Women in China

Introduction

Modern older women workers (shutterstock_108277505)

Since the founding of the People’s Republic of China in 1949, promoting greater equality between men and women has been a stated goal of the Chinese Communist Party (CCP). Mao Zedong famously proclaimed “in China, women hold up half the sky.” By this Mao appears to have meant that, if women were treated equally to men, China could better achieve its potential by taking advantage of the full complement of its population and workforce. The CCP thus supported the promotion of equal rights in all aspects of a woman’s life, at least at a rhetorical level.

Yet, even from its earliest days pre-dating the founding of the PRC, the support of Chinese women’s rights has been less about a woman’s potential to realize herself as an individual, and more about ways to use women’s emancipation as a tool to achieve national objectives. Before the revolution, the mainly male voices which advocated changing the traditionally subservient role of Chinese women did so in the belief that educated, more capable Chinese women would better be able to raise intelligent, morally sound sons. These sons could then build a strong China that could defend itself from foreign imperialism.

Similarly, the CCP believed that engaging women in productive labor outside the home would help advance the creation a true Communist state built on a robust and growing economy. Yet, time and again, the CCP sacrificed the secondary goal of women’s emancipation when its policies primary policies faltered; its commitment to follow through on gender equality promises such as the right to divorce and the right to work ebbed and flowed depending on how these policies facilitated the CCP’s other, higher-ranked objectives.

Despite CCP proclamations, a long historical tradition of male dominance and patriarchal authority has been deeply embedded in China’s culture since dynastic times. The CCP’s rise to power brought radical changes to Chinese society; but this traditional male dominance in both the work and social spheres has proven difficult to overturn, despite the real progress that Chinese women have made in obtaining the right to be educated, to work, to choose whom they marry, to divorce, to own and inherit property and to participate in political affairs. On the one hand, the profound changes that economic reform has brought to China have brought unprecedented opportunities to Chinese women; for instance, China has more self-made female billionaires than any other country. On the other hand, the government’s commitment to fight women’s inequality has taken a backseat to its desire to promote economic growth. As a result, in many ways, there has been a return to traditional gender expectations which have hampered the progress of Chinese women’s emancipation.

Women Under China’s Dynasties – Confucianism and Women

China’s deep roots of discrimination against women lie within its ancient Confucian traditions. The Confucian system, whose origins lie in the 551-479 BC period, encompassed the notion of “filial piety” – that women should obey men, citizens should obey their ruler, and the young should obey the elderly. For a woman, this meant that she was expected to be absolutely dutiful to her father, husband and sons.

Confucian tenets reinforced the moral justification of this strict regulation of gender. Confucians writers believed that the base elements of universe, yin and yang, were comparable to the state of marriage between woman and man. Woman was the yielding, passive, enduring, submissive feminine yin opposite the hard, aggressive, active masculine yang. By conceptualizing the differences between man and woman as yin and yang, Chinese intellectuals cast the differences, and the social hierarchy that resulted from them, as part of the universe’s natural order; in this way, men’s dominance of women was perceived to be not a social convention, but a natural law. Confucians intellectuals believed that, while yin and yang were complementary forces, they were not strictly equal. Just as the yang force dominated the yin, Confucian scholars believed that it was right for Chinese society to be patriarchal, and that a woman’s place was naturally in the home acting in support of her husband. This was expressed in Confucianism as “Threefold Obedience” – an unmarried women must obey her father; a wife must obey her husband; a widow must obey her adult sons.

Even those women who gained influence, such as the Confucian scholar Ban Zhao (45-116 AD) who worked as a royal advisor to the Empress and as a literary scholar, helped to uphold the status quo. In her influential Lessons for Women Ban Zhao encouraged women to modestly yield to others and to put others first. Ban Zhao said that a woman had seven virtues to master:- humility, resignation, subservience, self-abasement, obedience, cleanliness and industry.

Marriage in Dynastic Times

Traditionally in China, a woman was betrothed at a young age. Her husband was selected by her parents, aided by a matchmaker and by senior female relatives in the family. The goal was to find a husband that would benefit the daughter’s family either socially or economically. A woman often did not meet her husband until her wedding day. Once married, a woman was sent to live with her husband’s family. Traditionally, living with her husband meant that she gave up the protection and care of her natal family. This caused a profound sense of loss – not only the loss of the relationships that had previously been her whole world, but also the loss of her previous identity and status. Effectively, she became a possession of her husband and his family. From the time of her marriage onward, she would see her own family infrequently, if at all. Once in the husband’s house, she was to submit entirely first to her husband and his male relatives, then to her mother-in-law. She worshiped her husband’s family ancestors, rather than her own. The daughter’s contribution thus primarily benefited her husband’s family and not the family of her mother and father.

A husband was allowed to take multiple wives. These wives were arranged into a hierarchy, its order determined by factors such as order of the marriages, the birth of male sons, a woman’s beauty and how much the husband liked her. Men could divorce on grounds such as barrenness, jealousy, and talkativeness, but could only do so if there was a family to which the wife could return. There were no grounds on which a woman could divorce her husband. Men could also sell women as if they were property.

A Woman’s Life in Imperial China

Both as children and adults, women were restricted almost entirely to the domestic sphere, and were mainly uneducated. In books such as the Confucian classic, Book of Rites, the importance of physically separating the world of men and women was stressed to ensure that yin did not dominate yang. Even houses were to be divided into an inner and an outer section, with the women staying in the inner part. To the extent that women were educated, their learning was for the sole purpose of helping them better educate their sons.

Women were completely dependent on men due to their lack of property and inheritance rights, and to their inability to earn an income. This dependence on men created an environment where wife-beating and female infanticide was often overlooked and where a woman who bore daughters was not valued, as only men stayed in the natal family. This preference for boys was reinforced by Confucius’ teachings. Confucius’ follower Menicus said that the worst of the unfilial acts was to fail to have boys to continue the line of one’s ancestors.

That said, a woman in pre-modern China did have some influence, although that influence was not hers by right but delegated to them by men and circumstance. For example, besides domestic chores such as cooking, cleaning and childcare, a woman might contribute to household income by working at jobs such as spinning cloth, shucking oysters and processing tea which created real earnings that could gain her favor within the family. Moreover, her role in arranging marriages was important in building alliances that could strengthen the family fortunes. As she bore sons, a woman’s position within the family rose. She became even more powerful when she had a daughter-in-law under her control. She became most powerful in old age, particularly if she had both sons and daughter-in-laws as she was then respected both as a producer of men and as an elder. At the imperial court, when a young emperor inherited the throne, his mother, as Empress Dowager, could exert power on his behalf until he came of age or behind the scenes until he grew old enough to rebuff her influence. Chinese men nevertheless regarded a woman in power as unnatural and associated her with intrigue, manipulation and selfishness.

The isolation a woman could feel in her husband’s home was offset in some regions by the practice of taking “sworn sisters”. In Hunan, for example, women were allowed to organize themselves into groups of seven friends -– sworn sisters -– who would then provide friendship and comfort to each other throughout their lives. The sworn sisters often developed a secret language and system of writing which enabled them to communicate safely, even when expressing discontent with their circumstances.

Foot Binding

Girl with bound feet c19th century (girlboundfeetc19th) http://visualisingchina.net/#hpc-ch-s01An important symbol of a woman’s subservience was the practice of foot-binding which endured for over a thousand years. Foot-binding began in the tenth century when an emperor decreed small feet to be a most desirable aesthetic of female beauty. The custom began first with the Chinese gentry and then spread to the general population as families jockeyed to ensure that their daughters married into a family of higher class. In foot-binding, at the age of five or six, a girl would have her toes forcibly bent under the soles of her feet and bound their permanently by tight cloth. Eventually the arch of the foot would break and the tight cloth stopped the feet from growing. The ideal was to create a foot approximately 3 to 4 inches (around 8 to 10 centimeters) long by the time the girl became a woman. The deformed feet caused a woman to walk in a tentative, painful gait that Chinese men found alluring; the deformed feet were also considered to be very erotic. The impaired movement of the bound feet helped restrict a woman to her home which in turn increased her dependence on her husband.

Lisa See, in her novel Snow Flower and the Secret Fan, imagines poignantly what it must have been like emotionally for women trying to make their life in such a circumscribed and difficult environment:

“We women are expected to love our children as soon as they leave our bodies, but who among us has not felt disappointment at the sight of a daughter or felt the dark gloom that settles upon the mind even when holding her precious son, if he does nothing but cry and make our mother-in-law look at you as though your milk were sour? We may love our daughters with all our hearts, but we must train them through pain. We love our sons most of all, but we can never be a part of their world, the outer realm of men. We are expected to love our husbands from the day of Contracting a Kin, but we will not see their faces for another six years. We are told to love our in-laws, but we entered those families as strangers, as the lowest person in the household, just one step on the ladder above the servant. We are ordered to love and honor our husband’s ancestors, so we perform the proper duties, even if our hearts quietly call out gratitude to our natal ancestors. We love our parents because they take care of us, but we are considered worthless branches of the family tree. We drain the family resources. We are raised by one family for another. As happy as we are in our natal families, we all know that parting is inevitable. So we love our families, but we understand that this love will end in the sadness of departure. All these types of love come out of duty, respect and gratitude. Most of them, as women in my country know, are sources of sadness, rupture, and brutality.”

Encounters with the West Expose 19th Century China to New Ideas on Women

Female rural workers, 1920s (femaleworkers1920s) http://visualisingchina.net/#hpc-ar03-062As the West began to encroach on China in the nineteenth century Chinese leaders – Dynastic and subsequently Republican and Communists leaders -– began to search for ways to modernize and strengthen China so that it could free itself from encroachment by foreign powers. A woman’s role in society was increasingly scrutinized by intellectuals, especially those who had been exposed to western ideas. Some of these new ideas came from Western missionaries working in China. The Christian missionaries taught that the way a society treated its women was indicative of its level of civilized development. Following on from this idea, Chinese reformers began to think of the status of Chinese women as symbolic of all that was wrong with the country. They began to argue that improving the lot of women would be one road towards modernizing China. Educated and capable women could better run households and could better raise intelligent, morally-sound sons. These sons could then undertake the task of building a new China. By the end of the Qing Dynasty, foot binding began to be opposed as an example of China’s backward thinking and it was banned by the Republican government in 1912, although it was not fully wiped out until the 1949 Communists Revolution. It was also banned in Taiwan by the Japanese occupying administration in 1915. The majority of intellectuals supporting women’s emancipation at this time were men, although there were some exceptions. In 1904, for instance, women’s advocate Qiu Jin escaped from her marriage to a wealthy husband and took flight to Japan where she called on Chinese women to fight against their subservient status. Qiu Jin believed that Chinese women led a life tantamount to slavery and believed that women should be given a chance to work outside the home. With their own money, women could break free from their dependence on men and their families.

May 4th Feminist Thinkers

Re-evaluating a woman’s role in society took on renewed momentum during the May 4th Movement of 1919 in which student protests led to a larger examination of China’s society and its government. Known as the May Fourth Feminism Movement, its discourse continued to be driven by male Chinese nationalism. The movement was less about a woman’s potential to realize herself as an individual, and more about ways to change China’s society so as to save China from Western and Japanese Imperialism. That said, during the May 4th Movement, some urban women marched with men in organized political demonstrations and, to a limited extent, engaged in public affairs.
Engagement with Western scientific discourse persuaded many Chinese male intellectuals to believe in a biological determinist approach of the understanding of gender. While not necessarily a re-play of the theories of yin and yang, biological determinism stated that gender roles were the result of biological differences between men and women. Gender hierarchy was thus natural: since women bore children, they should have the predominant responsibility for housework and the care of family members. This biological determinist understanding was reflected in attitudes and policies adopted both in the Mao and post-Mao eras.

The 1949 Communist Revolution and Marxist Theory on Women

At first, the nascent women’s movement and its effects were restricted to the cities. There began to be a growing discrepancy between how women lived in urban and in rural environments where traditional practices still held sway. It took the 1949 Communist Revolution to begin to change the lives of China’s hundreds of millions of rural women. Communism came to China with the promise of equality, not only between rich and poor, noble and common, but also between men and women. By promoting policies such as marriage reform, the CCP hoped to gain support from rural women still trapped in traditional lifestyles. The CCP allowed women to join the Party, and by 1925, it had 100 registered women members. Some women even started serving in the People’s Liberation Army.

The emancipation of women was supported by Marxist theory. To Marxists, women were one of the classes exploited by capitalist societies. The Marxists believed that social relations and social structures were determined to a significant degree by the economic institutions that produced– farms, factories, etc. To achieve equality for women, Marxists thus argued that society must first assume ownership of the means of production by establishing a command economy with nationalized industry. The Marxists therefore took a collectivist approach to women’s emancipation where women’s liberation depended upon liberation for all. The first priority for men and women was thus to work together to achieve revolution. In 1949 when Mao Zedong took power, he reconfirmed the CCP’s commitment to women’s equality by his now famous quote, “in China, women hold up half the sky.” As women made up half of China’s population, building a great socialist society would be facilitated if women were liberated to engage in productive activity.

The 1950 Marriage Law

Once in power, the CCP passed the Marriage Reform Law in 1950. Prostitution, arranged marriage, child marriage, polygamy and the use of concubines were outlawed. Chinese were allowed to marry because they loved each other, not because they were obligated out of deference to their families. It became easier to divorce. Indeed, between 1950 and 1953, divorce rates spiked as women took advantage of the law to dissolve loveless “feudal marriages”. Contemporaneously, a huge effort was made to move women into the workforce. Many women were relocated from the countryside into the cities where they worked as textile laborers. Female literacy was promoted and 16 million women learned to read between 1950 and 1957.

By 1953, however, the Marriage Law began to experience growing and widespread opposition from men. Between 1953 and 1958, the CCP began to backtrack on its promotion of women’s equality. Instead, collective stability was prioritized. Propaganda campaigns were launched to promote the concepts of the socialist housewife and the model mother. These campaigns re-enforced the importance of domestic duties. It became more difficult to divorce and the CCP stepped up its efforts to keep couples together.

Collectivization, The Great Leap Forward and the All-China Women’s Federation

In 1958, Mao launched agricultural collectivization in preparation for the industrial push known as the Great Leap Forward in which it was Mao’s goal to catch-up with the West in agricultural and steel production in five years. Agricultural collectivization grouped peasants in large communes where they lived and worked together. Collectivization changed women’s lives radically. Housework was socialized and communal dining halls fed families; childcare became a collective effort, as did washing and sewing. This freed women to move into the fields while men worked on large-scale irrigation works, industrial projects, steel making and mining.

Established in 1949, the All-China Women’s Federation (“ACWF”) was a mass organization whose main functions were to help implement CCP policy through the mobilization of women and to promote gender equality. For many in the ACWF, the Great Leap Forward represented an unprecedented opportunity to increase women’s liberation as it provided women with real work outside the home. Mao believed that China’s ability to leap forward in steel and agricultural production was dependent on its ability to move women into the fields so that men could be freed up to engage in other work.

However, the reality of CCP policies for women during the Great Leap Forward differed from the vision of women’s liberation that the CCP promised women if they were willing to enter the workforce. Despite socialized housework, women continued to be responsible for all remaining domestic work, regardless of how many hours they worked outside the home. For instance, women in the 1950s and 1960s made their family’s clothes by hand, including spinning yarn and weaving cloth. After a long day in the fields, women often spent many hours at night making clothes and doing other work on behalf of their families. This additional contribution to the family household was not valued through the allocation of work points, continuing the persistent undervaluing of women by men.

Additionally, mostly men did not like seeing women trained in what they considered male skills or receiving a higher level of pay and thus put pressure on the CCP to preserve their dominant status. As a result, not only were men given the jobs which paid the highest work points, but even when men and women performed the same work, men mostly received more work points than women. Moreover, work done by all members of the family was usually tallied as a whole. Its value was then distributed to the male head of the household at the end of each work period. Rural women thus were not able to exercise any direct control over the income they earned.

In the cities, men were overwhelmingly assigned to technical jobs and women to non-technical, auxiliary and service jobs regardless of their educational levels. This gendered employment practice helped to re-establish women’s subordinate position despite the fact that she was now allowed to work. The difference in work opportunities was often justified by citing the differences in men and women’s biology; a woman’s weak physique was better suited to light, female-oriented work. Women were also less likely to be given work in large state-run enterprises where health, pension and housing benefits were provided. Rather, they were given jobs in the lower paying community- and neighborhood-run industries that offered few benefits. Unlike rural communes, however, urban women were able to collect their own wages which did give her voice in the family’s decision-making.

Inside the urban family, the traditional patriarchal patterns still persisted. Men could more easily secure housing accommodation from their work units. Single men slept in dormitories while women remained with their families until they were married. These housing policies continued the practice of men providing housing in marriage, reinforcing the idea of female dependency, and making marriage materially necessary for women. It also made women vulnerable if marital problems arose. Additionally, regardless of the hours worked outside the home, like their rural counterparts, urban women were still responsible for the majority of domestic work and family care.

As the hours that women worked in and outside of the house sharply increased, the health of women – particularly rural women – began to suffer due to overwork and malnutrition, especially as the ill-conceived Great Leap Forward policies pushed much of the country into famine conditions. There was enormous pressure on women to overcome the physical limitations of their bodies through the sheer force of their wills. Women became liberated not by being valued in their own right, but by emanating men and by denying the realities of their own physicality. Miscarriages and prolapsed uteruses became common as women were encouraged to carry out strenuous and difficult work regardless of pregnancy or recent birth. Despite these hardships, however, many women have looked back on the Great Leap years as ones in which they were freed from the isolation of the home and they could laugh and communicate all day in a shared work space.

After the failure of the Great Leap Forward, the CCP retrenched on all fronts. As steel making efforts subsided with the failure of the backyard furnaces and as new irrigation works were completed or abandoned, women were forced back into domestic roles in order to make room for the men in the fields. Women’s new-found emancipation was to be once again sacrificed for the good of the country.

The Cultural Revolution

The 1966-1976 Great Proletarian Cultural Revolution was a social-political movement launched by Mao Zedong whose objective was to deepen the Chinese Communist Revolution by removing what he believed were the bourgeois elements that were subverting the government and Chinese society with the goal of restoring capitalism. Mao argued that these revisionist elements needed to be removed through violent struggle and called on China’s youth to form Red Guard troops to stop the return of capitalist tendencies. In the violence that followed, millions were persecuted, suffering public humiliation, arbitrary imprisonment, torture, sustained harassment and the seizure of their property. Millennia old historical relics and artifacts were destroyed and education was largely suspended.

For women, the Cultural Revolution brought them once again out of their homes to engage in production and politics. Women were told to prioritize their responsibilities to the collective over their responsibilities to the family. In 1970s, an anti-Lin Biao, anti-Confucius Campaign attacked the traditional family structure and purported to explore the causes of women’s subordination. During the Cultural Revolution, women engaged in violence so as to shed the traditional view of them as submissive and gentle, qualities that Mao said were bourgeois. It was not uncommon for women to interrogate and then physically beat up “bad elements”. Women were also encouraged to enter politics, and by 1975, 24% of the National People’s Congress members were women.

Yet, as it had been in the past, the CCP’s support of women’s emancipation during the Cultural Revolution was used primarily for the purpose of advancing Communist Revolution as opposed to rectifying inequality itself. Cultural Revolution slogans such as “Now the times have changed. Men and women are the same” were cried out, yet any references to the special problems of women were denounced as bourgeois. Once again, women dressed like boys, cut their hair short and scrubbed their faces of makeup. Women were attacked if they looked too feminine, as femininity was deemed a backward element. The art, literature, films, operas and ballets produced during the Cultural Revolution featured androgynous women proletariat heroes – farmers, workers, militant fighters and political activists all committed to the collective cause. After having been discouraged from divorcing since 1953, women again initiated divorces in record numbers as they, and at times their husbands, tried to distance themselves from their spouses when they got into political trouble.

However, despite all the rhetoric, the chaos of Cultural Revolution prevented the implementation of any meaningful women’s liberation policies. For instance, women sent down to the country still usually only received half the work points of men. As China began to recover from the excesses of the Cultural Revolution which formally ended after the death of Mao, women once again were encouraged to take up traditional roles. The numbers of women participating in politics gradually began to drop and divorce was again frowned upon. That women have repeatedly been asked to give up new found freedoms for the good of the nation has served to devalue women’s emancipation as a real goal.

The One Child Policy

In the early years of the founding of the People’s Republic of China, Mao considered a large population to be a positive asset, both as an aid in economic development and a resource in national security. As a result, the majority of China’s population continued the tradition of seeking to have as many sons as possible and China’s population almost doubled in less than thirty years, from just over 550 million in 1950, to just over 1 billion in 1982. In 1970, concerns regarding China’s exploding population caused Beijing to implement a voluntary birth control system supported by campaigns promoting later marriages, longer birth intervals, and fewer children and contraceptive was made more widely available. As a result, China’s total fertility rate plummeted from 5.8 births per woman in 1970 to 2.7 in 1978. In September 1980, in order to reduce the birth rate further, the so-called “one-child policy” was introduced, which in most cases limited couples to having only one child.

Female rural workers, 1920s (femaleworkers1920s) http://visualisingchina.net/#hpc-ar03-062For women, the one child policy removed the traditional pressure that they felt to keep having children in order to produce sufficient sons. As a result, the policy helped reduce the burden of housework that many children generated, thus enabling women a greater bandwidth to seek work outside the home. The one-child policy has also meant that China’s tradition of equating sex with procreation shifted. While promoting family planning, the government also began distributing literature about the pleasurable aspects of marital intercourse.

That said, the one-child policy demonstrated in stark relief the continued Chinese preference for boys. Incidents of female infanticide and the abortion of female fetuses rose significantly after the implementation of the policy. The 2010 census suggested that there are about 118 males births for every 100 female births in China. By 2020, there will be 24 million more young Chinese men than women according to the Chinese Academy of Social Sciences. One ironic consequence of the policy might be the increased value of Chinese women in that their scarcity means that men will have to compete more aggressively in order to obtain a wife. Indeed, the government is beginning to acknowledge the imbalance between the sexes as a real social problem and have launched campaigns to encourage parents to value and raise daughters. These campaigns reflect the government’s fear that a future surplus of unmarried males could result in social unrest. In some areas, trafficking of women from less developed parts of Asia such as Vietnam, the Philippines and Cambodia, has started to fill some of the demand for brides.

Women and Market Opening

In December 1978, the CCP led by Deng Xiaoping began a series of economic reforms that introduced capitalist market principles into the Chinese command-driven economy. The first stage included the decollectivization of agriculture, the gradual shift away from communal living, the freedom of Chinese households to start up small-scale businesses and to buy and sell goods on their own behalf, and the opening up of the country to foreign investment. The second stage of reform, which took place during the late 1980s and 1990s, saw the privatization of many state-owned industries, the lifting of price controls, and the reduction of protectionist policies and regulations.

Market opening has, in some respects, had a negative effect on the fight for women’s equality in China. The government’s commitment to fight women’s inequality has taken a backseat to its desire to promote economic growth. This retreat from its promotion of women’s emancipation has helped encourage a return to more traditional gender expectations. The androgyny of the Cultural Revolution gave rise once again to images of women who were sweet, beautiful and feminine. There was a return to themes such as that of women as a gentle companion awaiting the guidance and protection of her successful husband. The Chinese male was to create China’s economic success and woman’s primary job was to support him. Yet as market opening has progressed, there has begun to be a growing number of ideals competing to define the perfect woman. Contemporary China now sees traditional culture, the legacy of Maoist socialism and global capitalism contending with each other to influence the new norms of Chinese society.

In rural areas, the de-collectivization of agriculture and the dismantling of communes initially returned women to the house where she once again too up traditional roles within the household. Women in urban areas have also been displaced from the work sphere. From the 1980s onwards, the returned youth from the countryside and privatization of state-owned industry has meant that there has been tremendous pressure on women to return home so as to free up work for their male counterparts. As the privatization of state owned enterprises gained increasing speed throughout the 1990s, women were the hardest hit with the job losses; indeed, 62.8% of the people laid off were women. The non-technical, auxiliary and service departments in which women overwhelmingly worked were some of first to be dismantled when state owned enterprises were privatized. Women over 40 were made to retire while their male counterparts were allowed to continue to work until 50. Once China’s economy began to take-off after reforms were in place, men were re-hired in significant larger numbers compared with women.
Part of the reason that men fared better during the privatization of urban businesses was that they had better business connections or guanxi. One reason for this was that women were hampered by their domestic responsibilities. The extra demands that managing the household required meant that women had less time to develop the business network needed to help secure their employment. Those women who did try to develop their networks were often condemned as being “loose” or as being women who had slept their way to the top. Indeed, men in senior positions often used their status to sexually harass women, and, as a consequence, women frequently avoided men to evade being placed in compromised positions. Additionally, as women had the worst jobs, it meant that those connections they did succeed in making were often less powerful than those of their male counterparts. This created a self- perpetuating cycle where low-skilled work led to less powerful connections which meant they had less chance to receive promotion.

Moreover, as the implementation of a market reform progressed, Chinese companies began having an increasing need for skilled and well educated workers. Women were again disadvantaged as they had poorer access to schooling, especially at the university level. When assessment tests began to be used in the 1980s to qualify workers for jobs and promotion, women were again in a less favorable position as their significant domestic responsibilities meant that they had less time to revise for examinations.

Party officials also preferred to lay off women because when they lost their jobs, they went home quietly where men sometimes took to the streets in protest. Party officials were heavily invested in preventing social unrest in the cities. Once women lost their jobs, they had no recourse other than to go back to relying on their families for survival.

Market reforms initially unleashed a massive exodus of rural male migrants who went to the cities in search of work, again opening a place for women to move into the fields. A 2000 census showed that 69% of all women work in farming compared with 61% of men. That said, eventually some young unmarried women joined the migrant stream, although in lesser numbers and with greater risk to their reputations and their safety. While often trapped in the lowest paying jobs with few protections, market opening has allowed women an opportunity to earn their own wages.

Trends

Empress Dowager Cixi (empressd) http://visualisingchina.net/#hpc-jw-s02Chinese women have made great strides since Dynastic Times. Specifically, life for women in China today has vastly improved since the Communists took power in 1949. Above all, Chinese women are better educated, have more work and political opportunities, and by and large, are free to marry and divorce as they choose.  In addition, China’s rapid economic growth has meant that washing machines, rice cookers and microwaves and other time-savings conveniences have transformed Chinese domestic life, and are even widely available now in China’s less-developed provinces. The One Child Policy has also freed women from the need to have endless children in an effort to produce sons for the husband’s family. This trend toward greater personal and economic autonomy for women will continue in the coming decades. Indeed, China’s economic reform has brought unprecedented opportunities to Chinese women; China today, for instance, has more self-made female billionaires than any other country.

As a counter trend, Chinese women continue to face real limitations and inequalities. A long tradition of patriarchal authority has been deeply embedded in China’s culture since dynastic times. This male dominance continues to influence Chinese society today. A 1990’s All-China Women’s Federation survey found, for instance, that a third of both male and female Chinese respondents considered men more inherently “able” than women; and more than half agreed that a woman’s place is at home caring for her family.  Most Chinese women continue to take full responsibility for the home, children and family elders, regardless of the hours that they work or the income they earn.

This traditional patriarchal influence has been flourished given the recent absence of CCP leadership on gender inequality. Since market opening, the government’s fight for women has taken a backseat to its efforts to promote economic growth. Today, women’s emancipation remains a secondary priority.

As a result, women struggle to take advantage of modern developments in employment, education and politics, while trying to balance continuing traditional expectations about their appropriate and proper role in family and society. This continued battle with traditionalism has created a situation in which women from all walks of life can find themselves limited in what they can achieve, despite a rise in college degrees, incomes and political influence.

China’s Challenging Environment

Introduction

The state of Chinese environment today must be placed in the context of the extraordinary development that it has accomplished and of the continuing challenges it will face in the upcoming decades. Since 1981, China has lifted approximately 500 million people out of absolute poverty, an unprecedented achievement. Yet, in 2008, 172 million Chinese citizens still lived on less than $1.25 a day and about 400 million earned less than $2 a day. China’s population continues to grow, and is expected to peak at 1.4-1.5 billion people by 2030. 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 are demanding a better diet, modern housing, and the consumer goods which have long been common in the West.

China has raised the per capita income and standard of living of its citizens by providing an export-led, average GDP growth rate of over 8% over the last several decades. Much of that growth was fuelled by high- sulphur coal, with lax environmental regulation. The result has been a massive degradation of China’s environment. In 2006, China surpassed the United States to become the world’s largest source of carbon dioxide emissions. An estimated 70% of China’s rivers and lakes are currently contaminated, and 300 million Chinese people drink tainted water.

In part, China has achieved its unparalleled economic growth since the launch of its 1980 market reform through a policy of greater decentralization. The central government today has less of an ability to impose absolute control over provinces than it had previously. Environmental law has also been slow to develop and has not been aggressively enforced. Moreover, China’s “Century of Humiliation” has caused it to be protective of its sovereignty, and suspicious of foreigners and their environmental agenda. Indeed, China has opposed the monitoring of its greenhouse gas emissions as it views this as excessive intervention in its internal affairs. Partly as a result, China has not been transparent about environmental data. Its citizens, even its scientists, and the international community often lack the information needed to understand the full impact of China’s development on Chinese and international eco-systems. The basis of the Chinese Communist Party’s legitimacy has also shifted during the last three decades. Though it cannot ignore issues that threaten social stability, CCP power is now more dependent on its ability to continually deliver improving living standards than it was previously.

This has led China to follow a “grow now, clean-up later” approach to development. In international negotiations, China has vigorously opposed any binding, monitored agreement to reduce global emissions of greenhouse gases, although more recently it has pledged voluntarily to improve its own energy efficiency relative to economic output. Until recently, China’s calculation has been that short-term mitigation is more costly to the regime than adapting to a changing climate later, particularly given development’s immediate financial, political and social benefits. China’s 12th Five Year Plan seems to marks a shift in this attitude. Unlike previous plans, climate change and energy are featured prominently, and a strong emphasis is placed on targeting a more sustainable average annual GDP growth of 7%. The 12th Five Year Plan also adopts as binding domestic law the voluntary climate pledges China first made before the Copenhagen 2009 United Nations Framework Convention on Climate Change. More recently, in a joint announcement with President Obama in November 2014, Chinese President Xi Jinping announced a target of peaking carbon dioxide emissions around 2030 with a goal of reaching that target earlier, and an intention of increasing the share of energy coming non-fossil fuel sources to 20% by 2030.

That said, China’s 11th Five Year Plan also called for a slower average GDP growth rate of 7.5%, which China significantly exceeded. Ambitious local officials often consider Five Year Plan objectives as targets to be exceeded. GDP growth is a way for provincial officials to compete with rival regions and get promoted. Indeed, historically the performance evaluation system of government officials in China stresses the economic indexes while ignoring environmental protection indexes. This incentivizes local officials to prioritize GDP growth. As environmental protection can hamper GDP growth, environmental protection indexes have previously only constituted a small part of performance evaluation. After the 11th National People’s Congress in March 2011, Premier Wen Jiabao acknowledged this when he noted that GDP-oriented criteria for evaluating performance and government officials was an obstacle to achieving the environmental goals laid out in China’s 12th Five Year Plan. As a result, the central government would work toward adopting new performance evaluation criteria for local governments they gave more weight to the efficiency of economic growth, environmental protection and living standards improvements. Yet it will remain difficult to deter business leaders and officials who are profiting handsomely from rapid development.

Ultimately, many factors will influence China’s environmental policies in coming decades, not all of which are under central government control. Factors which encourage sustained pollution include: the continued need to provide economic growth to ensure political and social stability; the difficulty in implementing national environmental policies at the regional level; the ineffectiveness of MEP (China’s Ministry of Environmental Protection); and general corruption. Factors which are acting to protect the environment include the increasing recognition by Beijing of China’s limited bio-capacity, the increasingly vocal demands of its citizens to protect the environment, China’s significant investments in green technologies, and China’s opportunity to lead the world in green markets. It is still unclear which combination of factors will ultimately have the greatest influence on China’s short, medium and long-term environmental policies, or the state of its environment. That said, there is an undeniable trend toward recognizing the importance of environmental protection in China.

The State of China’s Environment

China’s environmental statistics are grim. In 2009, for instance, China surpassed the US to become the world’s largest energy user. While China’s average per capita emissions remain below those of the US, they have overtaken the global average, and are rising rapidly. Despite efforts by China to improve its energy efficiency, its CO2 emissions from fossil fuels rose by almost 80% during the past decade. The Chinese government recently conceded that only 3 of its 74 major cities met national air quality standards during 2013. Indeed, the Beijing-Tianjin-Hebei area had an annual average levels of PM2.5 – tiny pollutants smaller than 2.5 microns – at 106 micrograms per cubic meter, more than 10 times the World Health Organization’s safety level of 10.

This pollution is affecting countries worldwide, and not just because of the consequences of global warming. An analysis of air in places as disparate as San Francisco and Kyoto found chemical signatures of coal-fired Chinese power plants, smelters and chemical factories. Additionally, China’s water is also both in short supply and highly polluted. Growing urbanization is increasing both China’s air and water pollution and exacerbating its water scarcity since urban dwellers consume three times more water and energy than do rural residents. Moreover, an estimated 70% of China’s rivers and lakes are now polluted. In 2009, 57% of the 7 monitored river basins had pollution levels of I-III, suitable for drinking, swimming, household use, and able to support aquatic life. 24% of the water in China’s rivers had levels of IV-V, water unfit for swimming, but suitable for industrial purpose. 19% had V+, meaning that the water is considered useless, unfit for industry or agriculture. 23% of China’s key lakes and reservoirs had water grades of I-III, 42% IV-V and 35% V+. 2.3% of groundwater in 8 regions was rated I-II, 23.9% was graded III, and 73.8% ranked IV-V.

Stresses to China’s environment will continue to grow in the future. By 2030, three quarters of the 11 gigaton projected increase in energy-related global CO2 emissions is expected to be generated by China. By 2030, an estimated 390 million vehicles are projected to fill China’s roads, an almost 3 fold increase from today. Urban floor space will need to double to accommodate the approximately 350 million additional people moving into cities. At the same time, an expanding number of Chinese will rise into the middle classes, increasing demands on the environment further. Even with its aggressive development of alternative fuels, by 2030, it is still estimated that China will need to burn almost 200 million more tons of 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 between 2005 and 2030. Proper desulfurization of coal plants will require sizable capital investments and extensive regulatory monitoring. Urbanization and rising living standards will also increase demand for greater varieties of food. China will need to control desertification, overgrazing, the overuse of fertilizers, and over-logging in order to preserve the productivity of its arable lands. Moreover, managing the growing amount of urban waste will be a major challenge.

China’s Position on International Climate Negotiations

Yet, despite pollution levels which are increasingly having consequences for both China and the world, China aggressively defends its right to develop and thus pollute. In 2007, China’s National Development and Resources Commission reiterated China’s past position that “developed countries should take the lead in reducing greenhouse gas emissions as well as providing financial and technical support to developing countries. The first and overriding priorities of developing countries are sustainable development and poverty eradication.” In other words, as a developing country, China must give priority to economic development over environmental protection. Domestic environmental issues take precedence over global concerns. As developed countries are responsible for the large part of historical degradation, they must limit their emissions first, and pay for and transfer technology to developing states to address their environmental problems. These payments are not loans but compensation for the developed world’s historical environmental damage. Developed countries must also take a lead in the reduction of greenhouse gases, and the implementation of signed agreements. The sovereignty of the country’s national resources must be respected. There should be no linking of aid or the implementation of sanctions to any formal agreement to change environmental practices. Environmental considerations should not be used as a reason to interfere in the international affairs of a developing country, or as a reason to impose trade barriers.

China has expanded its position in recent years by noting that population control is one of the most successful strategies to curb emissions. China argues that given its effective population control since 1970, China should be given credit for this key mitigation effort. Additionally, as China has four times more people than the US, China should have a higher emissions quota. China has also advanced the argument that having a modest but dignified level of well-being – which some reason to be about $7500 annually – is a basic human right which takes priority over environmental concerns. China argues that those below this development should be exempt from any requirement to pay for climate policy which indeed includes a large part of its citizens. China contrast this argument with the fact that the richest 20% of the world use over 75% of global resources and emit 51% of global CO2 emissions to maintain their way of life. The Chinese also point out that the ownership and responsibility for emissions is a nuanced discussion; approximately 33% of China’s domestic 2005 CO2 emissions, for example, resulted from the production of exports, raising the question as to whether consumers also bear responsibility for these emissions because of their purchasing decisions.

To bolster its negotiating position, in the past China has formed an alliance with developing and very poor nations. In 1991, for instance, in advance of United Nations Conference on Environment and Development, China convened a forum attended by 41 developing countries which resulted in a unified negotiating position largely reflective of China’s views. During 1987 negotiations for the Montréal protocol to protect the ozone layer, China joined India and Brazil to insist that without significant financial support and transfers of technology from the international community, neither country would sign the Montréal Protocol on Substances that Deplete the Ozone Layer. This resulted in the establishment of the multilateral fund to offer developing countries assistance in the form of both financial compensation and technological transfers. The international community agreed to establish the fund because China and India’s emissions would cancel out the positive impact of the other signatories if they did not participate. That said, China was quick to sign the 1993 Convention on Biodiversity as it was not a threat to its economic growth. With funding in hand, China has worked to meet its commitments under the Montréal Protocol. For instance, in December 2011, China’s Ministry of Environmental Protection announced its HCFC Phase-out Management Plan (HPMP), a US$270 million project to cut consumption of Hydro chlorofluorocarbons (HCFCs) by 1 January 2015 by 17%. As China is the largest producer, consumer and exporter of HCFCs in the world – more than 70% of global HCFC production, and 50% of total consumption of developing countries – its current campaign is essential for the successful implementation of the Montreal Protocol. The plan is aimed at halting the 11% annual growth in Chinese HCFC production that has occurred in the last three years. Christophe Bahuet, United Nations Development Programme (UNDP) Country Director of China expressed optimism that China would reach its targets. Recently, China’s climate stance alongside developing and very poor countries has shifted. During the 2009 Copenhagen conference, for instance, China joined forces with the large, increasingly wealthy so-called BASIC developing states – Brazil, South Africa, India and China – to refuse binding limitations on greenhouse gas emissions, despite entreaties from extremely vulnerable poor countries, especially small island states, whose very existence is at threat by global warming. To this extent, China is no longer an unqualified defender of the developing world.

Increasingly, China has set forth voluntary, non-binding, and non-verifiable emission reduction targets as it did before Copenhagen, when it stated that it would “endeavour to lower its carbon dioxide emissions per unit of GDP by 40-45% by 2020 compared with the 2005 level; decrease its share of non-fossil fuels and primary energy consumption to about 15% by 2020; increase forest coverage by 40 million hectares, and forest stock by 1.3 billion m³ by 2020 from the 2005 levels.” Likely, China’s willingness to put forward these targets was because they were consistent with policies China was already adopting nationally. Indeed, China has many domestic policies related to climate change – to increase energy efficiency and to use more alternative energy, for example – yet these policies are often driven by objectives such as increased energy security, enhancing technological innovation and arresting desertification instead of outright greenhouse gas mitigation.

The Cost of Environmental Degradation to China

Despite its negotiating position in the international community, domestically, China recognizes that environmental protection is a pressing issue. In 2007, the World Bank assessed that China’s combined health and non-health cost of outdoor air and water pollution to be $100 billion annually conservatively estimated, or 5.8% of the country’s GDP. Four of the ten most polluted cities in the world are in China. The World Bank calculated that up to 400,000 people in China die each year from outdoor air pollution, 30,000 from indoor air pollution, and 60,000 from water pollution. An estimated 40% of all the global deaths linked to air pollution occur in China. This is reflected in greater rates of lung cancer and respiratory system problems. China’s water is also producing higher rates of various health abnormalities including liver and stomach cancer, stunted growth, miscarriages and birth defects. Polluted water is also exacerbating China’s severe water scarcity problems. It is conservatively estimated that urban water scarcity costs China about $14 billion annually in lost industrial output, and rural water scarcity generates an additional $24 billion in annual costs. In 2000, the Ministry of Agriculture related that almost 20% of agricultural and poultry products in major industrial and mining districts are irrigated with contaminated water. On China’s current trajectory, the health costs of air and water pollution could triple by as early as 2020, particularly as China’s population begins to age more rapidly.

Moreover, China’s 2011 “Second National Assessment Report on Climate Change” estimated that global warming will significantly impact China in the coming decades. In particular, the report predicted that China’s grain output could fall by between as much as 20% by 2050, putting greater pressure on food prices, and threatening China’s food security. The report also forecasted that global warming would lead to severe imbalances in China’s water resources within each year, and across the years. By 2050, eight of China’s provinces and provincial status cities could face severe water shortages (meaning less than 500 m³ per resident), and another 10 could face less dire chronic shortages. Additionally, since the 1950s, over 82% of Chinese glaciers which feed many of China’s major rivers have been in a state of retreat. With the report predicting that global temperatures will rise between 2.5 and 4.6°C above the 1961-1990 average, this rate of glacial retreat will increase. The report also estimated that sea levels will rise between 10 to 15 cm in the next 30 years, pressing up against China’s big coastal cities and export zones, making them more vulnerable to typhoons and flood tides unless China invests heavily in new coastal embankments.

Social unrest is also an increasing consequence of environmental degradation. The Chinese government received 750,000 environment-related complaints in 2008, a number that has increased approximately 30 percent annually since 2002. This environment-related social unrest risks threatening central authority. Moreover, it is estimated that by 2025 between 30 and 40 million more people may need to relocate due to environmental degradation. The environmental migrants are on top of the high numbers of Chinese citizens slated to be relocated as the result of China’s aggressive dam building.

Challenges to Implementing Environmental Policy in China

Yet while China recognizes the danger of its increasingly stressed bio-capacity, implementing effective environmental policy remains difficult. Perhaps the greatest challenge to implementing effective environmental policy in China is the sheer number of Chinese citizens still well within poverty levels, and the inequality of wealth distribution throughout the country. Until poverty and inequality eradication have been generally achieved, economic growth will be prioritized. Wu Shunze, Deputy Director General of the Chinese Academy of Environmental Planning noted this when he stated that China estimates its industrialization will be completed by 2030, that its use of resources and energy will peak between 2020 and 2030, and that between 2030 and 2050, China will then begin to see a greater shift toward a service-driven economy, and begin to repair environmental damage. China thus anticipates that until 2030, the relationship between the economy and the environment will be “in contradiction”, and will only become preliminarily “harmonious” by 2030.

Until then, China will look for win-win solutions where its environmental policies improve energy security, reduce production costs, promote job creation, and provide it with technological advantage in the world markets without impeding development at home. China’s belief in its ability to “clean-up later” is founded not just on western experience, but on its millennia old tendency to control and shape nature – uprooting forests, redirecting rivers, filling in swampland, building dams and dykes. Successive Chinese dynastic and now Communist governments have long pursued domination over ecological resources.

China’s growing focus on inequality is an increasingly key factor in its environmental discourse as inequality is potentially an existential threat to the Communist Party’s monopoly of power. As opposed to always approaching China as if it were monolithic, international engagement with China about the environment needs to be across multiple levels. What might be expected of China’s increasingly wealthy urban coasts can be an unreasonable demand for China’s poor western areas. Similarly, it is difficult for Beijing to set uniform, national environmental policy. Internal pollution mitigation will require strategies that address challenges at the global, regional, intraregional, city, small town and village levels. In 2009, President Hu articulated this by arguing that China’s wealthier eastern regions must take the first major step toward emissions mitigation, while poor western regions continue to catch up economically.

Since 1980, China has nevertheless implemented a flurry of environmental regulation. Decentralization after the 1980 market reform means that Beijing’s has increasingly imperfect control over its local governments. This exacerbates the environment’s “Tragedy of the Commons” principle. The problem of discharge into China’s rivers is illustrative. To enhance their competitiveness, each locality has an incentive for its factory to discharge its waste as cheaply (often illegally) as possible, with each factory’s waste seemingly inconsequential in relation to the river as a whole. Ultimately, the accumulation of its and other factories’ waste devastates the river. This effect is compounded by the fact that pollution fines are low and that natural resources are undervalued. Additionally, those most affected by river pollution do not always speak out against pollution when their livelihoods are dependent on the offending industry. While farmers, for instance, might suffer lower crop yields, sick animals, and deteriorating health because of polluted water, their income can nevertheless be reliant on the polluting factory which may be providing family members with jobs, investing in local infrastructure and purchasing farm produce, which in itself might be contaminated.

The ineffectiveness of local environmental protection bureaus compounds the problem. Numerous Chinese agencies are responsible for overseeing environmental protection depending on the pollution problem. These ministries often compete for international and domestic environmental funding. Their poor coordination and delineation of public duties creates conflicts of interest, especially at the local level. Nationally, responsibility for environmental protection in China rests primarily with the Ministry of Environmental Protection (MEP) formerly the State Environmental Protection Agency (SEPA). While elevation to a cabinet level ministry has enhanced its power, MEP still remains a relatively weak voice within China’s government. Historically, environmental funding has been low. China’s Environmental Protection Bureaus (EPBs) monitor environmental conditions at the local level. Despite MEP supervision and the bureaus seemingly large manpower – China’s roughly 2500 EPBs employ some 60,000 people – in general, the EPBs report to local governments for budget and resource support. This gives the local government leverage to protect local interests. A chronic lack of funding also hampers enforcement. Bureaus often have insufficient staff and cars for inspections. Factories are aware of these constraints and use this to their advantage by, for instance, discharging at night. Even when bureaus launch campaigns to close or sanction problematic companies, the companies often relapse into violation or reopen once the campaigns quieten down. Also, fines often cannot be applied to companies across administrative boundaries. Counties and cities have often shifted polluting enterprises near the border with downstream counties, so river discharge is carried quickly into the next province. Pollution fines also partly fund EPB activities. This can lead to perverse incentives where a bureau can encourage the persistence of pollution problems in order to pay its wages.

Courts are also often ineffective and enforcing environmental law. While China has an increasing level of environmental legislation, public awareness of environmental law remains poor. Given the poor availability of environmental data, when cases are brought to court, it is difficult for victims to provide conclusive evidence. Additionally, many polluting companies pay relatively significant levels of local taxes. As most courts are funded and staffed by local governments, there is an incentive to interfere with court proceedings in order to protect polluting companies and the taxes which flow from them. As a result, many environmental court cases are thrown out on the basis of flimsy reasoning.

Corruption is also a factor in China’s environmental degradation. In China, corruption can be seen as bribery and cronyism when developing environmental policy and when promoting harmful environmental practices, embezzlement of environmental funding, and bribery during environmental inspections and issuing of permits. Environmental corruption can also be connected to organized crime, particularly in mineral, timber and wildlife trafficking.

Trends

What is certain is that, even if it were to implement every environmental strategy discussed in China’s 12th Five Year Plan, China’s greenhouse gas emissions will continue to rise. What is uncertain is the level of that increase. Many factors influence the rate of environmental degradation within China, and its contribution to global warming. On the negative side, the decentralization that has occurred as China has transitioned to a market economy means that it has less absolute control over its regions than it did historically, so that enforcing national environmental regulation remains challenging. Moreover, courts and regional Environmental Protection Bureaus are often funded at the local level, reinforcing regional control over the implementation of environmental policy. Currently, most market and political incentives encourage local officials to continue to prioritize rapid economic development. While Beijing has indicated a move toward decoupling promotion from GDP growth, most local party officials will continue to be strongly incentivized by the financial benefits that accrue to their region and to themselves as a result of strong economic performance. Corruption will also continue to undermine environmental protection.

As the Chinese Communist Party’s legitimacy now rests in large part on its ability to provide a rising standard of living for its citizens, China will continue to need strong economic growth to raise its approximately 400 million citizens still living on $2 or less per day out of poverty, and provide them with a “modest dignified level of well-being”. In addition, growing inequality throughout the country is placing greater pressure on CCP leadership to provide opportunity for those regions, mainly in the west, that significantly lagged behind wealthier east coast provinces. While China increasingly speaks of the importance of sustainable development, and although it is increasingly investing in green technologies, it is unlikely that these technologies can come online rapidly enough to offset all the pollution that will be emitted as China works to provide a reasonable standard of living for the bottom third of its population. Additionally, China is racing against the problem of a rapidly aging population, trying not to grow old before it grows rich and before the competitive advantage of its huge inexpensive workforce begins to dissipate.

Given the challenges of China’s decentralization, and the pressures of poverty, inequality and a rapidly aging population, what is most likely is that China will continue to be the world’s largest contributor to greenhouse gas emissions and environmental degradation for at least the next two decades. Yet within this high greenhouse gas emission model, there will be an increasing trend toward bringing on line a rapidly growing level of alternative fuels, green technologies and pro-environmental protection policies such as environmental taxes and cap-and-trade pilot programs. Indeed, by the end of 2030, it is possible that China will be a world leader in many of the green technologies that will be most impactful on protecting our global environment going forward.

In international climate change negotiations, China will continue to refuse to be constrained by internationally imposed targets which can be monitored by outside countries. Yet, China’s growing implementation of environmental technologies at home will allow it to be a much more constructive player in international negotiations in the future. Increasingly, China is likely to hold up its environmental accomplishments at home as an example to other countries; for example, by 2015, China is expected to lead the world in installed hydro, solar, wind, and nuclear capacity. Thus, China’s future in the field of environmental protection will be, paradoxically, both world-leading but also internationally uncooperative.

Rising Income Inequality in China: A Price Worth Paying?

Introduction

J. Margolis

China, a country of continental scale, has experienced inequality in many shapes and forms throughout its 4000-year history. Part of this inequality is regional; attributable to China’s sheer size and the diversity of its geography. Lack of water, arable soil, and good links to transport networks significantly affect an area’s ability to prosper. Areas that suffered from such deficiencies in China 1000 years ago tend to be the same areas that struggle with limited resources today. For instance, China’s southeast, with its abundantwater resources and excellent access to international markets, continues to be one of the wealthiest parts of modern China. China’s western plateaus, sparsely inhabited, with poor arable land and water resources, limited transport and infrastructure systems, remain poorer areas of the country today.

Inequality during the Mao Era

During the Mao era, the Chinese government set income equality across China as an important goal, although it was never fully achieved. Topographical advantage remained determinative, even in the face of economic policies aimed at reducing it. The CCP enforced a hukou family register system, which eliminated the ability of China’s citizens to move about the country, limiting them to the area in which they were born and their family registered. What this meant in practice was that those born in regions that lacked resources, or those born in the countryside, had relatively less wealth than those born in more resource-rich regions or in urban areas. Thus inequality during the Mao era was principally between urban and rural areas, as opposed to between individuals in the same area. Nevertheless, high ranking party officials did enjoy more relative wealth than those who were not part of the Communist Party, yet the lack of consumer goods and isolation from the international economy meant there were not many opportunities for even high-ranking party officials to have conspicuous consumer advantages over rank-and-file citizens. In fact, until the Reform era brought more consumer goods to China, most Chinese citizens merely strived for the four “must-haves”: a bike, a watch, a radio, and a sewing machine.

Inequality in the Reform Era

J. Margolis

In 1978, this all began to change with the implementation of the Dengist reforms. Deng explicitly declared that some should be allowed to ”get rich first”, with the implicit understanding that others can get rich later. This was a significant alteration in policy; for a communist government to accept, and even encourage, societal inequality was certainly groundbreaking. As China began to make the transition from planned- to market- economy – a journey that has, by no means, been completed – income inequality increased in measure with its transition towards capitalism. However, the early years of the reforms, at the beginning of the 1980s, were marked by a fall in overall inequality, driven by the loosening of restrictions on rural areas selling their excess produce for profit. This allowed those rural producers of food to close the income gap with their urban counterparts. Chinese official statistics struggle to provide an accurate picture of Chinese incomes today; the wealthy often under report their earnings and the very poor can be underrepresented as their geographical isolation and high illiteracy rates can make them difficult to track. Yet even those official figures that can be produced, which may try to disguise large disparities, have shown income disparity to be increasing. China’s Gini coefficient – the most commonly used measure of inequality under which an entirely equal society would have a coefficient of 0 and one that is entirely unequal would register as 1 – stands today at 0.47. This is considerably above both the World Bank’s ‘critical threshold’ of 0.4 and the US Gini of 0.41, and shows signs of reaching the extreme levels that plague Latin America. This statistic becomes even more alarming when viewed against the levels of inequality at the outset of the economic reforms: in 1980 the Gini coefficient was 0.28. In essence, inequality has risen in China by over 50% in thirty years. While this is in line with the Dengist policy of ‘letting some get rich first’, it is evident that continued increases on anything approaching this scale over the next thirty years would cause difficulties for the CCP both in terms of potential social unrest, something that is already a growing problem, and of its ability to undermine the CCP’s legitimacy base. The CCP has begun to recognize this rhetorically as well as in policy with speeches from Wen Jiabao and Hu Jintao peppered with references to the need to address income divisions.

Regional Inequality

BartlomiejMagierowski / Shutterstock.com

Today, the biggest discrepancy of incomes can be seen between regions. China began its capitalist experimentation in the Pearl Delta region of Guangdong province, where its workers sewed piecework for Hong Kong textile manufacturers. As more and more of China’s GDP began to be generated by international trade, this and other industries spread northwards along its coast. Consequently, China’s east coast is now its most developed area, with income levels at purchasing power parity (PPP) approaching those of countries such as Saudi Arabia or Singapore.

In the first 12 years of economic reform, growth in China’s interior regions was driven by a re-introduction of private markets in the agricultural sector, as well as increased productivity during the ‘green revolution’. This increased productivity allowed peasants to move into rural industry, such as the manufacturing of farming equipment, further driving rural GDP and income growth. Although this did initially cause the income gap between urban and rural areas to fall in the early 1980s, geographical inequality has since been rising and shows little sign of reaching a plateau.

TonyV3112 / Shutterstock.com

When it comes to inequality between coastal provinces and their poorer inland neighbors, differences in income have been rising ever since the start of the reform era, as the coastal east has benefited from China’s export driven economic growth. Apart from the obvious geographic advantages for trade, coastal provinces have benefited from government initiatives such as favorable tax and financing regimes. As a result, through much of the 1990s, coastal growth rates were three percentage points higher than those of inland regions and China’s coastal provinces remain more affluent than its interior regions. There is, however, some evidence that the phenomenon of coastal GDP growth outpacing the interior is starting to change, as rising wages in coastal areas and the consequent reduction in international competitiveness, has driven some industries inward in search of lower costs. One notable example is Foxconn, the giant consumer electronics manufacturer that produces goods for companies such as Apple and Sony, which has relocated part of its production line to the interior. That said, China’s interior western provinces still have a long way to go. In 2011 Guizhou, China’s poorest province, had a GDP per capita of 16,000 RMB (approx. $2,400), while Tianjin’s was 84,000 RMB (approx. $13,000). The three provincial-level cities in the east – Beijing, Tianjin, and Shanghai – have the largest incomes per capita by some distance, each with a per capita GDP of in excess of 80,000 RMB, while Tibet, Gansu, Yunnan and Guizhou – all in the far west of the country – are all under a quarter of this total.

Although huge differences in income between regions evidently remain, the central government has shown an increased interest in resolving this inequality. In 1999, President Jiang Zemin announced the “Develop the West Program”. As well as addressing ecological and security concerns, the “Develop the West Program” was intended to stimulate development in China’s least prosperous provinces and to soften the blow to China’s interior as China entered the World Trade Organization in 2001. This policy has had reasonable success; in particular, it has encouraged significant infrastructural investment in China’s western provinces. However, though it may have slowed down the rate of increasing inequality between east and west, the pattern has continued throughout this time, leaving those in the west relatively poorer than they ever have been.

Getting Rich First?

ValeStock / Shutterstock.com

Within any one region, individual income inequality is also now evident. Economic development tends to lead to income inequality in every society and China has been no exception. In June 2012 it was reported that the number of dollar-millionaires in China had reached 1.4 million, while the number of billionaires has been placed at between 100 and 600, second only to the US; at the same time there are still 400 million Chinese who live on less than $2 a day, and around 172 million on less than $1.25. Many workers have seen great returns on their education and skill levels; those with higher levels of education, experience, and skills were rewarded with increased incomes. Some were well positioned during privatizations, having party and other connections which allowed them to win contracts or acquire state assets at significantly reduced prices. Studies show that CCP membership is positively correlated with income. A report in 2009 said that around 90% of China’s billionaires are so-called “princelings”, the sons or daughters of leading Communist Party cadres. China does, however, have a long history of entrepreneurship and many Chinese have embraced this tradition. Some were just plain lucky, had a good idea, or were in the right place at the right time. Zhang Yin, for example, rose from humble roots to become China’s first female billionaire. She earned her fortune by buying scrap paper from the US, importing it to China where she turned it into cardboard before selling it back to US manufacturers.

Gender Inequality

project1photography / Shutterstock.com While one can point to stories of women such as Zhang Yin as examples of the relative freedoms and opportunities offered to Chinese women, nevertheless there remain real income differences between the sexes even within the same geographical area. Though Mao declared, “women hold up half the sky,” meaning that women were to be freed from the subordinated expectations of dynastic China, and to work as equals with men, this is seen by many not as demonstrative of his opinions surrounding gender equality, but rather his obsession with increasing the Chinese labor force. The male communist worker was still, on average, better compensated than his female compatriot. Yet the income-earning opportunities of women in the Mao era were unimaginably better than those of their ancestors, many of whom were confined to the house, teetering on 3 inch feet. Today, the pay gap between male and female workers shows no signs of decreasing. This is by no means confined to the elder generation; female graduates earn on average 13% less than their male contemporaries. Still, opportunities for women in China are often strong when compared with those of many other countries. For instance, 19% of Chinese companies employ female CEOs, compared with 9% and 5% in the EU and North American markets respectively.

Ethnic Inequality

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Another group that has consistently been at China’s lower income levels is China’s ethnic minorities. Part of this inequality may be caused by the fact that most Chinese minorities live in the western fringes of the country which often suffer from water scarcity, short growing seasons, and difficult access to transportation systems and international markets. The minority populations living in these areas often suffer from lower wages and living standards than those who have made their way to the east and the gap between Han and ethnic minorities can, to some extent, be explained in these geographical terms. Still, it is also true that the average Chinese ethnic minority suffers at least some discrimination regardless of where location, and often does not have the same opportunities as the average Han Chinese.

Inequality at what cost?

China has tolerated its growing inequality in order to achieve the rapid rates of economic growth that is has experienced since the 1980s. The CCP’s fear is that once economic growth starts to slow, which grows more likely given the continuing financial and economic challenges of the west, then the unequal distribution of wealth at various levels will cause major social unrest. The Tiananmen Square incident of June 1989 was partly caused by high levels of income inequality and in reaction to high levels of inflation that were squeezing the living standards of the poorest in China. Beijing is wary of the possibility of the reoccurrence of such an event, especially given the recent events taking place in the Middle East in what has come to be known as the ‘Arab Spring’, itself partly driven by dissatisfaction with levels of inequality. Additionally, as the poorest provinces in China are generally those with the highest percentage of ethnic minorities, China fears that their social unrest may exacerbate feelings of resentment towards Beijing and stoke ethnic tensions within society. Violence directed towards Han Chinese has already occurred in several parts of Chin, notably among the Uyghurs of Xinjiang, the Tibetans in Lhasa, and the Hui in Henan.

Chinese intellectuals today debate whether economic growth at all costs should be tolerated. Many propose a more “socialist” or European model of social development, where the state shares some of the responsibility for ensuring that all its citizens reach a basic level of economic prosperity. This prosperity would be significantly aided by the re-creation of China’s health and pension systems, which were often commune-based and largely dismantled when China privatized many of its state-owned industries. Developing its national healthcare and pension systems would also help China shift its economy from being largely export driven to being one that relies on much greater domestic demand. Currently, the average Chinese citizen saves aggressively in anticipation of future healthcare and pension costs that will need to be self-funded. A first attempt at providing a very basic social security was launched in 1999 with China’s creation of the Minimum Living Standard Guarantee Scheme (Dibao) designed to aid those most in need in the form of a very basic welfare package. The income limit for becoming eligible to this however is incredibly low. In urban areas, the average level is just over 200 RMB ($30) per month, while for rural areas it is below 100 RMB ($15) per month.

Future Trends

The persistence of inequality in China today is a thorn in the side of the CCP. Having largely moved away from its communist ideological base, the CCP’s legitimacy is largely based on nationalism and the promise of economic prosperity. China is faced with the double challenge of not only ensuring that its economy continues to grow, but of trying to see that its wealth is shared out as equally as possible. The potential for friction in society – and the threat that might pose to the CCP – is implicitly acknowledged in Hu Jintao’s drive for a ‘harmonious society’, the principle tenet of his ideological musings. It is important to note that despite the rise in relative inequality, the absolute living standards for almost every single Chinese person have increased since the economic reforms were implemented. Since the reform era began, China has lifted around 400 million people out of absolute poverty, an achievement unmatched anywhere in the world and throughout human history. This should not be underestimated even as the problem of relative wealth disparity is, correctly, addressed as a pressing issue.

It is of course impossible for any nation to be completely equal and most developed countries have their own problems with unequal distribution of wealth. China, with its vast size, enormous population, and varied geography, will always struggle with inequality. Inequality persists throughout China. While it is true that the west is poorer than the east, there are pockets of abject poverty even in the richest provinces and rich parts in the poorest areas. From the Communist Party’s perspective, its key task is to prevent income inequality from rising to such levels that widespread social unrest threatens its control of power. As China’s wealth grows, and as it invests large parts of its enormous surplus within its own borders, more government initiatives are expected to be designed to develop the prosperity of provinces and sectors of society that lag behind the rest. Nevertheless, in the short term, income inequality will continue to increase as China’s rapid economic development lifts its population from poverty at varying rates. The mammoth task for the CCP will be to ensure that inequality doesn’t rise at a faster rate than GDP growth. While the living standards of the majority are being raised it is likely that increases in inequality will not prove perilous for the authority of the CCP, especially as much of this inequality is between areas that are thousands of miles apart. The next 30 years will prove very difficult for China to maintain the balance between consistent economic growth and raising the living standards of those at the very bottom of the income ladder, although this can be managed as long as China continues to move towards a domestic demand-led, and not export-driven, economy.

Water in China: A Thirsty Country

Introduction

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China faces severe water shortages. Its current water per capita is one quarter of the world average, yet its overall per capita usage is still low by international standards but this will increase over the coming decades. The water that China does have is often badly polluted and is inefficiently used. Moreover, China’s water is unequally distributed with the Yangtze River basin and areas to the south enjoying 80% of China’s naturally available water compared with just 20% in China’s north.

China’s water scarcity will challenge its future economic expansion. Already, agriculture, industry and China’s growing cities all compete for scarce water resources, as do China’s different regions. Decades-old economic priorities such as food self-sufficiency will be increasingly difficult to maintain because water used in industrial output creates more economic value than it does in agriculture. Water scarcity could also test China’s political 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.

Population, Ecology and Water Scarcity

Right from China’s earliest dynasties great attention was paid to agricultural productivity. The Chinese bureaucracy mobilized the Chinese masses to construct irrigation systems and to clear land. This created a feedback loop, where increased agricultural productivity led to a rise in population, requiring further hydro-engineering and agricultural innovation to maintain China’s swelling numbers. In this way, China has remained the world’s most populous country for thousands of years. Yet, until the 1978 market reforms, China remained a largely agrarian society. China never achieved sufficient per capita economic growth to drive down a natural reduction in the country’s birth rate. Instead, large families of many sons offered rural parents security both in terms of providing labor for farming and care in old age. After the establishment of the People’s Republic of China in 1949, peace and improvements in nutrition, sanitation and healthcare saw Chinese mortality rates plummet. Moreover, until 1970, Mao Zedong encouraged population growth. As a result, China’s population doubled in less than thirty years from approximately 550 million in 1950 to a little over 1 billion in 1982. China’s population stands at 1.35 billion today, and is expected to peak at between 1.4 and 1.5 billion by 2030.

Impact on the Hydrological Cycle

In order to feed its enormous population, since the 1950s, China has increased efforts to create new agricultural and grazing land through the clearing of forests, the filling of lakes, the draining of swamps and wetlands, and the creation of large irrigation projects. This process has impacted China’s hydrological cycle. When land is cleared of plant life through unsustainable farming and grazing methods, the local hydrological cycle is disrupted, and desiccation – the drying out of the environment – occurs. Instead of catching precipitation which then permeates the soil, areas that are deforested, over-grazed and over-farmed allow surface water to run immediately into streams, instead of returning repeatedly to the region as rain through the process of evapotranspiration. China’s areas of desert or deforested land have increased significantly since the 1950s. Today approximately 27%, around 2.5 million km², of China’s land is desert or suffering desertification, although China’s deserts have begun to shrink since 2005 due to a massive reforestation campaign launched by the government. In the north and northwest of China, it has been estimated that the average annual precipitation has decreased by one third between the 1950s and the 1980s; overall China has 350 billion m³ less water than it had at the start of the century, equivalent to the amount of water that flows through the mouth of the Mississippi River in nine months. Desertification and deforestation have also caused sediment levels to significantly increase in all of China’s river systems due to severe soil erosion. Soil erosion has forced Chinese peasants to constantly seek new, often less suitable, land for farming and animal husbandry, in what has become an environmentally destructive feedback cycle.

Water Scarcity

As China’s population has swelled over the millennia, its per capita water has decreased. China now has an estimated 2,029 m3 of water per capita per annum, one quarter the world’s average. This per capita water figure is expected to decline further as China’s population peaks. This water scarcity is exacerbated by China’s uneven water distribution. China’s precipitation patterns are heavily affected by the East Asian monsoonal climate. Its mountainous geography drains the monsoonal rains as they move from the southeast into the northwest of the continent. In 2000, for instance, southern China, the Yangtze River basin and areas to its south, received approximately 80% of China’s naturally available water, yet the areas supported 54% of its population, 35% of its arable land, and 55% of its GDP. Northern China collected only 20% of China’s water to maintain 46% of the population, 65% of the arable land and 45% of its GDP. In some northern areas, strains on water resources are even worse. Beijing’s and Tianjin’s Hai River basin, for instance, receives approximately 1.5% of China’s water to support 10% of its population and 11% of its arable land.

Approximately 400 of China’s cities currently face water shortages, and over 300 million people drink water contaminated with pollutants including arsenic, excessive fluoride, toxins from untreated factory wastewater, agricultural chemicals, leaching landfill waste and human sewage. Moreover, China’s per capita water footprint is growing. China will not only have more people competing for its finite water resources in the coming decades, but each person will individually demand more water. Today, China’s overall water footprint per capita is still about half that of the US, but 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. China’s rising wealth has meant, for instance, that its citizens are eating substantially more meat. The production of one kilogram of beef requires 600 liters of water compared with the 100 liters required for a kilogram of wheat. This shift in diet can be seen in China’s food footprint numbers. In 1961, China used 260 m³ of water per capita to grow food; by 2003 this figure had more than trebled to 860 m³.

Agricultural, Urbanization, Industrialization, Water Wastage

Currently, 62% of China’s water is used for agriculture, a sector which is responsible for approximately 13% of the country’s GDP. In the agricultural sector, demand for water for irrigation is currently about 400 billion m³, but this is projected to reach 665 billion m³ by 2030. Yet agriculture water usage is extremely unproductive, with 45% of agricultural water lost before it even reaches crops. Water used for industrial output is 70 times more productive in terms of financial value than that used in wheat production. As water becomes increasingly scarce, the agricultural sector risks losing water resources to industrial production, especially if China increases the price of water to better reflect its true scarcity.

China’s growing urbanization is also requiring more water per capita. 70% of Chinese citizens are projected to be living in cities by 2030, up from 51% today. This is significant because urban dwellers consume three times as much water and energy as rural residents. Between 2000 and 2010, for instance, the World Bank estimated that China’s urban water consumption increased by 60%. Moreover, it is estimated that 25% of China’s future electricity growth needed to power its cities will be generated by coal plants. Coal mining, processing, combustion and coal-to-chemical industries are responsible for 22% of the nation’s total water consumption, second only to agriculture. By 2020, the coal sector is expected to consume about 27% of China’s total water. Moreover, China’s urban water distribution networks are particularly leaky. These leaks equal 18% of total urban water supplies on average, or about 1.5% of China’s total water withdrawals.

Overall, the industrial sector uses 23% of China’s water. China’s major industrial water ValeStock / Shutterstock.com users are the metallurgy, timber processing, paper and pulp, petroleum and chemical industries. Water productivity in Chinese industry is also low by international standards. Only 40% of its industrially-used water is recycled, compared with up to 85% in developed countries. Indeed, China’s overall water productivity is poor, estimated to be $3.60 per m³, lower than the average of $4.80 per m³ for middle-income countries, and $35.80 per m³ for high-income countries. The one positive aspect of all of this inefficiency is that there is ample room for improvement with relatively simple measures.

Depletion of Aquifers and Lakes

Extensive irrigation has always been essential to China’s agricultural productivity. Indeed, massive irrigation works built during the Maoist era enabled food production to keep pace with the rapid population growth of the time. China draws on both its rivers and large underground aquifers to irrigate its crops. Irrigated land produces nearly 75% of China’s cereals and more than 90% of its cotton, fruits, vegetables and other agricultural commodities on around half of the farmlands throughout the country. Yet, 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. Nationally, groundwater usage has almost doubled since 1970, and now accounts for 20% of China’s total water usage.

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. 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 which increases the risk of both saltwater and arsenic intruding into the water supply, as well as increasing the likelihood of land subsidence. With aquifers and rivers suffering from overuse, lakes are also diminishing. The province of Hebei has already lost a staggering 969 of its 1052 lakes.

Water Pollution

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. An estimated 70% of China’s rivers and lakes are now polluted. In 2009, 57% of the 7 monitored river basins had pollution levels of I-III, suitable for drinking, swimming, household use, and able to support aquatic life. 24% of China’s rivers had levels of IV-V, water unfit for swimming, but suitable for industrial purpose. 19% had V+, meaning that the water is considered useless, unfit for industry or agriculture and unsafe for human contact even after treatment. 23% of China’s key lakes and reservoirs had water grades of I-III, 42% IV-V and 35% V+. 2.3% of groundwater in 8 regions was rated I-II, 23.9% was graded III, and 73.8% ranked IV-V.

Only a year later (2010), party officials outlined their goals for the future in the 12th Five Year Plan, which aimed for 60% of water between grades I and III, with no more than 15% in the Grade V and V+ categories. As of 2013, 44.3% of the water in the Songhua River Basin was classified as Grade IV and below. In the Huai River and Hai River Basins, 40.4% and 60.9% of all water fell into the Grade IV or worse category, respectively. Though these numbers are still relatively high, they are on track with China’s goals set forth in the 12th Five Year Plan.

Township and village industrial enterprises, in particular, often do not treat their waste water. These small-scale enterprises have little environmental monitoring and are frequently engaged in all manner of heavily polluting production, such as the operation of paper mills, tanneries and breweries. Similarly, townships and villages often inadequately treat their domestic waste. About 80% of China’s 7500 most polluting factories are located on rivers, lakes, or in heavily populated areas. These factories frequently release untreated waste and chemicals into China’s waters either intentionally or by accident. A recent example was the 2012 cadmium spill in Guangxi which polluted an approximately 100 km stretch of the Longjiang River at a level of more than five times the official limit, contaminating water supplies for Liuzhou, a city of 3.2 million people. Cadmium is poisonous and can cause cancer. The same factories also release dangerous airborne pollutants that are absorbed into groundwater or contaminate rivers by way of urban runoff. Some of the most harmful are categorized as polycyclic aromatic hydrocarbons (PAHs), and an estimated 90% of water located in sources near Chinese cities is now dangerously polluted because of their presence.

Rural areas have also seen an increase in water pollution due to chemical pesticides and fertilizers seeping into groundwater sites. For millennia, China’s farmers produced agriculture through “organic” farming methods. Farmers collected every bit of organic waste to ferment for fertilizer. Nothing was wasted, and even human waste, or “night soil”, went into “honey buckets” to transport to the fields. Every winter and spring farmers dredged nearby rivers and canals to add sediment to the fertilizer. Particularly in the south, dense grass at the water’s edge was added to pig fodder, which, after being digested by the pigs, produced manure and helped keep the rivers and lakes clear from vegetation. The entire process of recycling was labor-intensive but efficient. The rivers and lakes remained relatively clean despite thousands of years of intensive farming.

Yet, since 1978, fertilizer applications in China have increased fivefold. In general, animal and human feces are no longer collected for fertilizer, and instead are discharged untreated into rivers. Chemical fertilizer runoff has significantly accelerated eutrophication of many of China’s lakes such as Dian Chi in Yunnan Province, Chao Hu in Anhui Province and Tai Hu in Hubei Province where algae blooms absorb a significant portion of the lake’s oxygen, choking off fish and other aquatic life. Large algae blooms also broke out right before the 2008 Olympics, forcing Beijing to launch a massive emergency clean-up to ensure the sailing events could go ahead as scheduled in Qingdao, in Shandong.

Economic and Health Cost

The World Bank estimated that China’s water crisis is reducing China’s GDP by pcruciatti / Shutterstock.com approximately 2.3% annually, with 1.3% attributable to water scarcity, and the other 1% caused by the cost of water pollution. These estimates do not include the costs of ecological deterioration caused from the drying up of lakes and rivers and from eutrophication. Nor do they reflect the economic cost of disease caused by water pollution, conservatively estimated at an additional 0.5% of GDP. In 2002, the WHO reported mortality from water-borne diarrhea-related illness in China at 108.4 per 100,000, compared with 11 per 100,000 in Vietnam and 5 per 100,000 in Thailand. In 2007, the OECD estimated that 30,000 rural children die each year from diarrhea because of water pollution. In China’s most polluted areas, water has also been blamed for the recent high rates of various health abnormalities including liver and stomach cancer, stunted growth, miscarriages and birth defects.

Regional and national food supply has also suffered due to water pollution. A study in Xingang Village in Jiangsu Province showed that rice yield dropped 77% from 9,750 kg per hectare to about 2,250 kg per hectare. The remaining crop is also of dubious quality, often showing signs of heavy metal leaching from polluted local water. In 2011, it was estimated that up to 10% of China’s rice crop might contain unsafe or nearly unsafe levels of cadmium as a result of widespread irrigation with cadmium-poisoned water.

China has also seen a stunning rise in cancer rates, often localized to certain villages located near areas of heavy industrial activity, where the air and water are both extremely polluted. These villages have become colloquially known as Aizheng Cun, which literally translates as “Cancer Village.” In 2010, the annual death rate for Chinese citizens as a result of blood, bone, breast, liver, and lung cancers was estimated to be 1.2 million lives lost per year. By 2014, that figure doubled with The Lancet Oncology estimating that 2.4 million premature deaths in China as a result of various cancers.

Sanitation also remains a key issue with regard to China’s water supply. In 2008, 327 million Chinese did not have direct plumbing access to drinking water and 535 million were without properly sanitized water. This led to an estimated 62,800 deaths, mostly affecting young children. By 2011, the number of people lacking proper sanitation decreased to 471 million, but the number of Chinese lacking piped-in drinking water increased to 401 million. This sanitation improvement comes on the heels of annual US$10.8 billion government-driven investments from 2006-2010 in domestic sanitation. Water-borne disease, however, is still a major economic drain for China, costing around US$11 billion annually.

Flooding – Yellow River and Yangtze River

Not only are desertification and deforestation exacerbating China’s water scarcity, they are also aggravating China’s flooding challenges. The Chinese Minister of Water Resources, Chen Lei estimated in 2007 that China has lost 2% of national GDP annually to flooding since 1990, and a recent study placed the total costs of floods from 2000 to 2012 at 105 billion RMB annually (US $17 billion). Flooding has challenged Chinese rulers for millennia. From 602 BCE to 1938 AD it is estimated that major collapses of Yellow River dikes occurred once every two or three years. Then, every hundred years or so, the river would change its course. Many of the resulting floods were some of the deadliest natural disasters ever recorded. For millennia the Chinese constructed dikes along the lower reaches of the Yellow River trying to contain its torrents, yet constant ecological destruction along the upper reaches increased erosion which intensified river silting. The silting raised the river bed above the countryside. This “suspended” river greatly increased flood damage when the river inevitably breached its dykes. After 1949, the CCP built almost 3000 dams on the Yellow River, and heavily reinforced its levees and embankments. These hydro-engineering projects involved the equivalent of 500 million workdays and 1.4 billion m³ of reinforced concrete – enough to build 13 Great Walls. Yet many of the Yellow River’s dams have fallen short of physical and economic targets, and have resulted in huge losses of forest lands, wildlife habitat and aquatic biodiversity. Global warming has also increased evaporation at many of the dam sites.

Similarly, parts of the Yangtze River have flooded continually for millennia. Yet, as deforestation and reclamation of land has increased, floods have become more frequent and more destructive. The CCP attempted to solve the flooding by increasing the height of 3600km of embankments and more than 30,000km of levies. The work required more than 4 billion m³ of dirt and stone, or enough material to put a wall around the globe three times. Yet these raised structures could not offset the loss of water absorption capacity caused by the rapid deforestation and agricultural land reclamation that occurred during the same period. As a result, the Yangtze experienced a series of significant floods in 1980, 1981, 1983, 1991 and 1996. Then in June 1998, China suffered one of its worst floods in 40 years, leaving 3,700 people dead, 15 million homeless and causing $26 billion of economic damages. The reinforced embankments and levees proved largely ineffective, with approximately 9,000 of them collapsing. As well as providing hydropower and improved navigation, the controversial Three Gorges Dam was built in large part to control the Yangtze’s flooding, although many scientists believe that the Yangtze is still vulnerable. Additionally, after the 1998 flood, China began to place greater importance on the role of ecology in flood prevention, and has begun an extensive campaign of reforestation and forest preservation.

Drought

Because of the variability of the monsoonal rains, like flooding, drought has plagued the country for millennia. Yet desiccation in many areas has significantly increased China’s drought challenges. Overall, droughts have become more severe, prolonged and frequent during the past 57 years, especially for northeastern and central China. China has been essentially self-sufficient in grain for decades. This self-sufficiency camouflages the fact that China produces one-sixth of the world’s wheat output and one-fifth of global corn. China is thus enormously important to the world’s food supply. If drought forces China to import large quantities of food, it significantly impacts world food prices. Yet, in every year since 2005, drought placed China’s grain crops at risk, and the government was forced to spend billions of dollars digging wells and cloud seeding to encourage rain. Most recently, in 2010-2011, northern China suffered its worst drought in 60 years, impacting most of China’s wheat producing regions. At its peak, it is estimated that 36% of China’s northern wheat fields were affected, and that 2.57 million people and 2.79 million livestock suffered from a lack of water. The water shortages also affected around 161 million people, with an economic cost estimated at $2.8 billion.

Drought has not been restricted to China’s drier north. In western Sichuan, for example, rapid deforestation caused Sichuan’s forest cover to fall from 3.6 million hectares in in 1985 to 2.34 million hectares in 1995. In the 1950s, serious droughts hit Sichuan about once every three years. In the 1960s, this became once every two years and by the 1980s, drought troubled Sichuan counties annually. In 2010, more than 20 million people in Yunnan, Guangxi, Guizhou, Sichuan and Chongqing were left without adequate drinking water and a 2011 Sichuan drought affected almost 8 million people.

Guangxi provides another of the many examples throughout the country where drought conditions have worsened in recent decades. Historians have written that from 1618-1943, major droughts hit the region once every 33 years. From 1946 to 1972, the interval fell to every six years, and in the 1980s, it fell to every two years. There were four major droughts in the three-year period from 1989 to 1991. Since 2000, drought has plagued Guangxi annually. In 2004, for instance, 1100 Guangxi reservoirs went dry, and hydropower generation was cut dramatically. In 2007, one million residents in Guangxi and 250,000 in Guangdong faced water shortages during the worst regional drought in more than 50 years. In 2009, Guangxi, which produces 60% of China’s sugar cane, had a 10% drop in its production due to drought conditions. In 2010, 12 of the 14 cities in Guangxi were affected by water shortages.

Climate Change

How climate change will impact China’s water scarcity is still being studied. However, global warming is having an undeniable effect on the Qinghai-Tibetan Plateau, which is the source of both the Yangtze and Yellow Rivers. An estimated 80% of Tibet’s 46,377 glaciers are now melting more quickly than originally thought, at an average rate of 7% per year. Himalayan glaciers release water steadily throughout the year, most critically during the hot, dry sunny periods when water downstream is most needed. Complete disappearance of the glaciers could eventually cause China’s Yellow River to flow only during the rainy season. Greater melting rates could also increase short-term runoff from the plateau, worsening soil erosion which in turn could lead to greater desertification. Already, recent glacial retreat and desiccation has impacted the local ecosystem. Over a third of the Tibetan grasslands has transformed into semi-desert conditions, which has forced approximately 700,000 Tibetan nomads to abandon animal husbandry. Global warming also seems to be aggravating the evaporation of Qinghai-Tibetan lakes and wetlands.

Power Outages and Reduced River Navigability

China’s water scarcity has also resulted in lower water levels of many of China’s major river systems. For instance, Chinese researchers have discovered that the volume of water entering the Yangtze River at its source on the Tibetan plateau has dropped by 15% over the last four decades. Persistent low levels in China’s rivers mean that the country will be challenged by power outages due to inadequate flow through its hydropower dams. Hydropower accounts for approximately 22% of China’s total installed capacity. It is estimated that the lack of water to run hydropower dams has cut hydroelectric power production by 20% and China may be forced to burn 1 million more metric tons of coal a week to cover the shortfall.

Low levels of water also mean that parts of China’s rivers will continue to become periodically unnavigable, disrupting inland shipping routes. In May 2011, the water level of the Yangtze was so low that officials closed a section of the river from Wuhan to Yueyang. More than 60% of goods transported on inland rivers in China travel down the Yangtze, with shipping volumes at 910 million tons in 2010.

Trends

Serious water scarcity looms in China’s future. This scarcity is likely to increase conflict and competition between regions, sectors of the economy and between urban and rural residents. It will also raise tensions between the government and parts of society that lack access to adequate, clean water sources. Moreover, the Qinghai-Tibetan Plateau is a source of rivers that reach India, Bangladesh, Burma, Bhutan, Nepal, Cambodia, Pakistan, Laos, Thailand and Vietnam. China’s damming, polluting, and use of international rivers is likely to increase tensions with these countries. Many of these countries, especially India, are already facing their own severe water crisis, which will only be exacerbated if China diverts river water that needs to be shared internationally. Additionally, China’s rapid industrialization and poor waste treatment systems now threatens to export China’s pollution and water-borne disease to its neighbors downstream. Political relations could be further stressed if water shortages cause mass migrations of people. In fact, some analysts suggest that the so-called “oil wars” of the 20th century could be replaced by “water wars” in the 21st. China’s food supply is increasingly vulnerable to water shortages. In the future, it is likely that China will need to turn to global food sources to meet its future nutritional needs. This in turn will increase food prices around the world.

China’s immediate water solution is to use water more conservatively, and to improve pollution control. Historically, China has solved growing water demands through the construction of massive hydro-engineering projects such as theThree Gorges Dam and the South-North Water Diversion Project. In the future, China will increasingly need to solve its water deficit through ecological conservation, pollution management, more efficient water usage, and a redistribution of economic output by raising the price of water to reflect its scarcity and true economic value.

China’s Geography: The Physical Story

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.

Agriculture and Food Security: A Long-Term Priority

Introduction

Ensuring food security in China has been both a priority and a challenge for Chinese leaders throughout the ages. With China currently supporting 20% of the world’s population on approximately 10% of the world’s arable land, today is no exception. Historically, China has met its food needs through a policy of agricultural self-sufficiency. China continues this policy of grain independence today. This policy of grain self-reliance is driven in part because China’s leaders continue to distrust the intentions of other nations, particularly as China’s rising power status threatens to disrupt the existing international order. Drawing lessons from history, today’s leadership believes it is better not to risk being vulnerable to food markets outside of its control, or to chance having food be used as a weapon against it.

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 12th Five Year Plan (2011-2015) recognizes these challenges. Investing in hybrid seed research, repairing irrigation infrastructure, reclaiming rural land that has been lost to environmental degradation, and improving land contract law 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. What China’s 12th Five Year Plan does not discuss is its growing agricultural footprint in Africa. To date, China has developed agricultural aid projects in more than 40 African countries and recently large Chinese agricultural companies have been employed to help sustain Sino-African agricultural aid initiatives.

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 under-price 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 began to move farmers into communes in 1958 in order 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. Surplus farm labor could be redeployed into the rural and urban industrial sectors. Healthcare and education for the rural citizens could be more easily delivered. 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 similar to population growth, meaning that average grain output per capita was little change 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.

However, these numbers 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 particular 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. This entrapment of Chinese villagers 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 (jiating lianchan chengbao zerenzhi), where the government leased agricultural land to households. The government then raised the prices that farmers would receive for any farm output they produced above mandatory quota deliveries, by 41% for grain and by around 50% for cash crops. 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 501.5 million tons in 2007. This growth reflected a significant rise in crop yields as grain sown area decreased from 120.6 million hectares in 1978 to 101.6 million in 2004. Additionally, agricultural output became significantly more diversified as farmers 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, and orchards now cover over 5% of China’s farmed area, double the share of any other major agricultural nation. Grain prices also fell in real terms. Between the late 1970s, 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. Households also began to consume a more varied diet adding meat, poultry, fish, eggs and dairy produce. China now produces in excess of 3,000 calories per capita per day. Moreover, 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. The majority of 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.

Maintaining Grain Yields in the Future

Throughout this period of reform, China maintained its policy of grain independence, never importing more than 5% of its grain needs. Maintaining this independence in the future, however, will become increasingly difficult. With 20% of the world’s population on approximately 10% of its arable land, China does not have a comparative advantage in land intensive products, such as grain. Furthermore, the amount of China’s arable land is continuing to shrink due to rapid urbanization and environmental problems such as flooding, soil erosion and desertification. Moreover, China’s population will continue to rise until around 2030. It is estimated that by 2050, the total demand for arable land will outstrip supply by more than 12%.

Additionally, 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. 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. 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 resources of 2304 m³ per capita are less than one third of the world average. 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 is projected to reach 665 billion 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. Additionally, with the reversion to family 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. This remains a problem today and increasing water charges is an essential part of dealing with China’s water shortages.

Currently, 62% of China’s water is used for agriculture, a sector which is responsible for approximately 13% of the country’s GDP. Yet agriculture water usage is extremely unproductive, with 45% of agricultural water lost before it even reaches crops. Water used for industrial output is 70 times more productive in terms of financial value than that used in wheat production. As water becomes increasingly scarce, the agricultural sector risks losing water resources to industrial production, especially if China increases the price of water to better reflect its true scarcity.

Extensive irrigation has always been essential to China’s agricultural productivity. Indeed, massive irrigation works built during the Maoist era enabled food production to keep pace with the rapid population growth of the time. China draws on both its rivers and large underground aquifers to irrigate its crops. Irrigated land produces nearly 75% of China’s cereals and more than 90% of its cotton, fruits, vegetables and other agricultural commodities on around half of the farmlands throughout the country. Yet, 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. Nationally, groundwater usage has almost doubled since 1970, and now accounts for 20% of China’s total water usage.

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. 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 which increases the risk of both saltwater and arsenic intruding into the water supply, as well as increasing the likelihood of land subsidence. With aquifers and rivers suffering from overuse, lakes are also diminishing. The province of Hebei has already lost a staggering 969 of its 1052 lakes.

Future yield growth will also be hampered by the small area plowed by each farmer, averaging less than a hectare. While de-collectivization initially led to a surge in output growth, the segmentation of large communal plots will hamper growth in grain yields in the future. Small farm sizes restrict growth by preventing farmers from capturing economies of scale that could be derived from greater mechanization, the more efficient dissemination of new seed technologies and the improved maintenance of irrigation structures. It has been estimated that improving fragmentation could increase grain output by as much as 70 million tons annually.

The fact that farmers lease – as opposed to own – their land has also worked to constrain grain yield by discouraging long-term investment. While lease times have extended to between 30 and 50 years, many villages continue to be awarded comparatively short lease contracts of 5 to 10 years. The reality is that China’s land rights are complicated and quickly changing. China recently passed the Rural Land Contract Law which took effect in 2003. 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. Working against government efforts to improve plot size is the belief by some 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. In the five years following the implementation of the law more than 50,000 land disputes were raised and the government responded with a new draft law in 2009, though this was never passed.

Despite these challenges, grain independence remains one of the primary goals of China’s agriculture policy. In China’s 12th Five Year Plan released in March 2011, the government states that it expects grain production capacity to remain over 540 million tons per annum, and that overall, it seeks to increase grain production by 50 million tons by 2015. To produce more grain than economic efficiency dictates, China will need to invest in agricultural infrastructure, seed research, and organic fertilizers. It will need to provide greater agricultural credit availability, increase plot size, and improve water management.

GuoZhongHua / Shutterstock.comUltimately, as China continues to develop, the priority of its agricultural policy should be less grain self-reliance and more the continued transformation from an agricultural based economy to one that is industry and service based. To join the ranks of the developed world, China will need to promote policies that continue this structural change. Already, agriculture’s share of GDP has fallen from 40% in 1970 to under 10% in 2008. Going forward, China’s real challenge will be whether it can release large numbers of families to live and work in urban areas, leaving a smaller number of farming families that control sufficient land and other resources to make a decent living from farming. It will need to provide these remaining farmers with enough income to invest in their children’s human capital, thus raising their capacity to respond to future economic opportunities within and beyond the farm sector.

Additionally, China will need to better integrate into the economy those workers released from the agricultural sector. Figures from the 2010 census put temporary migrants – that is, those living more than one municipality away from their registered home for a period of more than six weeks – at almost 250 million, or nearly 19% of the overall population. These temporary migrants are projected to grow to 400 million by 2025. Despite the significant increase in rural migrant workers to urban areas, there are still fundamental barriers that discourage permanent migration of individuals and families from rural to urban environments, the most important of which is the hukou resident registration system. Without official residence papers, migrants have poor access to housing, health facilities, and education for their children. It is not uncommon for migrants to work long hours in poor safety conditions and for little pay.

China’s Growing Presence in African Agriculture

 

Increasingly, China’s agricultural policies no longer revolve around just its domestic market. In particular, its agricultural footprint in Africa is growing. According to research conducted by Deborah Brautigam, China has developed agricultural aid projects in more than 40 African countries. Historically, these aid projects were characterized by “quick starting, quick results and quick decline”. Between 1965 and 1986, approximately 50% of Chinese African rural development projects failed. This low success rate has driven Beijing to find ways to make its African agricultural aid projects more sustainable. In particular, China is increasingly engaging Chinese agro-businesses as partners in its agricultural aid projects. In the 1980s, for instance, China began to experiment with trading African debt for equity and lease arrangements in former Chinese aid projects which it then passed to Chinese agricultural companies. By 2002, the Minister of Foreign Trade and Economic Co-operation was stating that Chinese agricultural investment in Africa should be “conducted by enterprises and should be market oriented”, supporting the 1990s policies of making Chinese agricultural investment mutually beneficially for both China and the African countries in which it invested. What this has meant in practice is that the government has increasingly brought in Chinese companies to sustain agricultural initiatives in Africa once these projects are up and running. This “mutual benefit” policy has the additional advantage of finding new markets for its agricultural technologies such as hybrid seeds, and of allowing its agricultural companies to gain international experience.

For their part, there is concern among some in Africa that China is developing agricultural projects so it can ship food to China at the expense of the African consumer. Evidence to date suggests, however, that most of the agricultural products produced on Sino-African agricultural initiatives are sold to local African markets. That said, increasing the overall global food supply is beneficial to China as that helps to reduce food prices for products that it does purchase in the international markets. Of course, this does not just benefit China as ever country that imports foods would welcome downward pressure on food prices. In the longer term, it may also help to create potential new food sources.

Future Trends

There will be four trends to watch for in the Chinese agricultural sector in the coming years. Firstly, China will make every effort to maintain or increase its agricultural yields through greater investment in agricultural research, improvement of agricultural irrigation networks, reclamation of land for agricultural use, and the support of contract land arrangements that provide both security as well as flexibility for farmers to trade their leasing rights. Secondly, China will also support growth in cash crops such as vegetables and fruits, animals, and aquatic products, including investing in fishing ports, fish farms and coastal harbor centers. Thirdly, China plans to heavily invest to improve the standard of living of those citizens remaining in rural areas, including increasing rural access to electricity, roads, quality housing, education, and healthcare. While not actively stating that there are immediate plans to overhaul the Chinese resident permit system, China’s 12th Five Year Plan does affirm that it will, “adapt to the new situation of the rural population migration”, tacit acknowledgement that the hukou system needs further reform. Finally, China’s presence in African agriculture will continue to expand. This expansion will take many forms, but underlying its growth will be the creation of new opportunities for China’s large agricultural companies.

What’s Holding the Chinese Consumer Back?

Introduction

Both Western and Chinese commentators have documented the real increase in Chineseshutterstock_113568136 living standards and consumption levels. Since market opening in 1978, GDP growth averaged 10.2%. Per capita income has risen from $400 in 1978 to $5,414 in 2011, the most recent year for which data is available. Per capita income is to exceed $8000 by 2020. Chinese citizens now have access to a wider range and a higher quality of consumer goods and services than ever before, and many now enjoy a better quality of life than they did during the Maoist era. Yet these benefits are far from equally distributed. The increasing marketization of the Chinese economy has had the consequence that Chinese citizens can no longer be as reliant on the Communist Party for education, healthcare and pensions. For the 400 million or so Chinese citizens who still earn $2 or less per day, this has meant that, in many ways, their life is less secure today than it was during the Mao era.

Since 1978, shifting levels of fixed investment (buildings, plant, machinery and infrastructure such as roads, railways systems, ports, etc), net export (export minus imports), government expenditure (social services, infrastructure) and domestic consumption (purchases by households) have driven China’s economy. Since 2001, China’s fixed investment has increased significantly. In 2011, China’s fixed investment rose to 48% GDP, while household consumption hovered at 35%, and savings remained close to 50% GDP. These figures are out of line with international norms. Generally, a country’s consumption comprises two thirds or more of GDP, and investment one third or less.

China is now increasingly recognizing the need to rebalance the economy. China’s 12th Five Year Plan has made boosting domestic consumption a priority. Indefinite high fixed investment rates puts an economy at risk in many ways. Each additional capital expenditure has an increasing chance of being wasteful because of the law of diminishing returns. Unneeded excess industrial capacity can undermine corporate profitability. High fixed investment can also be inflationary and risks creating asset bubbles. It also causes trade frictions as it depresses domestic import consumption and encourages exports.

China’s 12th Five Year Plan lays out a variety of economic tools to generate higher consumer spending, including improving the social welfare system, boosting wages, and increasing consumer goods imports. Increased outlay on social welfare is especially important as without more spending on education, healthcare, pensions and affordable housing, Chinese consumers will continue to save to provide for their future.

What Drives China’s Economy?

Interesting research by Andong Zhu and David Kotz has shown that since the 1978 launch of market reform, shifting levels of domestic consumption, fixed investment and export growth have driven China’s economy. Zhu and Kotz break these shifts into four time periods: 1978-1988, 1988-1991, 1991-2001 and 2001-2007. Between 1978-1988, domestic and government consumption were the strongest drivers of China’s economy, with household consumption accounting for roughly 50% of China’s GDP. Income inequality climbed. China’s Gini coefficient – a number between 0 and 1 where 0 corresponds with perfect equality and 1 corresponds with perfect inequality – worsened from approximately 0.29 in 1978 to 0.38 in 1988 (though it actually improved slightly immediately after the reforms of 1978 were introduced) .

Between 1988-1991, in an effort to control 18% inflation and the social discontent that was beginning to accompany it, Beijing temporarily cut government fixed investment spending. Household income grew more slowly as well, resulting in lower private consumption. Instead, average 7.1% GDP growth during this period was driven by government consumption and by an export surge. Exports increased 50% between 1988-1991, spurred in large part by the 1990 devaluation of the RMB.

shutterstock_41537107In 1992, Deng Xiaoping’s now famous southern tour cemented as the way forward the country’s experimentation with market reform. As a result, between 1991-2001 GDP growth averaged 10.3% and household income grew almost at pace, although rural income lagged, while urban income surged rapidly ahead. Overall, between 1991-2001, total private and public consumption accounted for 61.4% GDP and generated almost 85% GDP growth. An initial 1992-1993 surge in fixed investment of 30% caused the GDP growth rate to spike to 14.2%, but also rekindled inflation. As a result, Beijing reduce government fixed investment spending to 8.2% in 1994 and 6.3% in 1995. Yet, by 2001, fixed investment was back up to 34.7% GDP. Net exports played a relatively small role in economic growth between 1991-2001. While total exports reached 20.7% of GDP by 2001, imports also rose rapidly.

The 2001-2009 period saw China transition into the high fixed investment and export model that characterizes its economy today. After China’s 2001 entry into the WTO, exports grew at an average annual rate of 20.9% a year while imports increased at an average annual rate of 17.8%; by 2007, net exports accounted for 10.9% GDP. Between 2004 and 2009, China’s fixed investment accounted for approximately 41.2% GDP, while net exports were 8.6% GDP, government expenditure 14.7% GDP and private expenditure 35.5% GDP. The 2009 savings rate rose to 49.7% GDP. In 2011, China’s fixed investment increased further to 48% GDP, while household consumption hovered at 35%, and savings remained close to 50% GDP. These figures are out of line with international norms. Generally, a country’s consumption comprises two thirds or more of GDP, and investment one third or less.

An important factor that led to the high fixed investment was the privatization of many state-owned enterprises (SOE) starting in 1996. This resulted in SOEs shedding of approximately 50 million jobs, and handing back to the government their “iron bowl” responsibility of providing social services such as housing, healthcare, education and pensions for their workers. As a result, SOE profitability rose rapidly. SOEs put their profits into fixed investment. Rapid economic growth was a key political and therefore managerial objective. Low borrowing costs and minimal dividend payments supported the high fixed investment rate. In 2010, SOEs still distributed just 5-15% of profits. The government also directed their spending toward huge infrastructure projects, and less so to provision of social services.

The large unemployment caused by SOE privatization corresponded with a simultaneous expansion of the Chinese workforce. During the 1980s, China’s working age population increased 2.5% annually; coupled with high rural-to-urban migration, this has meant that since 1980, China’s overall urban labor force grew 4% annually. Work force productivity rose by over 9% annually. Production that had needed 100 people in 1990 required less than 20 people in 2009. The millions of newly unemployed, the labor force growth and rural-to-urban migration all have worked to push wages down. At the same time, the cost to households of housing, healthcare, education and pensions increased. Rising costs coupled with lower wages and greater economic uncertainty caused the Chinese savings rate to rise rapidly as Chinese consumers began saving for retirement, housing and medical expenses. Additionally, total taxes on labor income rose by 2.5% GDP, partly due to higher income tax payments, but mostly reflecting mandatory contributions to new pay-as-you-go pension system managed by the government sector that is being phased in across the country. Household interest payments also rose to about 1% GDP, as increased home ownership has led to an associated rise in mortgage related debt. High savings rates also reflected credit constraints and a greater incentive to save for business opportunities. Savings rate have also remained high as most of it large pool of depositors have no other place to rest their money.

Yet return on savings has remained low. Interest payments paid to these household savers have remained capped by the government, and have often been eroded because of inflation rates above the rate of interest. Households have thus not earned much interest income to supplement wages. Moreover, government capital controls and the lack of other investment and savings vehicles has meant that depositors have had few choices other than deposits in which to store their hard-earned money until enough accumulates so that they can purchase an investment asset such as a house or a car. By capping interests rates paid to depositors the government in effect has been quelling household consumption in favor of producers, many of which are state owned and benefit from the large savings rate by being able to access cheap loans. As a consequence, Chinese banks enjoy enormous reserves of cheap deposits. Moreover, by keeping is currency devalued, imports remain expensive and exports stay cheap, thereby discouraging the consumption of foreign goods, and encouraging the production of exports for foreign customers.

Government savings also increased during this period. Government revenue consistently exceeded government noninvestment expenditure. High government saving reflected a policy favoring government financed investment over government consumption. In large part, freedom from democratic pressures has enabled the Beijing to take a long-run view about the nature of its expenditure as it expects to remain in power for many years.

Private enterprise savings has also been high since 2000. This high savings rate can be explained in part by the imperfect credit market. Chinese bank lending and the Chinese equities market continues to favour SOEs, forcing private enterprises to rely on retained profit for future investment.

As a result of all these factors, GDP growth averaged 10.9% between 2001-2007 while the growth rate of household income was just 8.7% and rural income was only 3.4% per year. The ratio of consumption to household income also fell at a 2.2% per year. Income inequality also increased. By 2006, China’s Gini coefficient rose to 0.46 and in 2011, it had reached 0.48.

Despite China’s high fixed investment rates, overall capital expenditure has remained profitable. This is due to several factors including the fact that China started at such a low fixed investment base, particularly in terms of infrastructure; China experienced a rapid growth in its human capital over the same period; and China keeps shifting its production into new markets which opens up new investing opportunities. Moreover, China’s overall capital stock is still small relative to its population, and medium-sized relative to its economy. That said, it is hard to sustain such high fixed investment rates indefinitely without waste and bad investments. This risk increases as China’s capital stock accumulates. The modern “ghost” city of Kangbashi, Inner Mongolia has oft been cited as an example of excessive investment where local officials designed a city and infrastructure for 1.5 million residents, yet less than 150,000 people have come to fill it.

The constraints on consumption and the prioritization of fixed investment and exports has resulted in a significant imbalance in the structure of China’s GDP. Research by John Knight and Wei Wang show that these figures made China an outlier compared to other economies. Indeed, China’s investment ratio far exceeds that of other industrialized countries, and even that of Japan – 32% GDP 1960-1985- and Korea 30% 1970-1995 during their rapid growth periods.

In 2011, China’s fixed investment rose further to 48% GDP, while household consumption hovered at 35%, and savings remained close to 50% GDP. Part of the reason that fixed investment as a percentage of GDP rose after 2009 was because of the RMB 4 trillion or $586 billion 2008-2009 Chinese Economic Stimulus Plan that China launched in response to the breaking 2008 financial crisis. The government directed the majority of this stimulus into fixed investment. RMB 1.5-trillion was dedicated to infrastructure construction including railway, road, irrigation networks, and airports. RMB 1 trillion went to reconstruction works in regions hit by the 8-magnitude Sichuan earthquake. RMB 370 million went for rural development including building public amenities, resettling nomads, supporting agriculture works, and providing safe drinking water. RMB 370 million also went to technology advancement programs mainly targeted at upgrading industrial sector technology. The Chinese government allocated some RMB 210 billion to improving energy saving, cutting gas emission, and building environmental engineering projects. RMB 150 billion was allocated for educational, cultural and family planning purposes. Other funds were invested funding for social welfare plans, including the construction of low-cost housing, rehabilitation of slums, and other social safety net projects.

Rebalancing China’s domestic consumption is a key theme of China’s 12th Five Year Plan. Yet a key difficulty to boosting domestic consumption is the fact that Chinese citizens now face higher education, healthcare and pension costs due to the dismantling of educational and social security systems that existed under the planned economy. Premier Wen Jiabao recently recognized this challenging by noting that the government must increase spending on healthcare and social services to free up more Chinese disposable income.

Social Security: Education

China’s current educational system is undoubtedly in a better position now than it was during the Maoist era. This is specifically true during the Maoist era’s final years when the Cultural Revolution convulsed China. Launched between 1966-1976 the Cultural Revolution was to strengthen socialism in China by reducing capitalist, traditional and cultural elements from Chinese society, and to impose Maoist orthodoxy within the party. To achieve this end, in June 1966, middle schools and universities throughout the country were shut as students devoted all their time to Red Guard activities. The government sent many educated youth to the countryside in order to engage in manual labor. When schools and universities reopened in the early 1970s, students often won places at university not by being the most academically able, but by having good political credentials, and by being recommended by their work unit. As a result, by the late 1970s, the quality of Chinese university education declined sharply. In 1975, Deng Xiaoping reportedly complained to Mao Zedong that university graduates were not even able to read a book in their area of study by the time their university education was completed.

After the government launched market reform in 1978, renewed emphasis was placed on scientific training, and the overall quality of Chinese education began to improve. Since that time, China has undergone a major expansion in the quality and availability of education throughout the country. The number of university and doctoral degree graduates has risen fivefold between 1995 and 2005. Chinese government spending on education has risen approximately 20% per year since 1999, now reaching $100 billion annually. The results from this investment have been outstanding. The best Chinese students now lead the world in math, science and reading. There were 33 million Chinese in higher education in 2010, up from 12 million in 2000. 82.5% of all Chinese children now complete secondary education, up from 21.9% in 1990, and more children than ever are having the opportunity to gain a formal education. On average, Chinese students spend 40 when more days a year being educated than their US counterparts, although western educational analysts criticize the rote learning system employed in Chinese schools.

Much as with all social services, the quality of Chinese education varies greatly throughout China. There is still a large discrepancy between urban and rural education and between education standards in the eastern and western provinces, in terms of quality and quantity of education, including progression to higher education. It is indeed the cities, as opposed to rural areas, that receive the highest percentage of government spending, as well as having the highest quality of education at all levels. The exact numbers are hard to come by, as spending is split at various levels down the bureaucratic chain, but it has been suggested that spending per primary school child in Beijing and Shanghai was 18 times that of the poorest Chinese provinces.

J MARGOLIS 33Yet, those Chinese citizens migrating to China’s prosperous cities in search of better opportunity are often not allowed to take advantage of superior urban teaching for their children. The Mao-era Hukuo residential permit system means that local governments refuse school access without official documentation. This is a subject of huge contention for the almost 250 million migrant workers (a figure that is projected to grow to 400 million by 2025) who must leave their children behind in their towns and villages. For those that do choose to bring their children with them, many are forced to send their children to sub-standard private schools, which have no state funding. Fees can run as high as $165 year, the equivalent to several weeks’ wages. In 2011, local authorities closed several schools for the children of migrant workers, as they did not meet official safety standards, leaving an estimated 14,000 children without access to schooling. Notwithstanding the social injustice that this may present, needing to save for education costs reduces domestic consumption. Many Chinese senior-level middle schoolers must also pay tuition, as after completing the compulsory nine years of education, students who wish to continue on to senior-level middle school, must pay a small tuition fee. University students are also required to pay a part of their education. There is growing pressure within China for reform to this hukou system, though no significant changes have been enacted.

The Chinese government is taking increasing initiatives to reduce the gap in educational standards throughout the country. In 2011, the Chinese government announced a 20% increase in rural education spending. Yet, improving rural education and education availability generally will take time. Until then, being born in an urban environment gives the average Chinese child a far better chance at a decent education. Until then, migrant workers bringing their children with them to the city, and parents of those students wishing to pursue higher education will need to save in order to finance future education costs.

Social Security: Healthcare

Like education, China’s healthcare, today faces many challenges. After 1949, CCP created the Ministry of Public health to take charge of all healthcare activities in China. The new system provided healthcare in both rural and urban areas through a three-tiered system. The first level of healthcare comprised China’s “barefoot doctors” that practiced in the village medical centers. These doctors focused on hygiene, preventative health care, family planning in the treatment of common illnesses. The barefoot doctors were primarily farmers who received minimal medical and paramedical training to serve rural areas that urban-trained doctors could not reach. The next tier of healthcare was the township health centers that were primarily outpatient clinics, each with a capacity of serving up to 30,000 people. Assistant doctors were the primary healthcare providers at these clinics. These two rural collective healthcare tiers comprised the majority of China’s Communist healthcare. The third tier, county hospitals, treated only the sickest rural patients, and was staffed by senior doctors trained at medical schools.

In urban areas, neighborhood health centers delivered the first tier of healthcare. These were staffed by personnel with minimal training and focused predominantly on hygiene and preventative medicine. These urban caregivers sent sicker patients to district and municipal hospitals. Often, however, connected employees could get medical care directly from district or municipal hospitals, bypassing neighborhood medical clinics.

Overall, Mao’s Communist China provided a good basic medical care for its rapidly expanding population. Average life expectancy increased from 36 years in 1949 to 68 years in 1980. While this increase in life expectancy was also due to improved nutrition and other factors, the focus on hygiene, preventative medicine, and the nationwide eradication of epidemics such as cholera, plague, typhoid, and scarlet fever certainly contributed significantly to China’s improved longevity during this period.

The de-collectivization of agriculture in the 1980s, and the privatization of SOEs in the 1990s, caused fundamental changes in the way that healthcare was delivered throughout China. While in urban areas, most Chinese citizens with residential permits still have relatively inexpensive access to medical coverage for themselves and their families. Additionally, they have often also taken out some form of medical insurance. Nevertheless, an estimated 36% of the urban population finds healthcare costs prohibitively expensive. Workers that lose their jobs also lose their medical insurance coverage. Migrants relocating into China’s growing cities have no medical care coverage as they lack a residential permit. The government has recently tried to respond to this challenge by creating the Urban Employee Basic Medical Insurance System (UEBMI) to include the non-state owned sector and self-employed workers. In 2008, UEBMIs covered an estimated 200 million people.

Those citizens in China’s rural regions face even greater healthcare challenges. By 1984, for instance, only 40-45% of the rural population was covered by an organized cooperative medical system, down from 80-90% in 1979. The number of barefoot doctors decreased. Authorities monitored village water and sanitation supplies less frequently, while a still rapidly expanding population created greater waste treatment challenges. Moreover, the cost of even the most basic medical treatment increased, forcing citizens to save more to pay for medical care, and often to forgo medical treatment.

Partly spurred by the SARS epidemic scare, in 2003, the Government established the New Rural Co-operative Medical Care System (NRCMCS). NRCMCS costs about $7 per person annually, half of which the government provides. As of September 2007, 80% or approximately 685 million rural Chinese citizens had signed up for the new initiative. Like China’s old health delivery system, the care is tiered. The plan covers the cost of small hospitals or local clinics to 70-80% and county hospitals to 60%. Yet specialist hospitals in modern system cities are only reimbursed 30%.

Despite these efforts to provide greater coverage for all its citizens, China’s healthcare system still faces enormous challenges. As doctors are paid low wages, and as hospitals are responsible for covering a significant portion of their operating costs through revenue-generating services, over prescription of drugs and x-rays and other tests is rife. China’s new rural and urban health care initiatives still only cover a part of the drug and testing prescriptions, meaning most patients still face high out-of-pocket costs – some estimate as high as 60% of their total medical care. Additionally, most doctors still have minimal basic training. This is particularly true in rural areas. A 2001 study of 46 counties and 781 village doctors in 9 Western provinces found that 70% of the village doctors had no more than a high school education, and had received an average of only 20 months of medical training before beginning to practice. China’s healthcare system is also struggling to balance the delivery of Western versus traditional Chinese medicine. As China’s population begins to age rapidly in coming decades, even more strain will be placed on a medical system already struggling to cope with the citizens it is currently treating. Finally, like all countries today, China will need to find the right balance between spreading scarce medical resources as widely as possible versus providing each of its patients with the most advanced medical care available.

Social Security: Pension

As it has with education and healthcare, the Chinese government has taken real steps towards combating the ticking time bomb of the Chinese pension system, which is poised to come under enormous strain as China’s population rapidly ages over the coming decades. Currently, China has an estimated 160 million citizens over the age of 60. By 2050 that figure is likely to increase to almost 400 million, which will represent more than a quarter of the population. Part of the reason that the country is ageing so rapidly is that China’s “One Child Policy” has meant that fewer young people have been born since the 1980s. In 1975, there were six Chinese children for every one elder. By 2035, there will be two Chinese elders for every one child.

Before market reform in 1978, urban workers at China’s state owned enterprises received generous pensions upon retirement. Yet, these workers always constituted a minority of the total Chinese population. In the 1990s, the privatization of state owned enterprises has meant that these companies no longer fund their employees’ pensions. The government tried to launch a basic pension system for urban workers to replace the state owned enterprise funded system, yet as of 2007, just 65% of the urban workforce earned any benefit from the basic pension system. Coverage is highly concentrated among workers at SOEs that account for dwindling share of total employment. Much of the fast-growing private sector workforce, including China’s rural migrants, remains uncovered. Indeed, if urban employers made social welfare contributions on behalf of their migrant workers, their payrolls could rise by an estimated 35-40%.

Additionally, the basic pension systems inherited from SOEs have large unfunded pension liabilities. This means those workers contributing to the plan must do so at high rates, often causing workers to try to avoid payment. In addition, a lack of portability of the pension plan has meant that workers often need to choose between job mobility and losing their retirement savings. While private pension systems are beginning to take shape in China, in 2007, only 9.3 million employees contributed to “enterprise annuities”, or just 1.2% of the total Chinese workforce.

As for the countryside, in 2006, formal retirement protection was still virtually non-existent  Indeed, all told, just 31% of China’s total workforce is estimated to be earning a public pension benefit of any kind. Part of China’s challenge is that its population is ageing at a much earlier stage of economic and social development compared to developed countries. This means that China will have to support its elderly with a fraction of the per capita income and wealth of developed nations. Despite high savings rates, the majority of Chinese workers are not accumulating sufficient financial assets to support themselves in retirement.

Traditionally, the young have cared for you old in China. In the coming decades, the great majority of workers will have to continue to rely on their children for financial support. Indeed, in 2006, an estimated 56% of elders lived with their grown children or other relatives. Even those who do not reside with their children often depend on their extended family for financial support. The importance of this safety net was reinforced when the government passed a 1996 law obligating children to care for their ageing parents. By 2050, the average pension burden supported by each Chinese worker is estimated to quadruple from today’s levels.

Yet, as more workers migrate to cities in search of opportunity, as China’s birth rates decline, and as China’s population begins to rapidly age, this traditional informal safety net is facing new strains. Indeed, while multigenerational families are still the norm, there are less common than they were a generation ago. Older workers will also need to remain in the workforce longer. While in the countryside, 76% of men aged 60-64 and 38% men aged 65 or older continue to work, in the cities, older labor force participation is much smaller. Only 34% of men aged 60-64 and 13% work past the age of 65. This low urban elder work participation rate is a result of the fact that SOEs downsized its obsolete workforce in part by offering them early retirement.

The government will continue to be under enormous pressure to introduce initiatives to provide minimal Social Security for the ageing population, so the majority of worker disposable income is not funnelled into carrying for ageing parents future worker disposable income is not spent solely on the care of grandparents.

Trends

China’s domestic consumption was expected to have grown 15% through 2012, a rate shutterstock_102510107double that of China’s projected GDP. Indeed, in a recent speech in 2012, Premier Wen Jiabao confirmed the government support of this trend by noting that boosting domestic consumption will be crucial to China’s future as it rebalances its economy. China’s 12th Five Year Plan reinforced the importance of domestic consumption. Future growth in consumption will be driven not only by rising per capita income, but also by continued government domestic consumption subsidies. Recent subsidies have included programs for rural households to buy electric appliances and automobiles. The government will also support more paid vacation, expand consumer credit, and increase agricultural subsidies. Specifically, the VAT on cars and a number of other items has been reduced, and vouchers for certain durable good purchases by the rural sector have been provided.

The government is also taking steps to moderate the high household savings ratio and support consumer growth over time. The government’s 2011 spending on education increased 14.6%, on social security and unemployment 14.2%, on medical and healthcare 13% and on public housing spending 9.6%.

China’s central government is also developing policies to stimulate the growth of small and medium-size enterprises. These policies include providing guarantees on their borrowing, reducing small and medium-size enterprise taxes reductions and offering subsidies. Small and medium enterprises are typically a large share of total employment in other countries. Their expansion, especially in the retail and wholesale sectors currently dominated by SOEs, could significantly boost both employment and household income over time. The government is also considering the increase in dividend distributions from SOEs so that they might help finance higher government social spending and reduce the level of retained earnings in these enterprises that can be plowed back into investment. It also plans to raise the minimum wage.

The government is also considering raising interest rates on savings accounts. Market level interest rates could increase Chinese consumption. Chinese households are generally saving toward a goal such as a down payment on a house or the cost of potential medical emergency. Increasing disposable income by creating investment income in the form of bank interest could allow households to meet their savings objectives more quickly, and thus could encourage increased discretionary spending.

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Population Power: China’s Shifting Masses

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. It has since spent the last three and a half decades trying to bring this growth under control. China’s aggressive fertility education programs of the early 1970s, 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 below the replacement level of 2.1 today. A success of its population control policy has been its ability to feed its people, a key Chinese objective. Nevertheless, China’s large population still poses significant challenges. These challenges include a rising dependency ratio as the population ages, generating sustainable economic opportunity for its people, rapid urbanization, large internal migration and continued regional inequality.

Post-1949 Demographic Background

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By the 1800s, China had already been the most populous country in the world for the best part of two millennia. Yet high death rates caused by disease, crop failure, natural disasters, and war restrained China’s population growth between 1850 and 1950, with an average annual growth of 0.3% per year. When the Chinese Communist Party (CCP) consolidated its power over the country in 1949, peace and stability favored the country for the first time in decades. Early CCP policies led to improvements in nutrition, sanitation, and increased access to healthcare. Chinese mortality rates, especially those of infants, plummeted. Yet, the CCP failed to achieve enough per capita economic growth and educational reform to drive a natural reduction in the country’s birth rate as it developed. Moreover, Mao, and those on the far left, considered a large population to be a positive asset, both as an aid in economic development and a resource in national security. Mao believed that Malthusian theory – in essence the principle that exponential population growth would inevitably lead to an inability to feed the population – was a capitalist paradigm, and did not apply to Marxist production methods where more people inevitably created more economic output.

As a result, the majority of China’s population continued the tradition of seeking to have as many sons as possible. According to official statistics, China’s population almost doubled in less than thirty years, from just over 550 million in 1950, to just over 1 billion in 1982. Officials in China were well aware of China’s exploding population in the early decades after 1949. Yet, any talk of population control or family planning was labeled as defeatist and was quickly silenced during the many anti-rightist campaigns of the 1950s and 1960s.

By the end of the 1960s, concerns regarding China’s exploding population began to be more publically discussed. In 1970, Beijing decided to implement a voluntary birth control system. It spread information about the benefits of having fewer children, made contraceptives more widely available, and educated the public on family planning 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. Nevertheless the 2.7 rate was still significantly higher than that in surrounding regions, including South Korea, Taiwan, and Hong Kong. A 1980 study, undertaken to estimate what China’s ideal population would be in 2080, assuming significant modernization and economic growth, concluded that the optimum population level would be between 650 and 700 million. China’s actual population in 1980 was already roughly one billion and still growing rapidly.

The ‘One-Child’ Policy

In September 1980, it was decided that China would implement what is often labeled as the ‘one-child policy’ (the Chinese name, jihua shengyu zhengce, translates better as ‘family planning policy’) with the goal of limiting its population to 1.2 billion by the turn of the century. Family planning was written into the constitution two years later. It is worth noting that the policy has not been blanketed uniformly across the country. Most ethnic minorities are permitted to have two children and many Han living in rural areas have been allowed to have a second child when the first child is a girl. Additionally, parents whose first child is disabled are allowed to have a second child and more recently it has been determined that parents who are both only-children themselves are now allowed to have two children.

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 is deeply rooted, not least because more hands make easier agricultural work for all. In general, there has been a high correlation between income and the willingness to accept the one-child policy.

One result of the policy has reportedly been a series of forced sterilizations and abortions, an issue that the well-known activist Chen Guangcheng, who fled to the US in May 2012, was keen to expose. Additionally, couples defying the regulations 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, wealthy families who worked in the private sector simply paid the fines imposed in order to have a second, or even a third, child. Those working in the public sector did not have this freedom as a second child would mean an inevitable loss of employment. The one-child policy also led to an imbalance in the sex ratio of the population. The preference for sons, particularly in rural areas, led to selective abortion and sometimes infanticide. An April 1983 article in the People’s Daily reported that a survey of Suixi and Hanyuan counties in Guangdong and Sichuan respectively, showed that male births outnumbered female births by as much as 5 to 1. The 2010 Chinese census showed 118 boys per 100 girls in the 0-4 age group. Overall, however, the ratio of men to women in the population has, according to the UN Department of Economic and Social Affairs, peaked at 108 to 100 and is projected to fall steadily over the coming century. This discrepancy is partly explained by the underreporting of females at birth in order to circumvent the restrictions of the family planning laws. While allowing girls to go unregistered has allowed families to have more children, and to keep their girls while still striving to have a son, it has often put the unregistered girls 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 children have been born in China since the implementation of the family planning policies of 1980 but some estimates suggest that it could have exceeded 100 million.

Despite such aggressive family planning measures, China’s population reached 1.35 billion in 2011. Estimates on when China’s population will peak how big it will be at that point vary somewhat. China’s own figures suggests that this will happen in 2030 at 1.5 billion people, whereas the US Census Bureau has predicted that it will occur in 2026 at around 1.4 billion.

The Changing Structure of the Labor Force

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The current age structure of China’s population has provided China with an enormous competitive economic advantage. Specifically, China’s current population is both young and relatively free of dependents, whether they are children or elderly parents needing care. In 2011, approximately 72% of Chinese citizens were between the ages of 15 and 64. 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 since 1980.

The low dependency rate has created what has been termed China’s “demographic dividend”. The working age population has grown more rapidly than the population as a whole, a fact which has helped to drive rapid GDP growth. Low dependency rates have driven high savings rates, providing Chinese society with significant capital to invest; today’s workers save for old age, while today’s elderly spend savings accumulated earlier. China’s young, unencumbered population has also benefited China as it has been more adaptable to the rapid social and economic changes that have attended China’s transition to a market economy.

Yet, the growth of China’s labor force is now slowing as the last baby boom cohorts have been absorbed. After 2015, real working population growth is forecast to be zero. After 2015, future labor force increases will be driven by internal rural-urban migration. While easing some unemployment pressure, slower urban labor force growth will likely lead to lower overall GDP growth as well.

An Aging Population

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China will soon face a rapidly aging population. The number of Chinese over the age of 60 rose from 128 million to 178 million between 2000 and 2010 and is predicted to increase to 350 million by 2030, raising the senior dependency rate to 25%. Exacerbating the senior dependency rate is China’s mandatory retirement policy, which requires seniors to retire from work at the age of 60 in many sectors, though there is clear scope for adjustment to this policy should it be deemed necessary. China’s own figures suggest that its population over the age of 60 will peak in 2040 at around 400 million.

This rapidly aging population will place a great burden on the younger segments of society, as dictated both by Chinese culture and law, Chinese children are obliged to care for their retired parents. The strain of caring for the elderly will be worse in the countryside where the elderly are often not covered by the pensions that are more commonplace in urban areas, and where elders generally have had a lower overall income leading to lower, retirement savings. While most urban workers have some kind of pension, until the early 1990s China’s pension liabilities were unfunded, meaning that the pensions of currently retiring workers are supported by those currently working. Since the 1990s, the Chinese government has endeavored to establish a functioning and funded pension system. Its challenge will be to complete the work quickly so that the country does not grow old before it has the infrastructure in place to support its elderly. Consequently, although the one-child policy still remains in force, there have been calls from within China to address the challenge of its growing elderly by, among other policies, allowing couples to have more than one child. Indeed there has been some experimentation with the policy in some of China’s wealthier regions such as Guangdong.

Population and Food Security

One clear benefit of China’s one-child policy has been its continued ability to feed itself. In the 1970s, when population issues began to be discussed more openly, concerns regarding China’s growing population were borne out of classic Malthusianism – the theory that exponential growth would inevitably lead to an inability to feed the population. Balancing food and population has been the key economic issue facing China throughout its history. Historically, under normal agricultural conditions, farmers produced enough food to keep China’s population reasonably well-fed and productive, but the margin above subsistence was small. It took until the 1980s for agricultural output to sufficiently overtake China’s population so as to assure China’s food security. In the past, disasters such as floods and droughts often resulted in starvation.

Following the famine caused by the Great Leap Forward, the Chinese government determined that: “agriculture is the foundation of the economy; grain is the cornerstone of that foundation.” Beijing set itself a target of providing a minimum of 95% of its own grain requirements. China considers grain independence to be a matter of vital national security, and today, food independence remains a key Chinese objective. As recently as March 2011, Vice-Premier Hui Liangyu reiterated that China will maintain its goal of food self-reliance in order to both offset the risk of importing inflation due to rising global food prices and to reduce food dependency as a security risk.

Achieving 95% grain independence has not been easy for China. Despite having almost 20% of the world’s population, China’s geography is such that it is endowed with less than 10% of the world’s arable land. Moreover, as its population has grown, the amount of per capita cultivated land has continued to shrink. China has retained its food self-sufficiency through constant gains in agricultural productivity. Yet, many believe that it will be increasingly difficult for China to maintain such levels of agricultural gains in the future. Arable land will continue to decrease because of urbanization and environmental degradation. Additionally, China’s ability to increase harvests through the use of fertilizers and higher yielding grains is plateauing. There are further concerns over the availability of water.

Urbanization

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The rapid urbanization that has resulted from China’s industrialization has also posed significant challenges for the country. In the 1970s, urbanization was simply nonexistent. Beijing held tight control over any internal migration through its household registration system (hukou), and through the use of vouchers to acquire essentials such as food and clothing. Any movement was government allocated and almost exclusively from the city to the countryside as a way to reduce unemployment in the cities. This use of the countryside as an unemployment pressure valve exacerbated the pre-existing problem of redundant rural labor.

Today China’s urban population is rapidly rising. In 1978, only 17.92% of Chinese lived in cities. As of the 2010 census, 49.7% of Chinese were living in urban areas and it was reported that in January 2012 the total had reached 51%, making China a predominantly urbanized country for the first time in its history. Some of this urban growth has come as a result of reclassifying rural areas as urban areas, but most represents real changes in population patterns. By 2025, the number of Chinese city dwellers will rise to 926 million, up from 683 million in 2012, and may reach as high as one billion by 2030. Mind-boggling statistics accompany these figures. For example, over the next two decades, China is expected to construct as many as 50,000 new skyscrapers and to build mass transit systems in more than 170 cities.

Internal Migration and the Hukou System

One significant factor driving China’s urbanization is the large influx of migrant workers GuoZhongHua / Shutterstock.comthat come from the countryside. Internal migration is one of the most important phenomena in China’s demographics today. Figures from the 2010 census put temporary migrants – that is, those living more than one municipality away from their registered home for a period of more than six weeks – at almost 250 million, or nearly 19% of the overall population. These figures may be lower than the actual total as many migrants are thought to have avoided inclusion in the census. These temporary migrants are projected to grow to 400 million by 2025. Most migrants moved to the city either because of surplus labor problems in their hometowns, or in the hope of earning higher levels of income. This temporary urbanization has not exacerbated China’s urban unemployment as China’s economy has grown rapidly over the last several decades, and as migrant workers tend to take those 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 cheap labor textile and other factories, where work is strenuous and often dull. Migrant employees are thought to send home an average of 50% of their income. More recently there have been reports of shortages of labor in some of the bigger cities, such as Shanghai, as opportunities open up closer to home for many migrants; the municipality of Chongqing recorded a higher number of returnees than those leaving in 2011 for the first time since the reform period began. Additionally, second generation migrant workers have begun to demand higher wages and better working conditions, reducing the benefit of employing them. Nevertheless, migrant workers remain a crucial aspect of China’s continued rapid development.

The overwhelming majority of migrant workers come from the poorer, western or interior provinces. 82% of these migrants head to just seven municipalities and provinces – Beijing, Tianjin, Shanghai, Zhejiang, Jiangsu, Guangdong and Fujian. Approximately 64% of all migrants are males, aged between 16 and 30. Only 10% have been educated beyond middle school.

While tolerated by Beijing as a means of reducing rural unemployment, and as a way of providing cheap labor for urban factories and construction, migrants have not been given explicit permission by the government to be in the cities in which they work. There are many reports of discrimination against migrant workers both by their employers, who may seek to exploit the vulnerability of these workers through non- or late payment of wages, and by the state, which denies welfare benefits to those not resident in their registered municipalities. Without official residence papers, migrants have poor access to housing, health facilities, and education for their children. It is not uncommon for migrants to work long hours in poor safety conditions for little pay. It is estimated that the majority of the 700,000 annual, serious, work-related injuries, claiming 130,000 lives, are incurred by migrant workers.

As migrant workers become a more permanent fixture of urban landscapes, there has been an effort to relax the hukou system in order to provide this population with greater rights. In 1997, for example, the State Council created a pilot scheme to allow certain migrant workers to transfer their registration to 450 selected towns and cities. To qualify, migrants needed to demonstrate a stable source of income, residence of over two years in the chosen city, employment in either secondary or tertiary industries, and that they own their own apartment. These requirements have made it impossible for the vast majority of migrants to qualify. In 2001, the State Council expanded the program to include all small towns and cities. Yet, as the value of the property was not specified, many city governments restricted large inflows of unskilled workers into their cities by requiring apartments to be of a value that often exceeded the means of the average migrant worker. This meant that, in effect, the government pilot scheme acted more as a means to attract talent and investment rather than a policy to promote the rights of those involved in internal migration throughout the country. More recently there has been increasing pressure to reform the hukou system, with 12 newspapers publishing a joint editorial calling for it to be modified in March 2012. To date, these calls have not resulted in any significant actions though the rhetoric from the government suggests that this may change in the future.

Future Trends

In the future, 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. This will be especially true as the changing global economy will look to China to generate more of its growth through domestic demand as opposed to through exports. Additionally, China’s growing population, which is predicted to peak by 2030 at approximately 1.5 billion people, will continue to put enormous demands on its scarce natural resources. Water management, in particular, will be a huge future challenge.

Employment will also remain a key concern for the Chinese government. Employment will remain a particularly acute problem in China’s western provinces. Provinces in which many of the ‘Made in China’ goods are produced, such as Guangdong, Zhejiang, and Jiangsu, enjoy unemployment rates as low as 4%. In other regions of China, especially in the west, unemployment figures are higher and seem set to remain so. China has developed its ‘Go West’ policy, encouraging surplus labor from the east to move into the more sparsely populated regions of the west. Yet, in areas such as Tibet and Xinjiang, this western migration of predominantly Han Chinese has contributed to increased ethnic tensions.

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. Favoring the original urbanites with government services risks disadvantaging a large section of the population and creating a two-tiered system. Migrants relocating into China’s growing cities have no medical care coverage as they lack a residential permit. The government has recently tried to respond to this challenge by creating the Urban Employee Basic Medical Insurance System (UBEMIS) to include the non-state owned sector and self-employed workers. In 2005, UBEMIS was estimated to cover more than 129 million people.

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. Land available for agricultural use will decrease, testing China’s ability to be food independent. Greater urbanization will also generate higher levels of pollution, further exacerbating China’s already polluted air. Though China has demonstrated that it understands many of the challenges that its population will pose, it does not yet have all of the answers to them.

The Chinese Environment: Positive Trends toward Environmental Protection

Introduction

shutterstock_112030406Environmental 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

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

TheChinaFile

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.