Case Study 1 – International Market Supply Chains
One of the most relevant issues in terms of global impacts of the Chinese economy is the question of whether China will continue its former policy of self sufficiency in grain supplies. Two aspects are of particular interest in this regard:
China’s grain harvests declined between 1998 and 2005 by nine per cent, or 34 million tons. Falling water tables, the conversion of agricultural land to non-farm uses, such as urbanization, and the loss of farm labour in rapidly industrializing provinces are at the source of this loss. Rice productivity, in particular, has been attributed to water shortages. A study by a joint U.K./Chinese team released by U.K.’s Environment Minister Elliott Morley in 2004 has shown that Chinese staple crops— rice, wheat and maize—may fall by as much as 37 per cent by the end of the century, under current climate change projections.
Food consumption levels have been increasing with China’s growth and will undoubtedly continue growing with the increasing wealth of the average citizen. As a consequence, the demand for meat, fish, vegetable oils and diary products will rise as well, which in turn requires additional quantities of grain for feed. China produces nearly half of the world’s pork, is the world’s second largest poultry and the third largest beef producer. China already imports bulk commodities for its labour-intensive food industry. China is a major exporter of manufactured foods, animal products, fish, vegetables and fruit, mainly aimed at Asian markets. Although China’s demand for protein may be supplied largely by domestic producers of livestock, those farms increasingly will rely on imported corn, soybeans and soy meal for feed.
Soybean and oil palm production in the tropics is of particular environmental concern because of the massive land conversion of tropical forests that this often entails. Plantations of these two crops already cover an area of the size of France and more forest is being cleared for this purpose every year. From 1993 to 2002, the global harvest of soybeans increased from 115 million tons to 180 million tons. Although productivity per area was also improved through new varieties, the cultivated area in Argentina and Brazil increased dramatically, at the expense of the natural savannah (Cerrado) and Amazonian forest. The recent increase of the rate of deforestation in the Amazon is mainly related to cattle ranching and soy plantations. By far the largest importers of soybeans from South America in 2001 were Europe (45 per cent) and China (35 per cent).
The area under oil palm plantations has increased between 1990 and 2002 by 43 per cent to 10.7 million hectares (ha). A vast new oil palm development project in the highlands of Borneo, straddling the border between Malaysia and Indonesia has drawn negative reactions the world over. The area is still largely covered with primary forest and inhabited by indigenous peoples. Forest clearing for oil palm major loss of some of the most diverse natural habitat in Borneo. A recent study  has identified investors possibly involved in this completely unsustainable development would, because of the rugged up-land terrain, lead to massive erosion and low yields, besides undertaking, including the China Development Bank and the CITIC Group of China. At the Conference of the Parties to the Convention on Biodiversity (CBD) in March 2006, the three governments sharing Borneo— Indonesia, Malaysia and Brunei—made declarations in support of conservation efforts in the “Heart of Borneo.”
A new threat to the remaining natural forests of Southeast Asia, are various plans for biodiesel from palm oil. Indonesia has announced the conversion of six million ha of lands for this purpose. The lands are supposed to be from land not in primary forest, but the track record in Indonesia has been illicit burning of natural forest for this purpose. While much of the biodiesel will be for domestic use, it would be very surprising if there were not willing importers, including China, which is promoting demand for biofuels, including ethanol and biodiesel, but will have a difficult time meeting this demand if it relies solely on its own sources.
Agricultural Products Synthesis
Clearly, China cannot be held accountable for unsustainable agricultural practices abroad. The fact that rising Chinese demand for agricultural produce has led to a price surge for certain commodities, thus creating incentives for uncontrolled agricultural expansion, is primarily related to weak land use governance in producer countries. It is in accordance with its WTO membership that China lowers tariffs, weakens state monopolies and increases the openness of import allocations, thus weakening the policy instruments the government has been using to restrain agricultural imports. However, as some authors  have stressed, if China turns increasingly to the world markets for massive imports of grain and other agricultural products, this has the potential to change the geopolitical situation, increasing the insecurity for sustainable supplies, and exposing China to worldwide attention and criticism simply because of the dimensions of China’s demand. Already today, large scars of deforested areas in the Amazonian states of Mato Grosso and Rondonia in Brazil that can be attributed to soybean plantations and are clearly visible by satellite. It will therefore be necessary that China articulates its agricultural and investment policies, ensures reliable statistical information to accurately assess its development and participates in international fora to assess the impacts of markets on biodiversity and the natural resource base.
A considerable number of studies have been undertaken as a consequence of the rapidly increasing Chinese demand for forest products, particularly after the introduction of the National Forest Protection Program in 1998, which banned logging in ecologically-sensitive areas of China. These have been initiated by Forest Trends, the Center for Chinese Agricultural Policy (CCAP) the Center for International Forestry Research (CIFOR), WWF International and their numerous partners in China. Although there remain uncertainties with regard to unreported logging as well as import and export statistics, the level of understanding of China’s forest products’ market is more complete than for other resources.
The per capita use of wood products in China currently is modest. The average person in the U.S. uses 17 times and an average Japanese six times as much wood as a person in China! In 2003, China consumed about 173 million cubic metres of wood for its domestic use and for export. Of this volume, only about 79 million cubic metres log volume was produced by China’s own forests and plantations. This figure includes the industrial timber as well as fuel wood according to national statistics, plus an estimate of undeclared industrial production. The State Forest Administration has recently estimated the amount of unreported logging to be as high as 75 million cubic metres per year.  Domestic need for wood required 138 million cubic metres, and 35 million cubic metres were used to manufacture wood products for export to other countries. In some instances, Chinese firms are able to take what is waste wood and re-process it into first grade material. This is apparently the case for some low-grade yellow cedar obtained from British Columbia, reprocessed, and then sold to Japan as high quality product—China’s low labour cost advantage.
Rapid Growth of Timber Imports
In terms of size China’s wood market—including industrial timber, pulp and paper—is now the second largest in the world, after the massive U.S. market. To cover its demand, China has imported a rapidly increasing amount of wood. From 1997 to 2005 China’s total forest imports in volume (round wood equivalents – RWE) more than tripled from 40 million cubic metres to 134 million cubic metres. The increasing demand for timber imports can, at least partly, be traced back to the logging ban introduced in 1998 under the National Forest Protection Program (NFPP). However, the decline in China’s own production began already prior to the introduction of the logging ban and is a consequence of the depletion of natural forests over past decades. In response to the reduced production capacity of natural forests and the increasing demand for wood, China doubled its timber plantations from 14 per cent of the total forest area to 28 per cent in the 1990s. China has now the largest area devoted to timber plantations of any country in the world. The Chinese plywood industry increased its capacity dramatically in the past 10 years (plywood production increased from 2.6 million cubic metres to 21.0 million cubic metres), which partly explains why China imports much larger quantities of raw logs today.
Origin of Imports
China’s three largest suppliers of timber in 2003 were Russia, Indonesia and Malaysia, followed by New Zealand, Thailand, the U.S., Papua New Guinea and Myanmar. These trade statistics show that most of China’s timber imports originate from countries where the forest estate is in decline and/or where forest governance is weak.
In terms of volume, the most important timber supplier is the Russian Federation, with 21 million cubic metres of logs and wood-based products exported to China in 2003. The aggregate demands for wood products from Japan, South Korea and China have led to serious over-logging in the southern part of the Russian Far East and Eastern Siberia with irreparable damage in logged permafrost areas, and forest fires.
China’s imports from Indonesia increased gradually to reach about three million cubic metres RWE in 2003. China also imports a more rapidly increasing amount of pulp and paper from Indonesia, which reached eight million cubic metres RWE in 2002. The Indonesian pulp and paper industry has a significant overcapacity that outpaces the supply of sustainably harvested timber. The demand of the Indonesian pulp and paper industry, which consumes about 20 million cubic metres of round wood, is a major cause for illegal harvesting practices from natural forests. The official Indonesian export statistics record a significantly lower volume of timber exported to China (20 per cent less in 2002), than recorded in China’s import statistics. However, the extent to which Chinese timber imports from Indonesia are from illegal sources is open to debate and requires further analysis and evaluation of current data. In recent years, significant amounts of wood have moved illegally from West Papua.
The official export statistics show only half the volume of timber imported by China from Malaysia. Some of the difference may be due to Malaysia’s free ports. On the other hand there is substantial evidence that large amounts of illegally cut timber are smuggled into Malaysia from Indonesia and re-exported to China.
Increasing Timber Exports
In response to a rapidly growing demand for furniture, plywood, wood moldings and floorings, particularly in the U.S., Europe and Japan, China has in recent years become the world’s largest wood workshop. Between 1997 and 2005, the U.S. increased its imports of manufactured wood products from China by almost 1,000 per cent and reached 35 per cent of China’s total export value of timber products. Europe’s imports from China during this period also increased dramatically, by almost 800 per cent. Indeed, a very large part of the timber imported by China is used to manufacture timber products for export. The exported volume corresponds to over 70 per cent of the timber imported by China. Much of the wood is made into furniture, and some interest on the part of furniture producers is developing for certification processes, via the Forest Stewardship Council, now active in China.
According to White et al, forest product imports by China are likely to double in the next 10 years, based on an assumed six to eight per cent growth of GDP. One of their key findings suggests that the domestic as well as the export demand for manufactured wood products will continue to grow dramatically, at least over the medium term. The same authors emphasize that China, given its large export potential, may become increasingly vulnerable to consumer preferences, with growing environmental awareness. European countries are already drafting policies and implementing procurement procedures that require verification of legal or even independently certified origin of wood products.
Wood Product Synthesis
A number of policy recommendations have been made in the past to reduce the impact of China’s increasing demand for wood products, domestically and for export. These focus on the following aspects:
- Improving the productivity of the Chinese forestry sector to reduce its reliance on imports.
- Strengthening of China’s environmental protection initiatives, including through government incentives for farmers and local governments to protect and restore forests.
- Encouraging environmentally sound wood and fibre production and processing in China.
- Improving the efficiency of wood harvesting, distribution and use in China.
- Encouraging imports or purchases of wood produced legally and from well managed forests.
In light of the growing demand for timber products globally, including China’s massive manufacturing and export capacity, a number of policy recommendations are also addressed to a broader range of importing and exporting countries. Those include recommendations on procurement policies; education programs for retailers and consumers; supply chain management and certification; bilateral cooperation on illegal logging and trade; updating forest legislation and enforcement; and the promotion of small-scale forest-related livelihood. It is quite possible that a sustainable pathway could be created by a range of Chinese and other national actions. However, it is perhaps equally possible that action will be far too slow to deal with issues such as rising international demands for cheap wood and furniture products, by the difficulties of various key timber exporting countries to control their own situation, and for Chinese domestic demand to rise dramatically, making it very difficult to put in place suitable sustainability strategies. As EU countries and others start implementing sustainable procurement policies, China likely will have to have systems in place to maintain access to such markets. Being ahead of the game may be essential if China wishes to secure a growing market presence.
Fisheries and Aquaculture
China accounted for about a third of the reported fish landings and production over the last decade, thus making it the world’s largest fish producing nation in the world. Its international trade in seafood soared from about US$1 billion to almost US$8 billion in a decade. China is the world’s largest seafood exporter, with more than two million tonnes exported at a value of US$5.5 billion in 2003.
It should be noted, however, that China’s aquaculture makes up a very sizable proportion of this production. The surge in seafood exports is related to the increased production of farmed seafood such as shrimp, scallops, eel, tilapia and crawfish. Moreover, aquaculture benefits from the huge amounts of by-catch taken by Chinese fishing fleets, and used as feed. Due to its impressive processing capacity, which increased by 50 per cent between 1996 and 2000, China takes in for processing and re-export a large part of the globally landed value of fish. This has included species of considerable conservation concern such as Patagonian toothfish (also sold as Chilean Sea Bass) from Antarctic waters. The re-exported, semi-processed fish are sent to countries such as Canada for further processing and then sold in these countries, or exported again to the U.S. or other markets under the Western country brand name. This process works particularly well for white-fleshed fish that lose their species identity, ocean of capture, and place of processing. In such a situation it is very difficult to create a good chain of custody concerning any kind of reliable sustainability assertion or certification (e.g., by the Marine Stewardship Council).
Since the late 1980s, China’s own marine fishery resources have been overfished. This has been an issue the Chinese government has taken seriously. Very considerable resources have been devoted to research and the rational utilization of its marine resources. A significant number of Chinese fisheries scientists have assessed these stocks, e.g., Jin; Yuan and Cheng et al. The “Fishery Act” of 1986 was subsequently amended by an “allowable catch quota” in 2000. A moratorium on summer fishing was already previously introduced in the Bohai and Yellow Seas and extended to all of the Chinese waters in 1998. A mandatory fishing vessel buy-back program was also introduced, albeit with modest success. With the widely used trawl nets and purse seiners bycatch is very substantial and it can be expected that fishing effort, dictated by the decreasing resource, will be greatly reduced in the coming decade.
A number of fisheries scientists have reported problems with Chinese fisheries data, with implications at the level of global catch statistics. Watson and Pauly demonstrated that over reporting of catch by China (presumably to demonstrate production increases, which is important to local officials) led to substantial over reporting of marine fish catches, creating a false perception of good health in world fisheries. An additional difficulty has been reported with the privatization of the previously state-owned marine fishing enterprises and the consequences of WTO accession: the fisheries statistics system has fallen apart. Current statistics on catch are incomplete and inaccurate, which does not allow China to monitor the sustainability of its fishery resources, and therefore with consequences for the world statistics.
China’s fisheries fleet did not venture much beyond its own EEZ until about 1985. Thereafter its activities began to expand, particularly around the turn of the century, and now span the world’s oceans. In some cases, China cooperates with other countries in patrols to monitor these offshore fisheries, for example with the U.S. and Russia concerning drift net fisheries in the North Pacific, and with Japan and Korea in waters closer to China.
Illegal, unreported and unregulated fishing (IUU) has become a serious global problem and is a major obstacle to the achievement of sustainable world fisheries. IUU accounts for US$4 to 9 billion in value per year, or up to 30 per cent of the global marine catch. This loss is primarily borne by developing countries that provide over 50 per cent of all internationally traded fish products. An important element in IUU is the open registries or “Flags of Convenience (FOCs)” for large-scale fishing vessels. Countries that operate an FOC registry cannot guarantee “a genuine link” required under the UN Convention on the Law of the Sea (UNCLOS) between states and those authorized to fly their flags. Consequently they cannot or will not take action against fishing boats damaging the marine environment or living marine resources. Effective flag state control is equally necessary to ensure safety of life at sea, shipping standards and securing the welfare of seafarers.
Over 1,200 large-scale fishing vessels were registered to FOC countries in 2005 and the large-scale fishing vessels on the Lloyd’s Register with flags listed as “unknown” has increased to 1,600 in 2004. This means that about 15 per cent of the world’s fleet of large-scale fishing vessels is flying FOCs or listed as “flag unknown.” A recent study analyzed information available from the Lloyd’s Registry of Ships between 1999 and 2005 on fishing vessels registered to the top countries that operate FOCs. Belize, Honduras, Panama, St. Vincent and the Grenadines have topped the list of FOC countries, with the largest numbers of vessels registered to fly their flag.
Despite the fact that China is the most important fishing nation in the world, the use of FOCs by mainland Chinese companies does not seem to be common. In fact, China undertakes some fisheries patrols in international waters to police its own fleets. Among the countries where companies that own fishing vessels flagged to one of the FOC countries are based, one finds Taiwan with the largest number of vessels (142), as well as Hong Kong with 27 vessels. Members of the European Union are also frequent users of this dubious instrument which is commonly used to conceal illegal fishing.
China is the country to reckon with now in world fisheries and aquaculture. It has achieved remarkable progress in terms of the range of products produced from the sea, much of which is consumed domestically. It has indicated serious intent to regulate its own fleets where they are operating within national and international waters. And it takes seriously the need for good knowledge to manage fisheries. However, the statistical information provided has sometimes been of limited value, or even counter to the real situation. Furthermore, China, by actively taking over a huge processing role for re-exported fish products, has probably further lowered the accountability of fisheries processors in other countries concerning the sustainability of their raw and semi-processed materials. Traceability appears to be difficult, at least for some common forms of seafoods such as white-fleshed fillets.
The High Seas Task Force (HSTF) on Illegal, Unreported and Unregulated (IUU) Fishing  presents a comprehensive menu of proposals to improve prospects for monitoring and action to improve the situation in world fisheries. China has not been a member of this Task Force, and is not at the present time committed to implementing the proposals. Indeed, China, along with Japan and Korea, are not among the 52 members of the UN Fish Stocks Agreement (UNFSA) that is the main guiding global governance beacon for sustainable fisheries. In light of China’s vital interest in a sustainable use of the marine resources of the world, for its own long-term supply security either based on marine catch or in support of the increasingly important aquaculture, the proposals of the High Seas Task Force (HSTF) as well as other forms of international cooperation on these issues should be given serious consideration by China.
China is now the second largest energy consumer after the U.S. Already the largest producer and consumer of coal in the world, but now with rising demand for oil and gas, China is a key player in the world’s energy markets. In 2003, China overtook Japan as the second largest oil consumer in the world.
China’s oil demand in 2004 stood at 6.5 million barrels per day and is projected to reach 14.2 million barrels per day by 2025. This would mean that imports would have to cover a net quantity of about 10.9 million barrels per day according to the EIA. A lot of attention has been given to recent investments in foreign oil assets by Chinese companies. The China National Petroleum Corporation (CNPC) acquired oil concessions in Azerbaijan, Canada, Indonesia, Iraq, Iran, Kazakhstan, Sudan and Venezuela. The China Petrochemical Corporation (Sinopec) also bought oil assets in Iran (Yadavaran) and in Canada’s oil sands. The China National Offshore Corporation (CNOOC) purchased a stake in the Malacca Strait oilfield in Indonesia. However, these participations will only be able to cover a small fraction of China’s projected oil demand. The country will thus remain largely dependant on imports.
With the increasing concerns of the Chinese leadership about its energy supplies and the environmental advantage of using natural gas, China has in the past years invested heavily in gas infrastructure. In 2004, only about three per cent of China’s energy demand could be covered by natural gas, which is projected to double by 2010. China has considerable reserves of natural gas, mainly in the western and northern provinces, estimated at 1.5 trillion cubic metres in 2005. The development of these fields however requires the construction of pipelines over large distances to aliment the urban centres of the east. Imported liquefied natural gas (LNG) will primarily be used to convert existing oil-fired power plants in the southern part of the country. In Guangdong Province, six gas- fired power plants of 320 megawatt (MW) are currently being built and an import terminal near the city of Guangdong is being built by BP.
China as the largest consumer of coal in the world has recently stepped up its coal production. In 2003 it consumed 1.53 billion tons, corresponding to 28 per cent of the world consumption. Over the long run, the proportion of coal in the energy mix of China is expected to fall; however, in absolute terms, coal consumption is still projected to continue rising. Very large numbers of coal-fired power plants are under development. With the opening of China’s coal sector to foreign investment, the prospects for investment in new, and environmentally more friendly technologies has been rising. Of particular interest to Chinese authorities is the potential of coal liquefaction technology, with recent U.S. cooperation established. 
The early part of the new millennium saw a shortage of electricity supplies (estimated at 30 gigawatt (GW) in 2004). As a consequence of the shortage, the Chinese government has approved a large number of new power projects. Nuclear power generation increased from two GW to 15 GW between 2002 and 2005. An April 2006 deal with Australia to supply 20,000 tons of uranium per year should allow China to develop its nuclear capacity by adding 27 GW by 2020, and thereby quadruple the nuclear part in the energy mix (currently 2.2 per cent) China is committing US$1 billion and the efforts of 1,000 Chinese scientists to the International Thermonuclear Experimental Reactor (ITER) located in France in the interest of building advanced science and technology capabilities for environmental protection and securing new energy sources. Wind power and solar power also are being added. China’s electricity consumption is expected to grow by an average 4.3 per cent annually for the next 20 years.
China is number three in the world after Brazil and the U.S. in terms of ethanol for fuel production. Plans are for vast increases in ethanol-gasoline mixes. The four state-owned grain-based ethanol makers—China Resources Alcohol, Henan Tianguan Group, Jilin Fuel Ethanol and Anhui Fengyuan Group—together produced 720,000 tons of fuel a year in 2004 and planned to increase production to more than one million tons by the end of 2005. China Resources Alcohol may build a 600 million yuan plant in Guangxi Province to distill alcohol from cassava and molasses. The biofuel capacity increase comes in response to a government direction in 2004 addressed to five provinces to include 10 per cent ethanol in their car fuel. Now such fuel mixes are available in nine provinces. The longer-term goal is for biofuel to become 10 per cent of all fuels by 2010 and 16 per cent by 2020. This would mean increasing China’s ethanol production by about 15 times by 2020, to a level equal to the U.S. or Brazil’s current production.
China already has experienced shortages in ethanol, which raises a longer-term issue of whether ethanol might be imported, for example from Brazil. Ethanol will become a commodity on world markets, with important implications for sustainable land use in countries like Brazil. Similarly, palm oil plantations in Southeast Asia may become sources of biodiesel, possibly at the expense of the remaining rainforests in countries like Indonesia and Malaysia. It is also possible that China and EU countries will compete for any available tropical country-produced biodiesel, perhaps including sources from Africa. The EU is now discussing sustainability certification of biofuel imports, an approach that China could also consider. There are various points of view about the use of food crops—such as corn—for fuel, including environmental and net energy gain considerations. What is clear for countries such as China, the U.S. and Brazil is that there are two prime values—fuel security, and local rural benefits. Already, the strong stimulus of this new sector is on the price of several commodities, including wheat, corn and soy, which China purchases on international markets.
Energy Resources Synthesis
Among various concerns about the impact of China’s growth on the world’s market and the global environment, its rapidly increasing energy needs probably rank highest. There exist many legitimate reasons to take these concerns seriously: China’s energy needs are not only of geopolitical relevance in terms of the increasing competition over access to these resources, but also for the inflationary prices, and the security aspects that are related to it. They are equally relevant in relation to the rapidly increasing concerns over the climate change impacts of China’s massive fossil fuel consumption. Moreover, it is in China’s own best interest to reduce its dependence on foreign energy resources in order to guarantee a predictable development path, as envisaged by the Chinese leadership.
The conversion of energy generating systems to new environmentally beneficial technologies; the aggressive promotion of renewable energy; and much higher energy efficiency standards in all sectors of energy consumption, including building standards and low energy transport systems, are probably the areas that could be of greatest benefit to China. Unlike other markets with global impact, such as the import of commodities from countries with insufficient natural resource management, the energy future of the country is largely in China’s own hands. Energy production and consumption can be influenced to benefit the future of its own society in parallel with a reduction of the countries dependence from foreign resources as well as a reduction of negative impacts on the global ecology. Incentives; investment; pricing; regulation and enforcement; training and education for energy conservation, and for building advanced scientific capabilities for environment and energy conservation will contribute to a sustainable energy future for China. Clearly, however, the problems of China’s energy security also involve a great deal of cooperation from abroad to ensure that new technologies are made accessible in a timely way, and on reasonable terms, and to ensure that energy demands of other nations do not make it impossible for China to meet its legitimate and growing needs.
Although China currently accounts only for about four per cent of global GDP, its metal consumption is disproportionately larger, with 16 per cent of the world’s consumption. China is the largest consumer of copper, iron ore, steel, tin and zinc; the second largest consumer of aluminum and lead; the third largest consumer of nickel; and the fourth largest consumer of gold. China’s iron ore imports between 1990 and 2003 increased by a factor of 10. The country now consumes 35 per cent of the world’s iron ore. It produces more steel than the U.S. and Japan combined.
China depends on minerals imports which reached US$140 billion in 2004. However, China has large reserves of some minerals: 54 per cent of the world’s manganese reserves; 23 per cent of the lead reserves; 22 per cent of silver reserves; 12 per cent of coal reserves; 11 per cent of vanadium reserves; and six per cent of copper reserves.
Nevertheless, commodity prices have risen to historical peaks, as global mining efforts cannot keep up with the demand of Chinese mills, building sites and car factories. According to Lin Hai, a manager at Guotai Asset Management, Chinese investment abroad has become a necessary step to ensure preemptive rights on raw materials and to keep costs low. The competition for Australian mineral resources is particularly fierce between Chinese companies, the South Korean steel maker Posco, and the Japanese companies Nippon Steel and Mitsubishi. Henry Wang from the Australian government agency Invest Australia has been cited to state that from all Chinese iron ore imports, China currently has some kind of involvement in 25 per cent of the suppliers, and it intends to increase this to 50 per cent.
The massive demand for steel caused a temporary doubling of prices which peaked in 2004 at US$700 a ton, but prices have come down again since then. This has been seen as a consequence of stepped up steel production from Chinese producers and government efforts to slow down the real estate and construction industries. Construction accounts for 67 per cent of steel consumption according to Baosteel, the biggest Chinese steel producer. With the increasing steel production in China (forecasted to reach 348 million tons in 2006), the country may soon become a net exporter of steel which would mark a drastic turnaround from the situation in 2004 when was the biggest steel importer!
This transformation is deeply troubling to the U.S. steel industry. In July 2006, the American Iron and Steel Institute released a report called The China Syndrome: How Subsidies and Government Intervention Created The World’s Largest Steel Industry. It marked the start of a campaign to place tariffs on Chinese steel entering the U.S. on the grounds of subsidized production, worker conditions and poor environmental controls. In effect, the charge is that the U.S. industry is imperiled and 30 years of investment in environmental quality improvement will be lost in favour of low cost, unsustainably-produced steel imports.
China’s consumption of metals is more directly related to construction of infrastructure than is the case with natural resources and even fossil resources. The surge of imports and the massive increase of China’s own production are largely driven by the country’s rapid urbanization. As urbanization is projected to continue over the next 15 years or more, and may reach a level where 55 or even 60 per cent of the Chinese population will live in cities, a sustained high level of metals consumption will exist. China will undoubtedly try to cover this demand increasingly from its own production and participation in overseas operations.
Unlike natural resources (particularly timber or fisheries products) the origin and conditions of exploitation of mineral resources are more easily verifiable, and are thus less prone to illegal exploitation practices. Although China’s huge consumption of metals may cause price reverberations on the world market, its impact on the global environment, biodiversity conservation and regional development prospects in other parts of the world is less severe than is the case with natural and fossil resources. It is also less evident, how efficiency gains could contribute to lower consumption levels by comparison to the case with fossil resources.
China is driving the waste trade in the world. China’s imports of paper, scrap metals, plastics, electronics and other materials are leading to significant increases in the proportion of materials re-used in the world, and are relieving the burden of local jurisdictions and industries facing demands for increased recycling. Even some of the steel from the ill-fated New York World Trade Center was sent to China for recycling. This willingness by Chinese industry to purchase recycled material is a benefit for the world, and a means for China both to generate employment and to meet shortfalls in raw material for manufacturing. But it comes with a cost.
Some of the trade is illegal under China’s own laws, and some of the exported material to China, for example, electronic waste from the U.S., would not be allowed from countries that have ratified the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal. The problems of computer disassembly are considerable, with a limited number of small towns in China being converted into hazardous waste sites. It has been suggested that most of the world’s “high-tech trash” ends up in China, despite official bans. A recent case involved some 27 companies in eastern Canada that sent computer components in some 50 shipping containers destined to China. The amount of plastic and metal waste totalled more than 500,000 killogram (kg). These were seized at the Port of Vancouver. The companies were fined only a nominal amount by Canadian authorities and their names were not made public.
There are questions raised about the sanitation of some materials such as plastic bottles sent to China. And there are problems in China and elsewhere with ship-breaking, which involves many hazardous materials such as asbestos and heavy metals in electronics. China has been cautious about some forms of recycled materials, for example textiles. This is a topic of active discussion on the part of the Bureau of International Recycling (BIR) which in May 2006 held its World Recycling Convention in China for the first time.
Recycled Materials Synthesis
China is experiencing the same double digit growth in a great variety of recycled materials that it has seen for other resources. There are benefits to poor people by providing employment in China, and also to the very rich. It is said that the richest woman in China made her fortune by importing and reprocessing waste paper, developing new supply lines, and taking advantage of low cost shipping provided by empty container ships on their return voyages. Recycling has been a means to expand sources of supply for vital commodities, meaning less pressure on forests and landscapes, and perhaps lower energy costs. It is a means for China to extend its concept of circular economy to a global level.
It is quite likely that China can lay claim to being the world leader in the import of recycled material. In addition, given its growing resource demands and focus on a circular economy, China should have a clear and direct interest in ensuring the “recyclability” of the products it produces. Environmentally smart product design and production also could help ensure Chinese access to increasingly sensitive international markets defined increasingly by “responsible producer” laws as well as by the European Union WEEE and ROHS regulations now coming into effect for e-waste products. Five or ten years from now will China have the advanced environmental technologies to ensure that it carries out recycling in the safest, most efficient and effective ways? If so, the world, as well as China, will have benefited immensely.
Some General Conclusions about China’s Market Supply Chains
Market supply chains have various junctions where important interventions could take place in order to promote sustainable consumption, production and trade. Certainly China, in its remarkably varied and very dynamic international relationships, is already starting to re-shape conventional thinking about market economics. It could do so in relation to sustainability concerns as well, and indeed, is doing so in relation to at least some forms of recycled material imports. Much more work needs to be done in order to understand the opportunities and sustainable development needs concerning China’s market supply chains. This is a relatively unexplored topic at the leading edge of environment, trade and investment. Below, a number of conclusions, organized around five main points, are offered on this subject:
1. China is a major commodity transformer.
- China has rapidly become the world’s largest consumer and producer of many different commodities.
- For a number of commodities, China has made a rapid transition from being a leading net importer to becoming a net exporter, often via value-added finished products.
- China’s own consumption often does not entirely explain the increased resource demand. In the case of certain commodities (timber, some fish) China could more appropriately be seen as the “world’s workshop” as opposed to the nation that uses up the world’s resources.
- Although China has an unmatched growth in terms of speed and duration, resource use is surging in many other parts of the world. Therefore its comparative advantage is a dynamic matter, and so are issues such as source and substitution potentials of raw materials.
- A very large part of the biocapacity of China, domestic or imported, is consumed by end-users in Europe and the U.S.
2. China’s domestic consumption is growing relatively slowly, although that may well change.
- The per capita footprint of the Chinese population is still relatively modest, even compared to some other Asian nations. It is the speed of development and the size of its population that create the concerns.
- China’s rapid urbanization and changing lifestyles of the urban population drive most of the domestic consumption issues.
3. Rapid growth in natural resource demand makes regulation of supply chains difficult.
- Concerns over China’s natural and fossil fuel resources use are much more prominent than concerns over the consumption of metals or other geological resources.
- High demand for natural resources is increasing illegal activities in countries of origin with weak governance systems, or in the global commons.
- Supply chain analysis, declaration of origin, certification and labelling can mitigate this difficulty and will become important aspects for consumers in China’s client countries.
- The responsibility of countries exporting to China and to consumer nations importing from China to take environmentally appropriate action cannot be overstated.
4. China has undertaken some very responsible sustainable development actions in dealing with international supply chains.
- Efforts of the Chinese leadership to show responsibility for global resource use and the environment (e.g., fuel efficiency standards) are always noted and well perceived in other countries.
- Self-sufficiency in terms of resource use, when justified on an economic and environmental basis, should remain a principle, but needs thorough, ongoing analysis.
- Resource and energy efficiency gains and a recycling economy are not only in the best interests of China itself, but also are the most effective measures to reduce global impacts.
- Perhaps the single most promising focus for alleviating China’s global environmental impact is through the adoption and promotion of new, resource-efficient energy technologies that also reduce China’s CO2 emissions.
- Close involvement in and cooperation with international conventions (e.g., UNFCCC, CBD, CITES, UNCLOS, Fish Stocks and other marine agreements) as well as with international NGOs can increase transparency and confidence, and lead to policy change.
- International cooperation (whether in the form of international commodity agreements, multilateral environmental or trade agreements, or “public-private supply chain initiatives”) offer key opportunities for improving the transparency and predictability of trade impacts.
5. International cooperation and improved Chinese research on environment and sustainable development implications of market supply chains are needed.
- Many authors regret the decreasing quality of statistical information from China, following privatization in many sectors. The general lack of high quality data does not help to support China’s case of improved efforts towards a satisfactory sustainable consumption, production and trade relationships.
- Similarly, there is a great need for improved scientific and impact information regarding the extent and severity of China’s external impacts arising from market supply chains and related problems such as long distance transport of pollutants generated in China to other countries and continents, and from other impacts such as inadvertent export of invasive species through trade.
In summary, China does have a responsibility, by virtue of its importance and growing power over international supply chains, for ensuring that production is done sustainably. A sustainable view of China in the world needs to be built on more than measures adopted within its own jurisdiction. There is a special opportunity and obligation for China, in cooperation with others, to play a special role in guiding international supply chains towards sustainable practices. Indeed, it would be surprising if, in the future, the world was not looking to China for guidance on governance for international supply chains.
Case Study 2 – Trade in Illegally Produced, Harvested or Transported Materials
This subject has been introduced in sections dealing with forest products, fisheries and recycling of e-wastes, but it merits additional attention, since some of China’s impacts are very substantial, and have been of concern for many years, and especially with increasing purchasing power within China. It also is important to recognize that progress has been made through concerted efforts on the part of both China and the international community on certain concerns, for example in ivory trade and on CFCs. Also, it is important to recognize the substantial number of international agreements that cover various illegally traded materials.
These international agreements include: the Convention on International Trade in Endangered Species (CITES); The Framework Convention on Biological Diversity (CBD) and the Cartagena Protocol on Biosafety; the Montreal Protocol on Substances that Deplete the Ozone Layer covering CFCs; the Basel Convention, which covers movement of toxic materials; various WTO agreements; FAO Responsible Fisheries and other regional or global fisheries agreements; and phytosanitary and sanitary measures, including those designed to reduce risks associated with spreading of infectious diseases. Bioterrorism issues are also part of the picture, although this subject is not covered.
China as a Consumer of Illegally Caught Wildlife and Products
China is the largest market for illegal trade in wildlife from Southeast Asia, and also a major market from other countries such as Russia, Mongolia and India. Animals traded include snakes, pangolins, lizards, birds and turtles as well as endangered animals such as tigers, leopards, bears and wild ox. According to a study by Chinese scholars, the increased trading activity between China and Vietnam has led to the development of a trading network involving some Chinese provinces, Vietnam, some other Southeast Asian nations, Hong Kong and Macau. Wildlife from Laos, Thailand, Cambodia, Myanmar and Vietnam is first transported to border cities in Vietnam. The wildlife is then taken to the purchase stations in the Chinese border areas and then redirected throughout the country. The insatiable demand for wildlife and products in China has caused detrimental effects in those supplying countries.
China’s consumption of global wildlife has literally pushed the conservation efforts of many supplier countries into total crisis. The trade in tiger and leopard skins, bones and parts from the Indian sub-continent into Tibet and thence down to Sichuan and other markets in China, is decimating tiger populations in those countries. The increased demand for antelope meat and horns (e.g., sable antelope) from Mongolia and Russia has caused a huge upsurge of poaching in those countries. The demand for reptiles and other wildlife products from the Indochina region has wiped out much of the wildlife.
The absence of an agreement regarding the sovereignty of the Spratly Islands, which are claimed by several ASEAN countries, leads to overexploitation of resources, and a complete lack of protection of those important marine environments. Entire coral reefs are dredged up and taken to Hainan for lime, while collectors of shells, pearls and rare grouper fish have decimated other reefs. The import of live tropical fish for ornamental fish trade or exotic foods is growing fast in Hong Kong and southern China, putting pressure on reefs throughout Indonesia and Philippines and leading to some terribly destructive collecting methods such as coral blasting and cyanide fishing.
There are mechanisms being designed internationally and domestically to handle these types of marine use problems. For example, there is a marine aquarium fish certification process. Hainan has struggled to develop as an eco-province dedicated to principles of sustainable development. And China indicates that where marine boundaries are still in dispute, resources will be used but in a sustainable way. China has been a prominent and active partner in the Global Environment Facility (GEF) sponsored program called PEMSEA (Partnerships in Environmental Management for the Seas of East Asia). For some activities, such as marine use zoning, and shipping port clean-up, there have been major successes within China through PEMSEA. But dealing with regional marine biodiversity protection is very difficult.
More could be done to improve transborder management of Protected Areas (PAs) and control of illegal wildlife trade routes especially on the borders China shares with Mongolia, Russia, Vietnam, Myanmar, Pakistan and North Korea.
Ozone-depleting Substances (ODS)
In 1999, the State Environmental Protection Administration (SEPA), the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the General Administration of Customs (GAC), jointly issued a circular on the Licensing of Ozone depleting Substances (ODS). The circular stipulates that SEPA and MOFTEC are responsible for registering companies engaging in Ozone depleting Substances (ODS) trade, and responsible for annual export and import quotas for all of China as well as individual companies. MOFTEC is also responsible for issuing ODS trade licenses, while GAC is responsible for giving clearance to Ozone depleting Substances (ODS) by licenses issued by MOFTEC. Also, China’s Country Program on Ozone depleting Substances (ODS) Phaseout has now considered the control of production and consumption of ODS through foreign direct investment.
In some ways, China’s efforts under the Montreal Protocol have been a model effort of international environmental cooperation. China has been permitted to produce and to import CFCs to 2010 as a developing country. It has been proactive in domestic efforts to produce CFC-free refrigerators, and to take other steps to eliminate use of Ozone depleting Substances (ODS). Licensing rules were established in 1999 by three Chinese government agencies concerning ODS trade, and controls exist for production and consumption of these substances in foreign direct investment activities within China. China has taken an earlier than required commitment date of 2007 for a halt in domestic production.
But the problem of illegal trade in ozone-depleting substances involving Chinese firms has been very difficult to solve. China set out a plan to control the “Three Illegals” (production, consumption and trade) in 2004. Still, operating apparently from only two ports, Shanghai and Ningbo, traders falsify documentation and send ODS shipments to more than a dozen countries. China is considered the main source of illegal CFCs in the world according to the EIA, a position it has held since 1998. China has been the world’s largest producer and consumer of these substances. With the ending of ODS production, stockpiles in China should diminish rapidly. Yet there may well be contraband sources that could fuel continuation of this trade. Following the release of the recent EIA report, China at the 17th Montreal Protocol Meeting of the Parties “made a commitment to change their domestic export policy, take action against the smugglers and implement measures to put a stop to the black market operations.”
This example illustrates the difficulties faced in eliminating a global environmental scourge, even where there is strong national and international will backed up by considerable financial expenditures from both China and international sources. Part of the problem lies with the nature of the international agreement itself, related to both licensing and tracking arrangements. For example, large discrepancies exist between export numbers from China and ODS import numbers from Indonesia.
Conclusions on Eliminating Illegal Activities
Even where mature international agreements, such as CITES, are in place, it has proved to be very difficult to eliminate all the important abuses. On some problems, such as the import of elephant ivory, there has been great progress. But many of the world’s wildlife species and plants remain at high risk and with the expanding wealth in China and some other countries, the situation could get worse. Clearly there needs to be even more international cooperation, including stepped-up surveillance and enforcement for this form of trade to be stopped. But it is also a matter of public education and behavioural change that is needed within China. As long as there is a high level of demand, smuggling and other illegal acts will take place.
In the case of economic resource activities such as fisheries and timber trade, there are many opportunities for China to take more effective action under existing cooperative agreements signed with various nations such as the U.S. and Indonesia, and in the case of marine protection, through regional partnerships such as PEMSEA. It is also important that in establishing new arrangements, for example, with Latin American and African nations, and in the conduct of Chinese businesses abroad, that best practices and corporate social responsibility be exercised.
Porous borders, especially in western China, and the massive volume of trade make regulation difficult. China has tried to crack down on trade in endangered species, and on various other trade flows. The struggle to reduce and eventually eliminate ozone-depleting substances illustrates just how difficult it can be to stop a lucrative illegal activity—one that has ranked at the level of some illegal narcotics trade during the past decade. But China’s role has been quite exemplary, and this is one topic where there is some cause for applause. While victory is not complete, China deserves all the recognition that it has received for a massive effort of value to all countries. It would appear from this particular effort and from some others, that action to address a serious illegal problem will take at least 10 to 15 years for substantial progress to be made. In the case of CITES, it is an ongoing problem even after three decades of implementation. There is a need to reduce this time and to seek breakthroughs.
It is hard to avoid the reality that many of the activities branded illegal are in fact not well covered under existing international legally binding agreements, or occur in countries with weak governance and enforcement regimes. Thus self-regulation by Chinese authorities, accompanied by capacity development abroad may be the most sensible route. This can involve a range of measures from well-enforced bans on some materials and sources, to environmental and sustainability certification such as the Forest Stewardship Council (FSC) certification.
Case Study 3 – Biosecurity and Biodiversity Protection
Over the past decade the world has grown smaller in many ways. One aspect is the ease with which biological problems seem to move from being local to becoming regional or even global concerns. These have many economic, health and food safety repercussions, and also affect natural ecosystems and biological diversity. The most recent example is avian influenza, which moves with ease from tropics to sub-Arctic regions and across great latitudinal distances, at least partly due to migratory waterfowl. The elaborate precautions necessary for food safety are becoming codified in drastic revisions to trade rules. Problems of alien invasive species are important for all importing and exporting nations, including China. Biodiversity protection is a matter closely aligned with climate change, and with tourism potential of nations. This case study surveys each of these topics, although not in great detail.
Animal to Human Disease Transmission and Epidemics
Zoonoses worldwide (“mad cow disease,” foot and mouth disease, swine fever, several tropical African fevers, schistosomiasis, etc.) demonstrate that disease routes between wildlife and man are of increasing significance. There is a need in China to better understand the potential pathways for infection. In addition to accurate mapping of routes and dates used by migrating birds and marine organisms, there should be a careful study of major trade routes of other wildlife products and foods and also maps of the major domestic animal trade patterns. Such basic data will prove valuable in accessing risk and also in planning controls in the event of further outbreaks of animal/human diseases.
Serious epidemics of two wildlife-related diseases, SARS and avian flu, in recent years—both accompanied by loss of human life as well as enormous financial losses due to restrictions on travel (SARS) and destruction of poultry—bring to prominence the ever-present dangers associated with movement of animals. Whether by natural migration or domestic trade, or through the dangers posed by close association between human beings and animals in conditions of less than satisfactory sanitation, the dangers are likely to be of increased concern within China and internationally. The continued, increasing demand for wildlife foods, the breeding of wildlife for foods or medicinal use, and the close association of domestic and wild animals all pose dangers to human health. The continuing losses of adequate natural forests, wetlands and grasslands increase the degree of interaction between domestic and wild animals and add to these risks.
The idea of culling wild waterfowl has been voiced in several countries including China. The idea has many drawbacks, including: wasteful and unnecessary destruction of valuable wildlife; culling leads to atypical and accelerating dispersal patterns by surviving birds which may hasten the spread of the disease; culling may also cause a local vacuum which accelerates the immigration of new wild populations into the culling area and may also increase rather than decrease the rate of spread of the disease. Most evidence of timing of spread and direction of spread indicates that, to date, wild bird migration has played only a small part in the distribution of the disease so it is better to concentrate on the major cause, which is human trade in poultry and rearing conditions that promote fast disease spread through domestic poultry populations.
The number of humans affected by avian flu remains low, transmission rates between humans seem zero to low, maybe because the disease tucks in deep in the lungs rather than in the nose and throat from where sneezes and coughs transmit most other flu viruses. The danger is seen that further mutation of the avian flu could render it a potential pandemic disease. Thus governments, including China, are spending considerable sums of money to prepare for the possibility of this particular problem going global. China and other Asian nations will face considerable pressure in the years ahead to address weak points in the relationship of people and livestock, and possible action to address expensive, regionally and globally significant infectious disease issues. China has taken the matter seriously, closing public access to some major nature reserves on bird migratory routes (e.g., at Qinghai Lake).
Safety, Quality and Competitiveness of Food Supply Chains
If China is to maximize the potential benefits from its food chain (domestic and export markets), it will have to generate crops, animals and foods that are of equal safety/quality to comparable goods offered in trade by its competitors. Specifically, it will have to:
- Reduce residues in animal products. Fifty per cent of China’s food chain exports are aquaculture products. The limiting factor causing problems in first tier markets (U.S., Japan, EU) is chemical residues.
- Create a “Disease Free Zone (DFZ)” for foot and mouth Disease and hog cholera and use it to ship pork to first-tier markets (U.S., Japan, EU). The current idea is to use HainanIsland as a DFZ to get exports up and running from this island to create credibility in the international market, before trying to export to the first-tier markets from DFZs that China is trying to create in Sichuan, Shandong and Jilin. These latter DFZs have little credibility for international trade as they have porous borders that allow disease to spread. No meat can be exported to first-tier markets while China has diseases like those listed above. Pork is probably the next animal product that China should try to export as it has half the world’s hogs and can produce at lower costs than developed country competitors.
- Improve quality in its crops (e.g., meet Japanese specifications for vegetable quality); animals (e.g., produce lean pork for Malaysia—a predominantly Muslim country with a 30 per cent Chinese minority who want pork); and food (e.g., introduce a grading system like the U.S. and Canada for all animal species, thus providing graded pork, beef, etc.).
- Safety and quality are important deterrents to China maximizing its opportunities in these post-WTO accession times. China is now the world’s third largest importer of food and agriculture products and the fifth largest exporter. It is on track to becoming the third largest importer and exporter in a few years. While it only imports and exports a small proportion of national production, national production is so large that this small proportion is still a large quantity. China now sends some aquaculture products and vegetables to first-tier markets (with ongoing residue and other quality problems!). However, less well known are its exports to second tier markets along its borders (e.g., Mongolia and Russia), which are less demanding regarding safety and quality, but who pay second-tier prices.
- Adherence to international standards will be important for exports of food products, but also for protecting the domestic market against import competition. As the affluence of urban Chinese consumers grows, so will their demand for safety and quality assurance of food products. If this assurance comes with imported food rather than from domestic supplies, food imports will grow at the expense of domestic producers.
- The 11th Five-Year Plan commitment in this regard is stated as: “We will pool our resources to launch special campaigns to promote food safety, strictly control market access for food products, and strengthen oversight and management of the entire production and distribution process to assure the people of the safety of the food supply.”
Alien Invasive Species
China may be the recipient of invasive species problems or be a contributor to their occurrence elsewhere. While the number of documented invasions coming out of China and adversely affecting other countries remains rather small, the reverse list is growing every day. The problems faced by invasive species in China are potentially enormous and increasing. A special Web site remains dedicated to this subject as a legacy of the work of the CCICED Biodiversity Task Force, which lists details and maps for 123 of the most serious invasive alien species in China. A book on invasive species has been published based on this work and several international workshops have subsequently taken a deep interest in this topic.
Invasive alien species are most aggressive in colonizing degraded and dynamic ecosystems of which China is one great example. China is particularly susceptible to invasion because its range of habitats and conditions are so great that any species gaining entry into the country will probably find a suitable living habitat. The fast pace with which China is being exposed to new potential invasive species is a result of China’s phenomenal growth in world trade. China is now importing raw materials from all corners of the world and many containers remain sealed until they reach destinations deep within China’s territories.
A continuing lack of awareness or interest in the threat leads to complacency by local government agencies. Even botanical gardens that should know better continue to bring into China as many new species as they can out of scientific curiosity and competitive pride, but without concern as to the risks involved in such introductions.
New agricultural or forestry pests, and new fish and other aquatic species get noticed because they affect economic sectors directly but species able to invade open spaces, forest ecosystems and other wild lands pass completely unnoticed.
China is poorly equipped to tackle such problems having few taxonomists to recognize or deal with invasive species. Newly recruited and poorly trained guards stationed in the very extensive Protected Areas system are unable to spot or react to the arrival of new species. There is a need to put in place appropriate and sound sanitary and phytosanitary measures for import control at China’s borders.
Existence Value of Protected Areas and Species in China
The numbers of international visitors to China grow at a spectacular pace. The publicity of the 2008 Beijing Olympics will carry over for years after the games, drawing visitors to China. China also increasingly markets its biological diversity and unique natural areas as reasons to become a tourist in remote areas of the country. But the lure of visiting China’s natural areas and growing system of protected areas is a large part of China’s attraction and the rare and famous species for which China is justly renowned all add their weight to the equation—giant panda, red panda, takin, golden monkeys, elusive tigers, alligators, dolphins and rare pheasants all have their devotees. Specialists set off in search of equally spectacular butterflies, birds, rhododendrons and other ornamental plants.
These are economic magnets that can theoretically serve China for many decades with value growing as the world offers ever fewer safe wild places to explore. But despite a huge increase in the area and number of protected areas for wildlife, and now more than 5,000 scenic sites that cover about 15 per cent of the land surface of the country, management standards and law enforcement remain so weak that wild populations continue to dwindle and the lure of the wild may not endure unless a renewed effort is placed on saving them.
Climate Change, Human Activity and Biodiversity
There can be little doubt that China and other countries with vast land and water areas will face many ecological impacts of climate change. These impacts will be costly to address, whether through adaptation or mitigation. China on its own cannot prevent change, nor has it been the major contributor to greenhouse gases that have accumulated since the industrial revolution. It is the impact of the rest of the world plus China that counts. However, climate change will not act in isolation. Local activities and various national development and other policies will be important, affecting ecological services and biological diversity. An example of how these factors might interact is shown in Box 4 concerning the Qinghai Plateau.
The worldwide concern for China’s biodiversity and ecologically sensitive areas is part of the rationale for the Global Environment Facility (GEF)’s substantial investments for protection of China’s biodiversity. Also, for programs in China funded by aid organizations of the EU, and by countries such as Norway. International concern for nature conservation and sustainable use of biodiversity has drawn other organizations into China, including WWF, The World Conservation Union (IUCN) and Conservation International.
Conclusions about Biosecurity and Biodiversity Conservation
Although China is investing considerable effort in dealing with these topics, it is difficult to be highly optimistic about outcomes over the short run. China’s situation is of interest to the world for reasons of both public health and conservation. The two interests are intersecting to a greater extent than ever before, but they are also coming up against entrenched economic interests as well as the problems of dealing with rural poverty. While it is possible to take steps such as setting areas off limit, carrying out culls and prohibiting the sale of wildlife for food or for other uses, it is quite another matter to create an effective enforcement approach.
A large part of China’s problems with biodiversity protection can be linked to trade. It has been difficult to make CITES work well, and the rapid rise in imports and exports has created problems of invasive species. In the future, domestic and international tourism to China may create additional problems (although also certain opportunities) for biodiversity protection.
The international conservation community, and now the international public health authorities, play an important role in international perceptions about China concerning its efforts for conservation and disease control. There is a need to backstop these external communications efforts with additional research and cooperative work with Chinese experts. Almost certainly major efforts will be needed to understand more clearly the impacts of climate change on biodiversity, plant, animal and human disease vectors, and other difficult topics about which there is limited knowledge today.
Case Study 4 – Regional Environmental Impacts – River and Marine Water Issues
In November 2006, the Songhua River in northern China was contaminated by a serious spill of benzene, aniline and nitrobenzene from the Jilin Petrochemical Corporation, in Jilin Province. The contamination plume flowed past the city of Harbin, and eventually affected the large Heilongjiang River, a natural boundary with Russia (the Amur River within Russia), eventually discharging into Russian coastal waters of the Sea of Okhotsk. This event led to a temporary shutdown of the drinking water supply for several million people, and raised public and diplomatic concerns on both sides of the Sino-Russian border.
The event has now passed into environmental history, but it has become a significant turning point for Chinese authorities and perhaps for the Chinese people, in terms of domestic and international disclosure and in developing emergency responses to environmental incidents. In the Songhua incident, full details did not emerge until days after the event, and there was clearly a lack of preparedness. However action, once initiated was swift, punitive to officials involved and conciliatory towards its important neighbour, Russia. Fortunately, the health impacts appear to have been minimized in both countries, and ecological effects are being carefully monitored in the incident. But the event highlighted what is clearly a significant problem for China—cross-border impacts in waterways arising from river use, including marine and coastal effects.
China does not have robust regional agreements on environment and development like those that exist between some European nations, for example, concerning the Rhine; or institutional arrangements like the International Joint Commission (IJC) between Canada and the U.S., which addresses various air pollution and water issues. The Mekong River, with headwaters in western China, is a natural starting point. Lower basin cooperation is long-standing among countries such as Cambodia, Vietnam and Thailand, and there has been some level of overall cooperation since 1992 via the Greater Mekong Sub region (GMS) agreement. However it is only since 2005 that GMS officials, including China, have been meeting on environment and development matters. On ocean and coastal management, China is an active member of PEMSEA (Partnerships in Environmental Management for the Seas of East Asia), a successful regional initiative to improve integrated coastal management. A prime example of China’s commitment is its work with others on the Bohai Sea Environmental Project. The objective of the project is to develop effective collaborative actions among adjacent provinces and municipalities to reduce waste discharges and to address environmental problems across the administrative boundaries.
This case explores the problems of water use in China at their source, and some of the regional implications. The key current water quality issue above all others is the massive non-point source pollution created by heavy use of agricultural chemicals. However, this problem is interactive with others such as untreated industrial and household sewage. Also of growing significance is the interaction between airborne pollutants and water quality. Emissions of nitrous and nitric oxides from coal burning, automobiles and other sources are deposited as acid rain or by dry deposition to the China Sea, forming about a third of marine pollution. The case study, prepared by Prof. David Norse of the University of London, and drawing upon work by CCICED and others, considers potential outcomes to 2020.
Land-based Sources of Marine Pollution
The Global International Waters Assessment (GIWA) project identified agricultural development and economic growth as the most significant cause of transboundary pollution (TBP). China is not an exception to this conclusion. The dominant pathway for waterborne TBP is river runoff into the East and South China Seas (about 60 per cent of China’s annual runoff). It is China’s largest contribution to TBP of international waters and has become a major issue during the past 10 to 15 years. Lesser pathways of such pollution are to India (17 per cent), the Russian Federation (six per cent) and Myanmar (four per cent). The main pollutants are fertilizer and pesticide residues from crop production; nitrogen and phosphate from livestock and domestic wastes; and heavy metals and persistent organic pollutants (POPs) in industrial effluents.
Looking ahead to 2020, it seems likely that TBP from agriculture in China will increase, that from the domestic sector it will stabilize and industry’s contribution will decline. Nitrogen and phosphate from crop and livestock production will continue to be the major concern, primarily through their impact on eutrophication and the incidence of red tides in the China Sea. On the other hand, structural change in the economy will lead to a further decline in the heavy industries of the primary sector, greater technical sophistication in the secondary sector, and growth of the tertiary sector. These structural changes will be associated with or paralleled by greater investment in pollution control and stricter enforcement of environmental standards.
It can be questioned whether much of the TBP is a direct effect of economic growth. There is no doubt that economic growth is the driver for many of the activities whose residues and discharges are the cause of the pollution that is carried out of China in river runoff. However, where there are cost-effective mechanisms for pollution control, which is commonly the case, one could argue that the causes of TBP are policy and institutional weaknesses rather than economic growth per se. Similar arguments can be made regarding TBP arising from industrial accidents (e.g., the Songhua incident) that are the result of institutional weaknesses.
Initially, the main pathway was the outflow from the Yangtze (Changjiang), Yellow (Huanghe) Pearl (Zhujiang) and Red Rivers that drain the main crop production areas, but rapid urbanization and industrialization have led to coastal areas becoming an important source of TBP. In the 1970s and 1980s, the main pollutant was dissolved inorganic nitrogen (DIN) from agriculture, and this remains important. POPs and heavy metals from agriculture and industry are of growing concern. Also of concern now is the expansion of coastal aquaculture, another large DIN source. The chief consequences of this TBP are eutrophication of coastal waters, which is the cause of the rapidly rising frequency of algal blooms (red tides), and the accumulation of POPs and heavy metals in marine ecosystems and commercially exploited fish.
The Changjiang, Huanghe and Zhujiang Rivers account for about 55 per cent of China’s annual runoff and at least 25 per cent of the world’s anthropogenic inputs of DIN into marine ecosystems. Prior to the 1980s, the DIN concentrations were relatively low but doubled during the 1980s. This increase is related to the rapid rise in nitrogen fertilizer for grain production from about 1978 onwards (Figure 2). A positive correlation was established between nitrogen fertilizer use in the Changjiang River basin and the DIN levels in the river for the period 1980–1989.
A similar, but less clear, correlation was observed for the Huanghe and Zhujiang Rivers. Increased nitrogen fertilizer was not the only driver for the higher DIN concentrations. During the same period there was a significant increase in industrial and domestic wastewater discharges in the Changjiang river basin—they increased by over 10 per cent during this period.
These trends have continued. There are no readily available analyses specifically for China but a global study using data from the mid-1990s confirms the seriousness of the situation. The Changjiang River is estimated to be the largest source of transboundary anthropogenic nitrogen in the developing world (Table 2) with some 83 per cent of the nitrogen exports to coastal waters coming from agriculture, and only eight per cent from domestic sewage. However, for the heavily urbanized Huanghe River basin, the dominant source of nitrogen is estimated to be domestic sewage (59 per cent).
Industrial fertilizers and domestic sewage are not the only source of DIN. Income growth over the past 10–20 years has led to greatly increased demand for livestock products, fish and shellfish, which, in turn, has driven the development of intensive livestock and aquaculture operations. The output of these operations has doubled over the past 10 years or so and they generate wastes with high DIN concentrations. The waste discharges from intensive livestock operations are seldom controlled and those from aquaculture are virtually impossible to control.
The issue is that these estuarine inputs do not stay within territorial waters. The plumes of DIN and sediments carrying heavy metals and other pollutants can stretch out several hundred kilometres from the coastline. The Yangtze River effluent plume, for example, may travel some 300–400 killimeter (km) from the river mouth and spread over some 80,000–90,000 square kilometres of ocean.
Much of China’s economic growth has been centred on the Pearl and Yangtze River deltas and the coast of the Bohai Sea. The Pearl River delta contains several large cities, including Dongguan, Foshan, Guangzhou, Huizhou, Jiangmen, Shenzhen and Zhongshan with substantial discharges of untreated domestic and industrial wastes. DDT concentrations in sediments in the Pearl River delta are high although its use was banned in 1983. The concentrations of most other POPs, polycyclic aromatic hydrocarbons (PAHs) and polychlorinated biphenyls (PCBs) are less serious but still may be transported into international waters where they may bioaccumulate. The situation appears somewhat better in the Yangtze River delta with higher levels of investment in wastewater treatment in and around Shanghai.
The problems on these coastal zones include: microbial pollution adjacent to heavily populated coastal areas, and particularly where the growth of urbanization outpaces investment in sewage treatment facilities; development of pollution hotspots close to point sources like major industrial or urban wastewater outfalls; and pollution and other problems arising from excessive density of China’s, burgeoning aquaculture operations.
Marine Impacts of River and Coastal Inputs of Pollutants
The most serious and geographically extensive impacts arise when the increased nitrogen and phosphate levels in seawater stemming from the river and coastal inputs cause eutrophication. The latter arises when the increased nutrient inputs stimulate excessive plant growth, disrupt the ecosystem and create oxygen-depleted zones. This happens not only in semi-enclosed seas like the Bohai Sea but also in the open waters of the China Sea that are important international fishing grounds for North and South Korea, and Japan. This TBP-induced eutrophication is most evident in the major increase in the incidence of red tides (algal blooms). These occurred about 10 times per year in the 1960s and affected relatively small areas. Their frequency and extent have grown appreciably since then. They now occur about 100 times per year and affect around 15,000 sq. km of ocean, with the East China Sea being the most badly hit. Some of the algae (dinoflagellate plankton) release toxins that can kill fish and contaminate shellfish such that they become poisonous to humans. The economic losses from red tides in 2001 were estimated to be about one billion RMB  but can be as much as three million RMB in a single incident.
Another important impact is on fisheries productivity and particularly on the health of spawning grounds that are vital to the maintenance of fish stocks. This damage to spawning grounds is the result of POPs and polycyclic aromatic hydrocarbons (PAHs). According to SEPA, about half of China’s offshore seawater is polluted to the point where the marine environment is damaged.
These TBP impacts are globally significant. The South China Sea, for example, accounts for about 10 per cent of the world’s catch from capture fisheries, and more than 50 per cent of shrimp and other aquaculture products.
Prospects to 2020
TBP from agriculture is strongly related to the overuse of nitrogen fertilizer and the expansion of the livestock sector. The problem is well-studied. Given current policies and technologies, nitrogen and phosphate fertilizer use will continue to grow, as will the flow of nitrogen and phosphorous into the China Sea, thereby intensifying the red tide problem. By 2020, all of the major river basins will be have a serious nitrogen surplus.
The fertilizer problem will be compounded by the growth in livestock wastes. In 2002, the total amount of organic waste from livestock was already four times greater than that from industry. Income growth will continue to drive the demand for livestock products, such that livestock populations will grow two to four-fold by 2020. A significant proportion of this increased livestock production will be based on imported feed grains (mainly soybean and maize) which will favour expanded production in the coastal zone that close to ports along the China Sea. Given the coastal zone already has a serious nitrogen surplus because of the overuse of nitrogen fertilizer on crops, further expansion of livestock production in this zone will intensify the TBP problem. A number of factors may ameliorate this situation. For example, there are discussions about using planning laws to discourage or even relocate intensive livestock enterprises in peri-urban areas and the coastal zone. Large-scale units improve the economics of pollution control and make it easier to monitor compliance with environmental regulations. Nonetheless, the introduction of these possibilities face substantial financial, institutional and technological constraints and hence there may be little progress in the next 10 years or so.
The situation regarding domestic and industrial wastes and their contribution to TBP is more promising. It seems unlikely that there will be any slowdown in the rapid urbanization of the coastal zone, but in recent years there has been substantial investment in waste treatment facilities. For example, over 80 per cent of the industrial wastewater in the major cities of the Pearl River delta is now treated. Wastewater treatment rates will continue to improve and the quality standards will continue to be tightened.
Shared River Basins
Major rivers flow from China into Bhutan, India, Laos, Myanmar, the Russian Federation, Thailand and Vietnam (Table 3). Long-run transboundary pollution carried by these rivers is generally less serious than the marine pollution stemming from land-based source, although short-term accidents, such as the Songhua incident in November 2005, can be of major concern.
China is the source of major rivers that are important to the water supply of its neighbouring countries (Table 2). As yet there have been no major transboundary impacts that can be related to economic growth. There are concerns that over the next 10–20 years, dam building in China on international rivers could have impacts in neighbouring countries by reducing dry season water flows. For example, there are plans (currently blocked by Premier Wen Jiabao) to erect 13 or more large hydropower dams on the Nujiang/Salween River that would restrict flows into Thailand and Myanmar. Similarly, there are plans for dam construction in Yunnan on the Lancang/Upper Mekong that would have similar impacts in Laos and Myanmar.
The water quality issues relate mainly to POPs, particularly pesticides, and industrial chemicals, PCBs and hexaclorobenzene, and PAHs formed by the combustion of organic compounds. The danger to the environment arises from their stability and the fact that many of them can accumulate up the food chain. However, although pollution from these organic chemicals and from the non-point pollution from nitrogen and phosphate fertilizer discussed above is a serious problem within China, it tends not to be a problem within the territories of the neighbouring countries. This is because (1) the rivers commonly originate in Chinese provinces or parts thereof which are not heavily developed, e.g., Tibet and Yunnan; and (2) any pollutants from China are substantially diluted by river flows from within the neighbouring countries.
These two ameliorating factors also apply to TBP arising from industrial accidents, as with the incident at Jilin, Helongjiang Province in November 2005 when some 100 tonnes of benzene, nitrobenzene and other compounds were released into the Songhua River At the time it was thought that the spill would cause serious TBP, but natural dilution and the construction of a diversion dam prevented appreciable flows of polluted water into Russia.
Prospects to 2020
There are three possible developments to consider. First, what is the likely impact of climate change on any of the rivers, but especially the rivers rising in the Tibetan-Qinghai Plateau? This is a major concern for China and downstream countries. It is a separate and complex topic from those discussed in this case study, but will be of potential significance. Second, will agricultural development in Tibet and Yunnan lead to greater flows of nitrogen, phosphorous and pesticides from crop and livestock production? The answer is probably no because these provinces have no appreciable comparative advantage. Third, is the discharge of industrial pollutants, or their loss through accidents, likely to increase on international rivers? Again the answer is probably no. The government of China is supporting the provinces of northeast China in their efforts to modernize their industrial base, and it is not unreasonable to expect progressive improvements in the application of pollution control legislation, particularly after the Jilin accident affecting the Songhua River.
Conclusions about China’s Regional Transboundary Water Issues
The future of China’s relations with its bordering neighbours will certainly be more focused on environmental matters than in the past. There are various mechanisms by which this may happen, but the institutional framework for regional environmental protection is still very weak—lagging behind both the need, and also the level of sophistication that might be expected of such relationships today.
The mix of pollutants and the varied sources also present a major problem. Cleaning up industrial and urban sewage will help, but the prime problems are related to agriculture and, to some extent, aquaculture. In addition, the pollution-loading of rivers and coastal waters will be affected by airborne sources, including cars and trucks. Given the continued rapid economic development within China, downstream and coastal impacts seem likely to worsen over the short term. Specifically, most of the environmental actions taken under the 11th Five-Year Plan will not have a great deal of impact on the main cause of TBP, which is agriculture. Without additional actions to control water pollution from the overuse of chemical fertilizers for crop production and poor livestock management, the discharges of N and P into coastal waters will rise.
In the longer term, between 2010 and 2020, there is more hope, as the numerous initiatives being taken by China to improve water quality achieve success. However, even with effective management of today’s problems, there still loom the uncertainties of water flow associated with climate change, and with the extensive water engineering underway or proposed by Chinese authorities.
Finally, it is worth noting that within China there is considerable debate about the best means for integrated river basin management, and also concerning ecological compensation—payments for environmental services safeguarded by upstream users. At present, these debates are within China, and certainly do not contemplate any extension to ocean impacts, or to downstream situations affecting other nations. The TBP of international waters is, of course, not unique to China within the region, and its significance is a problem for all the nations draining into the China Sea. Greater regional collaboration is therefore required to find satisfactory solutions. China’s efforts will be a key to making such collaboration successful.
Case Study 5 – Learning From and Sharing Environmental Experience
It is difficult to summarize the range of international contacts and initiatives China has developed on environment and development. These extend back to the time of the 1972 Stockholm Environment Conference, which China attended. Two leading veterans of that time, Maurice Strong and Qu Geping, are still active participants in China’s Environment and Development.The most active period in China’s efforts started in 1992 and continues today. It can be argued that China gained more than virtually any other nation at the Rio Earth Summit, since it almost immediately developed a comprehensive China Agenda 21, which has helped to make sustainable development become a well-embedded approach within central agencies of government. At the 2002 Johannesburg Summit, China was an active participant, with well-formulated views on many subjects.
Just as China should be in a position to share its own rapidly developing experience on environment and development with others. And China will increasingly become an active and key participant in international environmental negotiations and processes.
China has indeed been increasing engagement with developing countries, including in Africa, offering a mixture of aid, trade and investment— incentives to build political alliances. This sharing with very poorer countries is not be entirely altruistic, since China, like many other nations, is interested in building trade and access to resources, and finding others who might share common positions in international decision-making circles. Most importantly, China now has the wealth to become influential as a development assistance donor and as an active participant in business joint ventures abroad.
Advice and Assistance to China
China has received environmental advice and/or assistance from the World Bank and from the United Nations Development Programme (UNDP), as well as from various bilateral donor organizations and the European Union. There have also been joint activities with government environment organizations such as the U.S. Environmental Protection Agency (EPA) and Environment Canada; the United Nations Environment Programme (UNEP) and other UN bodies; as well as with international organizations such as the Ford Foundation; World Wide Fund for Nature (WWF); the Natural Resources Defense Council (NDRC); World Watch Institute; and research bodies such as the International Development Research Centre (IDRC); the World Business Council on Sustainable Development (WBCSD); the World Resources Institute (WRI); and the International Institute for Sustainable Development (IISD); plus many academic bodies, including Harvard University. There are long-standing international cooperation activities throughout China on watershed management, various urban environmental infrastructure initiatives, etc. As well, there are many scientific joint ventures and exchanges, often arranged through national academies. In recent years China has begun to actively engage with the OECD on environmental matters.
These international efforts can be classified into several categories, including those related to policy development; capacity building and human resource development; technical and operational improvement; scientific research and development; and various reviews aimed at performance assessment and improvement. As well, there are many important transfers of experience taking place through the private sector. It is beyond the scope of this paper to consider the wide range of technology transfers underway, and the accompanying difficulties associated with intellectual property rights, and other terms under which modern technology is developed or brought into China. The role of the international private sector is exceedingly important in virtually every major field related to industrial production and to environmental technology applications in transportation, urbanization and some resource sectors. There is likely to be more international private sector involvement in some of China’s environmental technology R&D, for example in most energy applications such as coal gasification and in carbon dioxide emissions reduction.
CCICED – A Unique Policy Advisory Body
In 1992, when China was beginning to implement the results of the Earth Summit, and to design its domestic environmental laws, it started an organization which is not like any in other countries. The State Council (China’s cabinet) saw a need for an advisory body from which it could draw reliable advice reflecting a combination of international and national expertise—a body that would report annually and directly to the Premier of China, and be chaired by a senior member of government, currently Zeng Peiyan, the Vice-Premier of China who acts as a spokesperson on sustainable development. The China Council for International Cooperation on Environment and Development (CCICED) members (generally about 25 Chinese and 25 international members) are invited by China to serve five-year terms. Task forces are established on topics considered of high relevance to Chinese policy-making on environment and development. These report to the Council after a year or two of work, and recommendations are forwarded to the State Council for follow-up.
The CCICED  has played an important role in certain topics of environment and economy, including natural resource pricing; environment and trade; and law and policy for a circular economy. It has provided guidance on policy for biodiversity conservation, energy alternatives and advanced models for use of coal such as gasification. The CCICED also helped to develop environmental aspects of approaches to sustainable rural development and sustainable urbanization. In the recent past, it has introduced concepts for ecological compensation; improved policies for river basin management; inter-urban sustainable transportation policies; and policies that could be introduced to strengthen a national system of environmental governance.
While there are many national and international voices competing for attention on many of these same themes, CCICED has become established as a senior voice consulted, and listened to, by China’s top administrators. This is a remarkable position of trust, and one that is quite unique in the world. No other country has such a mechanism. CCICED is now entering its fourth five-year phase. Support has been provided by China and by several donors, such as Germany, the U.K., Japan, Sweden, Norway, India, the U.S. and some OECD countries. and others, with the lead being provided by the Canadian International Development Agency (CIDA). International members have included heads of organizations such as UNEP, IUCN – The World Conservation Union, WWF, as well as recognized leaders in environment and development from a variety of countries including
CCICED plays to Chinese pragmatism—a desire to receive solid information with a minimum of posturing and an expectation that it will be delivered without vested interests or biases. It has been judged by China to be a success. The obvious question is why it should continue to be funded in part from external sources, since China is now at a point where it is well able to fund whatever it really wants. The best answer is probably the most obvious. CCICED is actually a partnership, and one where the benefits flow in both directions. It is a means to understand the complex dynamics of policy change in China in this field, and also to see exactly where progress is and is not being made. The CCICED provides a bigger view than can be put together by any one of the international organizations individually. China explicitly considers it of importance to be better understood abroad in terms of Chinese actions for environment and sustainable development.
Improving China’s Capacity for Environment and Development
China has sought inputs concerning many aspects of its environmental initiatives, and engages in efforts to upgrade operational capacity at all levels from national to local, and a surprising range of institutions. For example, the Central Party School, which has a capacity to reach out to some 2,500 locations across the country from the national to county levels, is introducing environment and sustainable development into its leadership training for Communist Party cadres. In the process of doing so, the Central Party School is seeking to learn from various countries’ experiences and teaching methods for these topics.
Environmental governance is a topic of particular interest to SEPA and others. This topic has been examined as part of an overall OECD review of China’s governance. China also requested that OECD review environmental governance using the approach followed every half decade for OECD nations. The result was some 51 recommendations that are now under consideration by China. The point here is that China is under no international compulsion to undertake this type of assessment, but it desires to do so, not only for providing operational suggestions, but also to provide benchmarking consistent with international assessments conducted elsewhere.
China has made great strides in legislative and regulatory reform and innovation, drawing on international best practice. For example, China’s Water Law—which was revised in 2002 with assistance from the U.K.—is widely considered to be among the most advanced of its kind. Many recently enacted or promulgated special laws—including the EIA Law; the Cleaner Production Law; the Renewable Energy Law; new legislation on the Management of Protected Areas; and the Circular Economy Law (which is being drafted)—have explicitly drawn on international expertise and experience. They clearly signal the importance of environmental protection, and have helped to close some important loopholes. As a result, a strong legal and regulatory framework is now in place to support achievement of environmental objectives.
Another effort that appears to be quite successful has been the introduction of UNEP’s “cleaner production” approach into Chinese industry. This has been accomplished with the assistance of various donors, and involved the establishment of both sectoral and regional initiatives. Since 2003 there has been a Cleaner Production Promotion Law in China. A number of sectors including chemicals, breweries, eco-industrial parks, pulp and paper, and textiles have participated. The presence of Cleaner Production Centres in a number of provinces provided beachheads during the mid and late-1990s for introducing basic pollution control concepts. This has been followed up with other ideas derived from international experience, including ISO 14001 certification, and now a wide variety of other domestic and international efforts, including those associated with multinational firms involved through foreign direct investment in China’s industrial base.
Chinese officials and experts have been active participants in international learning and lesson sharing on the use of economic instruments for environmental management, and indeed China has made significant progress in this regard. The recently revised Pollution Levy System (PLS) is one of the most comprehensive in the world. The introduction of Total Emission Control, and the implementation of the Emission Permit System, provided the basis for experimentation with emissions trading schemes. The Chinese government has fully embraced the concept of charging of tariffs for cost recovery and has formally adopted the polluter-pays principle.
A Task Force on Environmental Pricing and Taxation was set up under the CCICED in 2002 in response to growing recognition at the centre of government that environmental policy can make more use of fiscal instruments. Where resource scarcity is a growing problem (e.g., water), there has been a shift towards greater consideration of pricing as a powerful demand management tool (as opposed to traditional supply side solutions). Recent trends show improved utility pricing policies in terms of purely financial performance— while not explicitly for environmental purposes, the resulting improvements in resource use efficiency are clearly consistent with environmental objectives. Ongoing discussions about an eventual fuel tax also provide a unique opportunity for addressing externality issues related to fuel use. On the public expenditure side, there has also been significant progress. There has been a steady increase in environmentally-related public expenditures over the past decade. During the period 1998–2002, 38 per cent of total public long-term debt was invested in environmental protection and ecological construction projects. The proportion of GDP spent on environmental protection has increased to 1.5 per cent for the 11th Five-Year Plan period. Most significantly, an Environmental Fiscal Expenditure Account will be set up in 2007 under the public budget. This could be a major step forward in terms of improving the efficiency of public spending on environmental protection at the national level. This focus on a comprehensive approach to environmental economics has come about, in large measure, through international inputs to the government, and from the adaptation to Chinese conditions of practices developed largely in OECD countries.
It should be clear from this brief overview of learning from overseas experience that China believes in learning from the best international experience and then adapting that experience to Chinese circumstances rather than directly adopting it. And there is no doubt that this is a wise approach. For example, rather than stopping at recycling, which is the mantra of countries such as Canada and the U.S., China has gone further, taking the broader concept of a circular economy, borrowed and adapted from Japan and Germany. Indeed it is difficult to suggest to China that there is any single country that offers a perfect parallel situation or model. Perhaps the one that comes closest is Japan, in part because it was able to transition rapidly to a resource-efficient, circular economy at a time of rapid economic activity (see Box 6.) But even in this case, at least part of the learning is what to avoid, since a part of Japan’s success was achieved at the expense of exporting dirty industries to countries outside of Japan, and by exploiting the forests of others while making Japan the country with the greatest proportion of its land under forest cover.
China’s Development Cooperation with Africa
In November 2006, China drew 48 countries of Africa to Beijing, including many national leaders, in order to express its interest in Sino-African relationships, including development cooperation and trade. The point is repeatedly made by international media and analysts that China has strong vested interests in both finding new markets, and in securing reliable sources of energy and other resources, and therefore Africa is a highly attractive region. But there can be little doubt that China could radically revise development cooperation by its larger presence in Africa. It has pledged over US$10 billion in low interest loans and debt relief over the coming two years to poor countries in Africa, Latin America and Asia. The level of development assistance commitment in Africa by China is such that it will exceed that of the World Bank on that continent.
These observations need to be set in the context of a growing economic interdependency between China and African countries (see Box 7.) Chinese trade with Africa is projected to rise from a level of US$40 billion in 2005 to US$100 billion by 2010.A decade ago the level was only US$5 billion. Other features of economic and technical cooperation include: providing some US$3 billion of preferential loans and US$2 billion in buyer’s credits; setting up a US$5 billion China-Africa development fund to encourage and support Chinese companies to invest in Africa; opening Chinese markets to a range of African goods tariff-free; conducting training and cross-cultural exchanges and providing technical expertise in a number of fields.
Strong complementarities exist between the Chinese and African economies:
- China’s continued economic growth depends on imported energy and raw materials. Africa supplies around 28 per cent of China’s imported oil. African mineral imports are critical to support continued industrial expansion. China is the world’s largest consumer of copper and imports most of it from Africa. Same is true for African ferrochrome, platinum, cobalt, iron, gold and silver.
- With the exception of South Africa (manufacturing) and Mauritius (manufacturing and tourism), most African countries participate in the world economy as exporters of raw materials and soft commodities. For 27 out of 49 African countries, fewer than five products (mostly commodities) account for more that 75 per cent of exports. Crude oil accounts for 35 per cent of the continent’s total exports according to OECD figures.
Overall, this increase in economic relations between China and Africa appears to be beneficial to African countries:
- China is a major contributor to African growth through trade and investment. China accounted for one third of Africa’s growth (i.e., two per cent) in 2005. The private sector has been a key actor in China’s engagement with Africa contributing to employment and business linkage creation.
- There is a strong correlation between Africa’s total exports and its major commodity exports to China, although the latter have been growing at an even higher rate. The share of oil, iron ore, cotton, diamonds and logs in total exports to China grew from less than 50 per cent in 1995 to more than 80 per cent in 2005, with oil growing most rapidly. The importance of China as an export partner for a number of commodity-exporting fragile states such as Angola, Sudan and the DRC is particularly significant.
- China’s support is delivering crucial investments in priority sectors, particularly infrastructure.
- At the China-Africa Summit in November 2006, African delegates were unanimous in welcoming China’s assistance, investment and the opening of its markets to African commodities.
But China’s growing presence in Africa has also given rise to some legitimate worries:
- There are concerns that Chinese companies are securing energy assets in a non-transparent and developmentally-adverse manner, thereby exacerbating poverty, conflict and corruption. The provision of “oilbacked loans” poses a special problem.
- Similar concerns apply to the massive and growing Chinese investments in infrastructure projects in Africa, where “responsible” companies are losing out to Chinese firms, with some being considered “less responsible.”
- Increased commodity exports and rising investment inflows may lead to problems of “Dutch disease” (i.e., an overvaluation of the currencies making it more difficult for the manufacturing sectors to compete in export markets). Such difficulties might be exacerbated by China’s tendency to keep the downstream and processing activities at home and only import the basic raw materials. South African President Mbeki recently voiced concerns that cheap Chinese production of goods such as textiles and shoes could undermine Africa’s weak industrial base.
- At a political level, China’s principle of non-interference masks China’s willingness to engage politically and economically in countries with poor governance and human rights track records without addressing these fundamental barriers to pro-poor change. In some cases (e.g., Angola, Sudan and Zimbabwe) this approach risks undermining the international community’s reform efforts.
- Also China’s growing presence poses a new challenge for aid effectiveness. One risk is that the commodity boom in some African (and Latin American) countries, driven by surging trade with China, might give rise to a sense of complacency, which might prevent governments from undertaking the necessary measures to make growth sustainable in the medium term (i.e., investment in human capital and infrastructure, institutional reform, etc.) Chinese investments could also exacerbate conflict and corruption (although the opposite might also be true). Some worry that the increasing importance of China as a donor and investor may interfere with efforts to improve donor harmonization. Growing economic interdependence has been bolstered by strengthened political ties:
- China published its first White Paper on its Africa Policy in January 2006. This paper lays out the key framework for its growing engagement on the continent, highlighting the need for “win-win” economic cooperation, sharing development experiences and mutual support within the United Nations. Beijing’s “One China” policy and the principle of non-interference in internal affairs underline all of this.
- The Government of China dubbed 2006 “the year of Africa” with a stream of high level visitors to Africa including President Hu Jintao and Prime Minister Wen Jiabao. In November, the fourth Summit of the Forum for China-Africa Cooperation (FOCAC) was held in Beijing. (FOCAC was launched in 2000, formalizing long running informal relations between China and Africa on wide ranging political, economic and social cooperation. It has become a mechanism and important platform for enhancing China-Africa collective dialogue and cooperation.)
- The formal outputs of the Summit were the Beijing Declaration and Action Plan. The Declaration sets out a vision of China and Africa’s “new strategic partnership,” based on “political equality, mutual trust, economic win-win cooperation and cultural exchanges.” Both sides undertook to increase high level visits to promote political cooperation. They also called for the enhancement of South-South Cooperation and North-South Dialogue to promote “balanced, coordinated and sustainable development of the global economy.”
Where do environment and development fit into this potentially encouraging new extension of China’s international presence? The answer is not very clear at this time, but there are some signals. First, China-Africa environmental cooperation is not new. The China-Africa Environment Forum was set up in 2000 to strengthen cooperation with African countries on environmental protection. At the 2006 Summit, China said that it would give high priority to African concerns on environmental protection and sustainable development, and help African countries “turn their advantages in energy and resources into development strengths.”
Vice-Premier Zeng Peiyan has recommended reinforcing dialogue in fields such as biodiversity, policy- making and legislation on environmental protection. So far, however, cooperation on environment and development has focused mostly on issues such as development and application of appropriate technologies in agriculture, capacity building (mainly personnel training), rural development, communications, etc.
Under agreements reached at the Summit and through other recent initiatives, the following activities that might broadly be construed as sustainable development initiatives will be undertaken.
- The Chinese government has funded the establishment of the UNEP China-Africa Environment Centre. China and Africa have agreed to multilateral cooperation in environmental protection under UNEP.
- China and Africa have agreed to dialogue and exchanges in environmental protection and cooperation in human resources development. Over the next three years, China will increase the number of environmental protection administrators and experts from Africa to receive training in China. The two sides will work with the UNEP for multilateral cooperation in environmental protection.
- China has established cooperation in capacity building, prevention and control of water pollution and desertification, maintenance of biodiversity and the development of environmental protection industry and demonstration projects.
- China has set up in Africa 10 demonstration centres of agricultural technology with special features.
- China has stepped up cooperation with Africa in extending applicable technologies and human resources training in agriculture. One niche for China is technical/ engineering support. A second Chinese niche is in agriculture. For example, the Chinese have been trying to encourage Ghanaian use of new more productive strains of rice.
- President Hu announced that China would work with Africa to set up three to five special economic zones there, agreed to build more Confucius Institutes and approved a further nine African countries as tourist destinations for Chinese citizens.
- China has announced that it will expand the African Human Resources Development Fund (AHRDF) to train some 15,000 professionals between 2007 and 2009.
- At least 3,000 Chinese scientists will spend three years working in rural communities in developing countries to help improve their food security. The arrangement is part of a strategic partnership between China and the UN FAO that was agreed at the FAO’s Regional Conference for Asia and the Pacific in Jakarta in May. China has already sent more than 700 experts and technicians to at least 20 countries mostly in Africa and Asia.
These activities represent a starting point, but by no means exhaust the potential of China to work cooperatively with African countries to improve environmental conditions, based on Chinese experience in sustainable rural and urban development, and in fostering sustainable natural resource and sustainable industrial development.
Conclusions about China’s International Learning and Sharing
China has a 35-year record of exchange of views on environment and development with the international community. It has demonstrated an ability to take on board radical new ideas as part of its overall opening up to the world. The characteristics of this learning include the following features:
- a clear idea of what is wanted/needed, and from whom China can learn;
- adaptation to Chinese context and needs through experimentation;
- an experimental approach to policy: “feeling the stones in crossing the river”;
- effectiveness in scaling up successful programs;
- careful sequencing; and
- openness to dialogue.
The task is made easier by the reality that China can pick and choose its sources. China has dealt with the huge supply of expertise available from governments; international organizations and NGOs; business consultancies and multinational firms; and others, in a very strategic and considered way, identifying which organizations they want to work with on which issues, based on comparative strengths and capacities but always keeping China’s own needs and priorities front and centre.
Yet, while China has been very good at learning from, adapting and incorporating international best-practice, at the same time the Chinese have been somewhat weaker at learning from their own experience: they have not developed and systematically applied good methodologies for analysis and evaluation of their own policies. This is an area that needs to be strengthened. Perhaps most difficult has been the capacity to develop a comprehensive and effective approach to the use of economic incentives for matters such as industrial pollution control and for enhancing resource use and energy efficiency.
China also has found useful ways to draw on international expertise, for example via the CCICED. And only weeks after the release of the report to the British Government by Sir Nicholas Stern on economic aspects of climate change, he travelled to China to meet with senior policy-makers. To say that China is broadly engaged with the international community as it plans and implements its domestic environment agenda is an understatement. What will become more apparent in the years ahead is a growing influence on the part of China within global fora.
The role of China in international cooperation will continue to be a complex matter, involving a number of motives on the part of other countries and on the part of China. China is aware of its increasing profile as a major player and that its behaviour is increasingly scrutinized by international media and observers, and it wants to be perceived as a responsible stakeholder in the international system.
China is an emerging key player in “South-South” lesson learning, technical exchange and technological transfer. While Africa is one key partner and client, much of this will take place in Asia and perhaps Latin America. There likely is a role for China to learn from third parties such as bilateral and multilateral donors, and perhaps from bodies such as the Development Advisory Committee of OECD, and from international NGOs, and also UN agencies. But China’s expanded presence and efforts could provide fresh approaches. Certainly it is likely that China will be welcomed in Africa and elsewhere as an additional source of assistance, but even more for the possibility of trade ties. It is only a beginning, however, in relation to environment and development potential, and, in Africa and other developing regions, there will be much need for monitoring of whether the new relationships will have net positive environmental benefits. This is a challenge that China could readily address in coming years.
- ^L.R. Brown, Plan B 2.0. Rescuing a Planet under Stress and a Civilization in Trouble (New York, London: Earth Policy Institute, W.W. Norton & Company, 2006).
- ^DEFRA and Ministry of Science and Technology (China), Impacts of Climate Change on Chinese Agriculture (London: DFID, 2004).
- ^F. Gale, China’s Food and Agriculture: Issues for the 21st Century, U.S. Deptartment of Agriculture, Agriculture Information Bulletin No. 775, 2002.
- ^E.Wakker, The Kalimantan Border Oil Palm Mega-project (Amsterdam: AIDEnvironment, 2006).
- ^J.W. van Gelder, Financial Institutions Involved in the Heart of Borneo, Research paper prepared for WWF Indonesia, 2005.
- ^ See, for example, Brown 2006.
- ^State Forest Administration of China, Communication by Vice Minister as cited in AFP, 18 January 2006.
- ^Zhu Chunquan, Rodney Taylor and Feng Guoqiang, China’s Wood Market, Trade and the Environment (Science Press USA Inc. and WWF International, 2004).
- ^Andy White, Xiufang Sun, Kerstin Canby, Jintao Xu, Christopher Barr, Eugenia Katsigris, Gary Bull, Christian Cossalter and Sten Nilsson, China and the Global Market for Forest Products. Transforming Trade to Benefit Forests and Livelihoods, Forest Trends, 2006, 34 pp.
- ^Zhu et al., 2004.
- ^FAO, State of the World’s Forests (Rome: FAO, 2003).
- ^Zhu et al., 2004.
- ^Lebedev, A., The Wild East – The Timber Trade between Siberia, Russian Far East and China, Bureau for Regional Outreach Campaigns. Forest Monitor (Vladivostok: 2001); A. Kotlobay and A. Ptichnikov, Illegal Logging in the Southern Part of the Russian Far East (Moscow: WWF Russia, 2002).
- ^C. Barr, Profits on Paper: The Political Economy of Fibre, Finance and Debt in Indonesia’s Pulp and Paper Industries (CIFOR and WWF, 2000).
- ^Zhu et al., 2004.
- ^D. Brown, Regulation, Law and Illegal Logging in Indonesia (Jakarta: WWF-World Bank Alliance for Forest Conservation and Sustainable Use, 2002).
- ^ Environmental Investigation Agency (EIA).
- ^Zhu et al., 2004.
- ^White et al., 2006.
- ^P. Redmayne, China: The Country That is Changing Everything, Industry Report, IntraFish Media, 2004.
- ^Xian-shi Jin, Ecology and Population Dynamics of Small Yellow Croaker in the Yellow Sea, Journal of Fishery Sciences of China, 1996, 3(1):32-46; Wei-wen Yuan, Fish Stock Assessment in South China Sea, in Jia Xiao-ping (ed.), Symposium on Marine Fishery Research (Guangzhou: Guangdong Science and Technology Press, 1999), 82–87; Jia-hua Cheng, Lin Long-shan and Ling Jian-zhong, Effects of Summer Close Season and Rational Utilization of Redlip Croaker Resource in the East China Sea Region, Journal of Fishery Sciences of China, 2004, 1(6): 554–560.
- ^FAO, Code of Conduct: Rapid Appraisal of Compliance with Article 7 – Fisheries Management (Rome: FAO, 2005).
- ^R.Watson and D. Pauly, Systematic Distortions in World Fisheries Catch Trends, Nature, 2001, 414: 534–536.
- ^High Seas Task Force, Closing the Net: Stopping Illegal Fishing on the High Seas, Ministers of Australia, Canada, Chile, Namibia, New Zealand and the U.K., and leaders from WWF, IUCN and the Earth Institute of Columbia University, 2006.
- ^M. Gianni, and W. Simpson, The Changing Nature of High Seas Fishing: How Flags of Convenience Provide Cover for IUU, Australian Department of Agriculture, Fisheries and Forestry; International Transport Workers’ Federation; and WWF International, 2005.
- ^High Seas Task Force, 2006.
- ^ Energy Information Administration (EIA) Country Analysis Brief on China, August 2005.
- ^ U.S. Department of Energy.
- ^China a Major Contributor to Global Nuclear-Fusion Reactor, China Daily, 30 November 2006.
- ^Energy Information Administration (EIA), 2005.
- ^Koh Chin Ling, China Seeks Boost from Biofuels, International Herald Tribune, 29 September 2005,
- ^A goal indicated by the National Development and Reform Commission (source: China Daily, 6 December 2006).
- ^Ethanol Output has Corn Prices Popping, China Daily, 6 December 2006.
- ^Minerals Council of Australia, Fact Sheet – The Australia China Minerals Trade, April 2005.
- ^China Hastens Quest for Metals, International Herald Tribune, 22 September 2005.
- ^China’s Demand for Steel Slows, but Mills Keep Churning, International Herald Tribune, 20 July 2005.
- ^Alan H. Price, Christopher B. Weld, D. Scott Nance and Paul Zucker, The China Syndrome: How Subsidies and Government Intervention Created the World’s Largest Steel Industry (Wiley Rein & Fielding LLP, 2006),
- ^ The UK’s New Rubbish Dump: China, The Guardian, 20 September 2004.
- ^See references in Yingling Liu, China’s E-Waste Problem: Facing Up to the Challenge, 2006,
- ^27 Firms Caught Exporting Toxic Waste to China, Victoria Times Colonist, 22 December 2006.
- ^ Greenpeace.
- ^ Bureau of International Recycling.
- ^Chua Thia-Eng, The Dynamics of Integrated Coastal Management. Practical Applications in the Sustainable Coastal Development in East Asia (Manila: PEMSEA, 2006), 431 pp.
- ^Environmental Investigation Agency, China Exposed as Lead Player in Global CFC Smuggling Racket as Ozone Damage Worsens, Press Release, 13 December 2005.
- ^China Species Information Service
- ^UNEP, The Songhua River Spill, December 2005. Field Mission Report (Nairobi: UNEP, 2005), 26 pp.,
- ^85 Greater Mekong Subregion Economic Cooperation Program, GMS Environment Ministers Meeting, Senior Officials Meeting, Highlights of Discussions, 24 May 2005; ADB to Hold Environment Ministerial Meeting of Greater Mekong Subregion in Shanghai, Peoples Daily Online, 17 May 2005.
- ^ PEMSEA.
- ^The full case study is available from CCICED, David Norse, Direct Physical Transboundary Effects of Economic Growth – Downstream Effects on Water Quality and Flow, 2006, 24 pp.
- ^UNEP, Challenges in International Waters – Regional Assessments in a Global Context. Final Report of the Global International Waters Assessment (GIWA), (Nairobi: UNEP, 2006), 150 pp.
- ^J. Zhang et al., Chemical Trend of National Rivers in China: Huanghe and Changjiang, Ambio, 2005, 24: 274–278.
- ^D. Shuiwang, Z. Shen and H. Hongyu, Transport of Dissolved Nitrogen from the Major Rivers to Estuaries in China, Nutrient Cycling in Agroecosystems, 2000, 57: 13–22.
- ^G. van Drecht, A.F. Bouwmann, J.M. Knoop, and C.R. Meinardi, Global Pollution of Surface Waters from Point and Nonpoint Sources of Nitrogen, The Scientific World, 2001, 1(S2): 632–641.
- ^J. Qu, Z. Xu, Q. Long, L. Wang, X. Shen, J. Zhang and Y. Cai, Global International Waters Assessment East China Seas: GIWA Regional Assessment 36, University of Kalmar on behalf of UNEP, 2005.
- ^K.W. Chau, Characterization of Transboundary POP Contamination in Aquatic Ecosystems of Pearl River Delta, Marine Pollution Bulletin, 2005, 51: 960–965.
- ^State Oceanic Administration, Marine Environmental Quality Bulletin, 2005, as quoted in China Daily, 13 March 2006; see also, China Institute for Marine Affairs, Report of the Legislative Framework of Environmental Management of Bohai Sea Area, State Oceanic Administration and PEMSEA, 2005.
- ^State Oceanic Administration, Marine Environmental Quality (Beijing: SOA, 2002).
- ^See, for example, the 2006 Special Issue on Aquatic Ecosystems of China: Concerns, Technologies and Management, Aquatic Ecosystem Health and Management, 9(1).
- ^Qu Geping went on to become China’s first environment administrator, and continues to be influential as a senior statesman on this subject within China, including serving as a Vice-Chair of the CCICED.Maurice Strong maintains a residence in China. In 2004 the two reviewed the long path and changing attitudes on environment during a gathering arranged by SEPA (see China Daily, 29 March 2004).
- ^In 2006 a review of the work of CCICED during the past 15 years was conducted, along with a prospective examination of China’s environment and development needs over the period to 2020. This special Task Force report is available on the CCICED Web site. Also see CCICED, Policy Recommendations to the Government of China on Environment and Development (1992–2005), (Beijing: CCICED Secretariat, 2006), 481 pp.
- ^OECD, China in the Global Economy: Governance in China (Paris: OECD, 2005).
- ^OECD, Environmental Performance Review of China. Conclusions and Recommendations (Final), (Paris: OECD, 2006), 12 pp. The Main Report is due to be released in February 2007.
- ^ Cleaner Production in China.
- ^Chinese officials from the State Taxation Administration, the Ministry of Finance and SEPA have been engaged in a long-term dialogue with the OECD on Environmental Taxation since 1996. The CCICED Task Force on Environmental Pricing and Taxation (previously the Working Group on Environmental Economics) has been another important vehicle for lesson-learning in this area.
- ^The year 2002 saw the official launch of emissions trading demonstration activities, covering seven provinces (municipalities) and one business conglomerate.
- ^Including: urban environmental infrastructure, protecting the “three lakes, three rivers,” the Sloping Land Conversion Program, etc.
- ^China Opens Debate on its Rising Status, International Herald Tribune, 9–10 December 2006.
- ^It should be noted that often, trade deals for these commodities are associated with the provision of infrastructure (by Chinese companies) in the exporting countries.
- ^Kaplinsky et al., 2006.
- ^HM Treasury, Stern Review on the Economics of Climate Change, 2006.
This is a chapter from One Lifeboat: China and the World's Environment and Development (e-book).
Previous: Chapter 2: China's Growth and Consequences | Table of Contents | Next: Chapter 4: Ten Issues