Monday, June 19, 2006

Dirty Secrets of China's Economy

Date: Sat, 17 Jun 2006 22:41:56 -0400
From: "Kitchen"
Subject: Biz Week: Dirty Secrets of China's Economy

By Brian Bremner
The Dirty Secret of China's Economy
Business Week Online

June 16, 2006

The mainland's rapid growth has only worsened its
environmental problems, and the government
expects pollution to quadruple by 2020
The 2008 Beijing Olympics is being billed as one
of those glorious defining moments in history
that will signal China's arrival as an economic
power. But what if the global media pack and the
millions of tourists who descend on China two
years from now take away a less-than-flattering
impression of the Middle Kingdom?

Yes, China is a remarkable growth story. But it
is also fast becoming an ecological wasteland,
home to world-class smog, acid rain, polluted
rivers and lakes, and deforestation.

Environmental problems play a role in the death
of some 300,000 Chinese people each year, according to World Bank

China's torrid growth statistics­the mainland
clocked 10%-plus growth in the first quarter­also
mask the huge economic costs of this evolving
environmental crisis. On June 5, China's State
Environmental Protection Administration (SEPA)
issued a report that the mainland's pollution
scourge costs the country roughly $200 billion a
year, or some 10% in gross domestic product, from
lost work productivity, health problems, and
government outlays. That is a staggering admission.
DEEP IMPACT China, of course, isn't the first
high-speed developing economy to grapple with the
tradeoffs between prosperity that lifts millions
out of poverty and environmental damage that
degrades living standards (see,
2/27/06, "Is Beijing Greedy for Oil?"). Think of
Japan in the 1960s. What's different is China's
outsized impact on the global environment.
China's economy is only about one-fifth the size
of the U.S, but is already the second biggest
emitter of carbon dioxide in the world, second
only to the U.S. China's emissions jumped 33%
during a 10-year period ended in 2002, according
to the latest World Bank figures. A miasma of
dirty air from China is spreading across East
Asia and even reaching the West Coast of the U.S.
There is no denying that Chinese President Hu
Jintao's government takes the problem seriously.
Not only is it bad for the mainland's
international image, but it could be an explosive
political issue later in the decade if left unresolved.
RENEGADE POLLUTERS Pan Yue, vice-minister of
SEPA, predicted last summer at an environmental
conference in Beijing that "the pollution load of
China will quadruple by 2020" if nothing is done.
Some 20% of the population lives in "severely
polluted" areas, according to SEPA estimates, and
70% of the country's rivers and lakes are in grim
shape, figures the World Bank.
Changing all this will require a tremendous
amount of political focus by Beijing. It will
need to crack down on environmental renegades
inside Chinese industry, encourage a move from
high-sulfur coal as the mainland's primary energy
source, and push to secure the most
environmentally friendly technologies from abroad
(see, 8/22/05, "A Big Dirty Growth Engine").
The "policy elite has realized that China, with
its huge scale of economic development and
emissions, cannot consume energy and pollute the
earth the way traditional economies have done in
the past," says Wenran Jiang, director of the
China Institute at the University of Alberta,
Canada, who made a presentation on climate change
in early June to Chinese and World Bank officials.
PRESSURE TO COMPLY The good news is that some
effective measures can be taken without huge
outlays of government spending. Last November,
for instance, China agreed to expand a promising
pilot program, dubbed GreenWatch, started in
1998, from 22 cities to nationwide by 2010. The
program is designed to expose the worst
industrial polluters by publicly disclosing
once-confidential information on factory
emissions, and by ranking companies on their environmental performance.
The idea is that public pressure on the laggards
will yield improvement. Some sort of pressure is
desperately needed in China, where 60% of
companies violate mainland emission rules,
according to data compiled by World Bank senior
environmental economist Hua Wang, who wrote a
recent paper on the program. Similar approaches
launched in the mid-1990s by the Philippines and
Indonesia improved corporate emission law
compliance by 50% and 24%, respectively, Hua points out.

Relocating heavy industries like steel away from
population centers is another option. In early
2005, for instance, the government ordered
Beijing-based steelmaker Shougang Group to wind
down its iron and smelting operation in the
capital by 2007 and transfer the facilities out
of the city. Shougang plants, mainly fueled by
coal, belch out 18,000 tons of dust and contaminants a year.
PLAN FOR NUCLEAR While China can't do much about
its ravenous energy demand, it could do a far
better job of shifting to cleaner technologies
and using its power more efficiently. China
consumes more than three times the world energy
average to produce one dollar of gross domestic
product­4.7 times the average for the U.S., 7.7
times the average for Germany, and 11.5 times the
average for Japan (see, 4/11/05, "China's Wasteful
Beijing has mapped out a plan that calls for
hiking reliance on natural gas from 3% to 10% by
2020. Plants fired by gas burn fuel twice as
efficiently as turbines fired by coal, which now
accounts for two-thirds of China's fuel. The plan
also calls for building 30 new nuclear reactors.
Cummins (CMI ) imports and makes diesel engines
for mainland buses that are 30% more efficient than gas engines.
Royal Dutch Shell Group (RD ) is licensing
technology to fertilizer plants that converts
coal into synthetic gas, which burns more
efficiently. General Electric (GE ) is making a
killing selling gas turbines. And both GE and
Veolia, of France, are marketing technologies
that will harness the methane gas produced from
decomposing garbage and sewage, as well as the
huge amounts of gas that escape from China's coal mines.
PROFIT OR PRIDE? That said, there are some
inside the Chinese government who think the
country should get rich first and leave the
environmental clean-up for another day. Skeptics
wonder whether post-Olympics Beijing will lose interest.
"The world will either benefit from a responsible
rising China or it will suffer from a China that
continues to pursue profits at the expense of the
climate and environment," says the University of
Alberta's Jiang. It will also make a critical
difference to the lives of millions of ordinary Chinese citizens.
Nickname: Pffefer
Review: "China's large wild animals have been
wiped out except for areas in the north and
southwest. Small mammals, birds, and even insects
are almost non-existant in the cities." Are you
kidding me? Where the heck did you go in the PRC?
I know many people who own pets, and here in my
yard I have tons of insects, right in the middle
of Beijing! Some ignorant Westerner making
ridiculous generalizations after two weeks in
China. Well, that is not new, is it?
Date reviewed: Jun 17, 2006 9:55 PM
Nickname: China Law Blog
Review: I have no doubt that the Chinese
government in Beijing (and Shanghai too) is
serious about cleaning up the environment.
However, I have real doubts that their sincerity
will be enough to move the intractable
bureaucrats and industrialists to really do
anything. It is going to get a lot worse before
it starts getting better.
Date reviewed: Jun 17, 2006 8:53 PM
Nickname: grey
Review: For those saying "look to yourself
first," you obviously have not been to both the
US and China. Maybe China is #No. 2 in CO2
emissions, but trust me, they are #No. 1 in
pollution, in general. The cities are especially
horrifying. I am extremely happy that my company
no longer forces me to go to China.
Date reviewed: Jun 17, 2006 8:07 PM
Nickname: Kansan-boy
Review: The article seems to imply that China's
central government can act independently outside
of vested interests. However, the "some" inside
government who view profit first (last paragraph)
are not simply just a few policy contrarians.
Many, if not most, high-ranking officials have
connections within private industry, as well as
the state sector--which is common throughout
Asia. We can see more clearly if we stop looking through only a Western
Date reviewed: Jun 17, 2006 6:22 PM
Nickname: HuDiNi
Review: Having been to the region, I've seen
first hand, how bad it is! Not only China, but
Indonesia as well, has such poor air quality that
traffic cops need to put on face masks or choke!
But as for the economy: U.S.A. = $11 trillion.
Japan = $5 trillion. China only $1.5 trillion.
Foolish people jump at China's growth rate of
10%. America's rate of only 4%, equates to four
times that of China. But it's rates that are
looked at, not the totals. What America throws
away, China could never take in! Our American
social programs are larger than the total economy
of India and more than the growth rate of China.
So have no fear of China overtaking the economy.
They could never catch up! You're welcome!
Date reviewed: Jun 17, 2006 6:16 PM
Nickname: Andre
Review: "Before critizing China for the
environmental problems it causes we should
seriously think of the USA and its incredibly
high pollution rates. First, look at yourself,
then tell others to do right." The US has pretty
stringent pollution controls in line with just
about every other civilized country. It's the
current race to the bottom that's leading to
worldwide dismantlement of vital environmental
safeguards. China can't implement any meaningful
pollution controls because every other poor
country will jump at the opportunity to capture
some business. Nor can the developed countries
strengthen their pollution rules for fear of
driving away even more companies to places like China.
Date reviewed: Jun 17, 2006 4:57 PM
Nickname: cr@ig
Review: Hello all, I just returned from a
two-week vacation in China. My wife and I
traveled from Bejing to Shanghi by train and bus.
We have been back for a week now and I'm sure
that it will take at least another week for my
lungs to recover from the air quality in China.
Some days you could only see a couple of blocks
in any direction because of the smog. When
traveling by train you can't help but notice the
enourmous amount of garbage that has been dumped
along the tracks. It is one continuous landfill.
China's large wild animals have been wiped out
except for areas in the north and southwest.
Small mammals, birds, and even insects are almost
non-existant in the cities. CCTV 9 is China's
only English "news" channel and one report
proudly proclaimed that China would be the
largest vacation destination in the world by
2020. A little optimistic, me thinks. I'm glad I
had a chance to go there but in the future my
visits to Asia will be to countries up wind of China.
Date reviewed: Jun 17, 2006 4:05 PM
Nickname: Lake J.
Review: You are not overstating the case in the
least. I am currently visiting China from the US,
on a problem related to these air pollution
issues. I had heard it was bad, but in some areas
it is unbelievable. Visibility in the worst areas
is 1-2 miles on an otherwise clear day. I don't
know how people can stand it long term.
Date reviewed: Jun 17, 2006 1:57 PM
Nickname: the reader
Review: Before critizing China for the
environmental problems it causes we should
seriously think of the USA and its incredibly
high pollution rates. First, look at yourself, then tell others to do
Date reviewed: Jun 17, 2006 12:45 PM
Nickname: Jeffrey Rush
Review: It seems to me that the West thinks too
highly of the impact of the Olympics. The West
assumes that Chinese live only for the sole
purpose of Olympic events, thus all Chinese
policy must consider the Olympics before any
decision is made. What a great joke. This only
shows the ignorance of the West.
Date reviewed: Jun 17, 2006 12:24 PM
Nickname: dagon
Review: We are struck in a global nightmare dance
where no nation can relent in pushing for
economic growth in the same manner as a bunch of
dying people are pushing for the last gasps of
air before drowning. Soon oil will be too
expensive and scarce to support all this and the
whole thing will come tumbling down. It's pathetic.
Date reviewed: Jun 17, 2006 12:08 PM
Nickname: michaelzheng
Review: Well, I'm Chinese. We realized these
problems decades ago, but effective
counter-measures are hard to find. What's worse,
to a goverment that GDP growth is the priority,
they don't have incentives from within.
Date reviewed: Jun 17, 2006 9:37 AM
Nickname: Reflecture
Review: This article just doesn't accurately
portray how bad the pollution problem and the
connection to exports. The truth is that the main
reason for manufacturing in China is not labor
costs, but the lack of pollution costs. If China
made companies follow even basic pollution laws
many would not manufacture in China. Chinese
labor is cheap but just not that good. The big
incentive to hire these super unskilled peasants
is the lack of any environmental (and other)
regulations. Otherwise the factories would be
moved to other Asian countries. The pollution is
so bad that even neighboring countries like South
Korea have days where the air blowing in from
China is so toxic the government puts out alerts
not to go outside. Our company, Reflecture, has
moved our office from Hong Kong to Singapore
because of the pollution from China.
Date reviewed: Jun 17, 2006 1:32 AM
Nickname: Ohio CPA
Review: Each day that China is allowed to trash
its environment, maintain its cheap currency, and
avoid other production costs of developed
countries, more manufacturing jobs are lost. And
once lost they will not return. Imports from
China should have a duty applied equal to the
costs that are being avoided by not protecting
its environment and employees. Stop the
unnecessary loss of manufacturing jobs to China
because of this unacceptable competitive advantage.
Date reviewed: Jun 16, 2006 11:25 PM
Nickname: d0k0night
Review: Naw. The Chinese don't care. They will
rape and pillage the land and do whatever it
takes to speed growth. So they drive a few
hundred species extinct? Not an issue. At all. If
they have no problems demolishing the poor
citizen's home with little to no notice, how can
we possibly expect them to care even one iota
about land, or even nature, for that matter?
Date reviewed: Jun 16, 2006 9:19 PM
Nickname: cole
Review: Is this is the same China that Al Gore
has heralded as a model in his latest documentary? Am I missing
Date reviewed: Jun 16, 2006 7:53 PM

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