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China, Rare Earths and Technological Edge

Introduction

By Jurii (http://images-of-elements.com/praseodymium.php) [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

Praseodymium, one of the light rare earth elements

A sign at the entrance of China’s Baotou, Inner Mongolia Pioneering Rare Earth Hi-Tech Zone quotes Deng Xiaoping’s 1992 claim: “There is oil in the Middle East, but there is rare earth in China.” The rare earth elements (REE) are a group of 17 chemically similar metallic elements occurring in the Earth’s crust that are becoming increasingly integral to the production of products ranging from smart phones and LED light bulbs to wind turbines and cruise missiles. Since the 1980s, REE mining and processing has increasingly moved to China. Due to factors such as cheaper labor and less stringent environmental regulations, China has been able to produce the elements at two-thirds the cost of non-Chinese producers. As a result, it now produces over 90% of the world’s REEs. China has also been moving from a supplier of unfinished REEs to a manufacturer of high-end REE products and it believes that mastering high-end REE technology will not only help ensure its safety given REE’s many defense applications, but could also allow it to leapfrog the US and other countries in the production, for instance, of green technologies.

China’s monopoly of REEs came to a head in 2008 when it began restricting the amount of unfinished REEs that it exported while increasing REE export taxes and removing REE VAT rebates. International concern was further increased in 2010 when China was believed to have implemented an unofficial REE export embargo against Japan for two months and the US and the EU for two weeks. A 2012 WTO complaint filed against China by the US, the EU and Japan claimed that the effect of these policies has meant that non-Chinese producers of REE products pay 31% more for their REEs than their Chinese competitors. The US, the EU and Japan also say that Chinese practices are placing pressure on foreign manufacturers to relocate their operations to China in order to minimize the impacts of rising costs and shrinking supplies, as China does not restrict or tax the export of REEs in manufactured products. China counters that its policies are necessary to improve the real environmental degradation that its lax standards have caused and to conserve its finite REE resources.

Rare Earth Elements and the History of their Development

The REEs are a group of 17 chemically similar metallic elements including the 15 lanthanides as well as scandium and yttrium. Scandium and yttrium are grouped with the rare earths as they share similar chemical and physical properties. Despite their name, the REEs– with the exception of the radioactive promethium which is currently synthesized in labs – are quite abundant in the Earth’s crust, although their crustal abundance varies significantly from place to place. The “rare” earth name comes instead from the rarity of the minerals from which they were originally derived. It also comes from the fact that the elements are rarely found in concentrations that are viable to mine.

The REEs are broadly divided into light rare earth elements (LREE) – lanthanum, cerium, praseodymium, neodymium, and samarium (atomic numbers 57-62 on the periodic table)  and heavy rare earth elements (HREE) – gadolinium,  promethium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium (atomic numbers 64-71). Scandium (atomic number 21) and yttrium (atomic number 39) are usually grouped with the LREEs. This division is somewhat random; sometimes the REEs are divided between light, middle and heavy. LREEs are more abundant than HREEs.

Although approximately 200 minerals are known to contain REEs, most REEs are mined from the minerals bastnaesite, monazite and xenotime. While these minerals usually contain the full range of the elements, either LREEs or HREEs tend to dominate one mineral or the other. For instance, bastnaesite, the most commercially productive source for REEs, tends to house a high percentage of LREEs and a small percentage of HREEs. Monazite, the second most common mineral used as a rare earth ore, also contains more LREEs than HREEs, although it typically has a higher concentration of HREEs than bastnaesite.  Xenotime, the third most important rare earth element ore, holds the highest ratios of HREEs. HREEs can also be found concentrated in some soils, absorbed in the form of ions. Bastnaesite, monazite and xenotime all contain traces of the radioactive elements thorium, although the amount varies between the minerals and between ore deposits. The presence of the radioactive element makes REE mining and waste management more difficult.

The first discovery of rare earth materials was made in the late 1800s in Sweden. Given that rare earths occur together and share similar chemical properties, it was a further 150 years until all the rare earth elements were isolated and identified. The last rare earth element to be discovered was the radioactive promethium which was found as a result of nuclear fission research carried out during World War II. In nature, promethium can only be found in trace amounts as it is highly unstable and has a half-life of 17.7 years.

Production of Rare Earth Elements

The periodic table

Until 1948, the majority of rare earths were produced in India and Brazil, followed by South Africa in the 1950s, and the Mountain Pass Mine in California from the 1960s to the 1980s. Since the 1980s, REE mining and processing, and the production of many REE products has moved to China. Between 1990 and 2000, for instance, China increased its REE production from 16,000 to 73,000 metric tons while non-Chinese producers saw their output decline from 44,000 tons to 16,000 tons. In 2009, China produced 129,000 tons while the output from all other countries dropped to 3,000 tons.

China now dominates the REE industry because it can produce REEs and REE products less expensively and with more purity than its competition. Its low cost production is the result of many factors including inexpensive labor, lower environmental standards and a REE industry which has historically been poorly regulated. It is estimated that China’s lower environmental standards have enabled it to produce rare earths at roughly a third the price of its international competitors. China has also made significant investments in REE mining and processing techniques which are now paying off in greater efficiencies. China also mines the majority of their REE as a by-product of their iron ore and other mineral mining, which also reduces their cost basis.

Where Global Rare Earth Resources are Found

The U.S. Geographical Society estimated that in 2008 China held approximately 57.7% of the world REE reserve, the Commonwealth of Independent States (which includes Russia and many former members of the Soviet Union) 13.6%, the US 9.1%, Australia 3.8%, Brazil 0.05%, India 0.84%, Malaysia 0.02% and other countries 14.9%. Additionally, the British journal Nature Geoscience reported scientists led by Yasuhiro Kato of the University of Tokyo, have found huge deposits of REEs in sea mud at 78 locations in international waters east and west of Hawaii, and east of Tahiti in French Polynesia. Japanese scientists have also identified REEs off island of Minamitorishima, an isolated Japanese coral atoll in the northwestern Pacific Ocean.

In China, REEs have been found in 21 of China’s provinces and Autonomous Regions: Fujian, Gansu, Guangdong, Guangxi, Guizhou, Hainan, Henan, Hubei, Hunan, Jiangxi, Jilin, Liaoning, Inner Mongolia, Qinghai, Shaanxi, Shandong, Shanxi, Sichuan, Xinjiang, Yunnan and Zhejiang. In general, China’s REE reserves are distributed in a light north, heavy south pattern. An estimated 75% to 90% of China’s REE output is in LREEs; 50% to -60% of its LREEs comes from its Banyan Obo mine in Inner Mongolia, and another 25% to 30% comes from mines in Sichuan Province. China’s remaining output is HREEs sourced primarily from its ion-adsorption clays located in the provinces of Fujian, Guangdong, Hunan and Jiangxi.Southern China’s ion-adsorption clays are currently one of the most important concentrations of heavy HREEs in the world. Importantly, these clays have extremely low levels of radioactive elements.

Mining and Processing of Rare Earth Elements

Most REEs are mined either by digging in open pits or in underground mines. The ore is then crushed, heated and treated with various chemicals in order to separate first the bastnaesite, monazite and xenotime, and then to separate the REE from the bastnaesite, monazite and xenotime. In order to ensure a high market value, REE needs to be of high purity. This is a difficult process because REEs share such similar chemical properties. Each REE has its own unique extraction steps and refinement processes, and often these elements need to be reprocessed in order to achieve the ideal purity. Once separated, the REEs are in the form of oxides which are then made into metals. It takes an average of 10 days to go from mining to the production of rare earth oxides. China currently leads the world in REE separation processing technology.  Chinese companies can produce REEs of 99.9999% purity compared with French companies at 99.99% purity and Japanese at 99.9% purity.

Outside of China, companies in the US, France, Russia and Japan can complete some of the refining steps, but only China has the industrial capacity to complete the entire REE refinement process for all the elements. Mining companies such as US Molycorp and Australian Lynas which extract REEs outside of China currently find it necessary for technological and economical  reasons to ship their minerals to China for processing despite their respective efforts to move further down the REE processing chain.

Separating REE from bastnaesite, monazite and xenotime is more difficult than separating REE from the ion-adsorption soils. In Southern China, most of its REEs are found in clay deposits. Not only is it easier to separate REEs from the clay compared with the hard minerals, but it is also usually easier to access the clays in the first place. The ion-adsorption clays are near the crust’s surface, and generally require little drilling or blasting to remove. China’s Jiangxi South Rare Earth Hi-Tech Company has reduced the costs of the clay processing further by pioneering in-situ mining. This method involves drilling holes directly in the clay deposits, pumping in ammonium sulphate or salt-based solutions which remove 90% of the REE from the clay and then collecting the resulting liquid from pipes drilled in at lower levels. The liquid is then pumped into tanks where it is treated with further chemicals, filtered and roasted to produce rare earth oxides.

Uses of Rare Earths Elements

Rare earths are essential in the production of X-ray machines

REEs are essential to many products that are fundamental to our modern life. REEs can be found in products as diverse as TVs, plasma screen technologies, microwave filters, ear phones, self-cleaning ovens, flint lighters and computer memories. Because REEs are extremely effective in absorbing ultraviolet light, REEs are used in glass bottles, sunglasses, and camera lenses. Because they allow for the development of powerful permanent magnets – which differ from electrical magnets in that they produce their own magnetic field – REEs create improved magnetic performance in smaller sizes. They are, thus, important in miniaturization technology, and are a key reason why laptops, cell phones and smart pads are becoming increasingly lighter and smaller.

Permanent neodymium-iron-boron magnets are also fundamental to many green technologies, especially wind turbines. Their superior magnetic strength means that they increase the amount of electricity that a wind turbine can produce. REE magnets also have the advantage that they retain more magnetism when heated. These qualities make them ideally suited for the production of hybrid cars. The Toyota Prius, for instance, contains 1 kg of neodymium in each of its electric motors. REE magnets also improve the energy efficiency of many appliances and cooling systems. REE magnets have been shown to reduce the power consumption of air conditioning systems by as much as 50%, and have led to the development of more environmentally friendly refrigeration methods. Energy efficient lighting such as the fluorescent lamp and LEDs are also big users of REEs.

REEs are also employed in other green technology applications. For instance, REEs are essential to the automotive catalytic converter whose job it is to convert pollutants in engine exhaust gases into non-toxic compounds. They also used in oil refineries to process heavy crude oil into lighter gas, jet fuel and petrol. They are also proving essential to the development of solid oxide fuel cells – a low-pollution technology which electrochemically generates electricity at high efficiencies – and other fuel cells which are being developed as power generators for zero emissions electric vehicles.

Besides, the green technology industry, REEs are also found in a wide range of industrial applications. For instance, REEs are employed in many aspects of nuclear energy production because of their ability to absorb neutrons while remaining stable at high temperatures. They are also found in ceramics, glass coloring and in the colors displayed on TV, computer and hand-held screens. They help paint pigment deflect ultraviolet light which makes them less likely to fade. Most finished glass products, such as mirrors, have been shined by REE concentrates and oxides. REEs are also a critical component in the creation of super-alloys or super-metals which are a class of heat resistant alloys used in the aerospace and power industries, particularly in gas turbine engines. REEs are also elemental to the technology that allows for the solid state storage of hydrogen.

REEs are also found in many medical technologies including x-rays and PET scan detectors. REEs not only improve the performance of MRI machines, but they also enable the physical internal scanning space of the machines to be wider, which serves to reduce feelings of claustrophobia for sick patients. Medical lasers produced with REEs are used in the cosmetic industry to remove pigmentation and scarring on skin, as well as in many other surgical procedures. There are also increasingly used in dentistry to remove tooth decay.

REES are crucial for the defense industry. They can be found in disk drive motors installed in aircraft, tanks, and command and control centers, and in radar systems and in reactive armor. They are key to the production of precision guided munitions, helping to guide the direction of the missile once it is launched. They are fundamental to lasers employed in enemy mine detection equipment, underwater mines and other countermeasure weapons systems. REEs are also found in components used in military communication networks including satellite, radar and sonar. They are also used in optical equipment and speakers.

In 2011, the US Geological Society estimated that the global use of rare earths broke down as follows: catalysts 47%, metallurgical applications and alloys 24%, glass polishing and ceramics 15%, permanent magnets 9%, computer monitors 19%, radar, television and x-ray machines 5%.

Environmental Consequences of Rare Earth Mining

The manufacture of REEs poses significant environmental hazards because of the large amounts of chemicals used in processing and because the processing waste often contains toxic gases and traces of the radioactive thorium. In northern China’s Bayan Obo  (Baiyun Ebo) mine in Inner Mongolia, for instance, REEs are mined and then transported 120km south to Baotou to be processed. Dozens of new factories have been built around Baotou’s processing facilities in what has been called Baotou’s Pioneering Rare Earth Hi-Tech Development Zone. A coal-fuelled power station supplies electricity to Baotou’s large and growing industrial complex.

The Yellow River

The Chinese Society of Rare Earths estimated that for every ton of rare earth oxide it produces in Baotou, China generates up to 12,000m³ of waste gas containing dust concentrates, sulfur dioxide, hydrochloric acid and sulfuric acid, and about 2000 tons of mine tailings. Tailings are the ground materials left over once the REEs have been removed from the ore. In northern China, these tailings contain traces of radioactive thorium. In addition, it is estimated that all factories and processing facilities in the Rare Earth Hi-Tech Development Zone create approximately 10 million tons of all types of waste water every year.  Much of this waste water along with an estimated 7-8 million annual tons of mine tailings are dumped into what has grown into an approximately 11km² waste impoundment lake without being effectively treated. A 2006 Chinese report undertaken by local authorities found that the level of thorium in soil near the lake was 36 times higher than in the soil in other areas of Baotou. From the lake, the chemical and radioactive waste has seeped into the ground water. The waste has also found its way into the Yellow River which passes to the south of Baotou before continuing another 1300 miles to the Yellow Sea. The Yellow River is subsequently used as a water supply for a large concentration of China’s population, including the residents of Beijing and Tianjin.

Around Baotou, most fish in the Yellow River have died. Agriculture has also been severely affected as lake wastewater has contaminated irrigation water supplies and the soil. Local farmers say that since the 1980s, fruit trees have either yielded no fruit or that the fruit they do grow is small and foul-smelling. Vegetable plants have stopped producing and many livestock in the area have become ill and died.

Residents inhaling the vapors and drinking the contaminated water have noticed higher incidents of diabetes, osteoporosis, respiratory diseases, leukemia and other cancers, skin and eye irritations, irritation to the gastrointestinal tract, black lung disease and kidney damage.

China’s southern REE mining and processing operations have also caused significant environmental degradation. The in-situ extraction method, which was hoped to be less environmentally damaging, has also resulted in reduced or eliminated crop yields and in fish dying in the rivers in the areas around which it is being mined. One issue in the south has been the extensive presence of illegal mines which are particularly prone to releasing toxic waste into the general water supply.

Until recently, China has never had firm pollutant discharge standards for the rare earth industry. Additionally, it poorly enforces the regulations that do exist. This lack of stringent environmental regulation and enforcement has meant that China’s REE industry produces REEs at roughly a third the price of its international competitors. While some Chinese REE companies have tried to improve their mining processes to make them more environmentally friendly, many have chosen to keep their environmental costs to a minimum in order to maintain a competitive edge in the market. In addition, as the government owns the land on which the factories lie, companies have little incentive to protect it. Additionally, China’s still-developing legal structure means that people and companies cannot easily be held accountable through the country’s judicial system. In Western countries, if employees or residents become ill due to unsafe production methods, those responsible would likely face due process which could result imprisonment and fines. This is not the case in China, unless victims have the support of the government. Yet the government often has a stake in the REE production process which acts as an incentive for the REE processing to continue untouched.

Characteristics of China’s Rare Earth Industry before Government Reform

Fluorescent light bulbs require rare earths

Starting in 2000, China’s government began to re-evaluate its REE strategy in the light of its rapid development, the poor profitability of its rare-earth producers and the rapidly growing demand for REEs worldwide. While its achievements in the REE field since 1978 are undeniable, the government has become increasingly concerned about a number of issues. These issues were outlined in Situation and Policies of China’s Rare Earth Industry published by the Information Office of the State Council of the People’s Republic of China in June 2012 and included: severe ecological damage to the environment, excessive exploitation of REE resources, poor profitability of the REE industry causing what it considered to be a severe divergence between the price and the value of REEs, and the illegal mining and sale of REEs.

While the environmental degradation that has been caused by China’s REE production is quite widely known, part of the purpose of the China’s REE report was to inform on the other challenges that China faces in managing its REE resources. Specifically, China found that 50 years of aggressive mining of its REE resources have significantly reduced its reserves. In Baotou, for instance, the report stated that only about one third of the original volume of REE resources was left in its principal mines. In its ion-adsorption clays, the reserve extraction ratio – the remaining supplies of REE in years – has declined from 50 years of remaining resources 20 years ago to 15 years of REE resources today.

While China publishes the country’s REE data yearly, these reports are not available to foreign researchers. Independently verifying the PRC’s calculation of its reserve levels has thus been difficult. For instance,

s China’s Situation and Policies of China’s Rare Earth Industry paper calculated that China holds 23% of the world’s reserves, while the 2008 US Geological study calculated that China held 58% and a 2011 British Geological Survey Rare Earth Elements paper calculated that China held 44%. That said, there can be no doubt that China has seen a rapid depletion of REE reserves in the last three decades.

China has also expressed concern about the poor profitability of the REE industry. Historically, the Chinese REE industry has been characterized by numerous, relatively small-scale enterprises, particularly in the south, which often engage in cutthroat competition. This has often meant that REE producers have often struggled to maintain profitability. Yet, as many local governments have relied on REE producers to provide employment and revenue, they have continued to encourage local production even it means exceeding national production targets. As a result, China feels that it REE resources have been sold at prices which do not reflect their real value or take into account environmental costs. To support this argument, China cites the fact that between 2000 and 2010 the price of rare earth products increased by 2150%, while the prices of gold, copper and iron all increased by in excess of 4300%.

China’s REE has also been plagued by illegal mining and smuggling. The report states, that from 2006 to 2008, statistics collected from foreign customs offices were 35%, 59% and 36% higher than the volumes that China officially exported over this time period. In 2008, it was estimated that approximately 29,000 tons of rare earth materials were smuggled out of the country, representing an estimated one-third of total REE exports. In 2014, it was estimated that illicit sales rose to 40% of all REE production or as much as 40,000 tons. Illicit REE materials are often hidden as steel composites, then reverse-engineered out when they reach the customer’s home country. It is believed that Japan is the largest importer of illicit REE materials, and may get as much as 20% of its REEs from China’s black market. Smuggling hurts China’s rare earth industry both by depressing prices, more quickly depleting REE resources and by increasing environmental damage as smugglers usually pay scant attention to pollution management.

Rapid Increase in Domestic Demand for REE Products

China has also seen a rapid increase in domestic demand for REEs, and it expects this demand to continue to increase in the future. In 2000, for instance, Chinese REE consumption was about 19,000 metric tons while non-Chinese usage was about 72,000 tons. By 2009 Chinese REE consumption had reached about 73,000 tons while other usage had declined to 59,000 tons. China uses more REEs today as its REE industry is moving higher up the manufacturing value chain. For instance, its 1987 production of products such as catalysts, magnets, phosphors, and polishing powder represented only about 1% of the total REE that it consumed. By 2008, the production of these products accounted for about 53% of the REEs used in China. Going forward, China expects its REE use in the new material technologies to grow faster than in its other traditional industrial sectors.

As an example, in July 2008, China had approximately 600 million mobile phone users; by November 2012 China’s Ministry of Industry and Information Technology estimated that China’s mobile phone owners had exceeded one billion. Similarly, in 1998, the United States, Europe and Japan produced 90% of the world’s permanent neodymium-iron-boron magnets; today China manufactures 76% of the world’s total. In 2009, China produced 12,000 gigawatts of wind power; by 2015, China aims to have 100 gigawatts of on-grid wind power generating capacity, and to be generating 190 billion kilowatt hours (kWh) of wind power annually.

China’s Reform of its Rare Earth Industry

As early as 1990, the Chinese government deemed REEs to be a strategic mineral critical to China’s long-term political, economic and military power and began restricting foreign investors from mining rare earth, or from participating in smelting and separating except in joint ventures  with Chinese firms. By 2000, Chinese scientists and military experts were calling for even greater controls over its REEs. In 2005, Xu Guangxian, China’s leading REE scientist, argued that at the current rate of extraction the Bayan Obo mine would be depleted in 35 years.

As a result, the Chinese government began to implement a number of initiatives designed to reform the industry. Laws regarding REE mining, production and waste management were reviewed, and efforts have since been made to improve enforcement. Additionally, in 2005, the government eliminated the value-added tax rebates for REEs, and taxes on the export of unimproved REEs were raised. The government also reduced the number of REE mining and processing licenses issued. In 2006, 47 domestic REE producers and 12 Sino-foreign rare Earth producers were licensed to export rare earth products from China. By 2011, that number had dropped to 22 domestic REE producers and 9 Chinese-foreign joint venture REE producers. It has also begun to stockpile REE materials with the goal of reaching reserves of 30,000 to 55,000 tons of rare earth concentrates.

Additionally, it created the 2009-2015 Plan for Developing the Rare Earth Industry, and established the Chinese Society of Rare Earths, consisting of 150 members whose aim is to develop a fully integrated REE sector. Part and parcel of this, it has divided the country into large REE districts: Jiangxi, Guangdong, Fujian, Hunan, and Guangxi in the South; Inner Mongolia and Shandong in the North; and Sichuan in the West. Between 2009 and 2015, the government expects Inner Mongolia and Sichuan to be primarily responsible for producing LREE with additional capacity coming from Shandong as needed. HREEs will be produced in Jiangxi, Guangdong and Fujian. Increased inspections by government officials will be carried out in order to ensure that facilities are not exceeding national quotas and that mining and manufacturing are meeting environmental regulations.

Since January 2014, China has pressed aggressively ahead with its efforts to consolidate the REE industry under six large state owned enterprises (SOE)including Inner Mongolia Baotou Iron and Steel Group, China Minmetals Corporaion, Aluminum Corporation of China (Chinalco), Guangdong Rare Earth Group, Xiamen Tungsten, and Ganzhou Rare Earth Group. These SOEs will control the industry by geographic region. An estimated 300 smaller, independent REE producers have been forced to shut down or  to merge  with  the SOEs. These SOEs will invest in all aspects of the rare earth industry chain. Currently, these six companies control 94% of China’s RE resources,  75% of its mines and  60% of the smelting and separating capacity. After consolidation, the six SOEs are expected to have complete control over these sectors. These  conglomerates will be supported by financial subsidies, tax breaks, and other form of government  investments, and will be encouraged  to expand their expertise  in areas such as REE recycling.

China continues to view the REE industry as of strategic importance to the country. Its goal is to have a significant market share of the entire REE supply chain from mining, smelting and separating to manufacture of high-end rare earth technologies. China’s dominance in the middle aspects of the REE supply chain – transforming mined materials into useful ingredients – enables China to draw in related domestic and multinational businesses that depend on the REE materials. This in turn increases China’s importance to supply chains in everything from mobile phones to wind turbines.

Since January 2014, Beijing has also stepped up its campaign against illegal mining. It has forced smaller, wildcat producers to close, and is now conducting helicopter searches in areas where illegal mines are purported to be operating. It is also going after the gangs who are running them as well as local government officials who turn a blind eye.

Beijing is also working to stamp out illegal production by larger, licensed companies which avoid production quotas by exporting RRE under ambiguous labels such as “iron alloy”.  New export license paperwork for the big six will be more onerous and exacting. Beijing is also trying to implement a RE supply chain trace-ability system.

Since July 2014, China has push ahead with its plans to grow  its domestic REE stockpiles.  China plans to use it stockpiles to ensure  adequate resource  supply  in the future, especially in light of growing domestic demand. It will also use it stockpiles as a mechanism  to support REE  pricing.

Export Quotas

Chinese ships loaded with rare earth minerals for export

The government also began to implement quotas on the amount of REEs that it allowed to leave the country. From the Chinese perspective, quotas felt appropriate as foreign countries, particularly the United States and Japan, were seen to be taking advantage of China’s cheap, environmentally-destructive REEs while maintaining strategic stockpiles in their own un-dug mines. Quotas would also help ensure that the Chinese had plenty of REEs for their domestic needs. Historically, separate export quotas have been set for domestic REE producers and for Sino-foreign joint venture REE producers. Between 2005 and 2007, the government authorized domestic REE producers to export 40,000 metric tons and Chinese-foreign joint ventures to export 16,000 metric tons. In 2008 and 2009, China reduced the domestic quota by 21.6% and 2.5% respectively while holding the Chinese-foreign joint venture quota steady. By 2010, China’s overall REE export quota was reduced an additional 37.1%, this time impacting both domestic and Sino-foreign joint venture producers alike.

The government’s new policies are specifically designed to restrain the export of unprocessed REEs, as no quotas have been placed on REEs exported in finished products. Part of the reason for this is that the government wants to encourage foreign REE manufacturers to relocate their production facilities to China, particularly to Baotou’s Pioneering Rare Earth Hi-Tech Development Zone.  It is estimated that approximately 50 foreign companies are already operating within Baotou’s industrial complex. From the Chinese perspective, this would allow them access to new technology and would generate jobs for its citizens. Non-Chinese consumers of REEs have criticized this policy saying that it is pressuring them to relocate to China in order to stay cost competitive. This in turn could put their proprietary REE technology at risk, and it would continue international dependence on China’s REE industry.

Chinese Suspension of Rare Earth Exports

On September 7th, 2010, a Chinese fishing trawler rammed a Japan Coast Guard vessel near to the Senkaku/Diaoyu disputed islands, known in Japan as the Senkaku Islands, and in China as the Diaoyu Islands. The islands are administered by Japan but are also claimed by China and Taiwan. The Japanese subsequently detained the captain, causing a major diplomatic dispute between the two countries.  Despite repeated demands by the Chinese government, the Japanese refused to release the captain, saying that instead his case would be handled by the Japanese courts. In retaliation, the Chinese canceled official ministerial Sino-Japanese meetings, and revoked an invitation for 1000 youths to attend the Shanghai World Expo. (Lin, 2010) Although denied by the Chinese government, on September 21st, it is widely believed that the Chinese also orchestrated an unofficial halt of REE exports to Japan by having its custom agencies prevent the export of REEs, though this has recently been questioned in academic studies, particularly in light of the fact that shipments to Europe and the US were also halted the following month, and given that the Japanese government had expressed grievances over the rare earths issue as early as August 18th. Beijing claimed instead that the export stoppage was a spontaneous, independent demonstration of support by Chinese REE exporters and custom agents. Regardless of its origin, the embargo has enabled China to exert political pressure on Japan. The unofficial nature of the embargo also made it more difficult to challenge in the World Trade Organization (WTO) which bans most unilateral export stoppages.  On September 24th, Japan released the Chinese captain, with the Chief Prosecutor citing “Japan’s national interests”.

By mid-October 2010, China was also blocking some shipments to the United States and Europe after the Obama administration opened an investigation into whether China was violating free-trade rules with its green energy policies including its restrictions on REEs. China resumed shipments to the U.S. and Europe at the end of October, but did not resume shipments to Japan until the November 24th. Part of its decision to resume shipments to Japan might have been due to the fact that many Chinese assembly factories, employing hundreds of workers, were running low on Japanese-made components when suppliers began to face shortages of some of the REEs needed in their manufacture.

Consolidating the Industry and Ending Illegal Mining and Smuggling

Since 2006, the government has stepped up its efforts to shut down illegal mines in the provinces of Guangdong, Jiangxi and Sichuan. Over the last two years, China has investigated and rectified 600 cases of illegal mining, has identified an additional hundred cases against which further action will be taken, and has closed 13 mines and 76 processing facilities. Similarly, in 2011, China launched a campaign to crack down on REE smuggling, retrieving 769 tons of smuggled REE metals and prosecuting 23 criminal suspects in eight cases.

China has also been urging its REE producers to merge together. Ultimately, the government envisions that the REE industry will be eventually controlled by a few, state owned enterprises. Surviving Chinese producers have seen advantages to this consolidation strategy as it has helped to reduce unnecessary competition and increase profitability. For instance, Dingnan Dahua New Materials Co., Ganxian Hongjin Rare Earths Co. Ltd, Minmetals Nonferrous Metals Co. Ltd have all joined together to form Minmetals Ganzhou Rare Earth Co. Ltd to process REEs in Ganshou, Jiangxi Province. Their operations are expected to slowly subsume the majority of the production of the 88 smaller REE producers that have historically been operating in the area.

Improving Environmental Regulation

Rare earths are crucial for wind turbines

China also plans to implement stricter environmental standards. The Ministry of Environmental Protection has now set discharge standards for six types of atmospheric pollutants and for 14 different types of water pollutants. China will aim for its new REE facilities to be built to ISO 9000 and ISO 14000 certificate standard. It may also force its dirty mining and processing facilities to halt operations until they are also able to secure the ISO accreditation. The ISO 9000 and ISO 14000 are internationally recognized accreditations that look at how a product is produced rather than the product itself. The ISO 14000 standards help organizations establish procedures that minimize negative effects to the environment. If China enforces its tougher environmental standards, it is estimated that it could add between $145 and $220 to the production costs of every ton of REE products. These higher costs would significantly erode China’s cost advantage in the industry.

Additionally, China intends to increase the recycling rate of both REEs in discarded electronic products as well as recycling an estimated 12.6 million tons of REE oxides that had been deposited in its Baotou tailings pond. Currently there are no cost-effective ways to recycle rare earth elements from old equipment such as computers, electric motors and cell phones. Similarly, technology to extract residue REEs in tailings ponds is also in need of further development. China is also working on technology that will reduce the amount of REEs that are flushed into tailings ponds in the first place.

China’s Rare Earth Industry Research and Investment

As China considers its REE industry to be of critical strategic importance, it is heavily investing in REE research and development. It hopes breakthroughs in REE technology will help ensure its national security, and could enable China to leap-frog the West to lead in the development of many new advanced technologies such as those found in the rapidly emerging environmental sector. Indeed, in 1999 President Jiang Zemin noted that if China could master REE technology, its REE resource advantage could then help lead China to economic superiority.

Much of China’s REE investment has been funneled through the State Key Laboratory of Rare Earth Materials Chemistry and Applications, affiliated with Peking University in Beijing, and the State Key Laboratory of Rare Earth Resource Utilization, affiliated with the Changchun Institute of Applied Chemistry which is run under the direction of the Chinese Academy of Sciences. Between the two labs, there are approximately 70 faculty members, 35 professors and 75 graduate students dedicated to REE research. Additionally, China also conducts REE research through the Baotou Research Institute in the General Research Institute for Nonferrous Metals. Each of these institutions run complementary but independent research into the efficient and environmentally friendly mining and processing of REEs, the development of technology employing REE materials, the recycling of REEs from already existing products and the reclamation of REE materials in its extensive waste ponds.

China is not only investing in REE domestically, it is also purchasing stakes in rare earths natural resources abroad. For instance, China has purchased a 25% date in Arafura Resources Ltd, an Australian Rare Earth developer.

World Response to the Reform of China’s Rare Earth Industry – WTO filing

In March 2012, the United States, European Union, and Japan filed a complaint with the WTO against China’s REE trade practices in response to export restrictions, restrictions in export licensing, higher export taxes, and the withdrawal of the 16% refund of value-added tax on exports of unimproved REEs. They argued that the effect of these policies has been that non-Chinese producers of REE products pay 31% more for their REE materials than their Chinese competitors.  The US, EU and Japan are also challenging aspects of the allocation and administration of export quotas, export licenses and the manipulation of export prices. They contend that Beijing aims to satisfy domestic REE demand first, and to control the international price of REEs abroad. They also say that Chinese practices are placing pressure on foreign manufacturers to relocate their operations to China in order to minimize the impacts of rising costs and shrinking supplies. It is expected that the complaint will take between one and three years to resolve.

WTO ruled against China's REE export restrictions

WTO ruled against China’s REE export restrictions

China has countered that its policies are intended to improve the environmental standards of its REE mining and processing facilities as well as to promote the long-term economic sustainability of its REE resources. It has rejected a call for the establishment of a WTO panel. China has also countered that foreign suppliers have not complained of China dumping low-cost REEs as they previously had with China’s export of low-priced steel and textiles.

The US, EU and Japan feel that a WTO ruling made in January 2012 supports their case. In that ruling, the WTO decided that price and quantity controls primarily targeting foreign entities were not a reasonable implementation of a resource conservation policy. It also stated that trade restriction measures for the purpose of environmental protection can only be applied in conjunction with restraints on domestic production or consumption.

In June 2014 the WTO ruled against China and in August 2014 China lost its appeal. The WTO stated that China’s efforts conserve its limited REE resources and to protect its environment by restricting foreign access to REE tungsten and molybdenum through export duties, export quotas, minimum export pricing requirements and additional requirements and procedures constitute a breach of WTO rules. Instead the WTO found that the China’s REE restrictions were designed to achieve industrial policy goals rather than REE resource conservation or environmental protection. The WTO ruled this because no measures were put in place to restrict domestic access to REE supplies. Instead the export restrictions gave domestic companies preferential access to REEs at prices below that available to foreign customers.

World Response to the Reform of China’s Rare Earth Industry – Developing New Rare Earth Sources

Car production could be affected by rare earth shortages

Many governments and companies around the world are also beginning to develop new REE sources, now feasible given the higher REE prices which have resulted from increased REE demand and China’s export restrictions. The Australian company Lynas Corporation, for instance, has invested in an $800 million processing plant located on Malaysia’s East Coast. Once fully operational, Lynas’s Malaysian processing plant is slated to become one of the largest REE processing plants in the world. Yet, the opening of the plant has been plagued by protests from Malaysian activists who worry about its environmental implications. The plant is located on reclaimed swampland just 12 miles from Kuantan, a city of 600,000 people. A particular worry is that the plant’s toxic wastewater, containing chemicals and low levels of thorium, will seep into the groundwater, and that its storage ponds could become vulnerable to the monsoons that inundate the swampy coastline each autumn. Currently, Mitsubishi Chemical is investing $100 million to clean up its Bukit Merah REE processing site which it was forced to close in 1992 when local residents began complaining of leukemia and other ailments tied to thorium contamination. This environmental contamination has caused Malaysian activists to demand greater environmental regulation for all future RE processing facilities located on its soil.

In California, near Death Valley, Molycorp Minerals has invested $781 million in the modernization and expansion of its RE mining and manufacturing facilities that were shuttered in 2002 when it was unable to produce REEs at prices which could compete with Chinese producers. Molycorp aims for its newly refurbished Mount Pass facility to be one of the most technologically advanced, energy efficient and environmentally friendly REE processing operations in the world. By the end of 2013, Molycorp expects Mountain Pass to be producing 40,000 metric tons of REEs annually. As the US currently consumes between 15,000 and 18,000 metric tons of rare earth oxides each year, this would mean that the US would turn into an exporter of REE products in the near future.

Mines are also under consideration in Canada, Australia, South Africa, Greenland, Mongolia, Vietnam and India. In 2009, Japan signed a contract with Vietnam to invest in a rare earth mine that will produce solely for Japanese vehicle manufacturers. The problem is even if these new mines and accompanying processing plants were given the go-ahead, it could still take between 3 and 10 years, not to mention hundreds of millions of dollars, before these new projects would become fully operational. Others are investing more heavily in the manufacturing of high-end REE products outside of China. Japan’s Hitachi Metals Company, for instance, is investing in a permanent magnet factory in China Grove, North Carolina instead of locating it in China as it had originally envisioned.

A concern for those investing in new REE mining and processing locations is that China could increase production again driving down REE prices just as their projects come on line, once again making non-Chinese mining and processing facilities uneconomical. Ironically, a WTO judgment in favor of the US, the EU and Japan could have this effect by forcing them to withdraw export restrictions which would once again flood the market with Chinese REE product. To protect against this, some non-Chinese scientists and industrialists have called for their governments to provide federal support in the form of loan guarantees and other assistance. Others argue that the rapidly growing demand for REEs should help maintain prices, even in the event of a significant increase in Chinese REE production.

World Response to the Reform of China’s Rare Earth Industry – Other Initiatives

International consumers of China’s REEs are also taking other steps to become independent from Chinese supplies. As a short term stop-gap, countries such as Japan and South Korea already have strategic stockpiles of rare earth metals. Countries are also increasing research into REE substitutes and REE recycling.

Trends for the Future

Rare earth mining is certain to be an important part of China’s future economy

China’s REE industry continues to grow at a strong clip. According to the Industrial Minerals Company of Australia, China’s REE annual output is forecasted to rise from 105,000 tons in 2011 to approximately 130,000 tons by 2016.

China considers the development of REE technologies a national priority. To support this objective, it will continue to invest heavily in research and development in all aspects of REE production from improved mining efficiency to the development of cutting-edge REE technologies.  It will also continue to invest in technologies that will allow it to reclaim REEs from its tailing ponds and to recycle REEs from discarded electronic products.

China should be able to have substantially greater influence over REE’s supply and the pricing. To some extent this will offset its inability to control supply and price by export quotas and by other trade restrictions now ruled to be illegal by the WTO. China will also continue to build domestic stockpiles.

The financial and academic resources China is investing in basic REE research are unparalleled anywhere in the world. Similarly, no other country has identified the manufacturing of REE technologies as a national objective and is pursuing it as single-mindedly. Given China’s significant level of naturally occurring REE reserves, its destination as a low-cost manufacturing base, and its heavy research and investment in all aspects of the REE sector, it can be expected that China will continue to rapidly consolidate its already strong foothold in the manufacture of many of the REE technologies. It is likely it will dominate the production of many of these technologies in the future.

Rising REE prices and aggressive Chinese REE policies have caused non-Chinese REE miners and manufacturers to seek alternative REE sources and alternative locations to produce their REE components. Over the next 10 years, it can be expected that new REE mining and processing sources will come on line, allowing international competitors to claw back some unfinished REE market share. In particular, US Molycorp and Australian Lynas both have brought REE mines on stream. Similarly, international REE producers, wary of the Chinese subsuming their technology, will continue to seek alternative, cost-effective places to manufacture. That said, they will struggle to compete against China’s advantages.

China’s Island Disputes – A lot at Stake

Introduction

By 中国海监总队/China Marine Surveillance (中国海监总队/China Marine Surveillance) [Public domain], via Wikimedia Commons

A Chinese surveillance ship and a Japan Coast Guard vessel at close quarters

Among the numerous causes of friction between China and its neighbors, the continued failure to resolve a series of territorial disputes remains one of the most pressing. Threatening to destabilize the entire region, the disputed islands bring China into potential conflict with Vietnam, the Philippines, Malaysia and, most worryingly for regional security, Japan. Though virtually all of the islands are uninhabited and largely uninhabitable, they carry with them issues of military strategic importance as well as access to a potential wealth of natural resources. China formerly had land-based territorial disputes with each of the fourteen countries with which it shares a border but has worked hard to resolve these in a peaceful and frequently generous manner, accepting less than 50% of the disputed area in most cases. The only exceptions to this were with Russia, in which each side settled for precisely half of the disputed territory, and India, with whom several disputes are outstanding, complicated by the Tibet issue. The contrast with the maritime disputes could not be starker with almost no progress towards resolution in any of the disputes since the foundation of the PRC in 1949 and with the Chinese position seemingly utterly intransigent. Indeed, developments in recent years have seen a more assertive Chinese position causing serious friction and concern for regional stability. This seemingly belligerent stubbornness is rooted in a complex web of motivations that includes strategic considerations, access to natural resources and fish stocks, the psychological importance of national unification and territorial integrity, and a genuine sense of historical ownership.

Diaoyu/Senkaku Islands

Senkaku islands location map (senkaku) http://commons.wikimedia.org/wiki/File:Topographic15deg_N20E120.png Author: jackopoid

Map showing the location of the disputed islands

Perhaps China’s most talked about maritime dispute – certainly in recent times – is in the East China Sea, where it contends with Japan for the sovereignty of what it calls the Diaoyu islands, known to the Japanese as the Senkaku islands. The islands have occasionally been referred to in English as the Pinnacle Islands, but as this is a translation of the Japanese name it is normally not used unless expressing an opinion that the islands are Japanese territory. The rocky, uninhabited islands are located approximately 80 miles northeast of Taiwan and 250 miles west of Okinawa, an island over which there is no dispute and Japan’s most southerly prefecture.  The five islands in the group have a total combined area of just 2.7 square miles and do not have any infrastructure built on them. The dispute is complicated somewhat by Taiwan’s involvement, as it also claims the islands. However, this is not a challenge to China’s position as it considers the islands to be a part of the province of Taiwan, which is internationally recognized to be a part of China.

History

The islands are known to have been used by Chinese fishermen during the Ming Dynasty as shelter during storms, but were never permanently inhabited and their use by the Chinese appears to have come to an end at some time during the Qing Dynasty. Japanese historians argue that the islands were historically a part of the Ryukyu Kingdom, a small chain of islands that included Okinawa which operated as a relatively independent state until the late eighteenth century. However, there is evidence that shows the Ryukyu Kingdom itself acknowledged the islands to be a part of the Chinese realm, though this is disputed by some. By the time the Ryukyus were annexed by Japan in 1879 there was no mention of the Senkakus. The islands were re-discovered by a Japanese businessman named Koga in 1884, after which the Japanese surveyed the islands over a ten year period, before fully incorporating them into Japanese administration in 1895.

Respective Positions

The Chinese position on the sovereignty of the islands has two bases: a historical claim; and a geographical claim. The historical claim refers to the first established use of the islands as outlined above. From this perspective, since the islands were first discovered and then used on a frequent basis by the Chinese as early as the 14th century, there can be no dispute as to the original sovereignty of the islands. Given their geographical location it is entirely logical that they would be a part of the province of Taiwan. However, this province was ceded to Japan in 1895 after the First Sino-Japanese War ended with the Treaty of Shimonoseki that awarded Taiwan to the Japanese “in perpetuity”. Taiwan remained a colony of Japan until its defeat in the Second World War in August 1945, at which point the Potsdam and Cairo Declarations – both accepted by Japan as conditions of its surrender – decreed that Japan should return Taiwan to Chinese sovereignty. As the Diaoyu Islands are considered to have historically been part of Taiwan, they should be included in this. The second basis of China’s claim is somewhat tenuous in international law and refers to the nature of the East Asian continental shelf. China claims that the shelf is part of Chinese territory and extends out into the East China Sea, incorporating the Diaoyu Islands. Though it is true that the continental shelf is exceptional in its extension, it is worth noting that such a claim has never been used by any other country in the world, and there is little to suggest that it has any basis in law.

The Japanese position on the islands is based on a claim of “continuous occupation or administration”. From the Japanese perspective the uninhabited and entirely undeveloped islands were rediscovered in 1884 by Koga, and an appropriate survey conducted over the following decade. They were then incorporated into Okinawa Prefecture as sovereign Japanese territory. After Japan’s surrender in August 1945, the islands remained under the administration of the occupying US forces, who maintained control of Okinawa until 1972, a fully twenty years after handing back control of the Japanese mainland. For the Japanese, the Senkaku Islands were restored to Japanese sovereignty at this point and had not been separated from Okinawa Prefecture at any time since 1895.

Though China never acknowledged Japanese claims over the islands, it never challenged US administration of them during the almost three decades following the end of the war, though this is complicated by the presence on Taiwan of US allies the Kuomintang (Guomindang, KMT). However, it is notable that serious diplomatic noises surrounding the sovereignty issue only emerged after a UN report was released in 1968 suggesting that significant reserves of oil and gas may lie under the water surrounding the islands. Despite these noises, when the PRC and Japan normalized relations in 1972 the matter was shelved, as it was in 1978 during negotiations over the Treaty of Peace and Friendship, with Deng Xiaoping confidently declaring that “the next generation will be wiser”. Since then, no significant negotiation has taken place over the issue, with the Japanese exercising de facto control of the islands through regular patrols by the Japanese Coast Guard.

Modern Day Controversies

By Wuyouyuan (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

A Chinese poster showing the islands with superimposed Chinese flags signifying sovereignty

In response to Chinese claims over the islands, the Japan Youth Federation – a right wing group nationalist group with links to serious organized crime that seeks to promote a positive Japanese national identity and downplay Japan’s wartime atrocities – landed on the largest of the islands and erected a lighthouse, the first structure ever built on the islands. This was done without the consent of the Japanese government and China strongly objected to it as a provocation. The lighthouse has continued to be a source of controversy as members of the group have returned to the island periodically to conduct “maintenance”, frequently at times of increased tension over the issue. At the same time as building the lighthouse the group sought to address the problem of the islands being uninhabited, by leaving two (Japanese) goats behind. This symbolic gesture has had unintended but serious consequences for the island’s ecosystem; the single pair of goats, without any natural predators, has bred to a total in excess of 300, devastating the vegetation and bringing the Senkaku mole – an evolutionary distinct mammal found only on the island – to the brink of extinction.

A diplomatic spat between China and Japan was sparked in 1996 when the Japan Youth Federation returned to the islands to conduct maintenance on its lighthouse. However, what is notable about the controversy – which occurred in the wake of the Taiwan Strait Crisis that appeared to bring the region to the brink of military conflict – is that it was not publicized in China until it had been resolved. The People’s Daily – the most widely circulated newspaper in China that also functions as the CCP’s mouthpiece – did not report on the issue, even in pieces that criticized Japan over other issues. There was a clear desire in China not to provoke the public over the issue, and the matter was dealt with relatively swiftly at the diplomatic level.

The issue continued to be one of several sources of tension between China and Japan throughout the rest of the 1990s and into the 2000s, without sparking serious incident. It remained a matter of dispute that was brought up during virtually every bilateral meeting and no solution has ever appeared close but neither side had sought to change the status quo. There were minor sources of irritation, including the arrest of a Chinese fisherman near the islands in 2004, but he was swiftly released without charge by the Japanese who sought to play down the significance of the incident.

However, in 2010, the matter returned to centre stage in Sino-Japanese tension. In September of that year a Chinese fishing boat was spotted in what Japan considers to be its waters. A patrolling Japan Coast Guard (JCG) ship ordered it to leave the waters immediately, but the fishing boat instead changed course to head directly towards the Japanese ship. Though the Chinese side later disputed this version of events a video taken from the JCG vessel that was later leaked by a disgruntled employee clearly showed that the fishing boat intentionally rammed into the Japanese boat twice. At this point the entire crew was arrested, sparking a major diplomatic dispute between the two countries.

Though the rest crew was released almost immediately, the captain of the boat was detained for a total of 17 days, on possible charges under Japanese law. The Chinese response was vociferous, both at the governmental and societal levels, with strongly worded diplomatic protests and apparently spontaneous street demonstrations against Japan. There were reports that China had suspended exports of rare earths to Japan in response, though academic analysis has later disputed this version of events. A group of Japanese businessmen were also arrested in the aftermath of the boat captain’s detention, on seemingly spurious charges that appeared to be a tit-for-tat retaliation. The diplomatic standoff finally came to an end when Japan apparently blinked first, with the Chief Prosecutor announcing the release of the captain without charge on the grounds of “Japan’s national interests”, something that caused a debate over the legality of his actions within Japan. While this brought an end to this chapter of the dispute, it served to bring the islands to the forefront of Sino-Japanese tensions.

Japanese Nationalization

In 2012 a campaign Shintaro Ishihara, then the mayor of Tokyo and a right wing firebrand who had long campaigned for a tougher policy towards China, launch a campaign to nationalize the islands. The three largest islands had been in private ownership since Japan integrated them into its territory at the end of the eighteenth century. The family that held the rights to them had been keen to sell them on but was not willing to do so if there could be any threat to Japan’s sovereignty claims. As a result, Ishihara launched a bid to raise enough funds to buy the islands and vowed to take them under the umbrella of the Tokyo government. His plans also included the building of a harbor on the largest island, a move that would unquestionably have inflamed tensions with China and possibly have provoked a military response. When Ishihara’s campaign achieved its goal of raising sufficient funds, the national government decided it had no option but to move on the issue. The then-Prime Minister Yoshihiko Noda announced that the national government would purchase the islands and quickly struck an agreement with the family that owned them. This move was, without doubt, driven by a desire to lessen the tension with China as Ishihara’s plan was deemed highly provocative. Under the national government’s ownership no development of the islands would occur and the status quo would effectively be maintained. Noda clearly hoped that this move would be recognized by the Chinese and the response would be proportionate.

By 中国海监总队/China Marine Surveillance (中国海监总队/China Marine Surveillance) [Public domain], via Wikimedia Commons

Anti-Japan protest in Beijing in 2012

However, the nationalization of the islands proved to be a particularly hot topic in China and the response from Chinese society was the most serious that has been seen in any international issue in living memory. A series of scathing diplomatic attacks from the government served as a backdrop to widespread anti-Japanese protests across China. In total, 85 cities on the mainland witnessed large protests with many of these becoming violent. Japanese businesses and citizens were harassed, with even the ambassador’s car coming under attack in Beijing. Calls for boycotts of Japanese produce – a common response from nationalistic Chinese whenever a dispute with Japan occurs – appeared to have a greater effect than ever; in one bizarre demonstration of support for this idea a man set fire to his own Honda car in the middle of a Shanghai street. The economic relationship was demonstrably affected, with Japanese firms temporarily closing factories in China and laying off tens of thousands of workers. Sino-Japanese trade had previously been thought to be almost immune to the repeated spats between the two countries, but annual trade dropped by 4% in 2012. Two-way tourism figures fared even worse, with Chinese visitors to Japan down 33% in October 2012 compared with the previous year while the numbers of Japanese visitors to China fell by two thirds in the second half of 2012.

Since the nationalization China has stepped up “surveillance” of the areas surrounding the islands. Where once an unwritten agreement not to enter Japan’s de facto contiguous zone around the islands had kept the prospect of conflict to a bare minimum, China has since regularly flouted this norm. Though the incursions are frequently “Marine Surveillance” vessels rather than military ships, the possibility of conflict has been raised to its highest level since the two countries normalized relations in 1972. This was brought into sharp focus in December 2012 when a Chinese “Maritime Surveillance” plane entered the airspace of the islands, leading to the Japanese scrambling jets in response. A further escalation of the dispute in January 2013 occurred when the Japanese claimed that a Chinese PLAN frigate (a navy warship) had locked its radar onto a Japanese ship in the waters, suggesting that the first shots were about to be fired. Though China subsequently denied the incident the fact that such ships are now in frequent and close contact has significantly raised the possibility of a miscalculation that might trigger actual armed conflict between the two powers. The seriousness of the situation is heightened by a declaration from Hilary Clinton in January 2013 that the US’ joint security treaty with Japan covers the islands, thus obliging it to defend Japan if attacked by China. This raises the possibility of direct conflict between China and the US for the first time since the Korean War and is a stark reminder to all involved of the gravity of the situation.

In October 2013 China declared an Air Defense Identification Zone (ADIZ) above the East China Sea, including directly above the islands. This requires aircraft entering the zone – which is separate from China’s territorial airspace – to identify themselves to the Chinese authorities, log a flight path and retain open communications for the duration of the period of time in the zone. Although the zone is not unique – several of China’s neighbors have similar zones, including Japan – the sudden declaration and the more stringent requirements imposed by China have made this a controversial move that is clearly linked to the islands dispute. Aircraft from both Japan and the US have so far ignored the rules without serious consequence but the potential for miscalculation has clearly been raised even further by this development.

South China Sea Disputes

In addition to China’s dispute with Japan in the East China Sea, it has competing claims with several countries of Southeast Asia for islands and maritime rights. China’s famous “nine dashed line” details its claim to virtually every single island and rock in the South China Sea, stretching to within 50 miles of the mainlands of Malaysia and the Philippines despite being more than a thousand miles from China’s mainland in several instances. There are two main groups of islands within this vast area of sea claimed by the PRC: the Paracel Islands, which is disputed with Vietnam; and the Spratly Islands, which are wholly claimed by China, and partly claimed by each of Malaysia, the Philippines, Brunei, and Vietnam, with Indonesia also claiming maritime rights in the area without actually staking a claim to any territory. Additionally, there are disputes with the Philippines over Scarborough Shoal and Macclesfield Bank. As with the East China Sea, each of the disputes is complicated by matching claims from Taiwan which are based on the same justifications as the PRC.

The Paracels

The location of the disputed and uninhabited Paracels and Spratlys

Known as Xisha Qundao (West Sand Islands) in Chinese and Hoàng Sa (Yellow Sand) in Vietnamese, the Paracel Islands are located approximately 200 miles south of Hainan Island (China’s most southerly province) and a similar distance east of central Vietnam. The group is made up of more than 30 islands, islets, reefs and sandbanks. Their significance lies mostly in access to significant fishing stocks, though it is thought that oil and gas deposits may also be present.

From a Vietnamese perspective, the islands have been sovereign territory since the 15th century, when harvesting of sea produce was conducted on the islands. This claim is supported by some historical evidence in the form of records kept by several of the Vietnamese dynasties that detail continues use of the islands throughout the following centuries. The islands were claimed by France in the mid-19th century after the colonization of Indochina, and this claim met with no objection from China, though it is reasonable to consider that China was in something of a situation of turmoil itself at this time facing the prospect of colonization itself for the first time in its history. The French reasserted their claim to the islands in 1930, this time meeting with resistance from what was then the Republic of China. The islands were annexed by Japan in 1939 as its military rolled across East Asia. Following Japan’s defeat in 1945, the status of the islands was left ambiguous by the post-War treaties, until Japan itself completed an agreement with Vietnam for the return of sovereignty over the islands 1952. Though this was complicated further by the partition of Vietnam two years later, the present-day reunified Vietnam considers this treaty to be valid and still in force, demonstrating its continued sovereignty over the islands.

China’s claims actually predate those of Vietnam, with record from the Song Dynasty suggesting that some Chinese habitation of the islands occurred during this time. The islands were also included in maps produced during later dynasties, including the Yuan and the Ming. Though the use of the islands appears to have subsided during the Qing Dynasty, no Chinese government ever renounced the claims and the Republic of China formally objected to the French colonial government of Indochina building a weather station on the largest of the islands in 1932. Additional evidence of China’s claim, perversely, comes from the Japanese invasion during the Second Sino-Japanese War, during which the Japanese foreign ministry demanded that France desist from activities on the islands on the basis that they were part of the administrative prefecture of Hainan Island, then under Japanese occupation. After Japan’s defeat, China considers sovereignty to have been returned to it under the terms of Japan’s surrender.

In 1974, while North Vietnam and South Vietnam were still engaged in war with each other for control of the two countries, the south fought a battle with China for the Paracel Islands. The battle was sparked by attempts from the South Vietnamese navy to expel Chinese fishing vessels from the surrounding waters, leading China to take military action in support of its fishing rights. After a brief naval battle and aerial bombardment, the Chinese forces launched an amphibious assault on several of the islands that it had not previously occupied, securing a decisive victory that established a permanent military presence on the islands. The battle lasted only a couple of days and Vietnamese casualties were relatively small, with around 50 deaths and a similar number of injuries, but the result was highly significant in the dispute over the islands as it established Chinese de facto control of the archipelago. A recurrence of military activity in 1988 left a further 70 Vietnamese dead, though this incident is frequently dismissed as nothing more than a ‘skirmish’.

The dispute remains unresolved has been at the root of sporadic incidences of diplomatic difficulties between the two countries, usually sparked by disagreements over fishing rights. These spats have become more commonplace since China established a symbolic administrative region that incorporated the Paracels in 2007. In 2010 China announced plans to develop tourism to the islands in a move that the Vietnamese condemned as a “serious violation” of its sovereignty. A potentially serious flashpoint occurred in June 2011 when a Vietnamese oil survey ship was apparently rammed by a Chinese patrol vessel in waters close to Vietnam, seemingly outside of what even China considers to be its waters. Chinese military vessels have also detained Vietnamese fishermen on numerous occasions in recent years. For example, in March 2012 a total of 21 fishermen were arrested by Chinese patrol boats, after a fleet of around 100 Vietnamese boats entered what China considers to be its waters surrounding the islands. Though they were released a few weeks later the reaction sparked angry and violent protest against China in Vietnam, notably in the capital, Hanoi. Though both governments have sought to develop friendlier ties in many other areas of their relationship in recent years, the islands dispute remains a constant thorn in bilateral ties and a conduit for ugly nationalist sentiment in both countries.

In May 2014 China moved an oil rig from a part of the sea that was undisputed into an area that Vietnam considers to be its territorial waters. This sparked an angry response from both state and society in Vietnam with violent anti-Chinese protests breaking out across the country, resulting in several serious injuries to Chinese workers and the evacuation of hundreds of foreign workers (including many non-Chinese caught up in the protests). Though no direct military confrontation has followed, the dispute has taken Sino-Vietnamese relations to their lowest point for decades.

The Spratlys

The Spratly Islands are a group of around 750 islands, islets, reefs and sand banks, totaling a little over one square mile of actually land but spread out across in excess of 100,000 square miles of the South China Sea. They are largely uninhabited but several countries have succeeded in establishing military presences on some of the islands in their respective claims. Thus, 45 of the islands are home to military forces from China, Taiwan, Vietnam, the Philippines, and Malaysia. Brunei also claims one island but has not established a military presence on it. China refers to the islands as Nansha Qundao (South Sand Islands), and considers them to be part of the same symbolic administrative region as the Paracels. It is the only country (except for Taiwan, whose own claims overlap the PRC’s for historical reasons) to claim the entire archipelago, which includes islands that are within 50 miles of the mainlands of Malaysia and the Philippines but more than 1000 miles from China’s own mainland. The economic value of the island is questionable at best, with initial surveys suggesting that oil and gas may be present but in unknown quantities. However, from a strategic perspective, as well as for reasons of national pride and for access to fishing stocks, the islands retain a high level of importance to all parties in the dispute.

As with the Paracels, China’s claims rests on historical usage of the islands during dynastic times, stretching back to the Yuan Dynasty, while Vietnamese claims are also rooted in their own historical use and supported by the French colonization of the area that purported to include the archipelago in its empire. Claims from Malaysia, the Philippines and Brunei are more geographical than historical, with each citing the proximity of uninhabited and undeveloped islands to their own undisputed sovereign territory as justification for their claims. The dispute is complicated by the lack of native populations and the previous colonization of several of the competing countries in the claims.

The dispute has remained unresolved and, particularly in recent years, has led to heightened tension with potential for military conflict in the region. Indeed, in May 2011 it was reported that vessels from the Chinese navy (PLAN) had fired upon several Vietnamese ships in the region, including two oil survey ships and at least one fishing boat. The incident contributed to a serious deterioration of ties between the two nations during that time and sparked further angry anti-China protests in major Vietnamese cities. Around the same time the Philippines government began to express concerns about China’s increased activity around the islands and openly warned the visiting Chinese Defense Minister, Liang Guanglie, that his country “risked sparking an arms race” in the region if it did not seek to ease tensions swiftly.

Scarborough Shoal and Macclesfield Bank

Macclesfield Bank: a tiny, uninhabitable ridge in the South China Sea

Outside of the Paracels and the Spratlys, the South China Sea is also home to Scarborough Shoal and Macclesfield Bank which are disputed between China and the Philippines. Both are significant for strategic reasons and for the implications that any acknowledged sovereignty claim might have on other disputes in the Spratly Islands.

Macclesfield Bank, known as Zhongsha Qundao (Central Sand Islands) is a completely submerged chain of reefs that does not qualify as territory under international law since it cannot be inhabited by human beings. Nevertheless, both the PRC and Taiwan claim it to be part of Chinese territory. The position of the Philippines government is less clear; in 2012 it objected to Chinese activity in the area but has never lodged a formal claim to sovereignty. In any case, since the atoll is entirely submerged it is not clear how such a claim would be made and what effect it could have.

Scarborough Shoal, known in Chinese as Nanyan Dao (South Cave Island) is actually a group of small islets or rocks, all uninhabited. Its sovereignty is disputed between China and the Philippine (as well as Taiwan) in the same way that the Spratly Islands are, though are considered geographically separate. Claims from all sides are somewhat patchy in their historical evidence, particularly as there is no evidence of inhabitation on any of the rocks at any point in history. Nevertheless, it remains a sore point in bilateral relations as both China and the Philippines seek access to fishing stocks and potentially other natural resources.

The dispute came to international attention in 2012 when eight Chinese fishing boats were apprehended by a Filipino naval vessel which accused the crews of illegally catching sharks and taking coral. China sent in two “Marine Surveillance” ships to block the Filipinos from taking further action and a standoff ensued, leading to heightened diplomatic tensions between the two countries and tit-for-tat protests in major cities. Strong winds ultimately led to the Philippines having to temporarily withdraw its presence, after which Chinese surveillance ships set up a naval blockade, preventing any further access to the shoal. Though no direct conflict occurred, the situation is ongoing with the blockade remaining in place to the chagrin of the Philippines.

Trends

It is quite clear that an expansion of China’s naval capabilities achieved through its rapid military modernization has allowed it to become more assertive in its various maritime disputes with its neighbors. It represents a significant departure from the policy that was pursued with regard to the various land disputes that China previously had with all of its neighbors, during which it sought to resolve them rapidly and generously, gaining much appreciation in doing so. This change of stance over the maritime disputes has had several implications for the region as a whole as well as for China itself.

Firstly, it has led to a worsening in bilateral ties with several of China’s neighbors. The most serious of these is the ongoing dispute with Japan that has taken Sino-Japanese relations to arguably their lowest point since the Second Sino-Japanese War. This has inflamed nationalist tensions on both side and had an impact on the economic relationship as well as threatening military conflict. The room for compromise on this issue is severely limited for both sides and it will remain a significant source of tension between the two regional powers. Similarly, the relationships with Vietnam and the Philippines have suffered and both of these countries have witnessed anti-China protests in recent years as a result of the maritime disputes.

Secondly, China’s adversaries in the region have sought to strengthen their ties with the US in order to further protect themselves against what they see as a more assertive China. This will provide a challenge for China as it has previously sought to mitigate US power in the region. What China believes to be US attempts to encircle it and limit Chinese growth can only be served by its neighbors developing closer ties with the US and this may, ultimately, be the most significant cost to China of its policy shift. Hilary Clinton’s declaration in September 2012 that the maintaining freedom of navigation in the South China Sea is a matter of “national interest” to the US was a stark illustration to China that its change in stance over the area has consequences in this regard.

Thirdly, Chinese ‘soft power’ in Southeast Asia has suffered greatly because of its stance over the South China Sea. Having previously worked hard to project an image of a responsible power in the region, such damage has quickly undone decades of policies aimed at convincing China’s neighbors that its rise would be peaceful and not threatening. It is not clear how this can be rectified if it continues with the same pattern of hard-line policies in this area.

Finally, despite these costs to China’s international position and various bilateral relationships, its strategic position has been strengthened in various parts of the South and East China Seas. It now controls, or has access to, several positions that previously it did not. From a purely traditional military point of view, this can be viewed as a success and a gain in the balance of power in the region. Whether this will compensate adequately for the increased attention that the US will now pay to the region, the damaged bilateral relationships, and China’s deteriorating image in the region, remains to be seen.

The Tibet Issue

Introduction

To many in the West, China’s continued rule in Tibet is often considered to be a foreign occupation, though few inside China accept this point of view. Tibet is of great psychological importance to China and to Chinese people in terms of national identity and the maintenance of Chinese national unity, as well as of enormous strategic importance with regard to China’s traditional national security and its access to water and other vital natural resources.

Geography

The Tibetan Plateau is the highest region on the planet, sometimes referred to as “the roof of the world”. With an average elevation of more than 4500 meters, it is an

inhospitable place to plant and animal life alike and frequently leaves unaccustomed visitors gasping for air. It is home to one half of the world’s highest mountains, including Mount Everest or Qomolangma as the Tibetans call it, with the peak forming the border with Nepal. Tibet is also the source of many of Asia’s major rivers, including China’s two biggest, the Yangtze and the Yellow River, as well as the Brahmaputra, the Salween, the Mekong, the Irrawaddi, the Arun, the Karnali, the Sutlej and the Indus. About 90% flows downstream to China, India, Bangladesh, Nepal, Pakistan, Thailand, Myanmar, Laos, Cambodia and Vietnam. The sources of these rivers are the huge glaciers that exist in the Tibetan mountains, effectively forming enormous frozen reservoirs that are gradually released to flow down river. The constant flow of these rivers creates a stable source of water in regions which are otherwise dominated by monsoon rain falls. The Tibetan rivers are thus extremely important to sustaining life throughout South and Southeast Asia.

The territory of Tibet is large, with the Tibetan Autonomous Region (TAR) spanning more than 1.2 million square kilometers. Historically, though, Tibet has often included the whole of Qinghai province, as well as the western sections of Sichuan, Gansu, and Yunnan, making it geographically almost the size of modern day India. These areas outside of the autonomous region maintain a strong Tibetan identity today and continue to be populated by mainly ethnic Tibetans. Indeed, many of the protests that have made the news in recent years have occurred outside of the autonomous region, predominantly in Sichuan. When the Dalai Lama speaks about Tibet, he’s referring to those parts of the plateau that were historically Tibetan and are primarily populated by Tibetans. When China refers to Tibet, it is normally referring solely to the TAR.

Demographics

Despite covering such a vast area Tibet’s population is relatively small. The harsh climate has dictated sparse population throughout its history and, even with advances of modern technology, this continues to be the case. The TAR has a population of just 3 million people, though the total Tibetan population of areas that have historically been within Tibet numbers around 6 million. Such small numbers in such huge areas make Tibet one of the most sparsely populated places on the planet, a striking contrast to the thronging cities of eastern China.

Unlike the other autonomous regions in China, Tibet has maintained its ethnic identity throughout the history of the PRC; whereas the Uyghurs in Xinjiang, the Hui in Ningxia, the Mongols in Inner Mongolia, and the Zhuang in Guangxi all now account for less than half of the population in their respective areas, Tibetans still represent 92% of the population in their own autonomous region. This is, however, changing rapidly. The opening of the world’s highest railway connecting Qinghai to Lhasa – an impressive engineering feat that takes trains across mountain passes over 5200 meters high – has enabled a much greater flow of people into, and out of, the TAR. Han Chinese currently make up around 6% of the population, but that number is beginning to rise as the Chinese government encourages Han migration into the areas by providing incentives such as housing, business, and pension benefits. Indeed, It is estimated that Han Chinese now make up 50% of the population of the capital city, Lhasa, and the Chinese government is heavily investing in the city’s infrastructure to raise the city to modern Chinese standards. Beijing says that the Han economic migrants have temporarily come to Tibet in order to help modernize the area. Some Tibetans fear that China will use demographics as a way to more thoroughly integrate the region into China. Visitors to Lhasa are keenly aware of the division with the city almost literally split into two areas, one almost entirely Tibetan and the other almost entirely Han.

Tibet remains overwhelmingly Buddhist, though the influence of Tibet’s native religion, Bon, can still be seen in some of the practices. Although the much of Tibetan monastic heritage was destroyed during the Cultural Revolution, Tibet still remains home to many large and small Buddhist monasteries and temples, with Tibetans making pilgrimages at various times of the year to sites of importance. The Jokhang Temple in Lhasa is the centerpiece of Tibetan Buddhism. It attracts tens of thousands of pilgrims yearly, particularly during the winter months when some Tibetans from rural areas may walk hundreds of miles to pay homage by prostrating themselves around the perimeter.

The Tibetan Economy

China currently invests about $2.5 billion annually in the region, primarily in the form of shutterstock_77066617infrastructure projects. Farming, forestry, animal husbandry and fishery accounted for approximately 70% of the total gross output value in 2000. Because of its high altitude and mountainous conditions, the Tibetan growing season is short, and the main crops grown are barley, wheat, buckwheat, rye, potatoes and some fruits and vegetables. Sheep, cattle, goats, camels, yaks and horses are also raised within Tibet, with the yak being particularly well suited to Tibet’s harsh winter conditions. Most of the farming, animal husbandry and forestry is still done by hand or with animal labor. Increasingly, electric and hydro-power, mining, light industry and handicrafts also generating earnings for the region. Tibetan hats, jewellery, wooden items, clothing, quilts, fabrics and carpets are all important money earners, as is tourism, with most tourists staying in Lhasa, Shigatse, and the Mount Everest base camp, though the number of foreign tourists permitted to visit Tibet has been scaled back in recent years. Tibet also has large deposits of gold, copper, salt and radioactive ores, although its lack of infrastructure to date has meant that it has been difficult to extract these minerals. China’s huge investment in infrastructure should mean that mining will be a growing sector for Tibet in the future. Overall, China’s significant investment in the region has meant that many Tibetans have seen a rise in living standards. Annual per capita income, for instance, quadrupled to $1076 between 1986 and 2006, though there are claims that this benefit is felt primarily by Han Chinese migrants and not by the indigenous population. Unemployment remains high at approximately 10.3%, more than double the national urban rate.

The Historical Argument

The Tibetan empire reached its zenith around the 8th century CE with an empire that encompassed parts of Southeast Asia, Central Asia, northern India, Nepal, Bhutan, Bangladesh and also parts of what are now the Chinese provinces of Qinghai, Yunnan, Gansu and Sichuan in China. During the Tang dynasty in around 640 CE the Chinese princess Wencheng was sent to Lhasa to marry the then Tibetan emperor Songtsan Gampo. Many Chinese academics credit this as the first sign of China’s suzerainty over Tibet, though many Tibetans claim the opposite: that this was a sign of Tibet’s power and independence since the Emperor only acquiesced in sending the princess under threat of force from Tibet (a claim which is not accepted by modern Chinese historians and was not recorded in the Chinese written Tang annals). Contemporaneously, an informal treaty was signed between the two countries in which the Tibetans claim that the Chinese recognized Tibet as equal to China. By 821 a formal peace treaty was agreed and signed between Tibet and China, known as the Tang-Tibetan Alliance, and the details of this were inscribed on a stone pillar outside of the Jokhang Temple in Lhasa in both Tibetan and Chinese. This pillar remains in place today.

The 13th century Mongol subjugation of Eurasia brought Tibet and China under one rule for the first time when both countries became subject nations under the Mongol empire. Having conquered China, Kublai Khan consolidated his rule by proclaiming himself the Emperor of the Yuan Dynasty. Despite the Yuan Dynasty being formed as a result of an invasion from an external force, Kublai Khan is considered in China to have been Chinese as he perpetuated China’s cultural heritage. That he was Mongolian is no barrier to this interpretation, as Mongolians are recognized as one of China’s official 56 ethnic groups. As a result, modern Chinese historians argue that it was during the Yuan Dynasty that Tibet formally became part of Chinese territory and has remained so ever since. In contrast, the opponents of this view maintain that China and Tibet were two independent countries subjugated by an outside force; in emphasis, they point out the Mongols ruled the two territories separately much in the same way that the British ruled its colonies independently, and that Tibetan life remained centered on monastic Buddhism rather than Chinese cultural norms. Tibet continued to move in and out of the Chinese sphere of influence throughout the Ming and Qing dynasties that followed the Yuan, leading up to the end of the 19th century.

The 13th Dalai Lama entered a rapidly changing international order when he assumed power from his regent in 1895, by which time both Tibet and the Qing were under pressure from predatory Japanese and European colonial powers. By 1890 the British were negotiating a treaty with the Qing to establish the border between Tibet and Sikkim, which the British sought to include within its Indian colony. Historically, the Himalayan kingdom of Sikkim had been viewed as a vassal tributary state by Tibet, yet the Tibetans were not consulted during the treaty negotiations. Mainly as a result of fear that Russia was making incursions into Tibet in order to establish a sphere of influence, Britain invaded Tibet in 1904 and the 13th Dalai Lama fled into exile. The British invasion of Tibet refocused Qing attention on the region, which had been distracted by challenges closer to home. By December 1904, Tibetan officials left in charge by the 13th Dalai Lama, capitulated to British terms in order to secure withdrawal of troops from Lhasa. In the resulting convention between Great Britain and Tibet, Tibet accepted London’s annexation of Sikkim and agreed not to conduct for relations with foreign states, including China. Tibet also had to pay war reparations.

During this time, the thirteenth Dalai Lama was trying to get Russia to engage on Tibet’s shutterstock_94573753 resizedbehalf, yet Russian help was not forthcoming. Ultimately it suited both the British and Russians that Tibet was neither an independent state nor a vassal of an enemy. London and Moscow concluded that it was in both their interests to recognize a purposely vague Chinese claim over Tibet, especially as the British realized that it would be too expensive to turn Tibet into a true British protectorate as it had done to Sikkim. As a result, some clauses of the 1904 Convention were rejected by the Foreign Office in London, and it negotiated two new treaties with the Qing and with Russia. In a 1906 treaty with the Qing, the government of Great Britain engaged not to annex Tibetan territory or to interfere in the administration of Tibet. The Qing undertook to prevent other foreign states from interfering with the territory or internal administration of Tibet. The British then signed a second 1907 accord with Russia in which the two states agreed to recognize the principle of Chinese suzerainty over Tibet, thus effectively denying that Tibet was an independent nation. Moreover, English legal and historical documents were beginning to equate China with all the territory of the Qing empire. At the same time, as those Han Chinese that sought to end imperial rule began to think what a Chinese nation would be once the Manchus were overthrown, they too began to define their borders by those drawn by the Manchus when they took power. The Chinese became fixated on the humiliation that they were experiencing at the hands of foreign powers so the defense of Chinese borders became a matter of national pride for the Chinese people. By 1912, a year after the overthrow of the Qing Dynasty and the formation of the Republic of China, San Yatsen declared China to be a multi-ethnic state composed of Manchus, Mongols, Tibetans, Han and Uyghurs among others. Promoting this diverse population was one of the ways that the young republic articulated that its aim was to consolidate its country upon the larger Qing borders.

Taking advantage of the chaos during the early days of the Republic of China, in 1912 the 13th Dalai Lama proclaimed Tibet’s complete independence, and a voluntary Tibetan army drove the remaining Chinese out of the Tibet. In 1913, the Dalai Lama returned from exile after an absence of eight years. Importantly, the Tibetan government also negotiated with British India over shared borders and an agreement was signed between British India and Tibet in 1912 which ceded Tibetan territory to colonial India. This is often cited as proof that Tibet acted with genuine independence as a nation state at this time, but it is the only example of Tibet ever acting as such in the modern international system. It is worth noting that Chinese authorities were included in these negotiations and the Chinese representative even initialed the final treaty. Though this is now downplayed by Beijing due to the complications of continued disputes with India over the modern border, it does raise a serious question over the ability of Tibet to act as a genuinely sovereign nation even during this sole example of it apparently doing so. Furthermore, Britain was in breach of its own Anglo-Russian Entente, signed in 1907, in which it had agreed that all matters surrounding Tibet would be dealt with through the authorities in Peking (Beijing) and that no negotiations would be conducted with Tibetan authorities. The chaos and confusion in China after the fall of the Qing left Tibet’s status relatively unaddressed. During this period, the 13th Dalai Lama passed away. Tibet’s 14th and current Dalai Lama was born on July 6, 1935, 18 months after the death of his predecessor.

Tibet under the PRC

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During the struggle against Japanese occupation and the civil war between the communists and the nationalists, it is reported that Mao Zedong pledged that the periphery regions of China, such as Tibet, Xinjiang, and Outer Mongolia, would be free to decide their own future. However, upon the establishment of the PRC in 1949, this policy was repudiated (with the exception of Mongolia, whose independence was accepted by the communists probably as a favor to their allies in the Soviet Union). By 1949, the Chinese were using its radio infrastructure to broadcast into Tibet its need to peacefully liberate the country. By October 1950, the PLA had entered Tibet’s eastern regions. After initially rejecting the idea of Chinese sovereignty over Tibet, the Dalai Lama signed the “17 point agreement” in 1951 after recognizing that it was not in Tibet’s interests to make an enemy of its giant neighbour against which it stood little chance of military success. The Chinese army had already inflicted defeats against Tibetan resistance and it was clear that the battle could not be won. The agreement accorded the Tibetans autonomy over their own affairs, recognized the position of the Dalai Lama and guaranteed freedom of religion in Tibet. It needs to be acknowledged that this both demonstrates that the PRC government recognized the ability of the Tibetan authorities to act on behalf of Tibet (otherwise they would not have conducted negotiations and signed an agreement with them) and also that several of the points in the agreement have been broken by the PRC authorities, in particular the promise not to interfere with the position of the Dalai Lama and the guarantee that local religion would be respected.

The Dalai Lama remained in Tibet after this agreement was signed and, according to his own account of the story, met with Mao Zedong in Beijing on more than one occasion. In March 1959, following three years of sporadic battles at the edges of Tibet between local paramilitaries and the PLA, the Dalai Lama officially repudiated the agreement citing breaches from the Chinese. What followed was an uprising from Tibetans against the increasing Chinese presence in Tibet, followed by a large military response from the Chinese and a bloody wave of repression. The Dalai Lama fled, on horseback, across the Himalaya into India where he later claimed asylum and established the ‘Tibetan government in exile’ in Dharamsala. It took a further three years to fully establish Chinese control over Tibet. The number of Tibetans killed has never been independently verified but the Tibetan government in exile claims the figure to be in excess of 86,000. It is also believed that the US was involved in inspiring the uprising by engaging in training some of the Tibetan paramilitaries, a practice that continued for several years after the uprising was crushed.

Prior to China’s ‘liberation’ or ‘occupation’ (what it is called depends on one’s own viewpoint) there is no doubt that life in Tibet was a long way from the idealistic vision of a harmonious, peace-loving, and free society that some in the West tend to paint it as. Life expectancy was just 36 and the overwhelming majority of the population was illiterate. A majority of Tibetans were hereditary serfs of varying statuses, allowing the elite – including the religious leaders – to live a luxurious life on the backs of a poor, uneducated society that was structurally condemned to remain in poverty through the following generations. In essence, this was precisely what the international communist movement sought to bring to an end. Tibet had no roads, poor sanitation, and no monetary system. Until the 1960s, there were virtually no vehicles of any kind, motorized or otherwise. Punishment for various crimes was barbaric, including amputation of limbs and eye-gouging.

However, whatever the rights and wrongs of the legal or moral claim that China may have over Tibet, there is no question that many Tibetans suffered both during the ‘liberation’ and after, particularly through forced collectivization and during the Cultural Revolution. In this latter period many temples were destroyed and monks forced to tend pigs, sometimes within the walls of their own religious institutions, a grievous insult. While it is important to keep such acts in context – the Cultural Revolution was a chaotic and unpleasant time for most people in China, regardless of ethnicity – it does not excuse such acts in the minds of Tibetans, and many continue to harbor ill feelings over this. Despite the orgy of destruction that ensued in the late 1960s, it is thought that the Potala Palace, the former winter home of the Dalai Lama and Tibet’s most famous symbol, was preserved at the behest of Zhou Enlai who recognized its significance.

The Dalai Lama has remained in exile since 1959 and has spearheaded a very public campaign for Tibetan autonomy, gaining much sympathy and support in Western countries and elsewhere, including in Japan. In 1989 another attempted uprising, marking the fortieth anniversary of Dalai’s flight from Tibet, was crushed on the orders of the then-Party Secretary of Tibet, Hu Jintao, who would later go on to become China’s president and supreme leader. During the incident around 400 Tibetans are believed to have been killed. This occurred just months before the Tiananmen Square incident but did not receive a similar level of coverage due to a lack of media presence on the plateau at the time. Later that year, the Dalai Lama was awarded the Nobel Peace Prize for his “consistent resistance to the use of violence in his people’s struggle to regain their liberty”. The award, and the celebrity endorsements that have continued to flow (the Hollywood actor Richard Gere is the most notable), have helped to keep the Dalai’s drive for “genuine autonomy” within the PRC in the headlines, at least in the West. He abandoned hopes of Tibetan statehood in 1979, though the PRC government continues to paint him as a “splittist” seeking to create a separate country, and maintains that Tibet can exist within the PRC to the chagrin of some of his followers who would prefer a cleaner separation.

The Panchen Lama, Tibet’s second most important spiritual leader who has the responsibility of identifying the reincarnated Dalai Lama after his death, was arrested shortly after being confirmed as the current Dalai’s accepted choice in 1995. Aged just six years old at the time, Gedhun Choekyi Nyima was considered to be the world’s youngest political prisoner by many in the Tibetan movement. Beijing subsequently appointed their own choice of Panchen Lama, Gyancain Norbu, a somewhat difficult position for the CCP to explain given its strictly atheist constitution. Beijing’s Panchen Lama has never been accepted by the Dalai Lama and the campaign for the release of Gedhun Choekyi Nyima continues. He is reported to still be alive and living in Beijing under virtual house arrest and with an assumed identity. This complicates any future succession the Dalai Lama. Under the system in place in Tibet for more than five centuries, the Panchen Lama has the responsibility to identify the reincarnated Dalai, something he clearly will not be able to do whilst under house arrest in Beijing. Any reincarnation identified by Beijing’s hand-picked Panchen is unlikely to garner support from grassroots Tibetans and will be probably be seen as simply a puppet of the Chinese. With this in mind, the current Dalai Lama – who, while in good health, is already in his late seventies – has suggested that his reincarnation might be found outside of Tibet.

In recent times, particularly since the death of Mao and the launch of the reform era in China, there has been a drive towards economic development in Tibet. This has included some of the aspects of Chinese rule that provoke controversy among Tibetans and pro-independence groups such as increased migration of Han Chinese. Most controversial has probably been the development of a railway line that now connects the Tibetan heartland to the rest of China, making it possible to take a train from Beijing all the way to Lhasa (an extension to Shigatse will open in 2014). While this railway represents a notable engineering feat – with passes as high as 5200 meters it is the highest railway in the world – concerns over damage to Tibet’s delicate ecosystem have not been allayed. Furthermore, the massive increase in internal tourism that has accompanied the launch of the train service threatens to erode Tibet’s unique culture even further, turning important historical and religious sites into Disneyland-esque tourist stops. While it is undeniable that this has brought economic benefits to the area, with an increase in GDP per capita of around 400% during the first decade of the 21st century, an astonishing growth rate even by China’s standards, accusations that this increase does not benefit the local population abound. The truth is difficult to ascertain as the Chinese government does not release relevant statistics and may not even keep them itself.

Over the last few years there has been an upsurge in political activity and protest in the TAR and the surrounding Tibetan areas. The most high profile of these was a series of protests in Lhasa in March 2008, marking the anniversary of the 1959 uprising but also timed to gain maximum international attention in the run up to the Beijing Olympics. Riots across Lhasa left hundreds wounded and a reported 18 dead, mostly Han Chinese. The response from the Chinese authorities was initially relatively low key, though Tibetan groups in exile later reported that upwards of 1500 people were arrested, with many allegations of torture being used to extract confessions. Since 2008 security in the TAR and surrounding areas has increased, making it substantially more difficult for foreigners to visit for tourism and almost impossible for journalists or academics to investigate some of the claims being made. In 2012, a series of self-immolations made the headlines both in China and abroad, leading to the Dalai Lama to appeal for Tibetans not to resort to such measures, though Beijing is resolute in its insistence that such acts are committed at his behest.

China’s Traditional and non-Traditional Strategic Considerations

Tibet provides a buffer region between the Chinese heartland and both India and Pakistan, two nuclear powers. While neither of these two countries poses an apparent and immediate threat to China (they are normally more focused on each other) this is a consideration that any strategist would make. In particular China’s relationship with India has been problematic and the two fought a border war in 1962, and have a continued dispute over territory. A sparsely populated region such as Tibet is an ideal way to keep tensions at a minimum between two such nations. Allowing any form of independence to Tibet risks creating a kind of power vacuum that might be filled with Indian influence. From the point of view of national self-defense, no government in the world would countenance this if it did not have to.

Access to water resources will be crucial to China in the coming decades as it seeks to continue its rapid economic growth and improvement in living standards. China has less than half the per capita average of available water resources and large areas of the country suffer from serious drought on an almost annual basis. For this reason, the large rivers that flow through China are essential to the survival and prosperity of its people. Several of China’s largest and most important rivers have their sources in Tibet, including both the Yangtse and the Yellow River which, combined, provide water supplies for more than 500 million people. The Tibetan Plateau is the greatest store of fresh water outside of the North and South Poles. Although not explicitly acknowledged by the Chinese government in any discussion of the question of sovereignty over Tibet, it is clear that this remains a significant consideration for policy-makers when addressing the issue. The control of these river sources is an important advantage that no country would give up willingly, particularly one that is in such a precarious position with regard to its water supplies.

The Psychological Importance of Tibet

Knowing China’s modern history is crucial for understanding its perspective on many contemporary issues. Moreover, comprehending the Chinese interpretation of that history is the key to unlocking much of the Chinese view of the so-called “Tibet issue”. China’s view of itself as a victim of various powerful nations that took advantage of it while it was fragile, and sought to keep it weak by breaking it up, is a powerful lesson both for those in government and for the citizens of modern China. This “century of humiliation” was (in the Chinese narrative) brought to an end by the Communist victory in the civil war in 1949 but the scars remained in the form of Hong Kong, Macao and Taiwan. What is viewed in China as the rightful “return to the motherland” of the first two went some way towards redressing this and the continued desire to “reunify” with Taiwan demonstrates its continued role. Given that nearly all Chinese start from the view that Tibet is part of China, efforts to remove it from the unity of the PRC are viewed through this lens, and foreigners who involve themselves in the issue are ordinarily seen as trying, once more, to “split” China. This is a particularly potent storyline during a period of time in which China’s power is clearly rising and fears from outside are evident.

The View from the West

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Tibet is frequently presented as an almost-mythical “land of snows”, populated by peace-loving religious people who live a simple (indeed, backward) life. The mythical Shangri-La is widely believed to be in Tibet (it has officially been designated as Zhongdian in northwest Yunnan but this is purely for tourism purposes). Tibetan people are portrayed as being deeply religious and almost entirely homogenous in their devout commitment to their religion and its leading figure, the Dalai Lama, as well as to the path of peace that he passionately advocates. In many ways Western depictions of Tibet and its people are simplistic, romantic, and occasionally patronizing.

When Tibet comes into the consciousness of Westerners it is often through the activities of high profile groups such as the International Campaign for TibetTibet House and Free Tibet, all of which are based in major Western cities such as New York, Brussels and Berlin. Richard Gere’s role in several of these groups has raised the profile further and reached audiences that do not ordinarily pay a great deal of attention to international political issues. The involvement of celebrities has sometimes been frivolous; the British rock band, Oasis, was denied visas to play concerts in Beijing and Shanghai in 2009 because of the involvement of Noel Gallagher, the band’s guitarist and lyricist, in a ‘Free Tibet’ concert twelve years previously despite Gallagher’s own confession that he had no recollection of the event and no interest in the movement. Condemnation of human rights abuses in Tibet frequently comes from senior figures in the US political scene as well as from independent NGOs across the Western world, lending such reports an air of credibility despite the difficulty in corroborating many of the individual stories that constitute the reports. The explanations offered by these groups for China’s continued presence and interest in Tibet focus entirely on the economic benefit that China can gain from the region. Free Tibet, for example, cites only the vast reserves of minerals and the sources of much of China’s water supply as its motivation, making China’s motives appear entirely selfish and materially-based.

The most visible manifestation of this feeling in the West came in 2008 with the protests Sam DCruz / Shutterstock.com surrounding the Olympic torch relay, particularly in European cities such as Paris and London. Large crowds of people displayed banners and waved Tibetan flags while some attempted to extinguish the Olympic flame. This was in direct response to the reports of riots in and around the Tibetan Autonomous Region in March of that year. The riots were misreported by some parts of the media in the West (this was not helped by the Chinese authorities preventing many outlets from entering the territory) and so it is not fully understood that many of those that died were Han Chinese, killed or burned alive by Tibetan rioters. These acts, if carried out in a US domestic context, would have been labelled as terrorism. This reporting caused anger among many Chinese who cannot understand where the Western bias comes from and consider it to be simply “anti-Chinese”.

No country in the international system recognizes Tibet as an independent nation and all who have diplomatic relations with Beijing acknowledge Chinese sovereignty over the region (indeed, even those few countries that maintain diplomatic relations with Taipei instead consider it to be part of the Republic of China). The last country to fall into line and recognize Tibet formally as part of the PRC was the UK, which did so in 2008, blaming a bureaucratic oversight for not having done so previously. Even the Dalai Lama himself no longer calls for independence, but for “genuine autonomy” within the People’s Republic.

The Future of Tibet

The Tibet question is one that has shown no sign of simply going away. The Dalai Lama’s successful internationalization of the issue has made it infinitely more complex for the Chinese leadership to handle but their legitimate and rational security concerns, combined with the crucial issue of maintaining territorial integrity of the Chinese nation, mean that the Dalai’s wish for genuine autonomy is unlikely to be granted. The Chinese government, despite its intermittent negotiations with representatives of the Dalai (the last of which took place in 2008 prior to the riots), shows no intention of shifting position and appears to be playing a waiting game, apparently believing that Tibetan resistance will subside after the death of the fourteenth Dalai Lama. Having captured the Panchen Lama and appointed their own, they consider themselves to be in charge of the future of that particular institution. However, the Dalai himself has raised the possibility that a future reincarnation of himself may be born outside of Tibet (previously believed impossible) which might allow for a continuance of a government in exile that maintains some level of loyalty from the Tibetan people. Furthermore, he has already announced that he intends the position to be one only of religious leader and that the head of the Tibetan government should be democratically elected. Even without this, there is no guarantee that the Chinese waiting game will pay off in the long run; there is some evidence, particularly in the wake of the 2008 protests and the recent spate of self-immolations, that Tibetan youth is becoming radicalized in the face of an apparently immovable Chinese position, and without the calming influence of their spiritual leader it is possible that further violence might erupt.

China continues to focus on the economic development of Tibet, hoping that continued economic prosperity will help Tibetans feel more integrated into China. China has invested heavily in Tibetan roads, housing, schools and electrical grids so that it may feel the benefits of being part of China. Yet proposals that carry with them the prospect of greater prosperity, such as the proposal to extend the railway from Lhasa further into Tibet, are also viewed with suspicion by some Tibetans who fear that they are just another tool for the Chinese military to ensure control over the region is maintained. To assuage these fears, China needs to pay more attention to the legitimate complaints of Tibetans who feel that their culture and history is being destroyed. This loss cannot be compensated with the kind of economic progress that has, so far, satiated other parts of Chinese society.

Hydro-Power and Hydro-Hegemony: China’s Prolific Dam-Building

The History of Hydro-Power in China

Before 1949, only 22 large dams existed in China. A dam study by Oregon State University concluded that since that time, the People’s Republic of China has undergone four waves of dam construction. Socialist agricultural policy between 1949 and 1960 encouraged the construction of many small and medium-sized irrigation dams. In particular, the 1958-1960 Great Leap Forward policy advocated that each of China’s 1,465 counties build at least one water conservation dam. As a result, tens of thousands of dams were built in China, mainly by peasant-led teams with limited equipment, materials and training. During the period from 1968 to 1980, the pace of dam construction increased. Water projects grew in size and complexity and were progressively constructed for hydropower and flood control. While fewer dams were built between 1980 and 2000, those that were constructed were larger in scale and more technically difficult. The 1978 market reforms allowed China to import foreign technology, know-how and funding, enabling the building of dams that previously had been too difficult and expensive to undertake.

Government measures since 2003 have led to a decentralization of hydropower production. The State Power Corporation was disbanded, its assets were distributed and development rights on China’s main rivers were shared out. While the central government has a majority of stock in each of the companies into which the State Power Corporation was split, in general, the enterprises act quite independently. The “corporatization” of China’s hydropower sector has created a significant increase in domestic and overseas dam building as companies compete to secure existing assets and to develop new hydro-projects.

Today, China runs about half the world’s approximately 45,000 dams larger than 15 m in height. In total, the number of dams in China is estimated to exceed 85,000. In 2009, China’s installed hydropower was calculated to be approximately 200,000 MW, representing about 17% of China’s total electricity power. According to recent reports, of the 37 GW hydro-power capacity added worldwide in 2014, a full 22 GW (nearly 60%) was added in China alone, dwarfing developments in other nations (the five largest contributors behind China added a combined 8.7 GW). This has brought China’s hydro-power capacity up to 27% of the world total. China continues to set high goals for itself, with China’s National Energy Agency planning to increase China’s hydro-power capacity to approximately 380,000 MW by 2020. Huge hydropower cascades have been proposed and are being constructed on some of China’s remaining pristine river basin systems including the Lancang, (upper Mekong), the Nu (Salween) and upstream of the Three Gorges Dam on the Yangtze. It is estimated that China has relocated a total of almost 23 million citizens since 1949 to make way for its water projects.

The Three Gorges Dam

Large dams are enormous interventions into highly complex ecosystems. Their impact can be felt thousands of kilometers away and often occur many years after construction has been completed. It is impossible to anticipate and mitigate all the social and environmental impacts that such projects can cause. The Three Gorges Dam provides a good indication of the challenges that such large dams pose.

Originally conceived by Chairman Mao and supported by Zhou Enlai, the Three Gorges Dam, and its related infrastructure, is the largest water project in the world. It stretches approximately 2km across the Yangtze River, which flows 6,418 km eastward from the Tibetan glaciers through China’s southwest, central and eastern regions before eventually emptying in the East China Sea at Shanghai. The Three Gorges Dam reaches nearly 200m in height, and has created a reservoir 600km long with a storage capacity approaching 40 billion m³. Three Gorges generates approximately 22,000 MW of electricity, equivalent to the burning of 50 million tons of coal annually, compared with Hoover Dam, for instance, that has an installed capacity of only 2080 MW. It was built at an estimated cost of $27 billion, although if hidden costs are taken into account, some appraise the dam’s actual cost to be in excess of $60billion. Hidden costs include losses incurred as a result of the reduction in commercial fishery production, the cost of landslides caused by frequent fluctuations in water levels and the further population resettlement that these landslides are likely to require, the costs of water pollution as raw sewage and fertilizer run-off collect in the Three Gorges Reservoir instead of being flushed downstream, the shrinking of the Yangtze river estuary, and the weakening of downstream dikes caused by the dam’s faster than anticipated water discharge. Besides generating emission-free energy, the Three Gorges Dam was built to control flooding, to improve water resource utilization and river navigation. Access to the major port of Chongqing, for instance, which receives 90% of its goods by water, has improved markedly even though it is located more than 600 km upstream of the dam. The Three Gorges’ lock system is one of the world’s largest, and has also helped to increase the amount of cargo able to move into the river’s upper reaches.

Despite these real benefits, the Three Gorges Dam has also generated significant problems. Most important of these has been the disruption of the Yangtze’s ecosystem. When the river flowed naturally, it helped to cleanse industrial pollution. It also traditionally transported large sediment loads from the river’s upper reaches to the East China Sea. The Three Gorges Dam has significantly decreased downstream sediment transport, changing the river’s chemical balance, temperature and flow. This in turn is impacting fish habitats. In addition to changing the river’s ecological characteristics, the dam is also blocking fish migration, impacting access to spawning grounds; it also may have contributed to the extinction of the Yangtze river dolphin. Between 2003 and 2005, annual fish harvests from below the dam were 50% to 70% below previous baselines; larva and eggs levels have dropped off even more sharply. Although pollution and other factors were already causing a reduction in fish stocks before the dam was constructed, the Three Gorges accelerated the trend.

The river’s reduced silt load has also deprived downstream agricultural land and fisheries of nutrients. Additionally, because less silt is reaching the river’s mouth, approximately 980 acres of coastal wetlands are disappearing each year. This has allowed sea water to intrude further upriver, affecting coastal agricultural and drinking water. Silt buildup within the reservoir is also impacting its overall storage capacity, causing higher volumes of water to be released from the dam, stressing downstream levees.

Landslides around the Three Gorges Reservoir have also been a greater problem than was first expected. The fluctuating water levels of reservoir have weakened hundreds of miles of its slopes, triggering massive mudslides. Controlling this erosion is projected to require a further investment of $10 billion or more. In some cases, landslides have produced massive waves as high as 50 meters, causing even more damage to the reservoir’s edges.

Every large dam built in China has led to the resettlement of local people because of China’s high population density along its major rivers. Over 1.2 million people have already been resettled as a result of the Three Gorge’s construction. Originally, residents were to be shifted to higher ground nearby, given new homes and new jobs. Yet, greater than anticipated erosion and landslides made large uphill areas unsuitable for building, so the displaced were eventually resettled to 11 different provinces. In late 2007, it was announced that another 4 million people – a number equivalent to the entire population of Scotland – are likely to be relocated from the Three Gorges Reservoir area in the next 10 to 15 years. Officials dispute that these are related to the reservoir’s landslides and ecological degradation, arguing instead that they are part of the national experiment to ease regional overpopulation and to provide greater opportunities for industrial development.

Many scholars are now finding that people displaced due to construction projects face the long-term risk of continued food insecurity, lack of access to good arable land, joblessness and social marginalization. Displaced women are often more severely affected than men. Taking farmland from the host population to give to the resettled groups has also often caused tensions and conflict between the two groups. Studies indicate that early resettlement efforts at the Three Gorges have indeed led to diminished living standards for many of the displaced. Local government corruption has aggravated resettlement challenges as 12% of the resettlement funds were estimated to be embezzled; hundreds of local officials have now been imprisoned.

In addition to the social costs, many now believe that large dam reservoirs can also cause seismic events as their weight can place unsustainable pressure on local faults. The Three Gorges Dam sits on two major fault lines, and scientists have acknowledged that seismic activity has increased slightly since the reservoir first started impounding water. Earthquakes can also damage a dam’s structure. Many of the new hydro-projects outlined in 12th Five-Year Plan are to be constructed in China’s mountainous southwestern region, which is crossed by numerous active fault lines. The tectonic movement in the three parallel Rivers area of the Nu, Upper Mekong and Upper Yangtze is one of the strongest in the world, for instance, yet China is planning to erect a cascade of dams in these areas. Research in the Chinese Journal of Geology and Seismology has recommended that further study be undertaken to determine the role that dam reservoirs play in triggering quake activity.

Environmental Movement Impacts Hydro-Power in China

The Chinese government has tried to address some of the problems associated with dams by improving the legislation which regulates the industry. While not always enforced, recent legislation has required more stringent procedures for environmental and social impacts assessment. A September 2003 law, for example, obliges companies planning projects with significant environmental impacts to conduct environmental impact assessments, and to have the assessments approved by the appropriate Environmental Bureau or the Ministry of Environmental Protection. Additionally, public participation in environmental impact assessment is increasingly encouraged. 2008 legislation has laid-out basic instructions on methods for public disclosure of environmental impact assessments, when to involve the public in the environmental impact assessment process, and who should be included in public participation. Indeed, in 2004 for instance, criticism from environmentalists, the public and the international media at least temporarily halted the development of a 13 dam cascade planned for the Nu River in Yunnan province, one of China’s last free flowing rivers. Laws passed in 2006 made efforts to better protect those displaced by dam construction by setting out appropriate land compensation, requiring that displaced people be provided with a level of livelihood similar to or greater than that which they had prior to the dam being built, and that resettlement plans must include economic development strategies as opposed to simply providing one-off monetary compensation.

Damming of Trans-boundary Rivers – Hydro-Hegemony

Many of China’s new planned hydro-engineering projects are on trans-boundary rivers, including the Mekong, Salween or Nu, Brahmaputra and Amur. On the Brahmaputra River, for instance, a series of five dams is planned to be built close to disputed territory between China and India, which will impact India and Bangladesh downstream, causing concern that China may divert the Brahmaputra’s water for its own needs. Many of the planned dams on trans-boundary rivers are being designed as cascades – one dam after another – or as mega-dams – with walls of 100 meters or higher-both of which have a greater impact on a river’s ecology. One of the new dams approved for the Brahmaputra, for instance, is to be twice the size of the Three Gorges Dam and situated almost on the contested border with India.Overall, about a third of China’s geography is within an international river basin, and China shares 18 rivers with its neighbors, many of which originate in China. Indeed, the Autonomous Province of Tibet provides China with access to some of the best untapped hydro-power in the world as does its Yunnan province, often termed China’s hydro-power storehouse. China is acting as “hydro-hegemon” in regard to its shared rivers as it is damming without the support and partnership of its neighbors, and at times in outright opposition to their wishes. But it is not just the unilateralism of its damming on international headwaters that upsets downstream countries; it is also the opacity around which it builds and runs its dams. China does not readily share environmental or technical information with its neighbors when building the dams nor, many feel, does it give real weight in its decision making as to how its dams will impact river ecology downstream. Indeed, many of China’s international river dams will provide it with the physical ability to change the hydrogeology of the rivers it is damming, thus creating new hydro-strategic and hydro-political realities, and thus allowing it to dictate the status quo of water allocation. By controlling large parts of Asia’s water tap, in an area where per capita freshwater availability is less than half the global average, China is acquiring tremendous leverage over its neighbors.

Yet, China considers developing large-scale hydropower to be critical to meeting its future energy needs and thus its national security. The Chinese government has thus worked to keep these resources under its control, and has been unwilling to sign any comprehensive water sharing agreement with downstream riparian nations or to join any river basin associations such as the Mekong River Commission, which was established in 1995 “to promote and coordinate sustainable management and development of water and related resources for the countries’ mutual benefit and the people’s well-being.” It is also one of only three countries that voted against the 1997 UN Convention on the Law of Non-Navigational Watercourses which lays down rules on the shared resources of international watercourses. Additionally, China has been reticent to share information on water levels and flows with its downstream neighbors once its dams are operational. China is now impounding water for the large reservoir behind the Xiaowan dam on the upper Mekong, for instance, which some believe exacerbated 2010 drought conditions downstream. Only after the drought became severe, and China came under significant pressure from the Mekong River Commission, did it start to provide information on daily water flows from its dam cascade.

China has tried to offset complaints and the potential creation of anti-Chinese alliances by its downstream neighbors by using trade and development incentives – developing the Southeast Asian electricity grid and building sewage and road infrastructure in Cambodia as examples – to weaken their ability to challenge China’s dam-building activities. It also engages in a public discourse that not only advocates the importance of hydro-power to its national security, but emphasizes exclusively the benefits of the dams without considering how they will disrupt downstream ecosystems and water access. Specifically, it talks about flood control, reduction of Chinese CO2 emissions, and the benefits of improved navigation and water flow during the dry season. In many cases, it is also helping to fund and construct dams downriver in places such as Vietnam, Laos, Myanmar and Cambodia. Their own independent construction of dams with Chinese financing has weakened downstream riparian neighbors’ ability to protest the ecological destruction that China’s upstream dams are causing.

The Lancang Cascade

The Lancang Cascade is an example of China’s dam building on trans-boundary water. China is currently halfway through construction of a cascade of eight dams on the Upper Mekong (called Lancang in China). The Mekong River flows 4,800 km from the Tibetan plateau, across China’s Yunnan province, through Myanmar, Thailand, Laos, Cambodia and Vietnam, before pouring into the South China Sea. The Lancang comprises only 16% of the Mekong’s total discharge as measured in the delta, yet it accounts for 100% of the flow at the Laos border, 45% of Cambodia’s average flow in the dry season, and originates 50% of the river’s total sediment. The upper basin is characterized by deep gorges, with more than 80% of the drop in elevation occurring in Yunnan province. Indeed, Yunnan and Laos have the greatest hydropower potential in the basin. The lower basin is characterized by plains and deltas which support large-scale irrigation, fishing, and transportation. The Mekong is vital to the food, water supplies and transportation of over 60 million inhabitants in the region. An estimated 8 out of 10 people within the basin depend on the Mekong River for subsistence, either in terms of fish catch or agriculture, with at least 50% of Cambodia’s animal protein consumption coming from Mekong fish and the Mekong Delta supplying waters for more than 50% of the agricultural component of Vietnam’s GDP.

The Lancang cascade is part of China’s “Develop the West” program. Initial plans for the Lancang cascade were developed in the 1980s, before Yunnan opened to foreign trade, and when China’s political relations with its lower Mekong neighbors were not as robust as they are today. Currently, four of the eight dams have been completed with construction on the fifth dam at Nuozhadu expected to be completed by 2015. China espouses that the Lancang cascade will benefit its lower riparian neighbors by providing flood control in the wet season, increasing water supply in the dry season, improving irrigation and navigation, and reducing overall carbon emissions.

Yet, as seen with the Three Gorges Dam, large hydro-power projects change the hydrology of a river. Of key concern for the Mekong is whether the dams will negatively impact the hydrological dynamics of the Mekong’s “flood pulse” resulting from the river’s seasonal flooding triggered by the annual monsoons. Diminishing the flood pulse could result in declines in biodiversity and volumes of fisheries by altering spawning and migration cues could affect its transfer of nutrients, and could limit the drift of eggs larvae and juveniles to the floodplain habitats. It could also impact rice harvests as 80% of rice production in the lower basin depends on water, silt, and nutrients from Mekong flooding. It might also cause increased salinization as seasonal flooding flushes delta areas, constraining sea water intrusion. The countries downstream are also concerned that the effective powering of their own dams will be dependent on China to discharge sufficient water. Impacts to water levels and fisheries have already been recorded in the lower Mekong basin which is one of the world’s biggest sources of fish. Indeed as water levels reached 50-year lows in 2010 in the Mekong River Basin, China’s dam building along the upper Mekong was blamed as a significant contributor to the drought.

Building Dams Abroad

In addition to damming trans-boundary rivers, China has also stepped up its dam building internationally. As China has absorbed and copied complex hydro-engineering technology initially supplied by the West during the 1980s and 1990s, it is now able to export its own domestically produced turbines, generators and other hydro-equipment to countries abroad, along with its dam building expertise. These exports are supported by a set of schemes known as the “Going Out” strategy introduced in 2001. This strategy encourages investments, exports and subcontracting in overseas engineering projects. Specifically, the government has aided China’s hydro-engineering companies with country-specific research, financial subsidies, and cheap credit. These advantages have helped Chinese companies to position themselves as low-cost competitors. This cost advantage has also been aided by the fact that Chinese construction companies often import cheap, highly productive labor from home to staff all or at least part of their workforce. Their extensive hydro-engineering experience has also allowed them to gain real efficiencies not shared by their competitors. As a result, in 2012, it was estimated that China was involved in more than 300 dam projects in 66 different countries, including the construction of 19 of the world’s 24 largest hydropower stations.

It is not uncommon for these international hydro-engineering projects to help support Chinese strategic interests. Because of its relative isolation from international markets until the early 1980s, China has been late to develop international sources of raw materials, particularly oil, timber and mineral resources. Yet, its position as “the world’s factory” has meant that its demand for natural resources has significantly increased over recent decades. As a result, China has implemented a strategy of retrieving resource deposits which had not heretofore been developed because they have been deemed insignificant in size, geographically remote or politically risky. In many cases, accessing these raw materials has obliged China to invest in secondary infrastructure such as pipelines, roads, railways, dams, power plants and transmission lines. For instance, the Belinga Dam in Gabon is being constructed by China to power a Chinese-built and financed iron ore mine whose output is destined almost exclusively for China’s construction industry. The dam is located in the Invindo National Park, and was planned by China with no public environmental impact statement. Myanmar recently decided to halt the massive China-backed the Myitsone Dam project, which has been opposed by green groups and opposition parties because of its significant environmental and social impacts. The dam was to generate some 6000 MW of power, most of which was to be exported to China, while creating a reservoir the size of Singapore with the depth of nearly a 70 story building, displacing tens of thousands of people.

China’s flurry of rapid international dam building has been driven in large part by its ability to self-finance its projects. This has allowed it to fast-track projects that the World Bank and the European Investment Bank, for instance, have been less quick to consider because of their environmental and social risks. China’s Exim Bank, the official export credit agency of the Chinese government, has delivered vital funding for many controversial large dams, including the Merowe Dam in Sudan, which resulted in a ruinous deterioration of living conditions among displaced people. The state-owned China Export and Credit Insurance Corporation, the China Development Bank, and the China-Africa Development Fund are all also increasingly involved in financing energy projects overseas. In some cases, hydro-engineering companies provide their own financing to their international customers. Sino Hydro, for example, a large state-owned company involved in at least 42 major dam projects, often invests in many of the projects it builds as does China’s International Water and Electric Corporation, China’s National Heavy Machinery Corporation and China Southern Power Grid. For the period 2010 to 2012, Sino Hydro directed over $1 billion towards dam-building and related projects in Zambia. In 2014, the total value of contracted projects in Africa was estimated at $70.8 billion. This self-financing has put increased pressure on Western financial institutions and construction companies to also circumvent internationally recognized – but unenforced – social and environmental standards when designing and building infrastructure abroad, so that they can compete with Chinese banks and construction companies.

China remains wary of Western-dominated environmental norms circumscribing its investment and construction activities abroad. China does not accept any country imposing on it their values, social systems or ideology, nor, as stated in its ‘principle of non-interference in the internal affairs of another country’, does it feel that it should impose its value systems on other countries. China has also defended its approach to overseas investments by insisting that developing countries should not operate at the same standards as developed nations; developed countries also polluted first and then cleaned up after as its economy and technology developed. China has argued that it is unwilling to impose environmental policies on foreign countries which might slow their growth.

Yet, recently there is some evidence that China’s leaders have started to reassess the long-term costs that can come with a no-strings-attached approached to construction overseas; reckless practices, in some cases, have prevented Chinese companies from growing business internationally. The ecological destruction that some of China’s dams have wrought have aggravated anti-Chinese sentiment at several sites in Asia, Africa and Latin America. For instance, in 2006 violent protests broke out at the $2 billion dollar Merowe Dam in Sudan resulting in three dead and dozens injured. Ultimately 15,000 people were displaced, often forcibly, by the reservoir. Protests renewed in 2011 when 1000 people staged a sit-in to protests the government’s failure to compensate them as promised.

China’s frequent policy of employing a Chinese workforce to build dams and other projects abroad reinforces the perception that it is engaged in exploitative practices. To counter this criticism, in 2006, the China’s State Council issued nine principles which should guide the work of firms working abroad. These principles included safeguarding environmental protection, protecting the livelihoods of local communities and peoples, obeying host laws and regulations, and employing local workers in a friendly and fair manner. The principles, while lacking specificity as to who should regulate overseas construction companies, and as to what domestic regulatory tools should be applied to Chinese companies operating overseas, do indicate the Chinese leadership’s desire to avoid future high-profile disasters such as those occurring around the Merowe dam in Sudan. However, without specific regulatory control or penalties for breach of standards, these principles remain mostly theoretical. Some Chinese companies have begun to establish their own environmental policies; China’s Exim Bank and China’s Development Bank, for example, both have environmental policies which are to guide their lending practices, but again these policies lack detail, and do not appear to be well enforced.

Trends

At present, 3,700 dams with greater than 1 MW capacity are currently planned (83%) or under construction (17%). These projects are spread across several continents, but focused mainly in Brazil, Argentina, Central Africa, and China. Even if all of these dams were constructed and realized their anticipated electric output, China would remain the world’s hydropower hegemon with an annual potential of nearly 1.8 million GWh (gigawatt-hours). While China’s position in the hydroelectric field may not be challenged in the coming years, its share within that sector is expected to diminish from 31% of world hydropower produced to around 25%.

China’s 12th Five Year Plan prioritizes the continued development of China’s hydro-power capacity so as to maintain its lead in production. Indeed, China’s National Energy Agency plans to increase China’s installed hydropower from approximately 200,000 MW to 380,000 MW by 2020. While greater efforts will certainly be made to better resettle those displaced by dams in the coming decades, environmental concerns regarding the impacts of China’s large hydro-engineering projects are unlikely to stop their future construction, particularly given the corporatization and increasing power of China’s hydro-power industry.

China’s construction on trans-boundary rivers is also likely to continue even in the face of growing international concern. China will continue to follow a “carrot” strategy to blunt the criticism of these dams, providing downstream countries with infrastructure and other needs where possible in order to get them on-side with China’s actions. China has the construction ability and the finance to proceed with the construction of many of these dams quickly. There is some argument that China plans to get the dams in place before the international community can rally effective support to pressure China to reconsider its actions.

The speed of China’s dam-building has helped many of its projects, both domestic and national, bypass international environmental standards and impact studies. Though hydropower is not an exceptionally high-emission source of energy in the long run, it has been shown to be rather carbon-intensive during initial phases. In 2014, the Intergovernmental Panel on Climate Change stated that short-term emissions from damming and dam-related activity might be ten times the emissions that could have been saved if governments reduced fossil fuel usage via other means. The short run emissions are largely a result of the large reservoirs that form behind newly constructed dams. As these young bodies of water undergo various hydrological changes, they often emit larger quantities of greenhouse gases.

Over many years, however, total hydropower-associated emissions are nearly 30 times lower than coal, which is currently China’s most dominant energy source. In 2013, coal accounted for 73.8% of China’s total 5,396 TWh generated, while hydropower ranked second with a 16.9% energy share. Despite the prevalence of coal as an energy source, coal usage decreased 1.2% through October 2014, and this trend is likely to continue into the future as northern China feels the strain of dwindling local water sources. Coal mining and processing requires an extraordinary amount of water that China can no longer afford to divert, given the drinking water demand of its citizens in northern urban centers like Beijing and Tianjin. If anything, the decline of coal will lead to an increase in the dominance of hydropower, which is already well-established in China. Dams may well supplant coal entirely, and become the primary source of Chinese energy.

In July 2014, China reaffirmed its commitment to pursue further hydroelectric projects on the Jinsha River (the upper Yangtze), Yalong River, Dadu River, and the Lancang Cascade (the Chinese portion of the Mekong River). It will also continue to aggressively pursue the international dam market, both to meet its own energy needs abroad and to create renewable, clean energy infrastructure for other countries. China’s commitment to Africa remains steadfast, with water conservancy and electric power as two of four key focus areas (the other two being communications and construction of ports, bridges, and railways). With these developments and even more plans in place, China is quickly becoming the largest, most experienced and most competitive dam builder in the world.

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.

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.

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.

TonyV3112 / Shutterstock.com

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.