikistan, and Vietnam.

Mountains, hills, and highlands cover about 66 percent of the nation’s territory. China’s surface slopes down in steps, starting from the Tibet plateau at 4000 m. China’s second geographical step averages 1-2000m and includes the Mongolia, Loess, and the Yunnan-Guizhou plateaus, and the Tarim, Junggar and Sichuan Basins. The third step, with an average elevation of 500- 1000 m, begins roughly at the edge of the Greater Hinggan, Taihang, Wushan and Xuefeng mountain ranges, and continues east to the coast.

Descending these geographical steps, China’s major river systems wind their way from west to east. Its largest river systems include the Yellow River in the north, the Yangtze River in central China, and the Pearl River in the south, all of which flow from the higher plateaus to the eastern Oceans. Along China’s east runs a 14,500 km coast.

Much as any other nation, the development and the history of the Chinese civilization have been profoundly influenced by its geographical setting. As early as 400,000 BCE, cave dwellers lived in China. Beginning in approximately 8000 BCE, people in north and central China began domesticating animals and growing food, especially millet in the Yellow River valley of the north and rice in the Yangtze River valley to the south. A warming climate aided agricultural innovation. The surplus food production allowed more populous and complex societies to evolve. By 5000 to 4000 BCE Neolithic settlements were scattered throughout China. By 2000 BCE these village settlements saw people begin to specialize in different kinds of productive occupations. By 2200 BCE, China’s first dynasty was formed. By 1500 BCE, the Han Chinese had developed a sophisticated civilization with character writing, bronze technology, the world’s most productive agriculture, walled cities and towns, and a powerful, national army.

Once China was established, it mountains, deserts, empty steppe lands and uninviting coast provided natural barriers that helped China to maintain remarkable continuity in language, cultural values, and social and political institutions, making China the world’s longest continuing civilization. China has historically been an inward looking country, content to develop within the confines of its vast continent. That said, it has also been shaped by a continual stream of outside influences, such as the arrival of Buddhism from India, the periodic invasion by Mongols from the north, and the trade of goods, most famously along the commerce networks of the renowned Silk Road.

China’s Western Lands

The western land of China is characterized by high plateaus and multiple mountain ranges which are broken by vast basins and deserts. This land is arid and cold, and suffers from constant drought. The lack of water has limited the number of people living in the region. Only 6% of China’s total population lives in the western half of the country.

Most of China’s mountains, including its five main mountain ranges, trend west-east. In southwestern China, the Himalayas and the Kunlun Mountains enclose the Tibet Plateau, which encompasses most of Tibet Autonomous Region. The Tibet Plateau with an area of 2.5 million kilometers, is China’s highest and largest plateau, about four times the size of France. Mount Everest is part of the Himalayan range and is located on the China-Nepal border. The Gangdise range parallels the Himalayas to its north. The Tien range crosses between the massive Tarim Basin to the south and the Junggar Basin to the north. Rich deposits of coal, oil, and metallic ores lie in the Tien Shan area. Between these two basins lies Turpan Pendi, which at 154 m below sea level, is the lowest point in China and the second lowest place in the world after the Dead Sea.

To the north of the Tibetan Plateau lies the Gobi and Taklamakan deserts, which stretch from the extreme northwest eastwards through Mongolia. The Gobi is the largest desert in Asia, covering parts of northern and northwestern China and Mongolia. The Gobi was part of the Mongol Empire and was traversed in part by the ancient Silk Roads. It is a cold desert for much of the year, and it is not uncommon to see frost on its dunes. Northeast of the Gobi, the Heilongjiang or Black Dragon River flows for 3,101 kilometers.

South of the Gobi lies the Inner Mongolian Plateau, an average of 1,000 m above sea level. The Yin mountain range, averaging elevations of 1,400 m, extends east-west through the plateau’s center. To its south is the largest loess plateau in the world, covering 600,000 km. Loess is a yellowish soil originating from the Inner Mongolian deserts. The soil is carried easily on the wind, and through the centuries, it has choked the Yellow River with silt. The Loess sand also plagues Beijing and its surrounding areas with dust storms, which turn the sky yellowish-gray and force people indoors or into protective gear. A March 2011 sandstorm, for instance, affected about 250 million people over an 808,000 sq. km area. China is planting thousands of acres of vegetation to stop spreading desertification, but the work will take decades to finish.

Along an arc that roughly outlines the southern edge of Inner Mongolia, the Great Wall of China extends approximately 8850 km, including 6260 km of actual wall, as well as trenches and natural defensive barriers such as hills and rivers. The wall was built to protect the northern borders of the Chinese empire against invasions by various nomadic tribes.

Eastern China

The eastern part of China is divided north-south by the Qinling Mountains, an extension of the Kunlun Mountains. This boundary is both physiographic and cultural. To its north flows the Yellow River, travelling through the North China Plain to the Yellow Sea. Home of Beijing, the Yellow River basin is called the “Cradle of Chinese Civilization.” It was the most prosperous region of early China, and has been the center of Chinese expansion and influence since ancient times. The North China Plain is vulnerable both to flooding and earthquakes. Over the last 3000-4000 years, the Yellow River has flooded over 1500 times often with catastrophic effect. For example in 1931, the flooding of the Yellow River, in combination with the Yangtze and Huai rivers, is estimated to have caused between 1 and 4 million deaths.

South of the Qinling mountain range are the heavily populated and exceedingly developed lower and middle plains of the Yangtze River and, on its western reaches, the Sichuan Basin. Crossing 6,300 km through the heart of the country, the Yangtze is China’s longest and most important waterway. It is navigable over much of its length, and has a vast hydroelectric potential. The Three Gorges Dam, for instance, spans the Yangtze at the town of Sandouping in Hubei province. Connecting the Yellow and Yangtze Rivers is the 1776 km long Grand Canal, one of the greatest engineering projects in China, and the longest artificial river in the world. Constructed between the 5th century BC and the 7th century AD, it is the only major Chinese waterway running from north to south.

Second only to the Qinling range as an internal boundary is the Nanling mountains, the southernmost of the east-west mountain ranges. South of the Nanling mountains is the Pearl River and its many tributaries which all flow into the Pearl River Delta. The Pearl River – used as a catchment term to refer to the watersheds of the Xi, Bei, and Dong (West, North and East) Rivers – is China’s third longest river after the Yangtze and Yellow Rivers and second largest by volume after the Yangtze. The Pearl River takes its name from all the Pearl colored shells which lie at the bottom of the river in the section which flows through the city of Guangzhou.

West of the mountains of the Pearl River, the Yunnan-Guizhou Plateau rises in two steps toward the mountain regions of the eastern Tibet Plateau. In Yunnan province, the plateau averages 2000m is characterized mountain peaks as high as 3700 m. In the Guizhou range, the plateau averages 1200 m in height, and is characterized by rolling hills, deep river-carved gorges and mountains marked with geological faults. Karsts – distinctive geological features caused by water eroding the limestone underlying the plateau- dominate the landscape. Such karst features include sinkholes, caves and natural bridges, and large underwater aquifers. The Yunnan-Guizhou plateau is the source of the Yangtze and Yellow Rivers.

In spite of the 14,500 km coastline fringed with offshore islands, China has traditionally oriented itself not toward the sea but inland, developing as an imperial power whose center lay in the middle and lower reaches of the Yellow River on the northern plains. The southern part of the coast is rugged and mountainous so that its good harbors provide poor access to the inland regions. The north coast is low and swampy. The Yellow, East China, and South China Seas are all part of the larger Pacific Ocean.

Arable Land

Because of the mountainous and arid nature of its geography, only about 15% of China’s total land area is suitable for farming, almost all of which is under plow. The lack of and the nature of its arable land has also led to one of the most labor-intensive agricultural systems in the world. Farming in the arid north along the Yellow River has required much coordinated effort, both to create irrigation systems and to build dykes to prevent the Yellow River from constantly flooding. Similarly, in the south, rice cultivation has always been extremely labor-demanding. From creating the clay-bottomed rice plots that trap water, to laying the muddy ground into which the pre-grown rice shoots are planted, to the intricate fertilization and pest removal that each shoot requires, to the rapid harvest of the ripe rice and quick re-planting to ensure two and sometimes three crops per year, wet rice production in the south is one of the most labor intensive crops in the world. Rice cultivation is also one of the most efficient in the numbers of people it can sustain. In fact, for much of its history, China has been one of the most populous countries of the world.

It has been argued that the demands of China’s irrigation, water and agricultural management have caused the Chinese to be a collective minded rather than individualistic people. What is true is that the Chinese have historically shown a great ability to organize its people to undertake tasks on a large scale such as the building of roads, dams, canals and defensive walls as well as the large scale production of iron and porcelain. It has also been argued that the nature of rice agriculture has caused China to develop a tradition and culture of hard work which is manifest in China’s work ethic today. What is indeed true is that the Chinese rice farmer works significantly more hours per year than a farmer sowing other crops such as wheat and corn.

China’s most important food crops are rice and wheat. Due to its high water and warmth requirements, most of China’s rice crops are planted in the south. This region also produces tea, sugarcane, and the mulberry leaves which feed the silkworms. Wheat is the chief crop of the north. Other northern crops include millet, maize, kaoliang (sorghum) and soya beans. In a few areas, cotton and peanuts are grown. Cattle, sheep, and horse ranching are limited to the grasslands of Inner Mongolia, Xinjiang, and Tibet. Ranching is rare in China proper because there are not the wide open plains necessary to maintain large herds. The optimal use of land is for cultivation of crops and animal husbandry, and most farmers keep chickens, ducks and pigs. This land constraint explains why there is a large-co-habitation between foul, swine and people in China, and why it has proved to be an effective breeding ground for such viruses as SARS and Swine flu.

China is currently losing arable land due to desertification and rapid urbanization. Currently, approximately 400 million people live in towns and cities, and China now has over 160 cities with populations greater than 1 million people, the largest being Shanghai and Beijing. By 2050, China expects 1.1 billion of its citizens to be in urban settings.

Climate

China’s climate is as varied as its topography. China’s climates range from the cold-temperate north to the tropical south, with subarctic-like temperatures in the Himalayan Mountains. In the winter, there is little rain or snow anywhere in China. In the summer, the warming land draws tropical sea air saturated with moisture into southern China. As the air encounters mountains and cooler inland air masses, rains fall plentifully in southern China. As the summer monsoon moves northwest, it brings less rain, meaning that overall China’s north is dry and its south is verdant. In bad years, the monsoons are too weak to cross into the Yellow River Valley, and become stuck over the central mountain belts, causing drought in the north and flooding in the south. In 2011, for instance, large floods in Southern China killed 132 people and displaced 800,000.

Nevertheless, overall, China is an arid country and is facing an increasingly severe water crisis. In 1997, for instance, the downstream stretches of the Yellow River ran dry for 226 days. In a project reminiscent of the Grand Canal, China has plans to build a vast new aqueduct – the South-North Water Diversion Project – which will divert at least six trillion gallons of water each year from the Yangtze River to satisfy the water needs of the North China Plain. The project has been likened to diverting water from the Mississippi River in the United States to meet the water requirements of Boston, Washington and New York and is projected to cost $62 billion, twice the cost of the Three Gorges Dam, the world’s largest hydroelectric project.

People

Around 1.3 billion people, or approximately a fifth of the world’s population, live in China. The Han Chinese, the native Chinese-speaking people, comprise approximately 90% of the population. 55 different ethnic groups, including the Uighurs, Mongols, and Tibetans account for the remaining 10%. China has seven large language groups each of which contain hundreds of dialects. Mandarin, based on the Beijing dialect, is China’s common language, and can be spoken by most Chinese people who have completed primary education.

Although the Communist regime has discouraged the practice of religion, temples and pagodas are found in most Chinese cities. For millennia, Chinese life has been influenced by the teachings of Confucianism, China’s major belief system. Buddhism and Taoism are also significant religions in China, and Islam is practiced by many of China’s ethnic minorities.

China’s Geography Today

The geography of China today has been altered over thousands of years by human habitation. The cleverness that enabled the Chinese to to support a population that exceeded 100 million people as early as the 12th century has extracted a real ecological toll on the country. One of the great tests facing China today is whether it can protect its natural resources during its current rapid development.

At the heart of this challenge is China’s scarcity of water. With 20% of the world’s population, but only 7% of global water resources, China faces severe water challenges. Mainland China has a per capita share of water of 2700 m³ per day, or one quarter of the world’s average. Moreover, the area south of the Yangtze River, which accounts for only 37% of China’s physical land, has 81% of China’s total water supply, while the 63% of land north of the Yangtze has only 19% of China’s water. Northern water demand is depleting underground aquifers. Drilling deeper to gain new water access has caused naturally occurring arsenic pockets to be reached, increasing the presence of arsenic in some water supplies. The World Bank predicts that by as early 2020, there may well be as many as 30 million environmental refugees within China due to lack of water and desertification.

The fresh water that China does have is often heavily polluted. 90% of the city’s groundwater and 75% of rivers and lakes are contaminated, and it is estimated that 700 million people drink polluted water daily. Water pollution occurs from industrial and municipal emissions, pesticides and fertilizers, and acid rain. Additionally, industrial pollution incidents, such as Songhua River toxic chemical spill in November 2005, have become more common.

The diversion to China of more of the water resources of major trans boundary rivers such as the Brahmaputra River and the Mekong River, risks being an increasing source of tension between China and countries such as Vietnam, Laos, Cambodia, Thailand, India and Bangladesh. For instance, China has built two dams on the Mekong, and has plans to build three more, inciting anger in Vietnam, Laos, Cambodia and Thailand. In the book Tibet’s Waters Will Save China, Chinese ex-officials have looked at ways for China to keep more of the Brahmaputra River to meet China’s growing water needs.

Another water related issue is China’s rapid building of dams to capture its hydro-electrical potential. Projects such as the Three Gorges Dam have not only raised environmental concerns as ecosystems are disrupted, but they have caused increased social unrest as millions of people are uprooted, sometimes without fair compensation. Environmental and social concerns around dam building will remain key points of debate in China in the near future.

There is a high correlation between the fertility and resources of its various areas and the wealth of its populace. Most of the wealthiest Chinese live in China’s southeast, where water is abundant, where as many as two to three rice crops can be harvested each year, and where easy access to export markets caused the region to lead China’s re-integration into the global economy. Similarly, the east coast of China is wealthier than its hinterland as it has better access to global trade. The poorest Chinese live in the arid north-west where deserts, mountains, and high-elevation plateaus prevail. Increasing inequality, caused in no small part by China’s geographical diversity, is an important concern for Communist party leaders. Growing social discontent at the increasing difference of wealth between regions and between people is a real risk to the Communist Party’s control of power.

Tectonically, China remains one of the most active seismic regions of the world. The country has a long history of being hit by deadly earthquakes. The largest earthquake occurred in 1556, where it was estimated that over 800,000 people died. Since 2005, China has experienced four deadly earthquakes in 2011, 2010, 2008 and 2005. According to official figures, the 2008 Sichuan earthquake killed over 69,000 people, and left almost 5 million people homeless. These earthquakes will continue to generate debate not only about Chinese construction standards and Chinese compliance with building codes, but also about the quality of China’s public health care system. Many of the 2008 Sichuan victims, for instance, had little or no health insurance, and poor access to healthcare facilities.

Flooding will also remain an issue for China. The summer monsoon draws tropical sea air saturated with moisture into southern China. In bad years, the summer monsoons become stuck over China’s central mountain belts and fail to reach the Yellow River Valley, causing drought in the north and flooding in the south. In 2011 it was estimated that floods caused $1.2 billion in losses, disrupted the lives of approximately 5.7 million people and damaged or destroyed more than 7000 homes. Areas most vulnerable to flooding include Zhejiang, Sichuan, Chongqing, Hubei, Anhui, Jiangxi, Hunan and Guizhou.

From Indifference to Engagement to Dominance? China and International Organizations

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Introduction

Since the founding of the People’s Republic of China in 1949, its strategy with regard to involvement in international organizations has undergone a complete U-turn. As political and economic international organizations such as the United Nations and the Bretton Woods Institutions developed in the years after WWII, the PRC remained skeptical and suspicious of becoming entrapped in a framework set by external, Western, and ordinarily capitalist powers. Instead, it pursued a policy of non-engagement in multilateral institutions, with very few exceptions. Those it did involve itself with, such as the Non-Aligned Movement, evidenced attempts by China to disassociate itself from the superpower struggle between the US and the Soviet Union. Although this was partly driven by the politics of the Cold War that determined so much of international relations at that time, it also reflected the mistrust felt in China towards such institutions, rooted in the historical sense of injustice felt at its treatment by the League of Nations, which failed completely to arrest the invasion of China by Japan, a League member.

China began to rethink its engagement in international organizations after the success of its economic reform program launched in 1978. As an increasing percentage of its GDP became generated through international trade, and its status as an international power began to rise, China came to determine that engagement with international organizations would be useful in resolving trade disputes, gaining access to markets, promoting its perspectives on the international stage, and assuring established powers that its rise would be peaceful and would happen within the existing international framework. Today, China is not only a member of virtually all relevant international organizations, but it is also a key actor in many of them.

United Nations

Since the creation of the UN in the aftermath of World War II, one of the five permanent seats on the Security Council has been reserved for China. This seat was initially occupied by the Republic of China in Taiwan that was recognized as the government of all of China by most Western powers from 1949-1971. The People’s Republic of China, therefore, had no representation within the UN. This changed in 1971 when a UN General Assembly vote recognized the PRC as the legal government of China, effectively transferring all UN powers to the PRC, including Taiwan’s permanent seat on the Security Council and the veto that comes with it. This was an important step in the gradual global recognition, by international powers, that the PRC was the legitimate government of China. The ROC in Taiwan was expelled from the UN as it was no longer recognized as a state, and has never been readmitted, despite sporadic attempts from within Taiwan for it to be recognized. Thus, its membership in the UN had the immediate effect of facilitating the promotion of the PRC’s ‘one China’ policy, which ensured Taiwanwould never be officially recognized as separate from the PRC.

In its early years in the UN, China was relatively passive in its behavior, ordinarily abstaining in votes on peacekeeping operations (PKOs) and never participating in the operations themselves. During the 1971-1978 period, China voted in favor of roughly 40% of the resolutions that passed. This gradually began to change after 1978 with China increasing the number of motions it put forward. This more participative and assertive behavior continued in the 1990s, particularly from the first Gulf War onwards, when China not only began to vote in favor of peace keeping operations, PKOs, but actually became involved in the operations directly. By 2008, China was contributing approximately 2500 troops to UN PKOs, a similar number to France and significantly more than the US. The record since the turn of the millennium shows that more than 95% of resolutions that pass in the UNSC receive the support of China. This demonstrates both a shift in the behavior of China itself, which has become much more willing to take an active role in the process of international governance, as well as in the attitude of other UNSC members, who have come to see China’s support, as opposed to its passivity, as crucial to the perceived legitimacy of any UN action.

China’s increased willingness to engage in the UN framework has resulted in a slight contradiction in its official policy regarding the sovereignty of nations. While the rhetoric continues to stay on the message of respect for sovereignty and the maintenance of the principle of non-interference, China’s voting pattern suggests that there are circumstances in which it is willing to forgo this principle. Its acquiescence in 2002 on UN resolution 1441 which, ultimately, was used to justify the invasion of Iraq (though it should be noted that a clause on Iraq’s sovereignty and territorial integrity was included partly at China’s behest) exemplified this. An even starker example came in 2011 when resolution 1973 established a no-fly zone and authorized “all necessary measures” to protect civilians in Libya. That China saw fit to allow this resolution to pass (both China and Russia abstained) appears to demonstrate the limit of its international defense of the principle of sovereignty. However, such an increased willingness to allow such motions to pass in the UNSC should not be viewed as evidence that China has become a pushover in its dealings with Western powers – rather, it ought to be seen as proof that China has learned how to operate within the institutions of the UN, protecting its own key interests while promoting an image of a responsible world power.

China has positioned itself within the UN as something of a voice for developing nations and frequently counts on the support of these countries in votes in the General Assembly (where the veto it wields on the Security Council cannot be used). This has been particularly useful in avoiding censure over human rights abuses. As by far the largest member of the G77 group of developing nations, China is able to use its influence both to secure support from, and to advance the interests of, a significant bloc of the UN’s membership. Although this makes it a major player in the General Assembly, the most powerful body of the UN remains the Security Council where it continues to have to work with the other permanent members.

China is not only involved in the Security Council and General Assembly, but is also active in most other UN organizations through which it continues to pursue its core national objectives. For instance, even during the 2003 SARS and 2006 Avian Flu epidemics, China maintained its stance of blockingTaiwan’s participation in the World Health Organization, on the grounds that statehood is required for membership and the PRC is the sole legitimate government of China with Taiwan as part of China’s territory. Such an intransigent position was criticized both in Taiwan and by health experts in the organization with some suggesting that lives were lost as a result, though there are no credible statistics to support this claim. What this episode clearly demonstrated was China’s “red line” with regard to its position on Taiwan and the position of strength it now occupies in the UN structure through which it can pursue its objectives.

World Trade Organization

After protracted negotiations China finally gained membership of the WTO on December 11th 2001, a full fifteen years after it originally applied to join, symbolically three weeks before Taiwan – under the name “Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu (Chinese Taipei)” – also accessed. It should be noted that the WTO is an organization that does not require statehood for membership and Hong Kong has been a member since the organization’s inception in 1995. China’s leadership during the long negotiations went to great lengths to ensure China gained its place. Both Jiang Zemin and the then Premier Zhu Rongji invested enormous personal political capital in the process and Zhu, in particular, came under fire for the level of concessions made in order to be eligible for entry, particularly with regard to a commitment that China would open its telecommunications industry to foreign competition. The perception, both within China and among some analysts abroad, was that the requirements for Chinese admission were greater than those asked of other countries. In particular the decision not to bestow “Market Economy” status on China seems to have been politically motivated: the requirements that were laid out for China to achieve this status have been demonstrated by the Financial Times, a respected UK newspaper, to be so stringent as to rule out any member of the WTO from passing the test. The result of this apparently un-passable test is that when China is accused of breaches of WTO rules, the arbitration process measures the validity of such claims against other countries’ economic indices. For example, when China is accused of ‘dumping’ – selling goods into another economic area at below the price they are produced– it is not China’s own labor and raw material costs that are used to determine if this is the case. On occasion, Malaysia has been used despite wages in that country being significantly higher than in China.

Despite popular perceptions of China as a country engaging in unfair practices in global trade, particularly within regard to its apparent currency manipulation and the practice of ‘dumping’, its early years in the WTO were remarkably non-confrontational. In fact, no cases were brought against China in its first two years of membership, and China itself did not bring a case against another member until as recently as 2009. In those cases that have been bought against China, all of which have been by the EU or the US, it has struggled at times to defend itself, winning just one of the dispute cases that have gone through to completion. China also seems to have followed a similar pattern in its behavior in the WTO as it did in the UN, in that it spent its first few years learning how to operate within the WTO system, before attempting to become a major player. China’s increased activity over the last 2 or 3 years, during which time it has gone from bringing no cases against other members to averaging 3 per year (all of which have been against either the US or the EU) is evidence of this. Recently, despite the structural disadvantage that China faces by not being a “market economy”, it has had some success. For example, in 2009 China successfully brought a case against the US to end the ban on its poultry exports that had been in place since the Avian Flu epidemic. Similarly, in 2010 the WTO ruled that the EU’s anti-dumping measures on Chinese sales of fasteners were unfair and too broadly applied. Despite these victories, China’s success rate in successfully resolving WTO disputes remains below the average for the organization.

World Bank and International Monetary Fund

Along with the General Agreement on Trade and Tariffs (GATT), which later became the WTO, the World Bank and the IMF made up the key international financial institutions that came into being in the post-World War II era. China has officially been a member of both the World Bank and the IMF since their founding, although just as with the UN, responsibility for these positions was with the Republic of China on Taiwan until 1980, when the PRC took over control. As with the UN, Taiwan has since been denied participation in both organizations. The PRC has called upon the IMF for financial assistance on only two occasions, both of which occurred during the early period of its post-1978 economic reform and restructuring program, and both loans have since been repaid in full. In recent years, as China’s international standing has continued to grow, China has pushed hard for greater influence for itself and other developing nations within both organizations. It has had only limited success to date. It currently holds 96,000 votes in the IMF, equivalent to 3.81% of the total, making it the sixth largest behind the US (16.76%), Japan (6.24%), Germany (5.81%), France (4.29%) and the UK (4.29%). These figures represent an increase in the voting share for China that came into force in 2008. However, under IMF voting rules, a total of 15% is required to veto any proposal, meaning that the US alone, or a combination of any four of the other G7 countries without the US, has this power. China is a long way from achieving such privilege. By increasing its agreed contribution to the budget of the IMF, China has (along with other developing nations) successfully campaigned for further reform. Thus, another shift in the make-up of these shares has been agreed in principle, but not yet implemented. Although China’s position is likely to improve as a result of these reforms, it is not clear how the final figures will appear once this agreement has been ratified, but a review is currently ongoing and this is expected to be completed in 2013. Voting in the World Bank system is more complex, as it is divided into several organizations, each of which has its own voting allocation. Despite recent reform and reallocation in favor of several developing countries that saw China as the largest beneficiary, China still remains a relatively small player. Since its foundation, the president of the World Bank has always been a US citizen. Similarly, the recent election of Christine Lagarde as the president of the IMF continued the pattern of Western Europeans heading that institution. Still, the appointment of Justin Yifu Lin, a Taiwanese-born citizen of the PRC, as Chief Economist at the World Bank represents a breakthrough of sorts. The domination of Western, developed nations in both of these organizations, however, is likely to continue for some time to come, despite the damage to reputations done by the financial crisis of 2008, a source of some resentment from within China.

G20

The G20, established in 1999 in recognition of the need to involve some of the larger developing nations in summits similar to those held by the G7 or G8, consists of 19 countries plus the EU. Since its inception, it has grown in significance, in no small part because of the inclusion of China, along with other major developing forces in global political and economic circles such as India and Brazil. These countries have pushed hard to make the G20 summit that takes place annually the premier event for global economic discussions and, consequently, to limit the importance of the G7 and G8 summits. While there has been some resistance to this, particularly from Japan which treasures its role in the G7 as a surrogate for its yearned-for but out-of-reach permanent place on the UN Security Council, the growing economic clout of China has meant this is, increasingly, the reality. Sideline summits have also given China a tremendous opportunity to promote symbols of its increased power on the world stage and one of the annual events of the G20 is the so-called G2 meeting that involves only China and the US. The existence of the G20, as opposed to an expanded G8, indicates China’s unwillingness to be enmeshed into yet another existent structure dominated by Western powers and, instead, to create a new system that incorporates other countries with potentially similar goals to its own, with whom it can form powerful alliances to overcome Western dominance.

Shanghai Cooperation Organization

Until very recently the Shanghai Cooperation Organization (SCO) received little attention in the West, but it has been a significant part of the PRC’s foreign policy since the mid 1990s. Formed as grouping of five countries – China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan – at a meeting in Shanghai in 1996, its initial objective was to foster greater military trust between central Asian neighbors. After its inception the group began to meet annually and became dubbed ‘the Shanghai Five’. The addition of Uzbekistan and a more formalized structure to the grouping saw it renamed as the SCO in 2001. Since then, several states in the region have expressed an interest in joining a group which has been mooted as an Asian rival to NATO – though this language is never used by the countries involved. Those expressing serious interest in joining the SCO include Pakistan and Iran who, along with India, Mongolia and Afghanistan, have observer status. In 2012, Turkey was granted ‘Dialogue Partner’ status, becoming the first NATO country to have official ties with the organization.

The SCO has expanded military cooperation between its member states to levels that could not have been achieved without it. Annual joint practice operations in various fields of conflict have increased to include a total of more than 5000 participants from all six member states. The majority of these come from the two largest militaries in the group – China and Russia – and the closer military and strategic ties between these two states is one of the most significant outcomes of the SCO’s development. However, the most important potential impact of the SCO is the creation of a multilateral framework of military alliances that does not include any Western power, and which has China as its assumed leader. Clearly China and Russia are the lynchpins of this organization, but the enthusiasm of the other four members, as well as the level of interest from Pakistan and Iran, makes the SCO a potentially significant actor in future international relations.

Future Trends

China’s policies on International Organizations are unrecognizable from those that were pursued prior to the Reform Era. China now seeks engagement and involvement, as its many international organization memberships and its active participation within the organizations testify. However, as a relative latecomer to virtually all organizations, China has a structural disadvantage in that it has to learn how to play by the rules that have already been set by others, which are not always to its advantage. While it has had some success promoting its objectives within these pre-existing power structures, being hampered by Western-originated frameworks remains a continued source of frustration for the Chinese leadership. China has tried to address this frustration by creating alliances with developing nations within the organizations to give it greater negotiating power. The instigation of the SCO and the promotion of the G20 are examples of how China can combat this, by instigating new institutions which place itself at the heart. It is also used its rising economic and political power to gain greater leverage in the international organizations, as when it demonstrated a willingness to increase financial contributions to the World Bank and the IMF in exchange for a greater share of the voting rights.

To date, China’s increased involvement in International Organizations has, for the most part, been consistent with its proclaimed world view: that of respect for sovereignty, non-interference in the internal affairs of other nations, opposition to hegemony or unilateralism, and the promotion of multilateralism. As China’s own stake in global political, economic, and security affairs continues to grow, it will be interesting to watch how firmly it can stick to such principles. There are already signs that it is willing to compromise on the reality of non-interference, even if the rhetoric continues unabated. China has, however, been utterly uncompromising in its insistence that any organization that requires statehood for membership must exclude Taiwan. Thus, Taiwan has been progressively and near-comprehensively marginalized in the international arena, allowed to participate in only limited ways in limited organizations. Despite numerous attempts to rejoin the UN, Taiwan will not, under any name, be able to do so. This represents a clear example of how China has used its involvement in international organizations to achieve one of its key domestic and foreign policy objectives.

Agriculture and Food Security: A Long-Term Priority

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Introduction

Throughout China’s thousands of years of history, famines have often led to rebellions and instability which in turn has led to many a dynasties downfall. Therefore, ensuring food security in China has been both a priority for Chinese leaders throughout the ages, and it remains a priority for the Chinese Communist Party today. China’s challenge is that it supports approximately 19% of the world’s population on approximately 9% of the world’s arable land and 7% of the world’s fresh water. Despite these constraints, China has met its food needs through a policy of agricultural self-sufficiency. Today, China is the world’s leading producer of rice, wheat, and soybeans, the world’s second largest producer of corn and the seventh largest producer of sorghum. Additionally, China is the world’s largest producer of pork, the third largest producer of chicken and the 10th largest producer of beef.

That said, China’s ability to maintain continued growth in agricultural output is under threat unless there is further reform in the agricultural sector. Increased urbanization, plateauing yields, water shortages, small farm sizes and uncertain property laws are all making it difficult for China to continue to increase agricultural production. China’s 13th Five Year Plan (2016-2020) recognizes these challenges. Investing in hybrid seed research, repairing and improving on irrigation infrastructure, reclaiming rural land that has been lost to environmental degradation, shoring food safety mechanisms, expanding agricultural mechanization, and increasing the use of agricultural technology in order to improve yields have all been stated as clear priorities. The plan also recognizes the continued need to invest in rural areas of the country, so that China’s remaining farmers can earn a reasonable living and adequately invest in their children’s future within and beyond the farm sector.

In addition to investing domestically, China is significantly increasing its investment in agriculture abroad. According to a United States Department of Agriculture 2018 report, “1,300 Chinese enterprises had overseas investments in agriculture, forestry, and fisheries valued at $26 billion in 2016. The investments include crop and livestock farming, fishing, processing, farm machinery, inputs, seeds, and logistics in over 100 countries.” These investments have primarily been focused in the regions of Southeast Asia, Russia’s Far East, Ukraine, Africa, Australia, and New Zealand.

China’s Agriculture under Mao Zedong

Paddy Field Plougher near Inle Lake Myanmar (Burma)

When the PRC was founded in 1949 its new leaders continued to support a policy of agricultural self-reliance. This agricultural policy was driven by Mao Zedong’s view that the post-World War II order, with its corresponding American ascendancy, was potentially aggressive and imperialistic. Under this view dependency on grain imports risked making China vulnerable to having its food needs being turned into a weapon against it. In addition, Mao wished to use his country’s limited foreign exchange resources to purchase industrial plant and equipment rather than food, aiming for rapid industrialization. Indeed, until the famine caused by the Great Leap Forward (1958-1961), China exported grain to the Soviet Union in order to purchase plant and heavy equipment, at the expense of providing adequate per capita calories for its citizens at home.

Agriculture thus became the basis on which China’s planned economy was built. As China transitioned to a planned economy, the Communist planners began to underprice farm products relative to heavy industrial goods. This was because the planners were trying to ensure that the industrial sector produced high profits which could be plowed back into industry. To keep industrial profits high, costs had to be kept low; the most easily affected cost was labor. In order keep wages low, food needed to be cheap. Thus, farming became the key to the success of the entire Chinese planned economy. To achieve China’s goals, soon after he took power in 1949, Mao orchestrated the largest act of expropriation in world history. Approximately 200 million acres of land were taken from wealthy landowners and redistributed to nearly every peasant family in China. An estimated two million landlords lost their estates, sometimes through violence and almost never with compensation. Mao soon undercut this mass creation of private land ownership by implementing socialist policies of collective agriculture. The launch of the First Five Year Plan in 1953 saw farmers organized into cooperatives where they pooled their land and shared the proceeds. Under the collective structure, each farmer kept title to his land and was paid both labor wages and a dividend based on the value of the land contributed to the collective. After some success under the cooperative model, Mao went further. In 1958, Mao began to move farmers into communes to gain greater control of agricultural output. Mao believed that communes would generate greater farm output as it allowed an increased usage of irrigation and mechanization. As an added benefit, the surplus farm labor that would theoretically be created by collectivization could then be redeployed into the rural and urban industrial sectors. He also believed that healthcare and education for the rural citizens could be more easily delivered in a collectivized environment. Just as importantly, communes would be an effective platform for mass political indoctrination. Mao’s communes pursued a “grain first policy” in which basic crops such as rice, wheat, and corn were planted regardless of the suitability of the soil and other conditions. The shift to communes eliminated household farming, except on small family plots, and all land ownership transferred to the state.

As a result of Mao’s policies, from 1952 to 1978, China increased industrial production as a percentage of national income from 19.5% to 49.4%. Grain production rose by 86%, an average annual increase of 2.5%. However, grain production increased at a rate about equal to him population growth, meaning that average grain output per capita stayed roughly steady during this period. China also increased the production of cash crops by 16%. Up until 1960, China exported grain, peaking at 5 million tons in 1958. After the famine of the Great Leap Forward, China began to import grain, yet these imports averaged 1.6% of total consumption, meaning that China was almost completely self-sufficient in food under the planned economy.

These statistics, however, are deceptive. Much of Mao’s industrial development was inefficient. Poor economies of scale, inadequate transport, and poorly skilled labor meant that China’s huge industrial investment generally failed to effectively build upon China’s existing industrial base, although its development of human capital skills and rudimentary infrastructure did lay the foundations for broader industrialization during the Reform Era. Throughout the socialist period, Chinese consumers remained on strictly rationed diets consisting primarily of coarse grains. Most consumers were deprived of daily access to cooking oil, sugar, meat, and vegetables for extended periods. In the 1970s, despite increases in grain production, urban residents ate an average of 2,328 calories per day, while rural intake was even lower at 2,100 calories daily. Average grain output per capita remained virtually unchanged and the absolute poverty rate hovered between 30% and 40%.

The primary weakness of communes was the absence of incentives. Farmers did not keep produce from their lands, which undermined their work effort. Instead, commune members were given work points based on tasks; these points were converted to grain and cash pay-outs at the end of each crop year. Free riding and an inability to monitor agricultural labor became endemic. Output also suffered because decision-making was concentrated in the hands of collective leaders who themselves were frequently following dictates from above, stifling any prospect for innovation. The pricing during this era also did little to encourage the efficient production or allocation of goods and services. Additionally, agricultural inputs such as fertilizer were in constant short supply. Because of the hukou housing registration system (which, while more relaxed, remains in force today), farm labor had no opportunity to move from agriculture to industry as the hukou system completely restricted the mobility of China’s people. This entrapment of Chinese villagers in rural areas effectively designated them as second-class citizens.

Agriculture during the Reform Era

After 1978, a series of reforms was introduced into the rural sector to improve its economic performance. One step was to de-collectivize Chinese farmers into what was termed the Household Responsibility System, where the government leased agricultural land to households. The government then raised the prices that farmers would receive by 41% for grain and by around 50% for cash crops for any farm output farmers produced above mandatory quota deliveries. Initially, the state purchased all grain sold by farmers above quotas. Eventually, private agricultural markets were re-established. Greater freedom of choice was allowed in terms of the types of crops cultivated. Fertilizer and new high-yield seed usage became more widespread. The result was a surge in agricultural output. Grain output swelled from 304.8 million tons in 1978 to an estimated 650 million tons in 2018.This growth reflected a significant rise in crop yields as grain sown area has increased at a smaller rate than crop yields. In 1978, China had approximately 120.6 million hectares under plow; in 2017, this figure increased to approximately 135 million hectares. Overall, it is China’s stated goal to maintain cultivated land at around 124 million hectares. Rising crop yields have resulted in grain price reductions. Since 1978, maize prices decreased 33% and wheat 45%. Coupled with rising incomes, these decreases meant that grain, as a percentage of rural and urban household consumption, fell from 40% and 20% respectively in the late 1970s to about 14% and 3% in 2004. These higher yields and lower prices have resulted in more food per capita. Per capita caloric intake rose from 2328 calories per day in 1980 to an excess of 3,000 calories per capita per day by 2008.

Additionally, since 1978, China’s agricultural output became significantly more diversified. Chinese farmers have moved into labor-intensive cash crops such as aquaculture, cotton, edible oils, fruits, and vegetables. Between 1978 and 2007, for instance, crop farming went from 80% of agricultural gross value output to 50.4%, while animal husbandry and fisheries increased from 16.6% to 42.1%. Between 1990 and 2004, China’s vegetable output expanded so quickly that China added the equivalent of California’s vegetable industry every two years in, and orchards now cover over 5% of China’s farmed area, double the share of any other major agricultural nation. As a result of this diversification, the Chinese diet has come more varied. Most Chinese households consume a more varied diet adding meat, poultry, fish, eggs, a variety of vegetables and dairy produce to their diets.

Maintaining Grain Yields – Water and Pollution Challenges

Throughout this period of reform, China maintained its policy of grain independence, never importing more than 5% of its grain needs. As stated in China’s 13th Five Year ensuring basic self-sufficiency of grain and absolute security of stable food remains a clearly stated goal. That said, with 19% of the world’s population being supported by approximately 9% of its arable land, this goal remains challenging. This means that China does not have a comparative advantage in land intensive products such as grain. Moreover, China’s population will continue to rise until around 2035, meaning that China will need to increase yields in order to maintain current grain per capita levels. Furthermore, as China continues to urbanize, more of its usable land will be refashioned into cities and supporting infrastructure. Additionally, pollution, soil erosion and desertification continue to negatively impact the agricultural land that is available. As a result, it is estimated that by 2050, the total demand for arable land will outstrip supply by more than 12%.

Part of the reason that China achieved such high grain production over the last two decades was yield improvements driven by the use of new high-grade seed varieties and by massive inputs of chemical fertilizer. Yet further benefits from these inputs are beginning to diminish. In 1975, total fertilizer usage was 5.5 million tons, but this rose to 47.7 million tons by 2005. China’s per hectare fertilizer usage was second only to Japan in the 1990s. Overall, it is estimated that China uses 30% of the world’s fertilizers and pesticides on 10% of global farmland. Fertilizer saturation is such that previously good or excellent soils are cresting, hardening and becoming devoid of organic material such that further application of fertilizers is leading to diminishing crop yields as well as causing considerable environmental problems such as eutrophication and particle pollution in the air. Yield benefits from the extensive use of plastic are also plateauing. Finally, large-scale deforestation has led to soil erosion.

Water shortages and water pollution may also limit future yields unless China is able to implement significant reforms in its water management. China’s freshwater of approximately 2156 m³ per capita is less than one third of the world average. This is projected to decrease to 1875 m³ by 2033. Water shortages are expected to worsen as current water demand is still relatively low at 461 m³ per capita compared with the world average of 645 m³, but this number is projected to reach 665 m³ by 2030. Water shortages will be worse in the arid and semi-arid areas in China’s northern plain from which much of the future grain output growth will be generated. In addition to water shortages, problems with irrigation system will also stymie yield growth. During the Mao-era, irrigated area tripled. Since de-collectivization, the irrigation system has deteriorated. With the reversion to family and commercial farming, control of the irrigation system has fragmented, and it is harder to mobilize mass labor for maintenance and construction. The introduction of water fees in the 1980s was designed to encourage more efficient water usage, but the fees were not sufficiently high to have the desired effect. Water designated for agricultural usage continues to be subsidized at a far higher rate than it is for industry and household use, and raising agricultural water fees remains politically difficult. Moreover, the collection of water use data remains imperfect, thus further challenging China’s ability to effectively price water used for agricultural purposes. Going forward, increasing water charges it is likely to be an essential step to dealing with China’s water shortages.

As water becomes increasingly scarce, the agricultural sector will continue to compete with the industrial sector and with households for scant water resources. According to the Ministry of Water Resources China now uses as much as 60% of the water running in many of its rivers, including the Liao and Yellow Rivers, and as much as 90% of the Huai River. China has increasingly turned to aquifers and lakes to meet water demands no longer satisfied by rain and river water alone. Groundwater now provides potable water for nearly 70% of China’s population and irrigation for approximately 40% of its agricultural land in China’s dry northern and northwestern regions. Nationally, groundwater usage has almost doubled since 1970, and now accounts for almost 20% of China’s total water usage.

Due to an uneven distribution of water resources between the north and the south of China, aquifers are especially important in China’s north, where farmers have been relying heavily on groundwater resources to increase agricultural yields. Yet China is now draining its aquifers at an unsustainable rate. At current rates of depletion, the World Bank estimates that China’s northern aquifers could effectively run dry in as little as 30 years or less. China’s northern megacities now rely on underground water sources for two-thirds of their needs. For example, in Hebei province, which surrounds Beijing, aquifer levels are dropping by approximately 3 meters annually, forcing the digging of ever deeper wells. These deeper wells in turn increase both the risk of both saltwater and arsenic intruding into the water supply and likelihood of land subsidence. With aquifers and rivers suffering from overuse, lakes are also diminishing. The province of Hebei, for instance, has already lost a staggering 969 of its 1052 lakes. While China’s ‘Water Pollution Prevention & Control Action Plan’ has establish targets to restrict ground water extraction and groundwater pollution by 2020, water restriction measures have both proved unpopular and hard to enforce.

Pollution is also challenging China’s agricultural output. China’s use of coal that is high in sulfur and heavy metals to power many of its electricity plants. The pollution from these power plants combined with additional industrial and agricultural pollution contaminate both China’s soil, air, and water. In the north, for instance, the same northern provinces that accounted for 55% of China’s farmland also hold 86% of its coal reserves yet have just 16% of China’s water resources. In the south, over 50% of China’s rice is grown in provinces which account for 52% of its arsenic, 58% of its mercury and 72% of its chromium discharges.

Maintaining Future Grain Yields – Small Farms

China’s future yield growth is also hampered by the small area plowed by each farmer, averaging .65 hectares or 1.6 acres. While de-collectivization from large communal plots to small family farms initially led to a surge in output growth, the segmentation of communal plots is now proving a constraint on grain yields. It has been estimated that increasing farm sizes could increase grain output by as much as 70 million tons annually. Small farm sizes restrict growth by preventing farmers from capturing economies of scale that could be derived from greater mechanization, from the more efficient dissemination of new seed technologies and from the improved maintenance of irrigation structures. Small farms also make it more challenging for farmers to participate in modern supply chains, to offset market volatility and to adapt to climate change, Additionally, small farms tend to use fertilizers and pesticides inefficiently. Research by Nerissa Hannik found that a 1% increase in farm size was linked to a .3 and a .5% decrease in fertilizer and pesticide use per hectare, respectively. Excessive use of fertilizers and pesticides in turn pollute soil and water which in turn depresses crop yields.

Small farms drive down rural incomes. As approximately 35% of Chinese workers or about 311 million people were employed in agriculture in some form in 2017, the impact on rural incomes is significant. In 2018, the annual per capita disposable income of urban and rural households in China was 39,251 and 14,617, respectively. Reduced rural economic opportunity in turn dis-incentivizes younger and more educated workers from pursuing a career in agriculture As a result, the average age of the Chinese agricultural worker is higher than the age of Chinese workers generally and is increasingly less educated than his urban counterpart. Older, less educated farmers could cause structural stagnation in the agricultural sector.  Such farmers may fail to adopt new technologies, innovate, and adapt to changing market conditions.

The fact that farmers lease – as opposed to own – their land has also worked to constrain grain yield by discouraging long-term investment and growth in land size. Individuals cannot privately own land in China but can acquire transferable land-use rights for some number of years. Currently, for example, land-use rights for residential purposes is 70 years. All farming or rural land is owned by rural collectives which distribute contract rights for plots of farmland to eligible households. The first leases issued in 1983 were for a duration of 15 years. These were renewed in 1997 for 30 years and again in 2017 for an additional 30 years. As part of its land-use contract, Chinese farmers have the right to decide which crops to plant, to keep all agricultural proceeds, and to sublease their land to others for agricultural production. Chinese farmers are prohibited from using contracted land for non-agricultural purposes, to leave their land fallow for more than two years or to legally oppose the government if it decides to acquire the property for development purposes. To help improve rural household stability, in 2003, China passed the Rural Land Contract Law. The law endeavors to improve the security of land tenure, to clarify the transfer and exchange rights of contracted land, and to permit family members to inherit land during the contracted period. Above all, the law reflects the government’s attempts to allow those staying in farming to gain access to additional cultivated land and to increase their incomes and competitiveness. It strives to encourage farmers to use the land more efficiently.

GuoZhongHua / Shutterstock.com

Working against government efforts to improve plot size, however is the belief by some Chinese leaders that family farming provides at least nominal proof that China is still communist as its land is not privately held, and as its land is relatively equally distributed. Many Chinese leaders also believe that agricultural land provides a social security system for its population, as every rural family is theoretically only one season away from being able to feed itself.

That said, the fact that the government no longer plays a significant role in agricultural production. Aside from restrictions on land ownership, China today has one of the least distorted domestic agricultural economies in the world. Most grains, oilseeds, and fiber crops, and all horticultural and livestock products are sold to small private traders who compete in efficient and integrated markets with minimal regulation.

Insuring Safe Food

In 2008, Chinese domestic milk and infant formula was found to have been purposely tainted with melamine, sickening 300,000 babies, and killing six. Other food scandals include contaminated pork, fake eggs, gutter oil, and counterfeit foods mislabeled as brand name or organic products. These scandals have caused many Chinese to express serious reservations about the quality of domestic food sources and to call for industry reform. The 13th Five Year Plan addressed these concerns by committing to upgrade agricultural standards and to ensure the quality and safety of all food products over the entire journey of agricultural products from farm to table.

In May 2019, the Chinese Communist Party reinvigorated this goal when China declared that it would be stepping up its enforcement of food safety legislation as part of the Communist Party’s campaign called “Staying True to Our Founding Mission”. Between June and December 2019, its increased efforts have resulted in the identification of 70,000 food safety violations, culminating in the suspension of over 2400 food manufacturers and the meting out of approximately $130 million in fines. Additionally, China is increasingly implementing technologies such as sensors, artificial intelligence, and block chain IDs to improve the traceability of food products from farm to table. Other measures include increased supervision with more random checks and the tightening of food safety standards. By 2035, it is China’s goal to have in place world-leading food safety standards and globally advanced risk control capabilities.

GMO in China

Genetically engineered or transgenic organisms, also known as genetically modified organisms (GMOs), were first made available to US consumers in 1994. By 2014, approximately 28 countries sowed GM crops on more than 181 million hectares, equaling 13% of the world’s arable surface. GM soybeans, cotton, maize, oilseed, and rape account for approximately 82%, 68%, 30% and 25% of the total planted area for these crops, respectively. In 2015, the United States Food and Drug Administration authorized the first genetically modified animal for human consumption.

Advocates of GMO food note that such crops could help the world adopt to changing climatic conditions including drought, cold and soil salinization. Additionally, by genetically coding in natural pesticides and other disease-resistant characteristics, GMO foods also offer the opportunity to fight off pests and diseases while correspondingly lowering the use of pesticides. Crops can also be modified to increase crop yields. Among their many concerns, opponents of GMO foods note that the long-term health consequences of consuming GMO food have yet to be determined. Additionally, opponents fear that GMO plants will diminish biodiversity by contaminating wild species.

Despite the risks of GMO plants, China’s 13th Five Year Plan sets as a goal to develop a modern seed industry, including the development superior seed varieties, and cultivation breeding-promotion operations. In January 2020, the Chinese government stated that genetically modified corn, cotton, and soybean species had passed biosafety evaluations, inching the country closer to commercialization of new GMO food sources. These crops were modified to be more resilient against disease and pests. On paper, China has approved biotech cotton, papaya, tomatoes, sweet peppers, petunias, and poplar trees. However, commercialization has been allowed only for papaya and cotton.

In 2018, the global market value of GM crop seeds was $20.1 billion and is expected to grow to $30.2 billion by 2026. As one of the world’s leading countries in the research and development of agricultural biotechnology, China’s issue of bio certificates for soybeans, cotton and corn indicates its interest in capitalizing on its billions of dollars of investment in the field, including its $43 billion purchase of the Swiss pesticide giant Syngenta in 2016. Not only would China benefit from commercializing its GMO seeds to sell globally, but many studies have indicated that China would also enjoy substantial economic benefits from the cultivation of GMO food crops domestically.

The commercialization of China’s GMO technology has been hampered, however, by the Chinese public’s negative attitude toward GMO crops. As per a 2010 online survey interviewing 50,000 people, about 84% of respondents said that they feared GM foods for safety reasons. A 2018 nationwide survey found that those views had not substantially shifted with 46.7% of respondents expressing negative views of GMOs and with 14% considering GMO products to be form of bioterrorism targeting China.

The Chinese public’s disapproving views concerning GMO products likely originate from their experience of the various food scandals that have plagued the country. This adverse experience has likely also negatively impacted their views of genetically modified foods. Exacerbating their concerns has been the discovery that GMO food products have already been farmed illegally in China. In 2014, China Central Television (CCTV) tested five bags of rice from a Wuhan supermarket in Hubei province, and discovered that three of the five samples had been grown from genetically modified seeds. In the same year, illegal large-scale planting of GMO rice and corn in four provinces were reported. In 2016, it was revealed that 93% of corn from Liaoning province demonstrated traces of GMO contamination. In response, the government destroyed crops, confiscated illegal seeds, and prosecuted perpetrators.

The Chinese government is now working to change Chinese opinion regarding GMO products. Given what is at play, the stakes could not be higher. Not only has China made massive investments in the technology that it now wants to commercialize, but water shortages, climate change and its growing population will continue to place unprecedented pressure on its food supply. GMO products can help China adapt to these challenges. GMO crops should also enable China to reduce its extremely high use of fertilizers and pesticides which in turn will have positive impacts on its environment and food supply.

The Automation of Agriculture

While the percentage of the Chinese workforce involved in farming has decreased from 55% in 1991 to 18% in 2017, approximately 250 million Chinese still work as farmers. However, as China’s rural young becomes increasingly educated, and as China’s economy continues to expand, many are migrating to urban areas seeking better opportunity. As a result, approximately 60% of people working in Chinese agriculture are over 45 years compared to just 14% of farmers who are less than 35 years. This decline in farm labor is projected to increase over the coming decades even as China’s population is projected to continue to grow through 2035. Contemporaneously, China’s population is expected to become wealthier. Growing wealth correlates with a rising consumer demand for greater food variety and for more animal-based proteins. The water footprint per calorie pulses, eggs, chicken, pigs, sheep, and beef is 2.5, 2.0, 2.6, 3.6, 5.3, and 9.4 times larger than grains, respectively. This increase in water per calorie will further stress China’s polluted and limited per capita water supply.

AgridronesChina is answering these challenges by significantly investing in agricultural technologies including artificial intelligence, big data, robotics, and automation.   Not only will these technologies help improve the efficiency and sustainability of China’s agricultural market, but they also represent a big and rapidly growing global business. The market for global agricultural robots, for instance, is projected to exceed $20 billion by the end of 2025, with growth in precision agriculture as a major driver. Artificial intelligence, automation, big data, and robotics are expected to find applications in everything from herding and fish farming to planting and harvesting. Other uses include seeding, irrigation, water leak detection, fertilizing, crop weeding, spraying, crop monitoring and analysis, disease and pest identification and eradication, thinning and pruning, and tracking the growth of plants. In addition to robotics, drones are also increasingly being used to monitor crops, conduct field analysis, manage livestock, plan interrogation and crop spraying. Drones aid farmers to see the big picture of their farmland and to make educated decisions that help to maximize crop yields.

Improving agricultural sustainability is another factor motivating China’s adoption of agricultural technology. China’s farming industry has a significant carbon footprint, with Chinese farmers using 30% of the world’s fertilizers and pesticides on 9% of global farmland. In addition to developing drones and robots that can help to reduce fertilizer and pesticide needs, Chinese scientists are also turning to big data to determine best farming practices. Over 20 million farmers have since benefited from China’s big data research; it is estimated the findings have enabled farmers to increase yields while slashing fertilizer use generating total financial savings of an estimated $12 billion.

China’s Growing Presence in Agriculture Abroad

In the coming decades, China will face of an increasing divergence between demand for food and its ability to produce that food domestically. This divergence is driven by factors such as a population that will continue to grow through at least 2035, a more wealthy population that is demanding a more varied and a more meat-based diet, and limited and polluted land and water resources. As a result, China is increasingly looking to international markets to meet its food shortfalls.

According to the United States Department of Agriculture’s 2018 report, in 2016 an estimated 1,300 Chinese enterprises had made overseas agriculture, forestry, and fisheries investments in over 100 countries. These investments were valued at approximately $26 billion. The investments were placed in a variety of sectors including land purchase, land leasing, seeds, farm inputs, farm machinery, food processing, farm logistics, farm machinery, livestock farming, and fish farming. China’s National Bureau of Statistics noted that Chinese investment in foreign farming, forestry, and fishing grew fivefold from 2010 to 2016. Many of China’s agricultural investments are now made in conjunction with its China’s Belt and Road Initiative.

As has been the case in other foreign investment sectors, China’s government has supported this international investment by favorable lending, brokering deals, formulating strategic plans which support low-cost bidding, and providing Chinese agricultural investors with training and information services. China subsidizes these investments for both political and economic reasons. Economic aims include the continued growth of the Chinese economy, securing access to raw materials, the expansion of exports, helping Chinese companies garner a larger share of profits from imported commodities, creating new markets for Chinese products, enabling tariff-free access to developed markets, shifting some of Chinese domestic manufacturing and domestic agriculture overseas, providing domestic companies with international experience, food security, gaining and imparting technical and managerial experience, and exerting influence on global prices. Political objectives include the preservation of the Communist Party rule, reestablishing China’s place as a leading world power, the promotion of multi-polarity, countering US hegemony, increasing Chinese influence in multinational institutions such as United Nations and World Bank, strengthening its alliances with other countries, particularly in the Third World, preventing Taiwan independence, and projecting political influence abroad.

Future Trends

There will be several trends to watch for in the Chinese agricultural sector in the coming decades. Firstly, China will make every effort to maintain its agricultural yields and its food self-sufficiency. Despite its rapid rate of urbanization, China is committed to maintaining a baseline for cultivated land area at 124 million hectares. It is investing heavily in agricultural research to increase yields and is launching a campaign to win public support for the introduction of more GMO crops.

China is also committed to increasing the sustainability of its agriculture and the safety of its food supplies. China is investing heavily in big data, drone technologies, artificial intelligence, and automation to reduce its use of pesticides, fertilizer, and water. Upgrading antiquated and leaking irrigation networks is a high priority. China is also using technology to start tracking its food as it journeys from farm to table; therefore, when food safety breaches arise, it can more effectively follow the breach back to the source. China will also continue to improve its food safety both through increased inspections, and better safety practices and standards.

China will also carry on investing in international agricultural, livestock and aquaculture food chains. These investments will help China ensure reliable and secure overseas food resources. They will also help to increase global food production overall, therefore helping to keep in check global food prices.

Finally, as the number of Chinese working as farmers further declines over the coming decades, China will likely begin to amalgamate its millions of small farms into increasingly larger parcels. Increasing farm sizes will free labor to work in areas which will provide China a higher return on labor capital.  Larger farm sizes will also increase productivity by creating more opportunity for mechanization, and by reducing demand for farm inputs such as pesticides and fertilizers.

References

TonyV3112 / Shutterstock.com

Population Power: China’s Shifting Masses

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Introduction

China’s enormous population is one of the country’s most defining features. With the largest population in the world, almost one-fifth of the global total, it factors into nearly every significant issue facing the country including employment, consumption, the environment, and migration. In the 1970s, faced with the prospect of its population outstripping its economic and agricultural output, Beijing reversed early Maoist policies encouraging population growth. China’s 1970s aggressive fertility education programs and its 1980 “One-Child Policy” succeeded in reducing births per woman from their peak of 5.8 at the beginning of the 1970s to approximately 1.6 in 2019. The success of China’s population control policies has had unexpected disadvantages including a male/female sex imbalance, a rapidly aging population and a shrinking labor force. In 2016, such difficulties caused China to change the One-Child Policy to a Two-Child Policy.  Nevertheless, despite policy changes and China’s declining numbers, China’s large population still poses significant challenges for the country.

Global Population Trends

Understanding global population trends brings context to China’s individual demographic numbers. According to the United Nations 2019 Population Report, the global population is expected to rise from 7.7 billion in 2019 to approximately 10.9-11.2 billion in 2100.  By then, approximately 81% of the world’s population will be living in Africa and Asia.

 

UN Population Statistics – Geographical Regions  
Regions 2019 2019 2030 2030 2050 2050 2100 2100
World       7,713       8,548       9,735     10,875
Sub-Saharan Africa       1,066 14%       1,400 16%       2,118 22%       3,775 35%
Northern Africa and Western Asia           517 7%           609 7%           754 8%           924 8%
Central and Southern Asia       1,991 26%       2,227 26%       2,496 26%       2,334 21%
Eastern and Southeastern Asia       2,335 30%       2,427 28%       2,411 25%       1,967 18%
Latin America and the Caribbean           648 8%           706 8%           762 8%           680 6%
Australia/ New Zealand             30 0.4%             33 0.4%             38 0.4%             49 0.5%
Oceania             12 0.2%             15 0.2%             19 0.2%             26 0.2%
Europe and North America       1,114 14%       1,132 13%       1,136 12%       1,120 10%

 

Sub-Saharan Africa will experience the greatest growth. As a proportion of global population, between 2019 and 2100, the region will increase from 14% of the total or 1.1 billion people to 35% or 3.8 billion. Between 2019 and 2050, the world’s 47 least developed countries will grow the fastest, with many countries doubling in size. Of the 2019-2050 expected increase of 2.1 billion people, half the increase is projected to be driven by just nine countries: India, Nigeria, the Democratic Republic of the Congo, Pakistan, Ethiopia, the United Republic of Tanzania, the United States, Uganda and Indonesia.

Sub-Saharan Africa

As a proportion of the global total, the rest of the world will experience flat or decreasing population levels. Flat-growth regions include North Africa and West Asia which are projected to grow from 7%-8% or 527 to 924 million people between 2019 and 2100. Oceania will stay steady at .2% or 12 to 26 million people. Australia and New Zealand will grow from .4%-.5% or 30 to 49 million people.

 

Those with shrinking populations between 2019 and 2020 include Europe and North America which will decline from 14% to 10% of the global total, holding steady at approximately 1.1 billion. Latin America and the Caribbean will drop from 8% or 648 million to 6% or 680 million people. Central and Southern Asia will drop from 26% or 2.0 billion to 21% or 2.3 billion people. Eastern and Southeastern Asia will decrease from 30% or 2.3 billion to 18% or 2.0 billion people. In Europe, the population is expected to peak in 2030 at 510 million and then decrease to 465 million by 2100.

In 2019, China at 1.4 billion and India at 1.3 billion accounted for 37% of global population. In 2100, China at 1.1 billion and India at 1.45 billion will drop to 23% of the global total. By 2024, India is forecasted to overtake China to become the world’s most populous country.

Rapid worldwide urbanization is a big driver in the decreasing fertility rates seen in most regions.  In 2019, approximately 55% of people worldwide lived in cities. By 2050, the percentage increases to 68%, and by 2100 to 84%. Urbanization places downward pressure on birth rates because children that were once useful as farm labor become burdens in cities where they need to be educated and trained in order to be economically productive. Additionally, urban women have better access to education, healthcare and work opportunities, all of which make them less inclined to have large families.

Worldwide, in most countries where populations are declining, people are also quickly aging. In 2100, the number of people 60 years or over is expected to grow to 28% of the total population, from 1.0 billion to 3.1 billion people. The number aged 80 or over will increase to 8%, from approximately .1 billion to .9 billion people. Correspondingly, the global fertility rate is expected to drop from 2.5 in 2019 to 1.9 births in 2100. The global fertility rate is expected to fall below the replacement fertility rate by the year 2070, with the replacement fertility rate being the level of birth that each female is required to have to keep up with the population size. This aging population is expected to affect everything from economic demand to social safety nets.

Emigration and immigration are also impacting population levels in some countries. Countries such as Bangladesh, Nepal, the Philippines, Syria, Venezuela, and Myanmar have seen over 1 million of its citizens emigrate since 2010, either in search of work opportunities or to escape war or internal domestic conflict. Conversely, since 2010, over 36 countries have welcomed over 200,000 immigrants.

China’s Population Trends

China is experiencing rapid demographic change that mirrors many global trends. As is happening in many East Asian countries, China’s population is declining both in absolute numbers and as a percentage of the world total. According to UN statistics, in 2019, China’s population was approximately 1.434 billion people or 19% of the global total. By 2035, China’s population is expected to peak at 1.461 billion people or 16%. By 2050 and 2100, China’s population will reduce to 1.402 billion or 14%. and 1.064 billion or 10% respectively. Currently, the fertility rate of China is 1.55 births per woman.

China’s population faces a significant sex imbalance. In 2019, there were approximately 37 million additional males to females, with males accounting for 51.30% of the total.  While the absolute number of additional males is forecasted to decrease, as a percentage of China’s total population, males will continue to outnumber females through 2100. By 2050, for instance, China will have 24 million more males than females, with males accounting for 50.87%. By 2100, males still exceed females by 25 million or 51.15% of the total.

China’s population is also aging rapidly. In 1980, China’s population aged 50+ was 14% of the total, with people aged 75+ accounting for just 1% of those in the 50+ category. In 2019, China’s population aged 50+ increased to 32%, with people aged 75+ accounting for 3% of 50+ category total. By 2050, China’s population 50+ surpasses 47%, with 14.1% of this group aged 75+. By 2100, this group exceeds 49%, with 20% of this group being 75 years or older.

UN Population Statistics – China – By Age Category  
Age Demographics 1980 2020 2050 2100
0-14 35.9% 17.7% 14.1% 13.8%
15-49 49.7% 49.5% 38.7% 36.6%
50+ 14.4% 32.8% 47.2% 49.6%
75+ 1.2% 3.7% 14.1% 20.0%

China’s Population Post-1949

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For the best part of two millennia, China had been the most world’s populous country. In the early 1800s, for instance, one-third of the world population was Chinese. While still having the world’s largest population in 1950, between 1850 and 1950, high death rates caused by disease, crop failure, natural disasters, and war restrained China’s population growth to 0.3% per year. In 1949, after the Chinese Communist Party (CCP) victory in the Chinese Civil War, early CCP policies led to improvements in nutrition, sanitation and increased access to healthcare. Chinese mortality rates, especially those of infants, plummeted and the population began to grow rapidly. Initially, China’s leader, Mao Zedong, considered a large and rapidly growing population to be a positive asset. More people meant more workers to aid in economic development. More people meant more soldiers to ensure Communist domestic control, to secure China’s international borders and to prosecute war. Mao believed that Malthusian theory –the principle that exponential population growth can lead to an inability to feed the population – was a capitalist paradigm that did not apply to Marxist production methods where more people created more economic output.

As a result, China’s population continued the tradition of seeking as many sons as possible. According to U.N. statistics, between 1950 and 1980, China’s population almost doubled, increasing from 554 million to just over 1 billion. Officials in China were aware of China’s exploding population in the decades after 1949. Yet, any talk of population control or family planning was labeled as defeatist.

By the end of the 1960s, concerns regarding China’s exploding population began to be more discussed more openly. In 1970, Beijing decided to implement a voluntary birth control system. The government made contraceptives more widely available and educated the public on new government family planning policies with slogans promoting “later marriages, longer birth intervals and fewer children”. The program was largely successful. China’s total fertility rate, which measures the average number of births per woman, plummeted from 5.8 in 1970 to 2.7 in 1978. A 1980 study, undertaken to determine what would be China’s ideal population in 2080, assuming significant modernization and economic growth, concluded that the optimum level was between 650 and 700 million. As China’s population in 1980 had already exceeded 1 billion citizens, the government decided to implement more draconian population control measures.

The ‘One-Child’ Policy 

In September 1980, China launched the One-Child Policy. Family planning was written into the constitution two years later. The policy was not implemented uniformly across the country. Most ethnic minorities were permitted to have two children and many Han living in rural areas could have a second child if the first child was a girl. Additionally, parents whose first child was disabled could have a second child. Nevertheless, by the late 1990s, China’s total fertility rate fell to between 1·5 and 1·7 where it has remained.

The One-Child Policy was implemented relatively easily in the cities, where both spouses often worked and where living conditions were cramped. Resistance in the countryside was greater. The rural desire for larger families and many sons has been deeply rooted, not least because more hands make agricultural work easier for all. In general, there has been a high correlation between higher income and the willingness to accept the One-Child Policy.

One result of the policy has been greater incidences of forced sterilizations and abortions (Short, 2000). More commonly, couples defying the One-Child Policy were subject to fines, loss of jobs, reduced wages, loss of work unit benefits or, in some cases, loss of bonuses for the entire workgroup. In some areas, relatively wealthy families who worked in the private sector were able to pay the fines imposed. Those working in the public sector did not have this freedom as a second child usually meant a loss of employment. Others did not report females at birth. Unregistered girls were at risk of losing access to many legal benefits, including education and other forms of social welfare. It is not clear exactly how many unregistered girls were born in China since 1980, but research by John Jay Kennedy at the University of Kansas estimates that 10 million undocumented girls were born from 1980-2010.

The One-Child Policy has also led to an imbalance in the male/female sex ratio. In 2019, there was an estimated 37 million more men than women. Termed “Bare Branches” in China, these men are statistically unlikely to find partners in a society where universal marriage is the norm; 99.5% of Chinese women and 97% of all Chinese men marry.  Men who do marry tend to be those with higher incomes, better educations and higher-value assets, including an apartment, house or car. Surplus men tend to be concentrated in rural villages that are poverty stricken. Those men unable to find wives statistically are more likely to engage in prostitution, social unrest and crime.

A benefit of this imbalance has been a greater trend toward gender equality.  Historically, Chinese parents devoted relatively few resources to their daughters.  A 2018 study by Yi Zeng and Therese Hesketh found that without brothers with which to compete, there were no significant differences between single-girl and single-boy families in terms of a family’s investment in and expectation for health and education outcomes. In 2018, women made up 52% of undergraduates and 48% of postgraduates.  Having less children has also improved women’s access to well-paid work and career advancement. In 2018, it is estimated that as many as 25% of CEOs of medium and large Chinese companies are women.

China’s Rapidly Aging Population

The One-Child Policy has also contributed to China’s rapidly aging population. In 1980, China’s population aged 50+ was 14% of the total, with people aged 75+ accounting for just 1% of those in the 50+ category. In 2019, China’s population aged 50+ increased to 32%, with people aged 75+ accounting for 3% of 50+ category total. By 2050, China’s population 50+ surpasses 47%, with 14.1% of this group aged 75+. By 2100, this group exceeds 49%, with 20% of this group being 75 years or older.

 

china population 2100

This rapidly aging population will place a great burden on the younger segments of society as the elderly dependency ratio increases sharply. The elderly dependency ratio is defined as the number of people aged 65+ years divided by number of working-age people aged 18–64 years. As dictated both by Chinese culture and by Chinese law, Chinese children are obliged to care for their retired parents. The strain of caring for the elderly is expected to be more significant in the countryside. The elderly in rural areas generally enjoy a less robust social safety net compared to those living in in urban areas. On average, rural lifetime incomes are less as well, leading to lower retirement savings. Rural elderly are also more vulnerable to living alone, as many rural children have migrated to cities to find work. Rural empty-nesters, especially those living alone, are more likely to suffer mental health, financial and other problems.

The Two-Child Policy

Because of these negative population trends, in January 2016, China’s One-Child Policy changed to a Two-Child Policy. For the first time in 36 years, no one in China is limited to having just one child. The policy was aimed at the 90 million women within the reproductive age that presently had a child and now would be permitted to have a second child. In some provinces, these policies have been supplemented by incentives such as encouraging employers to provide more services for families, to lengthen maternity leave, to offer aid to women returning to work after birth and to grant tax incentives, housing benefits and education cost deductions. Some provinces are making abortions harder to obtain and using courts to discourage couples from accessing divorce services.

Despite these efforts, the significant socioeconomic changes that occurred since the onset of the One-Child Policy have caused China to transform into a low fertility culture. These changes are consistent with the pattern countries follow as they become more developed. Studies have indicated that most Chinese rural women want 1 to 2 children compared to greater than 5 children desired in the 1970s. Most urban women continue to want only one child. Urban women’s list of reasons for their one child preference include the high cost of raising and educating children, the negative effect a larger family would have on her family’s lifestyle and her individual liberties, the greater strain more children would place on family income and the impact more children might have on a her career. Factors affecting rural fertility include a woman’s marriage age, the cost of children, income forgone for having children and the social security benefits available. The Two-Child Policy is therefore unlikely to unleash a baby boom, but rather should cause a modest increase in fertility. That said, many of the negative effects of the one-child policy are likely to disappear. These include forced abortions and sterilizations, female infanticide or abandonment and unregistered girls at birth.

The Changing Structure of the Labor Force

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Since 1980, the age structure of China’s population has provided China with an enormous competitive economic advantage. Specifically, since 1980, China’s population has been both young and relatively free of dependents, whether they are children or elderly parents needing care. In 1980, for example, 85% of its population was aged 49 years or younger, with 50% of that population falling into the 15-49 year working age bracket. In 2019, 50% of China’s population was still aged 15-49, but its total population aged 49 years or younger has decreased from 85% to 67%. China’s current low dependency rate derives from the fact that Chinese ‘baby boomers’ born in the 1960s after the Great Leap Forward, and their children born in the 1980s, are now of working age. During the 1980s, China’s working age population increased 2.5% annually; this increase, coupled with high rural-to-urban migration, meant that the overall urban labor force has grown at about 4% per year between 1978 and 2010. It is expected that between 2010-2027, the number of Chinese workers will level off and then begin to drop approximately .5% per year. This decline will mirror a rising dependency rate as the ratio of producers to total population decreases.

The historically low dependency rate has created a “demographic dividend” for China.  The demographic dividend is the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population is larger than the non-working-age share of the population.  China’s low dependency rate since 1980 has also helped drive high savings rates, as individuals tend to save when they work and then spend their savings upon retiring. This savings has provided the Chinese economy with significant investment capital which in turn has led to the creation of more jobs. China’s young, unencumbered population has also benefited China economically, as it has been more adaptable to the rapid social and economic changes that have attended China’s transition to a market economy.

In 1978, 99% of these Chinese laborers worked in government-owned enterprises. In 2014, Chinese workers are employed by a more diversified set of companies in terms of ownership structure. While 25% of urban workers still work for the government or government-controlled entities including collectives and state-owned enterprises, 43% work for privately-owned firms, and 32% are self-employed or work in the informal economy.

Going forward, the growth of China’s labor force will slow as the last baby boom cohorts are absorbed. According to UN population calculations, by 2050, 47% of Chinese people will be over 50 years compared to 33% in 2019. Between 2020 and 2050, Chinese workers – those aged between 15-59 years – will decrease by over 200 million people, an average of 7 million people annually.

To offset its diminishing labor pool, China has many tools at its disposal. A start has been the easing of the One-Child Policy. Although it is too early to measure accurately the impact of the Two-Child Policy, early research indicates that the population bump will be relatively small. Population is now expected to peak at 1·45 billion in 2029 compared with a peak of 1·4 billion in 2023. In addition to implementing the Two-Child Policy, China can continue to modernize and mechanize China’s farming. Chinese fields typically average 2.5 acres, one of the smallest averages in the world. Increasing farm size will facilitate the use of modern farming technologies. Both will create opportunities for the remaining 27% of Chinese workers still employed in agriculture to migrate to the industrial workforce. Automation and robotics can also offset labor declines and increase labor productivity. Overall, Chinese labor productivity is likely to rise in coming decades because incoming labor cohorts are more educated than their parents. China can also extend the retirement age. Currently, men retire at 60 years and women retire at 55 years.

Urbanization

Rapid urbanization has accompanied China’s economic development. Historically, China has been a country of farmers. In 1950, when the Communists took control, only about 10% of the country lived in cities. Early Chinese Communists policies reinforced this rural population bias by creating what amounted to a two-tier economic system.  Chinese urban citizens, enmeshed in danweis or urban work units, enjoyed social benefits and welfare entitlements not available to farmers housed in the rural collectives. This inequality was designed to generate rapid industrialization. Rural China was to provide low-cost food and other agricultural products to city workers who used the savings from these low-cost goods to invest in and build China’s factories.

In order to prevent peasants from migrating to seek better work and greater benefits, the household registration system (hukou) was developed which was accompanied by a system of vouchers which were required to acquire food and clothing. By the early 1960s, it became almost impossible for rural workers to obtain an urban hukou, and rural to urban migration was almost completely halted. Indeed, internal migration between 1964 and 1980 was almost exclusively from the city to the countryside as happened during the Cultural Revolution when approximately 17 million middle school graduates were sent to the country to “learn from the peasants” and as happened when workers were sent to develop industry in Western China. As a result of these measures, by 1978, only 17.92% of Chinese lived in cities.

After 1980, China began to rapidly urbanize as its economy expanded. According to World Bank statistics, in 2018, approximately 59% of Chinese live in cities or almost 850 million people. By 2030, it is estimated that 70% or one billion of Chinese will be urban residents. Some urban growth has occurred by reclassifying rural areas to urban areas, but most of the growth in the urban residential rate represents real rural to urban migration. Currently, China has 65 cities over 1 million people, and 15 cities with population larger than 10 million. According to World Atlas statistics, in 2019, Ghangzhou was China’s largest city with 44.2 million people followed by Shanghai with 36 million people.

Internal Migration and the Hukou System

To control its large population, in the 1950s, China implemented the household registration or hukou system. This system effectively tied people to the place in which their Hukou registration card was issued. Children inherited their hukou status from their parents. Besides controlling internal migration, the hukou system controlled the internal distribution of resources such as food and clothing. The hukou system prioritized urban workers over rural workers. Non-agricultural and urban residents were granted significantly better benefits including superior employment opportunities, free education for their children, free and more-advanced medical care, subsidized housing and retirement pensions. By contrast, rural residents received few benefits and were also required to sell their produce to the government at discounted rates in order to finance urban subsidies. Inferior benefits and poorer educational and work opportunities has meant that rural residents have experienced significantly less upward mobility when compared to urban inhabitants. Chinese police have also used hukou registration to more closely watch problematic citizens such as political activists or convicted criminals.

In the 1980s, agricultural reforms led to surplus labor at a time when industrial economic reforms caused the demand for urban workers to increase. As a result, China began to cautiously modify Hukou restrictions. In 1984, for instance, China created the “self-supplied food grain” hukou which allowed rural residents to live in market towns if they had local employment, housing and food. In 1992, wealthy and educated individuals could earn urban residency under the “blue stamp” hukou designation if they had significant funds to invest in urban areas.

In addition to workers migrating with new Hukou status, millions of rural Chinese have also traveled to cities illegally. Illegal migration has been facilitated by the steady reduction in the use of Hukou ration vouchers, meaning that unregistered migrants have been able to purchase food and clothing once they have reached the city. According to Chinese labor bulletin statistics, in 2018, approximately 30% of the workforce or 288 million workers are currently part of what is termed China’s floating population. Most of these migrants live on the periphery of cities often in substandard housing. They work long hours and expect to return home once they have met their financial objectives. Migrant workers tend to take jobs that urban residents are either unable or unwilling to do. Male migrants, for instance, dominate employment in sectors such as construction, while females work in textile and other factories were work is strenuous and often dull.

Migrants lack channels into urban society including access to education, housing and social services that go with full urban citizenship. In comparison to urban residents, rural people have lower educational levels and are equipped with less capital. They also suffer the economic and emotional impact of remoteness and they endure incomplete markets for many needed resources. Without access to education, many migrants leave their children behind with family members in the countryside. Typical work schedules mean that visits home occur infrequently, often just once a year.

As its floating population has grown, China has continued to address migrant disadvantages through gradual modifications of registration requirements.  This process has been implemented in starts and stops. Reforms began first in small towns and cities. Where migrants can demonstrate extended residence, secure housing and steady income, it has become easier to transfer their hukou registration. Since 2001, larger cities have also begun some limited easing of hukou restrictions. In 2014, the national government has reiterated its pledge to continue to gradually eliminate the urban registration system. Cities and towns with populations under 1 million people are now required to eliminate restrictions entirely and promptly. Cities of 1- 5 million people have been given more open-ended deadlines to meet hukou reform goals. Cities with populations greater than 5 million people can continue to restrict access to permanent registration.

Where local cities have tried to push back on allowing more migrants to formally register, they have done so by defining criteria strictly. For instance, many cities have interpreted the steady source of income criteria in a way that excludes the unskilled jobs that employ many migrants. Other cities have required educational or wealth criteria that are often not met by many in China’s floating population.

These criteria effectively keep in place the significant barriers stopping low-wage earners from being upwardly mobile. They have minimized the impact of the reform by limiting its benefits to a small part of the migrant population. Cities often support these barriers because adding migrants to the formal registration system generates meaningful educational, healthcare, housing and other social costs. Barriers also entrench urban privileges from which city officials themselves benefit, and act to keep urban populations loyal. Hukou restrictions have prioritized the economic growth of China’s urban areas over rural areas. Rural migrants subsidize urban industrial growth by providing low-cost, benefit-free labor. Hukou allows urban environments to control the numbers of such workers by preserving their option to remove illegal workers from the city when their labor is no longer beneficial.  One way that local Chinese governments have tried to mask the existence of continuing barriers is by eliminating hukou labels – rural, urban, blue stamp, etc. – while keeping in place the criteria that made the labels relevant in the first place. That said, overall, the trend is that household registration restrictions are continuing to ease even if progress is slow.

Additionally, other migrant-beneficial reforms are being promoted. For instance, there have been efforts made to rein in detrimental police practices including coercive custody and repatriation, dragnet sweeps and extortion. Other directives have stipulated that more effort should be made to educate the children of migrants working within local jurisdictions. Some local governments have tried to skirt this requirement by making education available only to those migrants who have no family members still residing in their hukou registration jurisdiction. Where education is provided, migrants often are required to pay additional fees not required by local hukou holders. These fees often represent a significant percentage of the migrant’s annual income and represent an additional income source for schools. In order to prevent the loss of these additional school fees, the establishment of private migrant schools has often been strongly discouraged.

Limited educational access is also at play when trying to gain access to colleges and universities. Competition for acceptance to local universities is fierce even if students are legal. Non-registered students are often required to achieve significantly higher test results compared to registered students when vying for the same place. By limiting labor mobility, China’s amplifies the income disparity between urban and rural residents, creating a hereditary economic barrier.

Chinese Diaspora

Chinese Diaspora or Overseas Chinese are people of Chinese birth or Chinese descent currently living outside the People’s Republic of China and the Republic of China (Taiwan). Today there are an estimated 40 million overseas Chinese living in 148 countries around the world. The majority lives in Southeast Asia. Ethnic Chinese constitute approximately 74% of the Singaporean population as well as significant minority populations in Indonesia, Malaysia, Thailand, the Philippines and Vietnam.  Historically, most came from the southern coastal provinces of Guangdong, Fujian and Hainan. In each geographical region where Chinese reside, many of the Chinese diaspora have kept their languages and cultural identity while integrating to varying degrees into their host country.

Map of Chinese Migration 1800-1949

Map of Chinese Migration 1800-1949

Chinese migration came in four waves. According to research by Poston and Wong, the first wave was characterized by merchants and traders who emigrated to create businesses abroad. The more successful their businesses, the more likely these migrants were to preserve their Chinese attributes and their connections with China. Most of these merchant migrants traveled to Asian countries, particularly to Southeast Asia before 1850. A second wave of migration occurred between approximately 1840 and 1920 when Chinese immigrated to the Americas and Australia to work as cooks, miners, laundry men and railway construction workers. Most of these immigrants were male, of peasant origin and many returned to China after working for years or decades in their host country.

Chinese emigration to America: sketch on board the steam-ship Alaska, bound for San Francisco

A third wave of migration occurred for several decades after the fall of the Qing Dynasty in 1911 and was characterized by well educated professionals. Between 1920 and 1950, many of these immigrants were teachers who traveled to Southeast Asia to educate the Chinese children of families who had emigrated previously. A fourth wave of migration occurred after 1950 when Chinese in countries such as South Asia migrated to other foreign countries.

Since 1979, approximately 4.5 million Chinese students have traveled to the United States and other Western countries to seek university education. As China’s footprint in the world expands, educational destinations have expanded with it. Overall, according to UNESCO, in 2016 over 801,000 Chinese students pursued university education overseas. A significant minority of these students have elected to remain in their host countries at least for some period after graduation. For instance, the US Department of Energy’s Oak Ridge Institute for Science and Education noted that 92% of Chinese who earned science and technology doctorates in the United States in 2002 still resided in the US in 2007. Similarly, a 2013 National Science Foundation report noted that 86% Chinese science and engineering doctorate students hoped to remain in the United States after finishing their degrees. China has tried to reverse this educational brain drain by offering subsidies and perks for student returnees. Their efforts are beginning to show effects. The rate of return of overseas Chinese rose from a low of 25% in 2005 to 33% in 2010.

In 2000, the immigration rate of China’s highly educated population is now five times as high as the country’s overall rate. It is not just wealthy and middle-class students that are traveling abroad. Increasingly, middle-class and wealthy Chinese elites are increasingly pursuing work opportunities overseas or applying for immigrant investor visas where residency is offered to wealthy foreigners in exchange for a specified sum to be invested in the host country. In 2014, for instance, Chinese citizens received 85% of all U.S. immigrant investor visas. Wealthy Chinese cite several reasons for their wish to immigrate including the wish to join previously emigrated family members, pollution, poor food safety, weak rule of law and concerns about long-term political, economic and social conditions in China.

Chinese Diaspora and Economic Advantage in Southeast Asia

China’s emigration legacy has created immense economic advantage in many of the Southeast Asian countries.  Except for Singapore, ethnic Chinese represent minority populations in Indonesia, Thailand, Malaysia, the Philippines, Myanmar, Vietnam, Laos, Cambodia and Brunei, but dominate the economic activity of their host countries. It is estimated that Chinese migrants control approximately 60% of the region’s private corporate wealth.

 

Chinese in Southeast Asia
Ethnic  
Ethnic Ethnic Chinese %  
Host Chinese in Chinese % Control  
Host Country   Population 2011 Country 2011 Total (1) GDP Host (2)  
Indonesia         248,000,000        8,010,720 3% 71%
Thailand           64,260,000        7,512,600 12% 81%
Malaysia           28,730,000        6,540,800 23% 63%
Singapore (3)             5,260,000        2,808,300 76% 96%
Philippines           95,830,000      12,413,160 13% 62%
Myanmar/Burma           62,420,000        1,053,750 2% 76%
Vietnam           89,320,000            992,600 1% 41%
Laos             6,560,000            176,490 3% 99%
Cambodia           14,430,000            147,020 1% 92%
Brunei                410,000              51,000 12% 24%
(1) Research by Poston and Wong: The Chinese Diaspora: The Current distribution of the overseas Chinese
(2) The economist later replicated by many sites
(3) % Ethnic Chinese calculated as % of Singaporean citizens not total Singapore population

 

 

 

Southeast Asia

Source: The economist

Activating the Chinese Diaspora

Since the fall of the Qing Dynasty in 1911, overseas Chinese have played an important in both the politics and economics of China. For instance, much of the funding for the 1911 Chinese revolution was donated by Chinese living abroad.  After 1980, when China began undertaking economic reform, the People’s Republic of China actively recruited the assistance of its overseas population both in terms of skills and capital. More recently, China has worked to maintain the allegiance of recently emigrated Chinese, especially those professionals and students working and studying in foreign countries. Xi Jinping believes that the Chinese diaspora can play a significant role in helping China to reclaim its status as a premier nation both economically and politically. Overseas Chinese are some of the world’s most educated and successful professionals and entrepreneurs. With estimated total liquid assets of $1.5-2 trillion, the Chinese diaspora holds a substantial capital as well as expertise and relationships to be tapped for the continuing economic growth of the mainland. Additionally, it is estimated that the Chinese diaspora returns approximately $50 billion annually to China in terms of remittances.

In order to capture their expertise, Xi Jinping has launched a range of policies designed to encourage their continued engagement with the country. Such policies include the creation of over 200 Confucian institutes globally which have encouraged overseas Chinese to connect with their language, culture, homeland and each other. China has also been successful at encouraging ethnic Chinese to return to China to startup companies. Incentives proffered include the provision of free real estate or office space in high-tech parks, preferential tax treatment, preferential access to banking and credit, venture fund matching and streamlined regulatory processes. As an indicator of effectiveness of such policies, Greater Pacific Capital estimated that 25% of all tech startups in China are founded by returnees as opposed to home-grown entrepreneurs.

China has also worked to more effectively connect with the Chinese diaspora who intend to remain in their host countries. Programs include connecting overseas Chinese in academia and the science and technology sectors with their mainland Chinese counterparts as well as providing funding for their endeavors. Confucian Institutes help Chinese stay in touch with their language and culture while transmitting traditional Chinese culture and values around the world. Government web portals such as China Scholar Abroad and China Diaspora Web link ethnic Chinese with the mainland. The Chinese government has also hired top brand consultants and policy strategies to improve its international image and to advance policy agenda worldwide.

Additionally, China is also working at keeping it Chinese diaspora on message and sympathetic to China’s domestic and international policy objectives by creating a Chinese digital space where its points of view can be articulated. To this effect, China has acquired the control of newspapers, television stations and radio stations targeted toward the Chinese diaspora; it has used its economic clout to influence the reporting of independent media that have business ties with China; it has acquired both broadcast time and advertising space from existing independent media; and it has encourage ethnic Chinese to work in foreign media outlets in order to influence their reporting from within. Often, it has softened its messaging by placing its national goals under the banner of ethnic unity and common ethnic interests.

Trends

  • A declining workforce will necessitate China to shift from a low-wage, labor-intensive model to a one where resources are used more efficiently, where there are increases in labor productivity, and where automation and robotics technologies help offset labor declines. There will also be pressure to increase the retirement age.
  • The change from the One Child Policy to the Two Child Policy will result in only a small increase in China’s population.Significant socioeconomic changes that have occurred since the onset of the One-Child Policy have caused China to transform into a low fertility culture. These changes are consistent with the pattern countries follow as they become more developed.
  • Going forward, China’s large population will continue to provide the country with enormous challenges. As its population continues to age, China will be challenged by slower GDP growth and the need to create pension and healthcare systems that will help relieve the burden of the young to care for the old. Additionally, China’s growing population, which is predicted to peak by 2035 at approximately 1.461 billion people, will continue to put enormous demands on its scarce natural resources. Water management, in particular, will be a huge future challenge.
  • The challenges of China’s rapid urbanization are significant. Rapid economic growth will be necessary not only to the finance the enormous cost of this level of urbanization, but also to ensure that when centralized, urban populations do not protest government policy, as they did in Tiananmen Square in 1989. This could be a particular risk if long term migrant workers continue to be denied the same basic rights as registered urban residents, particularly as those urban residents will become an increasingly smaller percentage of the total urban population. Continuing to favor the original urbanites with government services risks long-term disadvantaging a large section of the population.
  • Additionally, urban residents use, on average, 3.6 times as much energy as rural residents, creating greater demands on energy grids. Urbanization can also lead to greater motorization, taxing China’s new road infrastructure. Greater urbanization will also generate higher levels of pollution, further exacerbating China’s already polluted air.
  • More changes in the household registration system, which identifies a person as a resident of a specific region—the so-called hukou reform—could accelerate the move of workers from rural areas to cities and help reduce the country’s growing inequality. HuKou reform will continue to proceed gradually, with second tier and smaller cities seeing reform while large metropolises such as Beijing and Shanghai keeping residence restrictions firmly in place. In the near term, urban hukouresidents will continue to get better ranking jobs, better wages, and benefits.
  • China’s diaspora will continue to see growth in the coming decades. Part of this growth will be driven by university students continuing to remain in their host countries after graduation and part of the growth will be driven by wealthy and skilled professionals leaving China to seek better work opportunities and a better quality of life. Additionally, as China continues to build infrastructure globally, some Chinese migrants that have worked on the infrastructure projects will seek to remain in their host countries. For instance, it is estimated that approximately one million Chinese have emigrated to Africa since 2001. These immigrants have come both via state projects and via their own initiative.
  • China will continue to activate its diaspora to achieve its domestic and foreign policy objectives. China views its diaspora as a source of capital and expertise. It also views it as a way to influence host countries from within.

References

China and the European Union: Principles and Pragmatism

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Introduction

One of the fundamental difficulties with assessing the relationship between China and the EU is one that is inherent in all analyses of the EU: that it is not a single entity. Constituted of 28 member states (since Croatia joined in 2013) ranging in size from Malta (with fewer than half a million inhabitants) to Germany (home to over 80 million people), the EU is linguistically, economically, culturally, and demographically incredibly diverse. While there has been a much increased pooling of sovereignty within the EU in recent years, each member state retains the right and ability to conduct its own external affairs. However, the EU has worked hard to increase its unity on the international stage. For example, in 2009 the EU appointed a President of the EU Council in order that its external relations are managed more coherently. Even before then, the EU negotiated numerous treaties with key partners in the international arena. These treaties play major roles in the relationships between these international partners and both the EU has a whole, as well as its constituent member states. Additionally, any state wishing to conduct high levels of trade with individual EU member states cannot realistically do so without dealing directly with the EU, alongside its dealings with the states in question. For these reasons, it is valid to speak of the relationship between China and the EU, though with the caveat that the China-EU relationship does not always supersede China’s bilateral dealings with particular EU member states.

Trade

Without question, the single most important factor of the China-EU relationship is trade. The EU, taken as a whole, is China’s largest trading partner accounting for more bilateral trade than even the US or Japan. It is the largest market for China’s exports and has been a significant source of China’s economic growth in the reform era. The importance of the relationship is not just one-sided; China matters to the EU just as much and it is its second largest trading partner after the US, and would be its largest if trade with Hong Kong were to be included in the figures.

As with the China-US relationship, there is tension within this economic success story, particularly in the form of a considerable trade deficit. In 2010, the total value of two-way trade reached its highest point to date at $527 billion, but this resulted in the EU stomaching a deficit of almost $225 billion. Preliminary figures for 2012 show a drop in trade of around 4%, probably driven by Europe’s economic travails, but the overall deficit remains fairly constant. While this represents a significant amount, it also demonstrates that the imbalance in the trading relationship is not as severe as exists in China-US trade; although the figures for absolute deficit are fairly similar (the figure for the US in the same period was equivalent to approximately $236 billion) the EU deficit was generated from a two-way trade figure that was more than one third larger than that of China-US trade, meaning it was proportionately much smaller. It is also important to consider that although this deficit is high, it is relatively stable as both exports and imports continue to grow at a similar pace. Thus, whereas the trade deficit in 2007 was $222 billion, only fractionally lower than it was in 2010, this represented more than half of the overall two-way trade for that year. In fact, across the last five years exports to China from the EU have grown at an average of 15% per year, making China Europe’s fastest growing market by some margin, while imports grew at just below 10%. A continuance of this trajectory will see the trade imbalance become even less of an obstacle to relations in the future.

There is, of course, imbalance within the EU regarding the importance of China as a trading partner. As outlined earlier in this article, while the EU often negotiates as a single entity on the international stage, it is an organisation that has 27 member states, each of which retains its sovereignty. The result of this is that the figures on two-way trade above perhaps give a skewed outlook on the relationship. Of the $527 billion in two-way trade in 2010, fully one third was between Germany and China, and the majority of the trade is with the EU’s four largest states (Germany, UK, Italy and France). When separated out this way and placed into the context of the global economy, the figures are not entirely surprising. It is to be expected that Germany is China’s largest European trading partner, both because of the size of its economy and the level of complementarity, as the majority of trade with Europe is in industry and machinery, sectors in which the German economy is strong. However, the significance of even smaller countries within the EU lies in the collective negotiating position that the EU has, allowing them to be part of a much larger negotiating team in dealings with China; this has the twin effect of increasing these countries’ relative leverage as well as to enhance the EU as a whole vis-à-vis China.

vpix / Shutterstock.comChina has taken on an even greater significance to the EU and its member states since the economic crisis of 2008 and the subsequent debt crises that have emerged in Europe, particularly in those countries that use the Euro. There have been some quite naked attempts from within Europe to woo the Chinese into buying up bonds to ease this situation. China has vested interests in ensuring the stability of the European market on which it relies so heavily for exports, prompting the leadership to issue broad statements of support and pledges to invest in Eurozone debt, especially from Italy, one of the countries most heavily in debt. However, these statements and pledges have also been augmented by warnings from China that Europe must do more to put its own problems right in this area and, most importantly, to protect Chinese investments in the EU. While it is clear that China holds most of the cards in this predicament – the Europeans cannot realistically solve the debt crises without Chinese investment – it is not in China’s own interests to exacerbate the situation and assistance is, therefore, likely to be forthcoming.

The European Debt Crisis

In order to join the European Union, potential member states had to sign the Maastricht Treaty which was to bind them into limiting their deficit spending and debt levels. Some European Union member states, Italy and Greece for instance, dodged this obligation by hiding their debt and deficit levels through the use of complex currency and credit derivative structures. Having entered the Eurozone, Greece and several other EU countries continued to run large deficits through the 2000s. In the early part of the decade, these deficits were less problematic as they were supported by economic growth. In Greece, this growth was driven by its shipping and tourism industries. With the 2008 financial crisis and the accompanying slowdown of the world economy, however, Greece’s debt, and that of other EU countries, began to rapidly build-up.

As government budget deficits and sovereign debts have increased sharply, a crisis of confidence has emerged which has resulted in Italy, Greece, Spain and Portugal’s credit ratings being downgraded, and in increased borrowing costs for those countries. These sovereign debt issues have become a perceived problem for the Eurozone as a whole, not the least because many of the struggling southern euro countries have received bank loans from France, Germany and other more solvent Eurozone members. France’s banks in particular have extensively lent to southern European governments. In September 2011, two of France’s largest banks, Societe General and Credit Agricole, were downgraded because of their exposure.

By April 2010, the EU and IMF agreed to an initial bailout package of €45 billion for Greece. In May 2010, austerity measures were proposed to reduce Greece’s deficit, as the country’s slow growth meant that it would be unable to repay its debt without significant cuts in spending. Many Greek citizens were unhappy with the severe austerity measures and have held national strikes in protest. A protest on 5th May 2010, for instance, was widespread and became violent, resulting in three deaths. Nevertheless, in the same month the IMF and the euro zone countries approved a €110 billion loan for Greece, conditional on the implementation of measures to reduce government spending. The Greek loan was followed by a loan of €85 billion for Ireland in November, and a €78 billion rescue package for Portugal in May 2011.

In May 2010, the 27 member states of the European Union agreed to create a €440 million European Financial Stability Facility, a legal instrument designed to maintain financial stability in Europe by being able to provide rapid financial assistance to European governments in need. These funds were to be made available in conjunction with €250 billion from the IMF. In January 2011, the European Union designed the European Financial Stabilization Mechanism, a €60 billion emergency lending program backed by all 27 European Union members. The idea is that EFSF and EFSM are to be replaced by the European Stability Mechanism due to be launched in mid-2013.

In order for Greece to be eligible for the next tranche of its bailout loan, in May 2011, the IMF proposed spending cuts amounting to €28 billion over five years. Greek citizens again took to the streets in protest. In October 2011, leaders of the 17 year zone countries met in Brussels to discuss a package aimed at addressing the crisis. A deal was reached in which it was recommended to write-down by 50% the Greek sovereign debt held by banks, to enlarge the European Financial Stability Facility to €1 trillion, to increase the mandatory level of bank capitalization, to ensure that Italy would make commitments to reduce its national debt, and to pledged €35 billion in credit enhancements to offset losses incurred by European banks. The package has yet to be put into effect, however, as Greek citizen resistance to continued austerity first caused Greek Prime Minister George Papandreou to propose a referendum on the package, then to withdraw the referendum, and eventually, to step down as the Greek Prime Minister. The Greek political situation currently remains unclear with voters apparently unwilling to sanction to agreement to slash public spending on which its bailout money depends.

Currently, the situation remains unresolved. Borrowing costs in Spain, Italy, Portugal, France and Greece have continued to rise up to the point where their debt levels could become unsustainable. In fact, bailouts for Irish and Spanish banks were issued in 2012. Part of the issue has been that the weaker economies of southern Europe have not been able to devalue their currencies in order to remain competitive as they surely would have done if they were single, sovereign entities, while Germany has enjoyed an artificially depressed currency allowing their exports to rapidly grow. Individually, the southern European countries could have more easily preserved their competitiveness through greater tolerance for inflation and corresponding regular devaluations. They would have had the ability to keep interest rates low and to engage in quantitative-easing and fiscal stimulus. They could have supported job-targeting economic policies, instead of introducing inflation- targeting policies as they are required under their current commitments.

This inability to make competitive adjustments through currency variations has created an imbalance of payments in the southern European countries. To correct this imbalance, without the ability to individually raise interest rates or to impose capital controls, the southern European countries have been borrowing to fund their deficits. As their deficits have reached unsustainable levels, they are now being asked to reduce their consumption in order to hike their savings rate and to reduce the capital outflows. This has come at a time when slower GDP growth rates have led to slower growth in tax revenues and higher social security spending, increasing deficits and debt levels further. The French May 2012 election of Francois Holland may mark a shift toward EU economic policies that emphasize growth instead of just austerity; certainly there has been a big upsurge in calls for simulative economic policies. In what form these policies take shape is still under negotiation.

Ultimately, the long-term sustainability of the Eurozone will require a common fiscal policy in addition to a common economic policy. Whether sovereign countries will be willing to let outsiders dictate their tax and government spending policies is yet to be seen. European economies, with high wages, large government social services and subsidies, and complex regulations and taxes are becoming increasingly uncompetitive in the global economy. These factors have been aggravated by Europe’s aging population, the growing use of technology to replace skilled labor, and globalization which has caused European manufacturing and services to relocate to lower-cost production centers.

What China’s role will be in the debt crisis remains to be seen. In the short term, Europe’s debt crisis is likely to be stabilized through financing from the EFSF, the IMF’s use of special drawing rights, or a combination of the two. Exactly how of if China contributes funds to this process is still an open question. Europe is China’s largest export market. If Europe derails, it also will drag down the global economy, which will negatively impact China’s own economic expansion. Although it is not known for certain, it is estimated that a quarter of China’s approximate $3.2 trillion in foreign exchange reserves are denominated in euros, so China has a vested interest in maintaining their value. China continues to need to diversify its foreign reserve holdings and Europe represents one potentially viable area for investing excess Chinese funds; China can only invest so much in its domestic economy without worsening inflation, creating asset bubbles or mal-investing. Playing a more active role in the European crisis might help solidify China’s positioning as a responsible power and enhance its clout on the global stage. It may also boost Beijing’s leverage with Brussels on issues such as gaining “market economy” status, increasing its role in international organizations such as the IMF and the World Bank, and on getting the US to stop pressuring it to ease its foreign currency controls.

That said, it is likely that bailing-out Europe would prove unpopular at home. On a per capita basis, China is much poorer than Europe; bailing-out Europe would give the impression that China is supporting rich foreigners at the expense of its citizens, especially given the widespread sentiment in China that Europe is in crisis in the first place because of its own profligate spending. The safety of EFSF issued bonds is also a concern for China. On numerous occasions, China has insisted that it cannot consider investing until Europe’s financial house is in order. Also, as China rises, disquiet in the West about China’s intentions intensifies. Depending on how China handles it, its efforts at assistance could be misconstrued as opportunistic mercantilism, especially if it invests in industries that it could later use as a springboard for further market penetration, as opposed restricting its investment to buying bonds.

Human Rights

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The EU describes its core interests in the relationship with China as going beyond trade to incorporate matters of human rights and political reform. The way in which the EU seeks to alter China’s actions in this area is governed, as the rest of the relationship is, by the 1985 EC-China Trade and Cooperation Agreement (TCA). Although originally negotiated by a European Community that consisted of just 9 states, the TCA has since been updated and remains the bedrock of EU-China relations today. Under the terms of the TCA, the EU commits itself to engagement with China, particularly with regard to trade, in order that it may encourage the liberalization of China both politically and economically. The EU’s China policy, therefore, rests on a fundamental assumption that engagement is good and will encourage liberalization in China.

As part of the agreement the two sides hold regular summits on specific issues, including a biennial “Human Rights Dialogue” during which representatives of the EU offer assessments on the extent to which China has fulfilled previous human rights commitments and has the opportunity to raise individual cases of concern with their Chinese counterparts. This process is not entirely one-sided; the Chinese side frequently uses these meetings to point out what it considers to be issue of discrimination against people of Chinese origin within the EU, though the evidence produced for this is ordinarily quite unconvincing. The Europeans point to some limited successes from these dialogues, particularly in the release of political prisoners, such as Tibetan activists, ostensibly at the request of EU representatives. However, examination of the reports of these dialogues released by the EU shows that frequently the same cases are repeatedly raised, usually without any concrete action resulting. On the occasions where cases have been resolved there is little evidence that this has happened as a direct result of EU concern. However, it can be argued that a success of the EU’s approach is that it has institutionalized China’s acceptance of the discourse on human rights, allowing regular reporting to take place on its record in this area by an external party. Critics may see this as paying lip service to the idea, but others argue that this is just one stage in a long-term process of norm development.

The gulf in perceptions of human rights between Europe and China came to the fore in the run up to the 2008 Olympics in Beijing. Following the series of protests that occurred in Tibetan regions of China in March of that year, and the concomitant crackdown by Chinese authorities, many groups in Europe sought to register their anger and protest by targeting the Olympic torch relay as it passed through Europe. The reaction was strongest in France, where several protestors tried to grab, or even extinguish, the flame, while numerous pro-Tibet banners and flags lined the route. These scenes were mirrored in other EU countries, including the UK, and caused serious disquiet amongst both Chinese politicians and the general public, many of whom considered it to be an undeserved sleight on the Chinese nation. What followed was a period of particularly frosty relations, especially between France and China. A fairly widespread internet campaign, for example, urged the boycott of Carrefour, a French supermarket chain that has almost 200 stores in mainland China. After much speculation that he would boycott the opening ceremony of the games, the French president Nicolas Sarkozy appeared to back down and made public his intention to be present. This calmed the atmosphere at the political level, and the controversy now appears to have had no serious lasting impact on either Franco-Chinese or EU-China relations.

Arms Embargo

The biggest and longest running issue in China-EU relations, however, remains an arms embargo that was put into force in 1989 following the Tiananmen Incident. The embargo was the centerpiece of the European response to the crackdown which had been widely condemned among Western countries. It remains the only sanction imposed during that time not to have been lifted. What it means in practice is that no EU member state may sell weaponry to the PRC and this includes a responsibility to ensure that no third country acts as an intermediary. During a period of rapid modernization in the Chinese military, this has been a source of concern both to the Chinese government, who would like the freedom to purchase advanced military technology from EU suppliers, and also to some in the defense industry in Europe, which considers China to be a massive untapped market. It is an item that is on virtually every agenda at summits between the EU and China, but there is currently no realistic prospect of it being lifted. A groundswell of opinion did begin to form around lifting the embargo in the early years of the twenty-first century, with the then French president, Jacques Chirac, chief among those calling for at least a limited amount of arms sales to be permitted. While some countries supported this idea, it was opposed strongly by the US, a crucial ally of the EU. In direct response to US concerns BAE Systems, a British firm which is the largest manufacturer of arms in the EU, stated publicly that it would not countenance selling weapons to China even if the embargo were lifted. The debate came to an end in 2005 when China passed its Anti-Secession law, explicitly authorizing the use of force to regain sovereignty over Taiwan. Following this, even the most pro-Chinese European leaders realized that ending the embargo was a political impossibility. The question of lifting the embargo continues to be raised within Europe from time to time, most recently by the Spanish in 2010, but the prospects of it being lifted seem distant and unlikely. This is a continuing cause of irritation in China, where it is viewed, probably correctly, as more of a strategic decision than a statement on its human rights record.

Future Trends

All relationships that involve the EU are complicated by the fact that it is both a single entity and a diverse collection of 28 sovereign states. The diversity of the EU brings with it an incoherence in its strategy towards China. While all states value the increased and increasing levels of two-way trade and understand the centrality of China to future European economic growth, other aspects of the relationship are not dealt with in such a unified manner. The trajectory of economic expansion seems set to continue and the growth of exports to China within this expansion mean that any tensions that are caused as a result of the trade deficit will not be of great significance to the relationship. While the EU continues to define the issues of human rights and political liberalization as core to its China strategy, it could be argued that it is now taking a much more pragmatic approach in this respect. The policy of engaging with China in order to promote these aims rests on the fundamental principle that such engagement will help to bring about the desired changes in China, but this is not really borne out by the evidence. It seems unlikely that the EU will make serious inroads into its human rights and political reform agenda in China and, for their part, the Chinese seem willing to engage discursively in this process while continuing to place economic growth at the center of their strategy. With the core interests of both sides seemingly converging around trade, the issue of human rights seems likely to take more of a back seat. The exception to this will continue to be the arms embargo which is likely to remain in place for the foreseeable future, though this has now taken on more of a strategic importance, both to states within the EU as well as to key allies such as the US, rather than genuinely seeking to address issues of liberty in China.

In terms of the Eurozone debt crisis, it is hard to predict future outcomes given the incredible volatility of the current situation. Given all that China has at stake in Europe, it is unlikely that it will remain categorically on the sidelines. Given a choice, China has expressed a preference to buy European assets as opposed to government bonds, although it anticipates that Europeans may likely be more resistant to this idea. In such a case, it is likely that China will be more willing to provide funds for Europe through the IMF, especially if it’s increased funding buys it a greater voice in IMF policy making. Gaining greater clout in international organizations is a Chinese objective. Additionally, supporting the IMF will be easier to sell at home than investing in a strictly European-based financing mechanism. The IMF’s authority and experience at restructuring countries struggling with their finances will also provide China with additional comfort that its investments will not be squandered.

The Chinese Environment: Positive Trends toward Environmental Protection

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Introduction
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Environmental degradation in China has increased significantly in the last 30 years. In 2000, China’s Environmental Protection Agency found that two thirds of China’s 300 largest cities had air quality which exceeded WHO standards for acceptable levels of total suspended particulates. Additionally, China’s water is also both in short supply and highly polluted.  Stresses to China’s environment will grow in the future. By 2030, it is estimated that approximately 300 million new vehicles will fill China’s roads; an additional 350 million people will move into China’s cities; and an expanding number middle class will demand better food and more consumer goods. By 2030, even with China’s rapidly developing alternative fuels capacity, it is estimated that China will need to burn almost 200 million tons more coal than in 2005 to provide sufficient heating and electricity for its new urban citizens. Indeed, overall coal-based power generation capacity is projected to triple from its 2005 rate by 2030. In 2007, the World Bank assessed that China’s combined health and non-health cost of outdoor air and water pollution to be conservatively $100 billion annually, or 5.8% of the country’s GDP, and that up to 500,000 people in China die each year from air and water pollution.

Yet, despite the magnitude of China’s environmental crisis, positive trends are emerging which will begin to slow the damage being inflicted on China’s and the world’s environment. Perhaps most importantly, Beijing is increasingly recognizing that China is placing unsustainable stress on it ecology. For the first time, China’s 12th Five Year Plan prominently features both the importance of improving energy efficiency, and of mitigating climate change. As a result, in the next five years, Beijing will invest heavily in green technologies, alternative fuels, and energy efficiency. Beijing sees these investments as one way for China to take the lead in green industries; indeed, by 2015, for example, China is projected to have the world’s largest installed capacity of alternative fuels.

This trend toward greater environmental protection is also being driven by a growing emphasis on green lending within China’s banking sector, and by China’s need to comply to international environmental standards such as the ISO 14001 in order to compete in international markets. Domestic and international NGOs are also gradually raising environmental awareness in a whole range of areas. Multinational corporations, too, are playing their part, progressively insisting that their Chinese factories meet local environmental regulations, and introducing into China environmentally friendly technologies and practices.

China’s 12th Five Year Plan –Featuring Climate Change Prominently

shutterstock_87381041For the first time, China’s 12th Five Year Plan highlights climate change and energy efficiency prominently. The plan sets a GDP growth target of 7%, which would be a significant slowdown from the average 11.2% rate of growth reached between 2006 and 2010. The 12th Five Year Plan and subsequent commitments also adopt as domestic, binding law the voluntary climate pledges China made at Copenhagen in 2009. Specifically, by 2015, China plans to reduce its carbon intensity by between 40% and 45% from 2005 levels, to increase its forest cover by 12.5 million hectares and its forest stock volume by 600 million m³. As of 2015, these same goals remain unchanged, and China has pushed them another five years into the future. The country now hopes to realize these reductions by 2020. Measuring China’s progress towards these goals remains inaccurate because the nation has not released many reliable and updated figures on carbon intensity to the public. The figures remain ambitious: by 2020 China aims for an energy distribution of 350 GW in hydropower, 200 GW in wind power, and 100 GW in solar power.

The five year plan sets several separate targets for 2015, including: a 16% reduction in energy intensity; a 17% reduction in CO2 emissions per unit of GDP;  an 8% reduction in demand for both chemical oxygen and sulfur dioxide; a 10% reduction in both ammonia nitrogen and nitrogen oxides. The plan also highlights the need to improve sewage and sludge treatment, and to better the rates of desulfurization and de-nitrification. It also seeks to protect the living environment with policies to reduce rural pollution from agriculture, to expand nature reserve development and biodiversity conservation, and to extend waste management infrastructure. Beijing is also planning to upgrade subway and light rail in cities that already have urban transit systems, as well as to construct new systems in at least nine other cities. It will also build 35,000 miles of high speed railway with the ultimate goal of connecting every Chinese city of 500,000 or more people. China may also soon unveil plans to create 10 million electric car charging spots by 2020.

Looking at the layout of the 12th Five Year Plan, decisions 52 through 54 of the 12th FYP are especially promising. The 52nd decision puts forward a commitment to establishing national parks and outlines a more flexible plan for local governments. Municipal officials in environmentally damaged areas who were once expected to meet certain GDP targets will no longer be held accountable to those numbers. Instead, their decisions and implemented policies will be closely monitored to assure that they are not furthering the environmental damage in their respective regions. The 54th decision works together with the 52nd, laying out the groundwork for a system where all environmentally-related developments must be licensed. With the added scrutiny and pressure to meet economic goals removed, it will be much more difficult for government officials to find legitimate reasons supporting preferential treatment for companies damaging local rivers and farms. Decision 53 acts as a capstone to this policy outline, reflecting China’s recognition that the current environmental situation has resulted from years of damaging habits and forming a national plan to rehabilitate damaged farmland.

China’s 12th Five Year Plan –Emphasis on Renewable Energy

The 12th Five Year Plan also seeks to have renewable energy account for 11.4% of China’s power consumption by 2015. China plans to increase wind power by 70 gigawatts. With regard to nuclear power, China projects installing 40 additional gigawatts of safe capacity by 2015, though after the disaster at Fukushima in Japan, China has also vowed to review and strengthen the safety of all its nuclear power as part of its expansion strategy. China anticipates increasing its hydropower to approximately 380,000 MW by 2020 and expects to have solar capacity of between 10 GW to 30 GW by 2020. Indeed, seven of the planet’s top 10 solar panel makers are now Chinese. At the end of 2014, the China Electricity Council reported that renewable energy sources had increased their share by 19%, while fossil fuel usage declined 0.7%. Energy capacities also increased significantly: China’s non-fossil fuel energy capacity rose by 55.8 GW to 444GW, with solar, hydro, and wind power rising by 10.6 GW, 22 GW, and 23.2 GW respectively. These changes surpass those outlined in China’s 12th Five Year Plan, and put it on track to meet 2020 targets. Should it meet them, China will have the most installed wind, nuclear, and hydro-power in the world, and will have one of the largest solar capacities.

As a whole, China’s renewable energy sector has expanded dramatically over the last few years. From 2009 to 2013, the total production of renewable energy sources expanded nearly 13.3% annually, and is expected to remain fairly high at 11.8% per year in the five years ending 2018. National investment in green energy has also increased quite healthily, with USD $87.5 billion invested in total during 2014, up 36% from 2013 and comprising just over 32% of global investment in the sector. All of these positive changes have catapulted China into the number one spot in many renewable- and green energy-related production indices, and have made the nation the world leader in renewable power development. In the 2015 report from the Renewable Energy Policy Network for the 21st Century, known as REN21, China took the top spot in 11 of 26 categories: greatest investment in 2014 in renewable power and fuels, hydropower capacity, solar photovoltaic and water heating capacity, wind power capacity, and greatest generation by volume of renewable power (both including and excluding hydropower), total hydropower capacity, total wind power capacity, total solar water heating capacity, and total geothermal heat capacity. Wind power continues to rise in China, with Asia as the dominant market for the past seven years. As of 2014, the total capacity of wind power in Asia has surpassed that of Europe, in large part because of China’s extensive investment in the field. Indeed, the whole renewables industry has momentum that will carry China forward into future years and determine goals established in further Five Year Plans.

China’s 12th Five Year Plan –Pushes More Effective Pollution Data Collection

Of key importance to its environmental efforts is China’s intention to implement comprehensive data collection and monitoring systems, soon allowing it to follow a more data-driven approach to environmental policy. Yet, it is not clear how much of that data will ultimately be made available to either the public or the wider world. China’s political vulnerability because of environmental pollution is still a serious concern within a Chinese leadership that fears environmentally triggered “mass incidents” (a euphemism for protests or social unrest) and the resulting social instability. There is also concern that foreigners will use environmental data to interfere in China’s internal affairs.

For example, recent air quality monitoring by the US embassies in Beijing, and most recently Shanghai, has led to controversy as US reading  contradict Chinese official data. Increasing numbers of Chinese citizens, along with many in the expat community in China, are turning to US environmental data.  In 2011, for instance, Beijing health authorities insisted that air quality was perfectly safe 80% of the time while US statistics rated the air quality is good for about  4% of the time. The discrepancy in readings results from the fact that the US Embassy monitors small air particles known as  PM 2.5 which Beijing authorities have neglected to include in their data. Chinese authorities have work to quell increasing controversy by agreeing to measure the PM 2.5 particles as of 2015. They have also called into question the accuracy of the US readings. According to Wikileaks, in 2009, Chinese officials went as far as to request that the US Embassy stop tweeting its air pollution data because it said the conflicting data was “confusing” and could cause “social consequences”.  As of May 2012, the US Consulate in Shanghai has also begun issuing pollution statistics. The US Consulate alerted Shanghai officials in advance that it would be publishing pollution data. In its tweets, the US Consulate emphasizes that the pollution results are derived from monitoring equipment solely based at the US Consulate, and do not necessarily reflect the air pollution quality of the entire city. Again, US data conflicted with the official Shanghai statistics, with the US consulate finding the air quality as unhealthy, where the Chinese data finds the air quality good.  By June 2012, the Shanghai Environmental Protection Bureau will also release air quality data including PM 2.5 particulates.

Like the divergent air quality statistics, reports on provincial emissions often differ significantly from on-site data. Some suggest that this may be the result of China’s national carbon emission reduction targets, because businesses find it easier to meet their carbon goals if they overestimate them at the outset. To remedy this inconsistency, the Chinese Academy of Sciences has begun a year-long study to identify the largest carbon emission culprits and their numerical contribution to China’s carbon outlay.

Studies on the pollutants affecting China’s soil quality also remain scarce. Some of the more recent statistics indicate a large, but largely ignored problem. Pollution in 16% of all Chinese soil exceeded standards, and 19.4% of all arable land contained heavy metals, also above acceptable limits. Enough productive land has been affected that China may be risking a loss of food security and self-sufficiency should the decline in land quality continue. The 12th Five Year Plan does push for improved data collection, but China still has areas in the environmental sector that need improved data collection before resources are destroyed beyond repair.

China’s 12th Five Year Plan –Looking to the Market to Help Protect China’s Environment

In addition to new pollution targets and better data gathering, China 12th Five Year Plan articulates market-driven solutions to reduce pollution domestically, including: offering financial incentives to enterprises engaged in sewage treatment, sludge treatment, desulfurization, de-nitrification and waste disposal; strengthening the pollution charging system so that high-pollution production faces higher costs; encouraging lending to green projects; and increasing the portion of green products on government procurement lists.  Beijing is also considering evaluating party member performance on pollution mitigation as well as GDP growth targets. The plan also proposes an environment tax in order to deter pollution, promote clean technology and create funding for environmental clean-up. It is likely that the tax will be first introduced in China’s wealthier provinces, and then rolled out nationally. Cap-and-trade carbon pilots on the national scale are also being deliberated, as is an expansion of the 11th Five Year Plan “1000 Enterprises Program” to “10,000 Enterprises Program.” Regional carbon trading programs have already officially begun pilot testing in several provinces, with the ultimate goal of creating a unified carbon cap-and-trade system sometime around 2017. Going estimates place the size of this potential market at around RMB 100 billion by 2020.

In 2005, it was determined that the energy consumption of the top 1000 Energy Consuming Enterprises accounted for 33% of national and 47% of the dead industrial energy usage in 2004. Under the program, 2010 energy consumption targets were determined for each enterprise. High energy consumption enterprises include those competing in the iron and steel, petroleum and petrochemicals, chemicals, electric power generation, non-ferrous metals, coal mining, construction materials, textiles, and pulp and paper industries. While detailed information on program results is difficult to attain due to confidentiality, a 2010 study by Lynn Price, Xuejun Wang and Jiang Yun indicated that the Top 1000 Enterprises Plan was tracking positively to reach its goal of saving 100 metric tons carbon equivalent (Mtce) in 2010, could even surpass the figure by as much as 48 Mtce. When calculated in terms of reduced CO2 emissions, the effect of the Top-1000 program is enormous. Meeting the 2010 100 Mtce savings target will result in energy-related CO2 emissions reductions of 300 MtCO2, an amount equivalent to the 2005 annual emissions of Poland.

Indeed, improving energy efficiency is key to China’s new, “scientific outlook” on development. The scientific outlook most immediately focuses on technological solutions, notably through improved efficiency as the principle short term way to conserve resources. The program also promotes the idea of a “circular economy” where China actively reduces, reuses and recycles. It is by efficiency gains, the pursuit of the circular economy, the employment of alternative energies, and the embracing of new green technologies that Beijing believes that it can significantly grow GDP while ensuring sound ecological conditions.

Large Projected Investments in Green technologies

If all the measures proposed in the 12th five-year plan are implemented, China will be creating a huge market for clean technologies, with the potential to exceed $1 trillion. Beijing will be investing heavily in the sector. During the 12th five-year planning period, Beijing’s green sectors investments are expected to reach $468 billion, up from $211 billion over the previous plan. The bulk of the investment is slated for waste recycling and reutilization, green technologies such as alternative fuel vehicles, and renewable energy. This investment will drive projected annual growth in China’s environmental protection industries to an average of between 15% and 20% through 2020. World Watch Institute, a research institute devoted to the analysis of global environmental concerns, expects that China will create as many as 4.5 million new green jobs during that period.

With these and other investments, in the future, China hopes to lead the world in green technology, leapfrogging the developed world’s carbon-based economies. The transition costs to a less carbon-dependent economy will be less for China than for advanced economies, because it is not locked into a high-carbon model to the same degree. Also, green technology levels in the developed and developing worlds are on par, so that China also does not have to play catch-up to be competitive in the sector. Indeed, many in the international environmental movement have expressed hope that China may ultimately lead in climate change initiatives, particularly given its large and growing investments in the sector.

Other Factors Working to Reduce Environmental Degradation in China – Green Lending

In February 2012 the China Banking Regulatory Commission (CBRC), China’s top banking regulator, issued the Green Credit Guidelines to help facilitate China’s transition to a more environmentally friendly development model. The guidelines apply to domestic policy banks, commercial banks, rural cooperation banks and rural credit cooperatives, as well as village banks, loan companies, rural funding cooperatives and non-banking financial institutions. . The guidelines encourage lenders to reduce loans to industries with high levels of energy consumption and high levels of pollution, and to strengthen financial support for green industries and projects. Specifically, the guidelines require the financial institutions’ Board of Directors or Council to take charge of establishing a “green credit development strategy”, as well as to approve green credit loans, issue regular green credit reports, and supervise the institution’s green credit performance.  Senior management will be responsible for reporting annually to the Board of Directors and regulators about the progress of green credit practices. Additionally, banks will also be required to maintain a list of high-polluting clients, and urge these clients to take pollution mitigating measures. In the future, banks will also be expected to do more thorough environmental due diligence before lending, and restrict credit to highly polluting clients.

Even if credit has been granted, disbursement of the loan proceeds can be suspended or terminated if the client begins to engage in environmentally damaging practices. Post-lending, banks are required to report to regulators any behaviors by its borrowers which are resulting in environmental damage. For overseas projects, financial institutions must ensure their financing is for projects complying with local environmental regulation. Banks are also required to conduct internal audits of their green credit practices regularly; every two years, a comprehensive evaluation of its green credit practices are to be submitted to the CBRC. The CBRC is to conduct off-site and on-site inspections to ensure that financial institutions comply with its Green Credit Guidelines.

These regulations are designed to further develop what was already a growing trend in green lending in China. By end of 2011, China’s six largest banks – China Development Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications – had a total of $301.75 billion in green credit lending. In particular, in 2011, China Development Bank lent $104 billion to support environmental protection, energy saving and emissions reduction projects, accounting for 12.7% of the bank’s total outstanding loans. Even before the 2012 guidelines, green lending in China was growing because of rising demand by customers, and because government support for green projects has meant that many green loans have lower non-performance ratios. Ultimately, the future success of the guidelines will be dependent on the banking industry’s ability to collect accurate environmental data on its customers. Certainly, the government’s 12th Five-Year Plan indicates a greater commitment to environmental data gathering. Again, it still remains to be seen whether Beijing will then allow this information to be more widely circulated.

Other Factors Working to Reduce Environmental Degradation in China – Meeting ISO Standards

shutterstock_104036633China’s participation in standardization laws are also helping to drive pro-environmental business practices. ISO, an international organization headquartered in Geneva, issues two kinds of specification standards to which China strives to comply: those which facilitate commerce by normalizing product standards and those which standardize procedures. The IS0 14001 incorporates environmental policy into its framework by creating a standardization of management practices and implementation of environmental procedures. Since 2006, China has led the world in ISO 14001 certificate registrations. China’s ISO compliance efforts are driven by the fact that many of the markets into which China exports now request ISO 14001 observance.

Other Factors Working to Reduce Environmental Degradation in China – NGOs

Domestic and international NGOs are also becoming increasingly important to China’s environmental activism. The Academy for Green Culture, now called Friends of Nature, was the first environmental NGO formally registered in China in 1994. Since then, several hundred international and domestic NGOs engage in nature conservation, species protection, environmental education, policy advocacy, data collection, legal advocacy, environmental information exchange, wasteland reclamation and organic farming. Indeed, leaders of three Chinese NGOs were appointed as environmental advisers to the Beijing 2008 Olympic Bid Committee and were instrumental in helping China win its bid. These NGOs work both at a community and a national level. Examples of NGOs active in China include Green River, Global Village of Beijing, Institute of Environment and Development, the World Wildlife Fund, Green Earth Volunteers, Green-Web, the Natural Resources Defense Council, Greener Beijing, and the Center for Legal Assistance to Pollution Victims.

Despite their growing presence, NGOs face real challenges when working in China. NGOs often lack any real influence, particularly when faced with entrenched business interests. Domestic NGOs are often challenged by fund raising difficulties. On many occasions, new NGOs have been refused registration, thus denying them the benefits of NGO status. The government also closely scrutinizes the work of these NGOs in order to prevent environmentalism from evolving into a push for broader political reform. In general, domestic NGOs are reticent to criticize the central government publicly, and work hard instead to engage in cooperative relationships with local officials.

Other Factors Working to Reduce Environmental Degradation in China – Multinationals Making a Difference

Multinationals are also beginning to positively impact environmental protectionism in China. Given that China is often their factory, and given the growing environmental activism within China at the governmental, NGO, academic and social levels, multinational corporations are increasingly under pressure to ensure that their production, and the production of their suppliers, in is in compliance with local environmental standards. For example, in August 2011, Apple received bad press for ignoring its suppliers’ outstanding public pollution violations which had been brought to its attention by a consortium of five Chinese environmental NGOs. Within a month, Apple was working with its suppliers and the NGOs to improve environmental performance.

Multinationals are also increasing taking initiative in helping their Chinese suppliers use energy, water and materials more efficiently, and reduce emissions where possible. Shell China, for instance, one of the largest multinational companies operating in China, has been introducing better environmental practices and technologies. In 2009, in the Changbei Gas Field, where it works jointly with PetroChina, Shell increased gas production by 11% while decreasing energy intensity, resulting in annual savings of around 2500 tons of standard coal – enough to provide sufficient power to support 10,000 urban Chinese families for three and a half years.  The project also reduced the volume of its wastewater by 70%. These environmental practices are good business as they improve profitability. Yet, they are also introducing methods and technologies that are then absorbed more broadly. Multinational investors also drive environmental practice in China. Worried about environmental liability, they encourage multinationals to implement stricter environmental practices.

Trends

shutterstock_110013224Despite the many factors which will continue to perpetuate environmental degradation in China over the coming decades, and the magnitude of China’s environmental challenge, China’s environmental trends are not all grim. Indeed, many developments indicate that China will make increasing progress in the field of environmental protection.

One of the most important of these developments is the growing emphasis Beijing is placing on environmental protection. Indeed, not only is Beijing beginning to articulate a well thought out and increasingly detailed plan as to how China can begin to protect and restore its bio-capacity, but it is also backing that plan with an unprecedented level of short-term investment. This investment will soon allow China to take leading positions in many environmental sectors. For instance, by 2015, China will have more installed alternative fuel capacity than any other country.

This investment will create huge opportunities in China’s green technologies market. Investing heavily in green technologies may enable China to gain an advantage over developed countries with a heavy reliance on their carbon-intensive economies. For instance, China now has the largest solar water heater market in the world. Approximately 95% of patents for core solar water heating parts are owned by Chinese companies. These patents allow heaters to function even under grey skies and at temperatures well below freezing. It is estimated that at least 30 million Chinese households now heat their water with solar panels.

Indeed, leading the development and implementation of green technology is one of the ways China is creating the competitive edge it needs to remain an economic powerhouse in the future, especially as its rapidly aging and shrinking workforce means that it will not be able to indefinitely compete just on the basis of cheap, plentiful labor. As the impact of global warming is increasingly felt, and as growing fossil fuel demand continues to put upward pressure on fuel prices, demand for green technologies will rise. China will position itself to profit from these opportunities by first introducing green technologies at home before aggressively seeking to export them to foreign markets.

China will begin to lead the way in green architecture and urban development as 70% of its population settles into cities by 2030. It will increasingly introduce technologies which will avoid high electricity consumption in buildings. Specifically, we will see China install more energy-efficient lighting, appliances, heating, ventilation and air-conditioning systems, and better insulation in walls, windows and roofs. Similarly, it will also prioritize retrofitting its existing building stock with energy-saving features.

shutterstock_104036633China will also invest in the development of alternatives to internal combustion engine (ICE) transportation. This can already be seen in its growing commitment to the construction of rail and mass transit systems. China can also be expected to increasingly reduce emissions and increase fuel efficiency in the ICE cars that do reach its streets. It will also continue to invest heavily in alternatives to ICE cars. Specifically, China plans to push the full range of advanced battery technology for electric vehicles. Indeed, by exploiting its current pool of low-cost labor, along with its fast-growing domestic car market, its proven success in rechargeable battery technology, and its substantial investments in R&D, China has the potential to emerge as a global leader in electric vehicle technology in the coming decades. Indeed, its plans to create 10 million electric car charging parking spots by 2020 suggests that it the pursuit of affordable, high-performance electric vehicles will continue to be a priority. Currently, China has 16,000 AC charging spots in operation.

Despite China’s growing commitment to alternative fuels, its use of coal will still rise significantly in the future. Increasingly, China will work to offset its carbon emissions by investing in technology that sequesters carbon emissions for next-generation coal plants. Indeed, China wants its clean energy sectors and it clean energy technology to become 15% of its economy by 2020.

Also of note is China’s growing nuclear program, which has exhibited consistently high rates of growth over the last 15 years. Consumption in the sector is expected to increase by 15.4% for the next five years ending 2020, while renewable energy is projected to grow around 7.5%—though this is likely due to the high level of development that China has already achieved in its fairly mature renewable energy sector (which accounts for 9% of energy production in the nation, compared to the 1% share occupied by nuclear energy).

Furthermore, China currently produces a lot of industrial municipal waste that it does not recycle or properly manage. China will increasingly rectify this by employing technologies that will allow it to convert its waste into useful material. For instance, there’ll be a growing trend toward coal-bed methane recovery and recovery of blast furnace slag resulting from steel production. It will also seek to burn more of its municipal waste to generate electricity, instead of sending it all directly to landfill.

Green lending, ISO compliance, the influence of domestic and international NGOs and multinationals will also continue to drive positive environmental behavior in China. It can be expected that China will also be inviting more foreign investment in the green technologies sectors.

All that said, many of China’s dominant economic and political incentives have not changed. 129 million Chinese citizens still live on less than $1.25 a day, and 400 million earn $2 a day. China’s population will continue to grow through at least 2030, and inequality in China has increased significantly both within the population, between rural and urban residents, and between different regions within the country. Those Chinese moving into the middle classes will demand a better diet and consumer goods. China’s government will thus remain under enormous pressure to improve the standard of living of its people and to reduce inequality nationally.  Proponents of low carbon future for China thus face significant opposition by others who suggest that China should focus on unrestrained development until more of its population has reached a modest but dignified standard of living.  China’s 11th Five Year Plan also advocated a slower, more balanced GDP growth, yet China’s GDP growth exceeded 11% during the period. Local governments, in particular, have many incentives to keep to business as usual.

Still, within the international climate community, there is some hope that China may come to take a leadership role in climate change mitigation. They note that China has not stepped back from its 2009 voluntary Copenhagen commitments; instead it has translated them into binding domestic law. They also note China’s opportunity to leapfrog the carbon-based infrastructure installed in developed countries, partly because of its history of radical experimentation, but also because of the greater ability of its authoritarian government to dictate far-reaching environmental policy. China’s obvious desire to profit from the rapidly growing green technology sectors is, therefore, potentially good news for everyone.

Ultimately, Chinese leaders have an opportunity to follow a path of development that diverges from a Euro-American capitalist model that is no longer accepted as indefinitely sustainable; in the long run, the world does not have the bio-capacity to support billions of new people consuming like Americans and Europeans. The Chinese leaders seem to increasingly acknowledge this. In 2008, for instance, Ambassador Yu Qingtai noted that while he could not accept that as a Chinese, he was only entitled to one quarter of what western developed nations have enjoyed, he also recognized that it would be a nightmare for China if its 1.3 billion people had the same per capita emissions as the Americans. That representatives of the Chinese government are beginning to articulate that high Chinese per capita emissions would be a nightmare for the Chinese themselves is also grounds for optimism about the possibility of improved global environmental protection. The outlook continues to be positive. In November 2014, China announced plans to halt emissions increases by 2030. With these national efforts China will certainly see large changes, and perhaps the birth of entirely new markets, in the coming years.

How China is Tackling its Water Challenge

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Introduction

TheChinaFile

China faces a severe water shortage. Its current water per capita is one quarter of the world average. This per capita water availability will decrease in the coming decades as China’s population peaks at between 1.4 and 1.5 billion people by 2030. China’s water usage per capita may be low by international standards, but it is expected to grow by between 40 and 50% by 2030. Factors such as higher living standards, increasing urbanization and further industrialization are driving water demand.

The water that China does have is often badly polluted. An estimated 70% of China’s rivers and lakes are currently contaminated and 300 million people drink water tainted with inorganic pollutants such as arsenic, excessive fluoride, untreated factory wastewater, agricultural chemicals, leaching landfill waste, and human sewage. China’s water is also inefficiently consumed, compounding its water challenges. 45% of water destined for agricultural use is lost before it even reaches crops. Only 40% of its industrially used water is recycled, compared with 75% to 85% in developed countries and water lost from urban plumbing leaks accounts for 18% of total urban water withdrawals.

Moreover, China’s water is unequally distributed throughout the country. The Yangtze River basin and areas to the south receive 80% of China’s naturally available water resources to support only 54% of its population, 35% of its arable land, and 55% of its GDP, while the north gets just 20% of China’s water. Deforestation, overgrazing and unsustainable agriculture have destroyed local ecology in many parts of China, affecting China’s overall rainfall, and exacerbating China’s age-old challenges of drought and flooding. To meet its growing water demands, especially in the north, China is depleting its underground aquifers, lakes and river systems at untenable rates. As water becomes scarcer, competition for water is increasing between agriculture and industry as well as among China’s growing cities and different regions of the country. This trend will only continue in the coming years; by 2009, surveys revealed that 58.3% of river water, 49.7% of lakes, 79.5% of reservoirs and 38.7% of wells were of quality necessary to be deemed adequate water sources. China remains particularly opaque and is reticent about releasing regular and up-to-date water statistics.

China has tried to solve its flooding, drought, and water scarcity problems through hydro-engineering projects such as the Three Gorges Dam and the South-North Water Diversion Project. Yet hydro-engineering alone will be unable to create sufficient water supplies to meet China’s future demand. China will need to improve the management of its water resources and the legislation governing its use. Perhaps most importantly, Beijing will need to increase the price of water to better reflect its scarcity value, allowing for the economic restructuring that this higher cost will cause. Repairing China’s ecology will also be essential. A healthy ecology will not only aid the prevention of desertification, with all the water loss that such environmental damage causes, but it will also help to maintain upstream eco-systems, which are essential for the long-term supply of good water sources. China will also need to upgrade the efficiency of its water delivery systems to agriculture and to its cities, and to improve the efficiency utilization rates in industry. Environmental protection will be essential in ensuring the water that China does have is potable. China must clarify its environmental protection laws, improve enforcement and increase fines. Without implementation of such measures, water scarcity risks limiting China’s future economic growth. Water scarcity could also challenge China’s political and social stability. Increasing illness caused by polluted water is driving up healthcare costs and generating more internal dissent. In 2005, the Chinese government acknowledged that 50,000 environmentally related “mass incidents” (a euphemism for protests) occurred, many of which were sparked by water degradation.

Interestingly, the Chinese Committee of Political and Legislative Affairs also acknowledged about the same amount of “mass incidents” (about 50,000) in 2013 as they did nearly a decade ago. The reality, however, is that environmental mass incidents have been steadily increasing: from 1996 to 2011, environmental protests increased at an average rate of 29% per year, spiking up nearly 120% in 2011 alone. The scale of the protests is also increasing, with around half of all “mass incidents” involving 10,000 or more people.

The South-North Water Diversion Project

TheChinaFile

Historically, China has sought to solve its water scarcity problems through reliance on large infrastructure projects. Indeed, many of China’s top leaders are trained engineers, including Hu Jintao, who is a trained hydraulic engineer. Mao Zedong is reputed to have said in 1952, “the south has a lot of water, the north little. If possible, it is okay to lend a little water”, apparently acting as the spur for building what is now called the the South-North Water Diversion Project. When completed in 2050, the $62 billion mega-aqueduct is projected to divert 44.8 billion m³ of water yearly from the Yangtze to the north. The project will follow three routes. The eastern route will transfer 14.8 billion cubic meters of water yearly from the lower Yangtze, via the ancient 1800 km Hangzhou to Beijing canal, to Jiangsu, Anhui, Shandong and Hebei provinces as well as to the city of Tianjin. It is now projected to be completed in 2013 or 2014. The central route, begun in December 2003, will divert 13 billion m³ of water from the Danjiangkou reservoir on the Han River (a Yangtze tributary) to Beijing, Tianjin and other cities. It is scheduled to be completed in 2014. The western route would transfer water from the upper reaches of the Yangtze tributaries across the Qinghai-Tibet Plateau through the earthquake prone Kunlun Mountains via a network of tunnels into northwest China. Given its technical difficulty, the western route has not yet been given official approval and it is possible that it will be quietly shelved. It is expected that as many as 400,000 people might be displaced by the projects overall, though this would be fewer if the western route were scrapped.

Overall, the South-North Water Diversion Project faces many logistical challenges, the most important of which is ensuring that the water that does reach the north is sufficiently pollution-free to be usable. The eastern route, for instance, crosses 53 heavily polluted river sections. Clean-up efforts and water treatment facilities on this route alone will account for about 40% of the total aqueduct cost. If effectively implemented, it will be one of the most comprehensive water clean-up operations ever seen. 379 pollution control projects including wastewater treatment plants and wastewater recycling facilities are slated to be constructed, and major sources of industrial pollution such as paper mills are being shut down. Nevertheless, the clean-up process continues to be challenging.

Water Desalinization

China is also investing heavily in water desalinization in order to increase its water supplies. Research into water desalinization began in 1958 and more than 20 seawater desalination projects have been constructed which currently desalinate 600,000 m³ of water a day. China aims to produce as much as 3 million m³ of desalinated water daily by 2020, mainly for use in the north of the country. Desalination, however, is expensive and energy-intensive, and also requires water for its production. For these reasons, it cannot be considered to be a serious solution to China’s water shortages.

In 2012, the Chinese government outlined their policy goals for the next three years, ending at the conclusion of 2015. The government hopes to reach 2.2 to 2.6 million cubic meters or water per day, a far cry from the 660,000 cubic meters currently produced per day in China, but still possible given that plans exist to bring another 1.4 million cubic meters of water production online in large-scale desalination plants.

As of 2014, China had expanded its efforts in water desalinization with a total of 75 desalination plants, with nine more under construction. Though this technology may not be the most efficient at providing coastal cities with drinking water, these plants supply water that is used in coastal factories, sewage, and other wastewater management solutions, thereby allowing more drinking water from lakes, rivers, and reservoirs to be directed towards individual use. In the last decade alone, 60 desalination plants were built to run on seawater reverse-osmosis technology, producing 348,000 cubic meters of water per day, and an additional 11 plants were designed to utilize low temperature multi-effect distillation and produce a further 222,300 cubic meters per day.

Water Management

Ultimately, China will need to tackle its water scarcity issues not just by generating more supply, but by more efficiently managing and using its existing water resources. China’s water resource management system is highly fragmented. Multiple institutions have responsibility for China’s water resources, including data and information collection, hydro-infrastructure construction, environmental protection, and agricultural, urban and industrial development. There are frequent overlaps between these departments which raise administrative costs and exacerbate water’s “Tragedy of the Commons” problem. In other words, while China recognizes nationally the need for clean, well-managed water, it is in the interest of each user locally to consume water in whatever way will maximize their own short-term economic gain. This frequently gives China’s water management agencies conflicting priorities. Regional governments, for instance, often sacrifice water quality to protect local industries and jobs; they tend to focus on the water within their administrative areas, while failing to look at China’s water needs as a whole. Those considering water use in agriculture are often focused on accessing the water necessary to maintain agricultural yields. Those looking at the environmental protection of river basins try to limit the water drained from the river eco-systems. A failure to address the problem in a joined-up way persists.

This individualistic approach to the water supply in China, combined with local government corruption, has led to large-scale industrial dumping into lakes, rivers, and other aquifers. Often these waste products are, or are in large part, made up of heavy metals like cadmium or chromium that have been linked to increased risk of cancer. A recent scandal in 2011 involved the Lüliang Chemical Industry Company, which was found to be storing 288,400 tons of untreated chromium byproducts only a few feet from the Nanpan River, whose waters flow west and eventually join with those of the Pearl River. The company had been disposing of waste in this manner since 1989, and had gone as far as hiring divers to secretly dump metal into mountain reservoirs in order to reduce metal treatment and detoxification costs. Chromium levels in the river were 2,000 times China’s legally permissible standards. Effective progress in water management remains relatively slow due to ongoing and pervasive corruption that still sways local officials.

Water Legislation and Enforcement

TheChinaFile

Not only are water governing authorities fragmented, but laws governing the management of China’s water resources are still being developed. Historically, China’s water laws have been ambiguous and lacking in effective enforcement mechanisms. They have had a bias toward decentralization, with local government agencies often having a determinative voice in water issues within their region. This has resulted in widely varying levels of water-law enforcement, corruption and confusing standards for industries. Indeed, some water legislation reformers have been advocating greater centralized regulation. They point to the success of centralized management in helping to restore at least some perennial flow in the Yellow River delta. In the late 1990s, its downstream flow disappeared annually for over 200 days, because upstream provinces were drawing on the river too heavily. Beijing began limiting water allocations to each of the provinces, so downstream provinces had sufficient water. Today, the entire length of the Yellow River is monitored in real-time by data collection from dozens of monitoring stations along the length of the river. The system is designed to check and manage pollution, drought and flood control, while enforcing fair distribution of scarce water resources among the nine provinces that share the waterway. Engineers can regulate the river’s flow by opening or closing a network of automated sluice gates and monitoring devices. This system is currently undergoing an upgrade which will make it the most advanced water rationing system in the world by the time of completion which is expected to be around 2015.

Indeed, recent water legislation stresses a greater move toward a unified management of water resources. This legislation emphasizes the importance of a balance between water resources, the still-growing population, economic development and the environment. It also focuses on improved efficiency in water use and it strives to set a foundation for greater transparency, equity and efficiency in the access of and payment for water by all levels of the economic spectrum. It advocates that allocation, distribution and regulation of water resources should be increasingly made through water-drawing permit systems where users are allocated and charged for water according to sector quotas, taking into account annual water-availability conditions and the sustainability of river basins, lakes and groundwater. The legislation also attempts to make clear distinctions as to who is responsible for the quality of water in each of China’s regions and to ensure that each of those responsible works to minimize pollution and improve overall water quality. To achieve improved water quality, recent legislation also specifies the need for setting up data and information systems at all levels, and to make data gathered available to stakeholders. Indeed, in 2007, Beijing’s Institute of Public and Environmental Affairs launched its online water database, allowing public access to water quality and pollution data, including corporate regulatory breaches. Yet, this move toward better information access has been tempered by Beijing’s conflicting and simultaneous instinct to prevent the independent gathering of information on China’s water, especially regarding its trans-boundary rivers, ostensibly to safeguard China’s national security.

The 2008 Law of the People’s Republic of China on Prevention and Control of Water Pollution ties the performance evaluation of public officials, at least in part, to their meeting of water and environmental targets. It also increased monetary sanctions against enterprises discharging wastewater illegally and specified the amount of chemical oxygen depletion caused by agricultural run-off allowed in waterways. In a significant legal development, it also allowed, for the first time, class action suits to be brought against polluters.

Several decisions made at the Third Plenum also show a greater commitment in dealing with corruption in local and village governments. Officials in environmentally damaged areas will no longer be expected to meet the same GDP targets as those in other provinces, and local government actions will be monitored in an attempt to reduce the prevalence of companies bribing towns to look the other way as they pollute rivers and water sources that ultimately make their way into China’s largest rivers.

Water Pricing, Water Rights and Efficiency

Ultimately, the most important step in solving China’s water scarcity will be raising the price of water. Water is highly subsidized by the central government, often making it effectively almost free for users, creating no incentive to save water. In 2009, the average price of water per cubic meter was $3.01 in Germany, $2.37 in the UK, $1.02 in South Africa and Canada, $0.74 in the US and $0.31 in China. Of 19 major economies, only India had cheaper water tariffs. Five years later, the price of water per cubic meter rose to $3.18 in Germany, $2.41 in the UK, $2.05 in Canada, $1.46 in the US, and $0.38 in China. Prices do not seem to be ending their upward trend anytime soon.

Higher water prices are likely to generate a significant restructuring in China’s economy. Higher water prices will encourage farmers to plant crops that are less water-intensive and will encourage more efficient irrigation. Indeed, growing urban and industrial water demands may eventually lead to the elimination of winter wheat in northern China as the higher cost of water forces the shift to higher-valued uses that produce more jobs and income per water unit. Currently, 1000 tons of water produce 1 ton of wheat worth $200, whereas industry yields $14,000 of economic output for the same amount of water. Reducing China’s grain production would reflect a significant shift in the decades-old policy of 95% self-reliant grain production, and would have a real impact on global grain markets. It would also spur urbanization as farmers migrate to cities in search of new employment.

Higher water prices would also encourage factories to recycle more of their water. In the special case of the North China Plain, it is likely to check the overexpansion of some high water consuming industries. Currently the region produces 20% of China’s steel, 10% of its power, and 14% of its paper, all industries which use water heavily and cause severe pollution. This would also make the cost of water treatment more feasible as it would become more economical to process and recycle water than to dump it untreated into the rivers. Higher water costs would also make living in water-scarce cities more expensive, potentially discouraging immigration into these areas. It would foster improved efficiency of its water delivery systems to agriculture and to cities.

Such a move may also check pressure on Beijing to tap new coal supplies, particularly the enormous coal reserves in the dry north. Without further water transfer schemes, such as the controversial – and possibly unachievable – western route of the South-North Water Diversion Project, there will not be enough water to mine the northern coal reserves and still develop the modern cities and manufacturing centers that China envisages for the region. The fresh water needed for mining, processing, and consuming coal accounts for the largest share of China’s industrial water use, over a fifth of all the water consumed nationally.

Higher water prices will also help control the scale of the South-North Diversion Scheme, serving to minimize the impact on the Yangtze River. Having the cost of the scheme added into the price of water for end-users will encourage them to use the water more sparingly. Ma Jun has estimated that the cost of cleaning up the northern Huai River system and of running its industry sustainably was greater than the total annual value in production that the industry within the Huai River system generated. Economic progress has brought more people to the river valleys, so that the area now supports 1.5 times the national average. After 1949, mainly for flood control, 5100 large and small-scale reservoirs were constructed along the upper reaches of the Huai waterway and more than 10 major flood control retention reservoirs were built. Without the huge hydro-engineering in the Huai River Basin, the area would not have been able to sustain so many people. Rapid development, however, made previous hydro-engineering projects inadequate. Beijing responded by building new hydro-projects to expand water supplies further. In what has become a vicious cycle, Beijing now faces the need to divert water from the southern Yangtze to support the people and the economy in the area. Ultimately, China’s desire for development is infinite, but its water resources are finite. Unless water pricing reflects its true scarcity value sooner rather than later, China’s lack of water will put the brakes on its rapid economic development.

Enforceable water rights will also be important to reducing China’s overall water wastage. Currently, even with the recent legislation, it is still not clear who holds many water rights and what benefits these rights provide. Ideally, China needs to establish a nationwide water rights program, leaving enough clean water so its eco-systems and aquifers are sustainable. Permits should be issued to each water user, with pricing at a level which encourages increased water productivity. Creating a market to sell or lease these water rights will advance water productivity further. Those who do more to protect the river and other water basins should have greater rights. This includes those provinces and regions near the waters’ sources. The provinces could then profit by selling rights, instead of wasting water on parched land and inefficient industrial projects. Appropriate incentives for water saving technologies and behaviors also need to be developed. For instance, a tariff system could be implemented in which people pay higher bills when they consume more than a set quota.

Authorities have been slow to raise water prices because of their fears about how the higher costs will affect China’s poor. Recent research has shown, however, that lower income Chinese often get little benefit from subsidies as, ultimately, low water costs mean that they frequently receive water that is highly polluted. Nevertheless, the government remains concerned with inflation, always a hot issue in China, and this adds to the pressure to maintain low water prices despite the arguments in favor of raising them; it is unlikely that the poorest in society would welcome a price increase even if it were in their own long-term benefit in terms of improving the quality of their water supply.

Pollution

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Despite China’s efforts over the last three decades, water pollution has spread from the coastal to inland areas and from the surface to underground water resources. Essential to controlling China’s water pollution is the strengthening of law enforcement to improve compliance by industries and other polluters. Overall compliance with China’s environmental laws remains low. Yet, strengthening environmental protection is a multi-faceted process which not only requires raising water prices and establishing clearer water rights, but also necessitates the continued development of water protection legislation, the further advancement of China’s judicial system, greater financing and staffing of China’s Ministry of Environmental Protection (MEP), and making public a more rigorous collection and analysis of water data. Economic incentives such as pollution levies and fines have to be rigorously enforced. Overall, pollution fines should be increased. Lawsuits should be initiated against polluters and those most hurt by damaged public goods such as river basin ecosystems should have greater rights to demand compensation. State subsidies could be given to small towns and villages to help them to construct adequate water treatment facilities. Those waste-water treatment facilities that are constructed need to be continually monitored to ensure they remain operational and in compliance. China’s Tenth Five-Year Plan (2001–2005) mandated, for instance, the construction of thousands of new waste water treatment plants, yet a 2006 survey by SEPA (the State Environmental Protection Agency, the forerunner of the MEP) revealed that half of the new plants actually built were either not operating or were operating improperly. Corruption will also need to be tackled. Lax environmental codes are often rarely enforced and easily avoided by bribing officials. Tackling corruption will likely be done most effectively by linking compensation and performance figures to environmental protection as well as economic achievement. This would make it in the personal interests of officials to perform in the environmental arena, mitigating the “Tragedy of the Commons” conundrum, though this would also represent a significant shift in government behavior.

Future Trends

China’s water challenges are becoming too big for Beijing to ignore. China’s Twelfth Five Year Plan (2011-2015) projects record levels of water use, rising to 620 billion m³ by 2015, up from 599 billion m³ in 2010. Its traditional response to growing water demand – building large hydro-engineering projects in order to increase supply – will no longer be sufficient to meet the water demands of China’s agriculture, industry and cities in the coming decades. As a result, China will begin to implement new policies in order to better manage its water resources and to reach its 2015 goals of cutting water consumption per unit of value added industrial output by 30%, reducing arsenic, lead, cadmium, chromium and mercury levels by 15% from 2007 discharges, reducing ammonia nitrate fertilizer runoff by 10% and its corresponding chemical oxygen depletion by 8%. The plan also targets the construction of water conservation structures, improved irrigation, and commits to investing in the clean-up of rivers and lakes through the construction of wastewater treatment and recycling pipes.

At the heart of these new policies will be the gradual raising of the price of water throughout China. This trend is already in evidence in many cities across the country. Shanghai, for instance, increased residential water prices 25% in 2009, and another 22% in 2010. Beijing raised the price of commercially used water by 50% in 2010 and expects to raise its water charges to residential users by 24% in stages by 2013. China’s water users have not accepted the rises without discontent and some government officials fear that higher water prices could lead to social unrest, particularly as China is concurrently struggling with inflation. This unrest is due both to poor public education about the extent of China’s water challenges and to public skepticism that higher costs will translate into more effective water management.

Fixing the quality of China’s water will also be a growing priority for Beijing in the future. China needs to improve its water pollution record both by government investment and by encouraging private investment in the water treatment and management sectors. In 2011, for instance, China allocated $606 billion to clean up water and water infrastructure over the next decade. Larger, wealthier cities had already started investing in the water treatment sector, but without government support, smaller cities and rural areas have lacked the means and incentives to make much-needed investments.

Beijing is also explicitly encouraging foreign participation in China’s water markets. Foreign firms invested about $1.7 billion in China’s water sector between 2004 and 2009, with over $500 million being spent in 2009 alone. The investments were in waste-water treatment, municipal and industrial water supply sectors, and in direct investments in China’s water companies. This involvement will continue to expand in the near future.

China will also begin to move more aggressively against significant water polluters. In 2007, maximum fines to individuals or companies who discharge highly toxic pollutants into drinking water resources were raised fivefold to 500,000 RMB (approximately $80,000). Fines for companies who dump industrial residue urban waste into drinking water resources or who store solid waste or other pollutants below the water lines along rivers and reservoirs increased 20-fold to 200,000 RMB (around $32,000). While these are significant increases the fines remain relatively low and there is room for an expansion in this area. Increasingly, enterprises will also be responsible for bearing all costs to contain water pollution accidents and may face fines as high as 30% of the direct economic loss, according to the severity of the incident. Historically, pollution levies have been so low that it has been cheaper to pay penalties rather than to treat discharge. There is a growing realization that this cannot continue.

Litigation against water polluters will also increase, with rulings to progressively penalize those fouling China’s water systems. In 2009, for instance, an Asian Development Bank study determined the number of environmental lawsuits filed in China has increased an average of 25% annually since 1988. Since 2009, the Supreme People’s Court has been encouraging China’s maritime courts to adjudicate water pollution cases brought on behalf of a public interests. Additionally, three specialized environmental courts have been established in the provinces of Guizhou, Jiangsu and Yunnan.

China’s water challenges are daunting and urgent. The array of measures that are needed to more effectively manage its resources is huge. Still, China’s leadership is well aware of the importance of water to continued economic growth and to the health and well-being of its people. Poor water management has toppled many a Chinese government throughout the millennia, a risk to which the CCP is not immune. While progress toward solving China’s water challenges is likely to be uneven, overall it is expected that China’s water management will improve on most fronts over the next five to ten years.