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China and Southeast Asia: Waking up the Neighbors

Introduction

shutterstock_15960148 resizedIf China is to be the world’s next superpower, then Southeast Asia is its ‘backyard’, just as Central Asia was to Russia during its superpower era, and Central America is to the US. It is a diverse region made up of countries of various sizes, political systems, and levels of development, with annual GDP per capita ranging from a little over $1,000 (Myanmar and Laos) to $50,000 (Singapore). China competes for influence in this area both with its main regional rivals – Japan and India – as well as its main global competitor – the US. China’s successes in gaining trust and deepening economic ties with Southeast Asia have been hampered by a complex shared history that both facilitates cultural commonality, and fosters mistrust of the intentions of a powerful, hegemonic China. The relationship is also challenged by historically-rooted territorial disputes that occasionally flare up, threatening peace in the region.

In recent years, China has made many efforts to gain Southeast Asia’s trust, and to shutterstock_93345997 resizedprogress its economic and political ties with the region. A key form of engagement with the countries of Southeast Asia has been through the Association of Southeast Asian Nations (ASEAN). Founded in 1967, ASEAN consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam (the geographical term ‘Southeast Asia’ is generally considered to include these countries as well as Timor L’Este, which has held tentative discussions about joining the group). ASEAN states its main purpose as being “to accelerate economic growth, social progress, and cultural development in the region” as well as “to promote regional peace and stability”. Although it has worked towards the development of a cultural Southeast Asian identity in recent years, most would agree that its greatest achievements have been in the field of economic cooperation and regional stability. While Indonesia is the giant of the group, it has been careful not to dominate the organization. ASEAN prides itself on conducting its business through the ‘ASEAN way’, which involves building consensus among all members and maintaining a commitment to mutual non-interference. ASEAN gives the less powerful countries the benefit of collective bargaining, which serves to balance to some extent the relationship of these countries with China. Settling issues of mutual interest within the ASEAN framework has eased many tensions between member countries and has promoted overall cooperation within the region. Despite real successes with China, ASEAN itself has not been a silver bullet and many difficult issues remain between China and the region. In addition to ASEAN, engagement between the countries of Southeast Asia and China has also been facilitated through the large Chinese emigrant populations in most of the Southeast Asia countries, many of whom maintain strong business and cultural ties with their ancestral home.

Historical Context

 

Throughout much of China’s dynastic history it maintained regional hegemony in East Asia (East Asia refers to the territory of what today is Southeast Asia, China, the two Koreas, and Japan) by instigating a ‘tributary system’. Regional East Asian rulers would seek the patronage of the Chinese emperor of the day in order both to legitimize their own rule and to ensure that peace was maintained with their powerful neighbor. This system had a profound effect on many parts of Southeast Asia, particularly the areas that are now Vietnam, Cambodia, and Laos, where the cultural influence of China is palpable. This is evidenced, for example, by the presence of Chinese characters on many older buildings although they are no longer used in the writing systems in these countries and by the pervasion of Confucian values in the respective societies. Equally important as the political ties was the trade between China and many of the countries of Southeast Asia. Chinese merchants, following trade routes, gradually immigrated to various Southeast Asian countries, where they settled and assimilated. Thus, every single country in Southeast Asia now has significant Chinese communities, many of whom maintain strong cultural links to their ancestral home. This is especially noticeable in Singapore, Malaysia, and Indonesia but can be observed across the region.

The legacies of this history are complex. The cultural links that have been created between many parts of Southeast Asia and China, both in terms of shared norms and values and because of the ethnic Chinese still living in these countries (referred to in Chinese as huaqiao, which literally means ‘Chinese bridges’), provide a huge opportunity for China to extend its influence throughout the region. In recent years, China has sought to exploit this both through economic integration and by the development of ‘soft power’. For example, China has promoted the study of Chinese language and culture by bestowing scholarships for poorer students to come to China to study. While this program to promote the teaching of Chinese culture and language is worldwide, China has concentrated its main focus on Southeast Asia. Specifically, a large proportion of the recipients are huaqiao. This awarding of scholarships to ethnic Chinese has been controversial, reminding some in the region of a Mao-era tendency to interfere in countries with large ethnic Chinese communities on the premise that these populations remained, in effect, part of the Chinese nation. Such interference was a source of serious friction with both Indonesia and Malaysia in the 1950s and 1960s. Another legacy of this shared and complex history is the issue of territory. Although China has now resolved virtually all of its outstanding land border disputes (only those with India and Bhutan remain), it still has numerous disputes with several countries in Southeast Asia over sovereignty of islands in the South China Sea.

A particularly significant event in China’s relations with the region occurred in 1979 when Deng Xiaoping gave the order for the PLA to invade Vietnam. The invasion was in response to the Vietnamese occupation of Cambodia after defeating the Khmer Rouge, a Chinese ally, as well as a reaction to internal Vietnamese policies that discriminated against ethnic Chinese and had resulted in a flood of refugees into China. Deng announced, during a trip to America, that China would “teach Vietnam a lesson”. The war was brief but bloody, lasting only three weeks but resulting in the deaths of tens of thousands. Some Western academics have put Chinese casualties as high as 20,000 though this figure is disputed by China, while Vietnam claims 10,000 civilians were killed (it gives no figures for military casualties but it is widely believed that these number in the region of 50,000). Chinese forces withdrew from all areas that had been briefly occupied, claiming success in their mission, but there is no question that they suffered much heavier losses than they had envisioned and that China’s reputation suffered tremendous harm as a result. The damage was both in terms of its perceived relative power, as well as to its image as a trustworthy and peaceful neighbor. Vietnamese perceptions of the war are of another successful repulsion of a foreign invasion, following soon on from the defeats of both the Americans and the French.

Territorial Disputes

The most serious political and security issue that exists between the nations of Southeast Asia and China is the continued failure to resolve to numerous territorial disputes. By far the most grave of the disputes is that of the Spratley Islands, which are situated in the South China Sea close to the Philippines and the northern coast of Malaysia. The PRC claims sovereignty over the entire archipelago of more than 30,000 largely uninhabited islands that constitute the Spratleys. However, Brunei, the Philippines, Vietnam, Malaysia, and Taiwan all claim some of this area. To complicate matters further, some of these claims are overlapping and so there is no unified Southeast Asian position from which to argue with China. In order to protect their claims, military installations from all the claimants, except for Brunei, are stationed within the archipelago, making the area one that is fraught with multilateral tensions. Although all countries are rhetorically committed to resolving the dispute peacefully, the presence of so many different militaries means that low-level conflict from time to time is almost inevitable. This is particularly true with regard to the two largest presences, China and Vietnam. For example, several Vietnamese fishing boats were captured in 2007 in an area that is claimed by both countries. In May 2011, there were reports that Chinese patrol boats had escorted a Chinese fishing boat when it rammed a Vietnamese survey ship in the area. The other major dispute is over the Paracel Islands, a chain of around 30 islets roughly equidistant from China’s Hainan Island and the east coast of Viet Nam. This dispute is largely a bilateral one, between China and Viet Nam, although Taiwan also has a claim. The islands were occupied by both Chinese and Vietnamese forces until battle in 1974 which resulted in control over the entire archipelago being taken by the PRC. Viet Nam, however, has never renounced its claim to the islands and sporadic incidents involving fishing boats in the area have continued. Two other disputes, both with the Philippines, persist over two small groups of islets and this spilled over in early 2012 when Chinese patrol boats prevented Philippines police patrols from boarding Chinese fishing boats in the region. A stand-off between the two nations ensued that escalated tensions in the region, leading to anti-Chinese protests in Manila. Though the situation appeared to be resolved in June 2012, the withdrawal of all concerned may have had more to do with the coming typhoons than any diplomatic breakthrough. Certainly this issue has not yet gone away for good.

2014 brought another serious outbreak, but this time with Vietnam. 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.

shutterstock_42598996The importance of the disputed islands is threefold. Firstly, the islands are of strategic importance militarily to China as its strives to increase its naval projection, especially given their ideal location close to some of the world’s busiest shipping lanes. Secondly, it is widely believed (though not conclusively proven) that significant resources of gas and oil lie within the EEZs (Exclusive Economic Zones) that would accompany recognized sovereignty over the islands. Finally, the issue of territorial integrity is of critical importance to Chinese national identity and the legitimacy of the government, meaning that nationalists in the country would not tolerate acquiescence on any of the disputes. A combination of all three of these reasons has seen China become increasingly active in the area over recent years. This has not gone unnoticed in those countries that also claim the islands and Southeast Asian states have responded by seeking the protection of other powers, most notably through closer ties with the US. In 2010, US Secretary of State Hillary Clinton declared that the South China Sea was of “national interest” to the US, sparking an angry response from China. In the same year, cities across Vietnam saw large scale anti-China demonstrations that evidenced the damage done to China’s soft power initiative in the region. China is now facing a choice of maintaining an inflexible stance about the islands, risking further harm to its hopes of regional leadership and even potential conflict with the US, or backing away, risking upsetting its domestic audience. It is a tough balancing act and is complicated by the competing policy-makers within China. A successful charm offensive launched by the Chinese around the turn of the millennium to woo its Southeast Asian neighbors and convince them of the benign intent behind China’s rise has been wholeheartedly undermined by what appears to a bullying and militaristic tendency with regard to the territorial disputes, the key issue in China’s relations with the friends it sought. A more coherent policy towards these countries would be beneficial for all concerned.

ASEAN

The ten-member Association of Southeast Asian Nations (ASEAN) has developed into one of the most successful regional organizations in the world, arguably second only to the EU in terms of its coherence, levels of cooperation and weight in the international arena. Formed in 1967, ironically as a foil against the spread of communism in Asia, its five founding members were Indonesia, Malaysia, the Philippines, Singapore and Thailand. Its success in terms of promoting economic cooperation and development among its members led to applications from other states to join. The end of the Cold War allowed for even those states against which the alliance had originally been aimed to become full members and the organization now incorporates the whole of Southeast Asia, with the exception of Timor L’Este. While China is not a member, it, uniquely in East Asia, recognized from an early stage both the importance of the institution and the need for its own engagement with it. Specifically, China spotted a double opportunity with regard to Southeast Asia, and ASEAN proved to be the vehicle through which it could exploit it. The two aspects of the opportunity that China seeks to exploit are: the development of economic growth and integration; and the promotion of its ‘soft power’ in a region it considers to be its own ‘backyard’.

The creation of ASEAN+1 (which includes China) and ASEAN+3 (which includes China, South Korea and Japan) shows how China has stolen a march on its East Asian rivals in shutterstock_112693318 resizedgaining leverage with the Southeast Asian states. That there is a forum which is basically dedicated to China-ASEAN relations, in which other states have no part, as well as a forum dedicated to ASEAN-East Asia relations, in which China still has a key role, shows how it has positioned itself as a key player in this process of ASEAN-centered regionalization. Despite interest from both Japan and South Korea in increasing trade ties with Southeast Asia, it was China that managed to secure a Free Trade Agreement with ASEAN, which came into force on January 1st 2010. Theoretically, this created the largest free trade area in the world by population (1.9 billion people), though it ranks third in terms of actual volumes of trade. There are also many more exemptions than one might ordinarily expect in such an agreement. Each country lists dozens of areas where tariffs may continue, and four ASEAN countries (Laos, Vietnam, Cambodia, and Myanmar) are completely exempt until 2015. It should also be noted that a similar, though less extensive, agreement between ASEAN and India came into force on the same day. Nevertheless, the establishment of the agreement represents a public relations coup for China and the economic benefits for all involved should not be underestimated. By December 2010, China-ASEAN trade reportedly increased by almost 40% and two-way FDI topped $10 billion, with two thirds of that figure flowing into China. The slated 2015 opening of high-speed rail links between mainland Southeast Asia and China, linking the southwest of China with Laos and part of China’s enormous and ambitious high speed rail network project, should increase integration even further.

China has also involved itself in the ASEAN Regional Forum (ARF) that is designed to promote security dialogues and confidence building between states around the Asia Pacific region. The forum involves 27 members, including all ASEAN members, China, Japanthe USthe EU and every other major actor in the region – excluding, at China’s behest, Taiwan. It is through this forum that China has sought to ease the fears of its smaller neighbors over its own rise and expansion of power, particularly with regard to its military expansion and the previously mentioned maritime territorial disputes. Generally, China balks at being pinned down by any broad-spectrum ASEAN-China negotiations, preferring instead to deal bilaterally to solve issues between countries. Nevertheless, it has agreed in principle to a ‘Declaration on the Conduct of Parties’ which would commit all signatories to peaceful resolution of these disputes. While this is not yet signed and sealed, China’s agreement has helped ease some tensions with its Southeast Asian neighbors.

Water

shutterstock_11779609 resizedThe Mekong, a major river that runs through Myanmar, Laos, Cambodia and Vietnam, has its source in China, making relations with it of potentially critical importance to these nations. 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 Water Courses 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 for example – 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.

Future Trends

China’s relationship with Southeast Asia is one of its key foreign policy priorities. If it is to establish itself as a global power then it must first be a genuine regional leader. It can only achieve this through engagement with the ASEAN countries at both the economic and political levels. It has shown a clear understanding of the importance of this through its engagement with the ASEAN institutions in which it was ahead of the competition, specifically Japan and South Korea. It can be expected that China will continue to increase its ties with ASEAN in the future.

The increased economic integration with the region has been facilitated both by this willingness to become involved in ASEAN’s structures and also by the myriad cultural ties that bind China to Southeast Asia. It seems likely that both of these factors will continue to contribute a close relationship and this, on the face of it, appears to be a positive development in China’s quest for acceptance as a regional leader and, therefore, a global power.

However, the continuing territorial disputes represent a major threat to China’s goal of shutterstock_78574054 resizedattaining regional leadership. China’s national interests will likely dictate that its claims over the islands continue to be non-negotiable; driven by both strategic concerns and the demands of domestic nationalists it would be virtually unthinkable for China to acquiesce on any of its claims now. One unwelcome side-effect of this from China’s perspective is that the developments have driven several Southeast Asian countries to renew and strengthen their ties with the US. Notable among these have been Vietnam and the Philippines. Such close ties are clearly not in the interests of China’s own national security, nor its ambition to be the regional hegemon. While the recent moves within the ASEAN framework to establish formalized dialogue on the issue are welcome and positive, the prospect of a compromised resolution seems remote and, particularly in the case of the islands, China continues to insist that each individual dispute be resolved bilaterally. With China continuing to expand its naval projection-capabilities in the area, the prospect of increased hostility is very real. Indeed, China’s increased tendency to flex its muscles in this area over the last few years has undone much of the good work it had done in promoting a positive image of itself in the Southeast Asian countries. This schizophrenic policy toward the region may do further harm in the long run as smaller countries seek the protection of a larger and more predictable ally in the form of the United States, a result that would be counter to all of China’s perceived interests. This risk of hostility will continue to cast a shadow over relations between China and the Southeast Asian region.

Sino-Indian Relations: Realists and Rivals

Introduction

Imagemaker / Shutterstock.com

The two most populous nations in the world, China and India share a disputed border, are both on the rise economically and politically, and both possess fearsome nuclear arsenals. Their rapidly changing economic and diplomatic positions have put not only their relationships in the wider world in flux, but they have also created a shifting engagement with each other. While China and India’s ever-closer economic ties have created a degree of optimism that their developing relationship will be harmonious and productive, territorial disputes, competition for spheres of influence within South Asia, and increasing friction over water rights will continue to significantly challenge their relationship.

Historical Ties

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Throughout ancient times, the link between India and China has been limited; theHimalaya formed a formidable natural barrier between the two civilizations. The most significant Indian contribution to Chinese culture was the transmission of Buddhism into China during China’s Age of Division 220-618 CE. Although the exact time and manner of Buddhism’s spread to China is still debated, it is likely that it made its way to China over the Silk Road, following merchants engaging in trade between the empires. Chinese scholars and monks also travelled to India to study Buddhism and to translate its scriptures. The most famous of these monks was Xuanzang, whose travels to and seventeen year stay in India were fictionally immortalized in the Chinese story, “Journey to the West”, considered one of the four great classics of Chinese literature.

In the modern era, with India colonized by the British, exports of opium to the Chinese mainland eventually led to the two Opium Wars of 1839-1842 and 1856-1860 between Britain and the Qing Dynasty of the time, though the involvement of what we now think of as India was incredibly limited, as it was a colony of Britain at the time. The post-Second World War period was a time of dramatic change for both countries. India was granted its independence from Britain in August 1947. The process of India’s independence was complicated by its separation from Pakistan which the British enacted immediately before granting independence to both nations as separate entities. Violence followed between the two new countries. Indeed, more than six decades after their separation, India and Pakistan remain at odds on many issues. Similarly, in China, violence ensued until the People’s Republic of China was founded in 1949 as Chiang Kai-shek’s Nationalists, and Mao Zedong’s Communists fought for control of the country. This meant that two giant new nations, both with extensive territories and massive populations, both recovering from differing forms of colonialism and struggling to find their place in the new world order, were created within a very short space of time. Despite their very long histories as civilizations, China and India are thus relatively new nation states. Their early dealings with each other have reflected their struggles to adjust to their relatively new country status and their efforts to find their place in the post WWII international order.

One early contribution that the Sino-Indian bilateral relationship made to wider international relations was the 1954 agreement in which was stated the “five principles of peaceful coexistence”. These principles were agreed as part of a treaty relating to Indian trade with Tibet, over which China had regained suzerainty. The five principles became both the founding principles of the Non-Aligned Movement (NAM) – a grouping of countries that sought to distance themselves from the Cold War by refusing to align with either superpower – and the cornerstone of China’s foreign policy, at least rhetorically. The five principles were: mutual respect for territorial integrity and national sovereignty; mutual non-aggression; mutual non-interference in the other’s internal affairs; equality and mutual benefit; and peaceful coexistence. At the heart of these principles is the agreement not to infringe the sovereignty of another country. Yet, despite their mutual commitment to these principles, within just a few years China and India were at war with each other.

The 1962 Border War

Following the 1959 Tibetan uprising – which was repressed by the Chinese military and resulted in the Dalai Lama’s fleeing into exile in India – there were several skirmishes between Chinese and Indian troops along the border. The border had never been successfully demarcated between the nations of China and India. An agreement reached in 1913 over the border between British India and Tibet – at the time conducting affairs as a pseudo-independent nation following the breakup of the Qing Dynasty – has been consistently rejected by the PRC, despite the apparent presence of Chinese representatives at the negotiations. China refuses to acknowledge any agreement made with the Tibetan authorities as it declines to recognize that Tibet had any level of suzerainty in this period of history. Interestingly, China’s refusal to recognize this agreement has some validity as it was, in fact, in breach of the Anglo-Russian Entente. Signed in 1907, but annulled in 1922, it stated that all dealings with Tibet must be conducted through the Chinese authorities in Beijing.

In October 1962 China invaded Aksai Chin and Arunchal Pradesh, the two largest portions of disputed territory over which it claimed sovereignty, but which were occupied by the Indians at the time. The simultaneous invasions were over a thousand of miles apart. The war lasted precisely one month, with the Chinese winning a military victory and successfully occupying much of the disputed areas. However, once military superiority had been established, a ceasefire was called and the Chinese unilaterally withdrew from all the territory they had gained in the offensive. While China’s real reasons for unilaterally withdrawing and ending hostilities are still debated, it is likely that a key reason for their retreat was the prospect of US involvement in the conflict, which raised concerns in China of an unwanted and unnecessary war with the superpower. Premier Zhou Enlai insisted that the withdrawal was a signal of good faith and that China had always wished to resolve the dispute peacefully.

The casualties in the war were relatively small, with an estimated 2000 Indians and more than 700 Chinese troops thought to have been killed. However, the consequences for the relationship and the region as a whole were extensive. While the Chinese succeeded in demonstrating their military superiority over their Indian rivals, the invasion harmed their international image and fed the belief in the West that China was a belligerent power intent on using aggressive means to expand its territory and influence. The lesson learned by India was that its military was woefully underprepared and wholly inadequate for purposes of self-defense. It therefore set about wholesale modernization of its military capabilities.

Territorial Issues

 

Territorial disputes are probably the greatest issue of difficulty between China and India. The disputes involve ten separate portions of territory, though several of these are tiny. There are two particularly significant areas: the more than 60,000 square km – around three quarters – of what India, and most other countries in the world, consider to be the state of Arunachal Pradesh; and the 37,000 square km Chinese-administered Aksai Chin, to the west of Nepal. It was these two areas over which the 1962 war was fought. At the time the Arunachal Pradesh was sparsely populated, but is now home to around one million Indian citizens. Since the 1962 war there have been many skirmishes along the disputed area, most notably in 1967 and 1987.

Given the size of the larger territories under dispute, it is politically difficult for either country to concede the territory to the other. This is especially true in the case of Arunachal Pradesh, which would be tantamount to the the Indian government effectively giving away the majority of an established Indian state. The other major disputed area, Aksai Chin, is considered by India to be a part of Kashmir and therefore complicates the matter further, given that India is already contesting Kashmir with Pakistan. Certainly, no solution to the current impasse appears imminent and the failure of the two great powers to resolve this remains a constant thorn in the side of diplomatic relations of the two. With that noted there has been some limited success in reaching agreement over the Indian state of Sikkim; initially claimed by both India and China but effectively operating as an independent state, Sikkim voted to join the Indian Federation in 1975. China originally refused to recognize this and continued to display Sikkim as a separate state on maps produced in the PRC. In 2004, it finally accepted it as an Indian state, although it did so with little fanfare.

As with most territorial disputes around the world the problem is exacerbated by nationalists on either side, who are prone to react to even the slightest provocation. Though nationalist responses in China are not as prominent as those that are directed against Japan or the US from time to time, India has emerged as a target for outpourings of nationalist sentiment, particularly over the issue of the disputed territory. Simon Shen, an academic who specializes in Chinese online nationalism, has identified that China’s online nationalists have turned their attention to India in recent years and use the government’s reaction to any perceived provocation as something of a litmus test. India also has its share of hotheaded protesters who make themselves heard whenever China acts in ways considered to infringe on India’s sovereignty over these areas.

Tibet

For historical, religious, cultural and geographical reasons, India continues to play a role in the Tibet issue. Homeland to the Tibetan people, and located on the high plateau of the north-eastern Himalaya, Tibet was unified in the 7th century, but then fractured into various territories which have since been controlled at various times by Tibetans, theDaniel J. Rao / Shutterstock.com Mongols and the Chinese. Tibet has been part of the People’s Republic of China since 1951, though full control by Beijing was only established following a military advance into the region in 1959. While China’s sovereignty over Tibet is accepted by the international community, its continued rule there remains controversial with the Dalai Lama continuing to campaign internationally for the Tibetan people to be allowed greater autonomy. Though China insists that the Tibet issue is a purely domestic matter in which no other country must interfere, India is inescapably intertwined in the problem. This is, primarily due to the fact that when the PLA rolled into Tibet in 1959, the Dalai Lama fled to India where he was given asylum, and allowed to establish the Tibetan “government in exile” – in the northern Indian town of Dharamsala. There have certainly been times since 1959 when the Indian government has wished it could bring an end to its own involvement in order to ease its strained relationship with China over this issue, but the Dalai Lama’s successful international promotion of the Tibetan cause has made this an impossibility, at least while he remains alive. For its part, China continues to raise this matter with Indian leaders, particularly whenever Tibetan refugees flee across the border to seek asylum there.

Competition for Water Resources

Tibet is also relevant to Sino-Indian relations as it is the source of the Brahmaputra River which provides significant water and power resources for Bangladesh and India. To take advantage of Tibet’s vast hydro power, China is planning a series of dams on the various transnational rivers that originate there. One of its proposed mega-dam projects is on the Brahmaputra, where it does a big U-turn in the world’s deepest canyon before entering India, close to one of the borders disputed by the two countries. This bend on the Brahmaputra is considered to be one of the world’s largest concentrations of river energy on earth. This mega-dam at the Brahmaputra is just one of what is estimated to be as many 28 dams on the Brahmaputra that are either planned, completed or under discussion by China. While China denies it, some Indian scientists also fear that China might also be planning to divert 200 billion cubic meters of water a year from the Brahmaputra to the Yellow River and other Chinese rivers.

China’s damming of the Brahmaputra puts control of a key source of Indian water into Chinese hands. More than 185 million people in north-eastern India and Bangladesh depend on the Brahmaputra. In the Indian state of Assam, 80 per cent agriculture relies on water from the river. Damming also affects a river’s ecosystem, altering silt and nutrient flows that risk impacting India’s downstream fertility and fisheries. Additionally, India derives significant power from its own hydroelectric projects on the river and its tributaries. The efficacy of these dams could be affected if China significantly alters the river’s flow volumes

Competition for Influence

As large and now rising nations, China and India have competed for and will continue to compete for influence in Asia and abroad. One keen area of competition is in Nepal and Myanmar. There is a difference in motive for the two of these countries. Nepal is considered to be a buffer state between the two powers, so that influence and access within Nepal is a strategic priority for both China and India. In any potential conflict between the two countries, Nepal would have clear tactical importance. Myanmar, on the other hand, is important to both countries as a source of natural resources, particularly natural gas. To seek influence in Nepal and Myanmar, China and India provide both countries with badly needed infrastructural investment; both Nepal and Myanmar have some of the worst infrastructure in the world. China in particular has been focused on building crucial road links throughout Nepal and into China, boosting trade and enhancing ties between the two countries.

While Nepal and Myanmar are important considerations, the relationship with Pakistan is potentially explosive. China has been Pakistan’s long term ally, while Pakistan remains India’s greatest foe, a consequence of the fact that most Indians opposed Pakistan’s separation from India before independence. During the Sino-Indian 1962 border war, Pakistan saw an opportunity to develop a strategic relationship with a large neighbor that would help to balance against what it perceived as the threat of Indian invasion. For its part, China sees its relationship with Pakistan as a way to offset what it believes to be a US strategy to contain China, which the US employs by forming strategic partnerships with significant powers surrounding China, revolving around the axis of Japan, Australia and India. There is unquestionably some truth in this analysis of US intentions, and India’s position within this alliance system is very important. The continuance of friendly relations with Pakistan is one way China works to counter this US strategy, though this has been complicated over recent years by the US-Pakistan alliance that formed in the wake of the 9/11 attacks. China’s engagement with Pakistan involves it in India’s most prickly international issue, Kashmir, which in turn causes further friction with India at both the government and the societal levels.

China and India are also now beginning to come into direct competition for influence and access to resources in Africa. China’s engagement with Africa has increased significantly in the last two decades as it looks to Africa both as a source of raw materials and as a market for its goods. India’s foray into Africa is still in its early stages, but it is already clear that both countries are pursuing differing strategies within the region. India’s investment strategy has been led by the private sector, where China’s incursion into Africa has been led by large SOEs and government ODA seeking access to Africa’s raw materials such as its oil and timber. Indian multinational companies are seeking to penetrate African markets by exploiting the comparative advantage of a significant Indian diaspora on the continent, as well as the ability of its nationals to speak English. That said, as competition for the continent increases, India’s government seems increasingly willing to engage to secure its competitive position. In 2011 for instance, Manmohan Singh, India’s Prime Minister, announced a three year aid package to Africa worth $5 billion. While significant, it is still dwarfed by Chinese aid that currently tops $20 billion per annum. As the China and India continue their rapid development, this competition for access to Africa’s resources and markets is likely to increase in the future though, for now at least, China appears better placed to take advantage.

Bilateral Trade

Though bilateral trade is not as large as one might expect given the sizes of the two nations, it offers one of the best chances to promote a cooperative coexistence between the two Asian giants. China is already India’s largest trading partner and in 2011 bilateral trade topped $74 billion, though this fell back slightly in 2012 to $66 billion. The 2012 reduction in trade was driven almost entirely by a 20% drop in Indian exports to China, with the trade deficit now $29 billion. Total bilateral trade is projected to reach $100 billion by 2015 with potential for even faster growth after that.

China does not offer India economic complementarity in the way that it does to some ofjbor / Shutterstock.com its richer neighbors to the east, such as Japan and South Korea. India, whose population is expected to surpass China’s within two decades, also competes to be a hub for low-cost manufacture out-sourcing. However, India provides China with raw materials; ore and slag, for instance, account for more than a quarter of all Indian exports to China. India also exports $1.5 billion dollars of cotton to China annually, providing a crucial source of supply to China’s critical textile industry, which is the world’s largest and responsible for a quarter of all Chinese exports. In contrast, Chinese exports to India are predominantly in manufactured goods, in particular electrical machinery which represents around a third of total Chinese exports to India. The fact that India exports raw materials to China and China returns finished goods reflects a slightly imbalanced relationship; indeed, India ran a trade deficit of around $20 billion with China in 2010. Nevertheless, deeper economic ties with China remain in India’s long term interests. Overall, India is developing its own economy in different ways to China. Specifically, India has focused on information technology and services. China’s rapidly growing IT market, which already boasts the greatest number of internet users in the world, offers opportunity for India’s leading IT firms. For instance, Infosys Technologies, an Indian IT firm, set up a Chinese subsidiary as far back as 2004. While its Chinese subsidiary still derives the majority of its income from outside of China, the Chinese domestic market now accounts for one third of its profits; this is projected to grow in the coming years. By 2014, Infosys predicts its Chinese subsidiary will employ 10,000 people, triple what it does today. The Tata Group, through Tata Consultancy Services (TCS), has also established a significant presence in China. It exports IT services to the Chinese banking sector, with Bank of China among its most notable clients. Its workforce in China is expected to quadruple over the next three years, taking the total number of its employees to over 5000. Following in TCS’ wake is India’s Wipro Technologies which has plans to center its Asian operations in China’s western city of Chengdu, in order to focus on growing its Asian market, and to diversify away from the US and Europe. India’s other great success story in China has been Mahindra & Mahindra, a manufacturer of tractors. Mahindra & Mahindra has established two joint venture tractor manufacturing companies in China which, combined, account for more than 30,000 employees and produce more than 30,000 tractors each year, many of which are exported to Europe or India. Indian IT firms are also seeking Chinese investment. By June 2009, the total Chinese investment in IT in India reached almost $30 billion. Much of this came from the Chinese giant Huawei.

Like many foreign companies working in China, Indian firms have also complained of barriers to their entering and expanding within the Chinese market. These barriers are increasingly being raised at the highest political levels. Complaints from the Indian side are met with calls from China for a bilateral Free Trade Agreement (FTA). Although India has been reluctant to agree to this until its trade deficit with China has been tackled, such an agreement, if signed, would represent the largest free trade area in the world measured in size of populace.

The BRICS Nations

Another area of promising cooperation between China and India is their involvement with the BRICS nations – Brazil, Russia, India, China and South Africa. The name originally came from an economist working for Goldman Sachs, who coined the term ‘BRIC’ in 2001 (South Africa was not included in either the original thesis or the initial gatherings of the countries) when writing about the shift in global power balances from the large developed western countries to the large developing ones. Initially not a formal structure, the four BRIC countries sought to capitalize on the success of the term by launching annual summits in 2009, where the countries meet to discuss their positions in the global order and to call for greater equity within it. South Africa was invited to join at the end of 2010 and attended its first summit in 2011. Both Brazil and India seek to exploit the status of the alliance in order to promote their aspirations for permanent membership of the UNSC, though declarations from the BRICS summits do not go as far as to directly call for this. Questions have been raised about the continued relevance of the grouping with varying degrees of economic growth; in 2012, only India and China surpassed GDP growth of 5% with South Africa as low as 2.8%.

Future Trends

Of the potentially disruptive issues that remain in the Sino-Indian bilateral relationship, the territorial dispute is probably the thorniest. There is seemingly some room for maneuver on China’s part in the disagreement over Arunachal Pradesh; certainly it seems impossible that the Chinese would try to make good their claims on an area that is widely recognized internationally as Indian territory and which is populated by more than one million Indian citizens. However, other disputes seem more intractable, particularly where Kashmir comes into the equation. Acts of insensitivity on either side are likely to continue to provoke minor spats, but the prospect of armed conflict between the two is highly remote. Indeed, informal talks on this very issue were held in Beijing in December 2012, though without any significant movement. The last formal negotiation on the matter took place in January of the same year.

The Tibet issue seems likely to continue to be an irritant as long as the Dalai Lama survives. It is probably China’s own calculation on this issue as a whole, not just with India, that the Dalai Lama’s death will help to remove Tibet from the intense international focus that it has been under for the last few decades. From India’s perspective, the trouble the Dalai Lama has caused has likely overwhelmed any soft power that it may have accrued as a result of it providing the Tibetan leader with asylum. There is probably understanding at the highest political level in the bilateral relationship that there is little that can be done in the short term over this issue.

China’s water disputes with its neighbors will likely be a growing problem, particularly given the unprecedented level of its dam building. Tension over water rights with India will be no exception. What is unclear is what its downstream neighbors can do about China’s hydro ambitions. It will likely be an increasing source of acrimony between China and India, especially as India plays catch-up to China’s water projects. India might voice these concerns more vocally on the world stage. It might also gain influence and leverage with other countries that are similarly vulnerable to China’s hydro ambitions to place economic and other pressures against the country.

It is in the economic ties that the greatest reasons for optimism lie. The different directions that the two economies have taken in their development mean that the potential for bilateral growth is significant. For both countries economic development is key and will continue to be so. They share much in common in terms of the continued need to raise large sections of their population out of poverty, a problem that is particularly pronounced in India. The incentive to stay focused on trade rather than to get tied down by territorial disputes or regional competition should remain at the forefront of the minds of policymakers on both sides of the Himalaya.

The election of Narendra Modi as India’s new prime minister in 2014 brought some new-found optimism given his pragmatic approach to international relations and prioritisation of economic cooperation. Modi was already popular in elite circles in China thanks to his careful diplomacy when serving as a regional leader in Gujurat, during which time he made numerous trips to Beijing. Nevertheless, the many thorny issues in the relationship cannot simply be washed away and the presence of Tibet’s prime minister-in-exile at Modi’s swearing in ceremony indicated that he would not simply roll over and acquiesce to all of Beijing’s demands.

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.

From Indifference to Engagement to Dominance? China and International Organizations

Introduction

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

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

United Nations

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

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

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

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

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

World Trade Organization

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

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

World Bank and International Monetary Fund

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

G20

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

Shanghai Cooperation Organization

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

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

Future Trends

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

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

China and the European Union: Principles and Pragmatism

Introduction

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

Trade

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

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

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

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

The European Debt Crisis

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

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

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

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

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

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

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

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

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

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

Human Rights

pcruciatti / Shutterstock.com

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

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

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

Arms Embargo

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

Future Trends

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

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

The Chinese Environment: Positive Trends toward Environmental Protection

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.