During Deng Xiaoping’s famous tour of southern China in 1992, the former leader declared that “development is of overriding importance”, and so revitalised China's reform process. He set China on a path to further development, and helped the country avoid a retreat into rigid ideology. But this same statement has been misinterpreted to mean economic growth should always be China’s highest priority. And as a result, economic growth has been used as a sole indicator of government officials’ performance. Local governments have been encouraged to pursue economic expansion without concern for the consequences.   

China has thus been trapped by a resource-hungry, inefficient model of growth – a trap we must now escape. As we enter a new century, the country has shifted ever more towards heavy industry; and while energy and resource consumption has risen sharply, power consumption per unit GDP has fallen as efficiency plummets. Local governments ignore environmental issues and look only to the heavy industry and energy projects that will boost their economies. For example, north China’s cities of Dalian, Tianjin and Qingdao, as well as Hebei and Xinjiang provinces, all of which suffer from water scarcity, have built large petrochemical facilities as new centres of economic growth. South China’s Shanghai, Jiangsu, Zhejiang, Guangxi, Sichuan and Yunnan are doing the same. This type of growth flies in the face of China’s poverty of resources and environmental precariousness.

In order to attract investment, many local governments have adopted a policy of “pollute now, clean up later.” Development zones and industrial parks are created, where environmental standards can be lowered, and some major polluters have even been classed as “eco-friendly” to prevent the environmental authorities making spot checks. Deng's statement on development has become an excuse for local policy-makers to ignore environmental management. At the start of 2007, China’s State Environmental Protection Agency (SEPA) announced a further 82 projects, with a total investment value of over 112 billion yuan, had been found in serious breach of the environmental impact assessment law and regulations on the integration of health and safety measures into project design. Many of these projects were located in environments that are already at full capacity, yet the headlong expansion of energy-hungry and polluting industries continues – and causes serious air and water pollution.

Some advocate putting growth first, claiming China’s environmental problems are a normal part of economic development and will be solved in time. But the damage to public health is already grave enough that we may not be able to wait. After a decade and a half of industrialisation and urbanisation, pollution emissions continue to rise. Statistics show that two-thirds of China's urban residents are breathing seriously polluted air, 300 million rural residents are drinking unsafe water, and one in five sources of drinking water for major cities is below standard. Harm on this large a scale cannot continue for long without serious consequences.

Environmental problems also expose great social inequality. A minority of people and places have enjoyed huge benefits from development, while others pay the environmental cost. Social groups that are already vulnerable face the worst pollution and have their resources depleted. They are sometimes even left with a completely uninhabitable environment. This robs them of opportunities for their own development and results in social conflict. Since 2002, the number of complaints to the environmental authorities has increased by 30% every year, reaching 600,000 in 2004; while the number of mass protests caused by environmental issues has grown by 29% every year. These vulnerable groups must achieve equitable treatment – both for the sake of social justice, and because China’s future growth is dependent on its social stability.

In light of this inequity, central government has proposed the “scientific concept of development,” which is designed to change the current GDP-centred model of growth and realise balanced, sustainable development. In 2006, premier Wen Jiabao listed three changes that China needs: to move from a GDP-centered model of growth to one that balances economy and environment and seeks the development of environmental protection; to change from a view of environmental protection as an obstacle to economic growth to the development of economy and environment in tandem; and to institute a range of methods to help resolve environmental problems. Putting these changes into effect will help correct the misinterpretation of Deng's 1992 statement on development.

The “invisible hand” of the market

The “invisible hand” of the market can promote the efficient use of resources if the ownership of resources is clear. But many environmental resources are public property, and it is hard to say who actually owns them. And when they can be used at will, their overexploitation is inevitable.
　　
In 1992, Deng Xiaoping said that economic liberalisation should replace the ideological struggle between socialism and capitalism. A period of market reform followed, with many becoming devotees of liberal economics. But today these market reforms have become the subject of debate. Problems arising from the reform of state assets, healthcare and education have left many with doubts about the process.

Fifteen years of market economics have brought some, limited improvements to China’s environment. But overall, the story has been one of continual harm. In fact, economists have long acknowledged that markets are not enough to protect our shared environment. Economists use publicly-owned pasture as an example. If a farmer buys an extra sheep, the farmer earns an extra sheep’s worth of income. But the additional damage that this sheep causes to the shared pastureland will be borne by all who use it. And competition over who will benefit from the land will result in its over-use; this is known as the “tragedy of the commons.”

This tragedy was played out during China’s market reforms in the 1990s. A 2001 report showed that during that decade, the country’s northern grasslands were 30% to 50% less productive than in the previous decade, marking a sharp fall in the grasslands’ livestock-bearing capacity. The same principle applies to marine over-fishing and the misuse of water resources and forests. When industry emits fumes, effluent and solid waste into public spaces they are, in fact, consuming a shared resource: the environment. Air and water pollution harms public health, but society pays the price – not the polluter. In economic terms, this is called a negative externality.

Some mainstream economists believe that market failures can only be corrected through the further use of markets. They believe that only when the ownership of pastures (or water, or forests) is well-defined, will the costs of their use rise to reflect their scarcity, thus preventing their misuse and promoting environmental improvements. This theory enjoyed a period of popularity, but it is business, not the environment, that has profited from this idea. For example, the price of water rose in many cities, but there has been no visible improvement in the quality of China’s urban water environment. And on top of this, salaries at the water companies continue to rise. These kinds of changes are not easy to find support for.

The failures of the market have led some to suggest a return to the planned economy, where a powerful government would implement environmental protection regulations. In the example of the shared pasture, they believe that rational decisions by each individual farmer would lead to overall inefficiency. But if the government decreed – on threat of punishment – who could use the land, when they could use it and to what extent, the land would be used rationally and tragedy avoided. However, a planned economy is less efficient at allocating resources than a market economy. Even with limited economic development and a low material standard of living, a planned economy is capable of causing serious environmental damage. This was proven by the experiences of the Soviet Union, eastern Europe and China before 1978.

The public are the key obstacle to the profit-seeking of the powerful. China must open up public policy-making and give everyone the opportunity for informed participation, allowing the public to find the delicate balance between economic growth and environmental protection in the course of protecting their own rights.

Society already recognises the gravity of the environmental crisis. We now need to decide what is to be done.

Is the theory of scientific development enough to help local governments find a balance? A survey by environmental authorities in Shanxi indicates it is not. Asked if a mayor who achieves economic success at the cost of severe pollution should keep his job, 71% of public respondents answered “no”, but 90% of local government officials said “yes.” These officials have their own interests at heart when making environmental decisions, and we cannot rely on them for balanced policy.

Expert opinions on policy have been sought, in the hope that they will provide disinterested, scientific judgment. But experts too have their own interests, and face pressure from businesses and even government, which threatens their impartiality. Policy-making guided by expert opinions is not the answer.

The turning point we are seeking today came to the west in the late 1960s. Public opposition to environmental degradation spurred western countries to reform environmental management. The public can spur environmental protection, since they are the ones who suffer when it is not in place. They will not choose to endanger their own health and safety, or squander the resources their children will need.

The efficient allocation of resources that a market economy does allow is crucial for a populous but resource-poor country like China. But market reforms will only receive public support when they are combined with principles of good governance. Rises in water prices will only be popular if the public can examine company accounts and see what benefits they will enjoy from the extra cost – and public supervision will ensure the benefits are actually achieved. Public participation also brings the social and environmental outcome of projects to the fore, internalising negative externalities and transforming the cost-benefit analysis of an undertaking to the advantage of projects that save energy and resources rather than those that promote their expansion. This will boost the service industry and ultimately help change the country’s mode of economic growth.

China’s greatest failing in its environmental and resources management is its lack of public involvement. But thankfully, things are changing. In 2003, the environmental impact assessment law was the first Chinese law to demand public participation. In 2004, China’s State Council called for greater transparency of information. In 2006, the central government said that, “Social equality and justice are basic requirements for a harmonious society, and the system must ensure them,” and went on to call for “expansion at all levels of citizens’ orderly participation in politics, ensuring the people’s legal management of national affairs, the economy, culture and social affairs.”

China stands today at a crossroads. Going backwards is no solution, and there is no future in debates about “left” and “right.” Chinese society is experiencing a proliferation of many different interests; the real question is how to prevent any one interest group monopolising the policy-making process for its own gain. In order to achieve this, public decision making must be open, with informed participation by all interest groups. This will allow the public to exercise their environmental rights, and in doing so find the delicate point of balance between growth and the environment. Orderly participation is the meeting of the public interest, governmental and business interests. Respect for the public’s right to participate in environmental decision-making can provide a limited legal and democratic channel that will help reach agreements on difficult issues, allow the market economy to efficiently allocate resources, assist in the achievement of social justice and create harmony between man and nature.

Ma Jun is director of the Institute of Public and Environment Affairs

This is an edited extract of an article first published in Southern Daily