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a CANADIAN SECURITY INTELLIGENCE SERVICE publication
March 1996
Unclassified
Editors Note:
This month's Commentary is an extension of an article by the same authors, "China: Environmental Stress and National Security", which appeared in the Department of Foreign Affairs and International Trade's Policy Staff Paper, No. 96/01, February 1996. Authors: Nicolino Strizzi and Robert T. Stranks
Disclaimer: Publication of an article in the COMMENTARY series does not imply CSIS authentication of the information nor CSIS endorsement of the author's views.
In China, the legacy of almost half a century of heavy central planning together with massive population pressures, rapid economic growth, chronic poverty, subsidized energy prices, widespread coal use, outdated industrial machinery and a lax environmental protection regime have contributed to serious environmental stress. While environmental degradation in itself does not imply violent conflict, it can become a basis for confrontation, particularly in conjunction with political and social factors. Likewise, because many environmental problems are global in scope, China's environmental problems are likely to become of greater interest to Canada—whether or not they result in a violent intrastate or interstate response.
This paper examines the extent and nature of environmental degradation in China and assesses whether China's current leadership is likely to follow a sustainable development strategy. The prospects for increased Canadian trade, investment and technology transfers and the security implications for Canadian interests in China are also considered.
The most immediate environmental threat to China arises from the degradation of its fresh water supply. Much of China's coastal waters and many rivers, such as the Huaihe, the Chaohu, the Liaohe, and the Haihe, are badly polluted. Both surface and ground waters in many areas are contaminated. The key source of pollution in urban areas is industrial waste water. About one- third of industrial waste water is treated, but even after treatment some of it fails to meet effluent discharge standards. The share of municipal sewage receiving treatment is even lower.
As a result, the quality of drinking water in China's cities appears increasingly to be at risk. It is estimated that some 85 per cent of China's cities lack clean and safe drinking water. The figures are no better for rural dwellers, where Chinese official estimates indicate that only one in seven has access to safe drinking water. Heavy fertilizer use contributes to poor water quality through the leaching of nitrates into groundwater and the runoff of surface water into streams. China's rapidly expanding township and village enterprises (TVEs) further compound rural industrial pollution problems. These enterprises are typically small, widely scattered and employ outdated technology. Waste from TVEs is rarely treated.
Any drop in the levels of major rivers in China could seriously disrupt commercial shipping traffic and hydro-power generation. Higher water tariffs would lessen China's chronic water shortages and help eventually to encourage more productive water consumption and conservation efforts in the country's industrial, transportation and commercial sectors and in Chinese households. For the foreseeable future, however, limited access to safe drinking water and sanitation will continue to pose a serious threat to public health in China.
The World Bank has calculated that China's water and sanitation investment requirements could reach US $102 billion during the 1995-2004 period. But rising rural and urban household and industrial water demand is likely further to exacerbate China's already strained water resources. If not managed carefully, serious water shortages could further jeopardize sustained rapid industrialization and modernization in China's major urban centres. Water shortages already cost China's economy an estimated US $27 billion in economic losses annually and are likely to undermine its long-run economic growth potential.
The combination of TVE pollution and the Chinese leadership's interest in sustaining rapid economic growth have clear environmental implications. TVEs will continue to play a major role in job creation, absorbing up to 56 per cent (100 million) of China's 180 million surplus rural workers. In turn, this will prevent an even larger rural out-migration toward China's booming coastal areas. TVEs are also a major source of local tax revenues. There is thus strong local pressure for these enterprises to prosper, even if engaged in polluting activities.
In addition to industrial- and agricultural-related environmental concerns, China's forests and wetlands are under relentless pressure from overharvesting as well as from rapid rural and urban development.
Poor air quality in China is largely related to the consumption of coal—the country's most abundant fossil fuel. About 80 per cent of the coal consumed is uncleaned before combustion and consequently has higher emission levels. The environmental impact of burning unwashed coal (carbon dioxide emissions and acid deposition) has local, regional and global effects. Failure to address these problems has the potential to contribute to heightened international tensions, especially with such nearby neighbours as Japan and South Korea.
China has commercially exploitable coal reserves of around 127 billion tons and almost 5 trillion tons in total reserves. At present, coal accounts for roughly three-quarters of China's total energy consumption and production. With enormous recoverable and estimated coal reserves and ageing onshore oil- and gas-producing facilities, including those at Daqing, Shengli, Liaohe and Sichuan, it is unlikely this percentage will change significantly in the near future. Based on current proven reserves, China's coal deposits can meet domestic needs for at least another 250 years.
The industrial sector accounts for over one-half of China's total coal use, with thermal electricity generation the next largest consumer of coal (26%) followed by the commerce sector and households (22%). Failure to decontrol energy prices fully will discourage improvements in energy efficiency and in conservation efforts, particularly in China's iron and steel, cement, fertilizer and pulp and paper industries.
In China, population growth, rapid industrialization, urbanization, increased motor vehicle ownership, greater use of electricity-consuming household appliances and higher per capita incomes ensure that domestic energy demand will grow and pollution levels inevitably rise. Significant health risks arise from exposure to suspended particulate matter like lead and sulphur dioxide. Heart disease and respiratory problems in older people, coupled with inadequate nutrition, will likely make the Chinese people more prone to pollution-related illness. Greater exposure to water and air pollutants means increased human suffering and increased health-care infrastructure burdens.
In spite of environmental concerns, sustained rapid industrialization and modernization in China guarantees the continued widespread burning of cheap and abundant quantities of coal. China has little scope for fuel diversification. Large-scale substitution of less polluting fuels for coal is not an economically viable option.
Greater use of natural gas could reduce environmental degradation but currently natural gas represents only two per cent of commercial consumption, and proven reserves are low. Hydroelectric and nuclear power generation have promise, but their development requires huge capital outlays and long construction periods. They are also not without massive environmental and human costs, as illustrated by international concerns over the storage, shipment and disposal of radioactive waste and the siting and decommissioning of nuclear plants, and by the controversy over resettlement and flooding from the Three Gorges dam. Geothermal, wind, solar and other renewable sources hold promise but are very costly and, at best, can have only a marginal impact on current and future energy needs.
China's much-prized goal of food security, and in particular grain self-sufficiency, will increase the demands on its environment. Chinese officials have ambitious plans to boost grain production targets from 465 million tons in 1995 to 500 million tons by the end of this decade. Still another estimate suggests that China's grain output target should be between 515 to 530 million tons by the year 2000. Whatever the objective, China's need to expand grain production will heighten competition for water and land resources. It will also mean escalating use of chemical fertilizers and pesticides to increase grain yields. This will exact a heavy toll on China's environment.
If, as seems highly probable, China's grain production target were only partly achieved, any shortfall could be covered through imports. This should drastically reduce the possibility that many of China's millions of desperately poor people may be put at increased risk of famine. In 1995, China imported almost 16 million tons of grain.
There are no reliable projections of China's future grain output shortfalls or volumes of grain imports. For example, a study conducted for the Organization for Economic Cooperation and Development (OECD) estimates that, at most, China's grain imports could reach over 44 million tons by the year 2000, before tapering off at 48 million tons by 2010, and likely holding at that level until 2020. Meanwhile, an Australian study predicts that China's grain imports could increase to as much as 100 million tons by the turn of the century. A joint Sino-Japanese study recently calculated that China may need to import around 24 million tons by the year 2000, 69 million tons by 2005 and 136 million tons by the years 2010 and 2020. Still another, less reliable projection by The World Watch Institute indicates that China's grain imports may be as great as 81 million tons by the end of this decade, 156 million tons by 2010 and 260 million tons by 2030.
Whatever the actual figures, a combination of numerous environmental and non-environmental factors such as a growing population, rising per capita incomes, changing diets, ongoing import liberalization, an expanded livestock sector, continued farmland losses and pollution imply that China will become more heavily dependent on imported grain. This will lead to larger trade deficits in grains, resulting in ballooning import bills. That will contribute to foreign debt accumulation, rising debt servicing costs and decreasing foreign exchange reserves, further compounding China's short-term budget and financing problems.
The longer-term danger, however, is that China's expanding dependence on grain imports will make it increasingly vulnerable to sharp grain price hikes and supply swings. Chinese officials fear that this could put China at an economic and geo-strategic disadvantage.
Despite their public rhetoric, Chinese authorities have yet fully to integrate environmental management into the larger process of economic reform and industrial restructuring. Overall, the Chinese Communist Party remains committed to implement further economic reforms and open up to the outside world. But the top leadership's desire to minimize short-term structural adjustment and social costs required to maintain political and social stability has led to a slowing of the pace and extent of the reform process. Chinese officials, for instance, have targeted an average annual real gross domestic product (GDP) growth rate of eight per cent during the Ninth Five Year Plan (1996-2000) period. This compares with an average annual real GDP growth rate of 12 per cent achieved during the 1991-1995 Plan period.
If, as expected, this pace is achieved and sustained, such rapid industrialization and modernization will require greater fossil-fuel consumption. Consequently, this will produce large-scale greenhouse gas emissions and effluent discharges, adding to China's pollution burden and contributing to global climate change. Moreover, the continued increase in emissions which generate acid rain and produce greenhouse gases will progressively internationalize China's environmental problems.
The current collective leadership in China will continue to struggle with the issue of how best to maintain social order. Realizing that political legitimacy and stability depend on improving living standards, they will continue to debate whether to try to moderate growth rates or to maintain them as high as possible while running the risk of having to brake suddenly. Policy differences will therefore focus not on the need for economic reform, but rather on the pace and extent of such reforms. These considerations make the achievement of both economic and environmental objectives overly ambitious and unrealistic.
In theory, China's pollution levy system is designed to provide an incentive for enterprises to reduce pollution. Under the system, violators pay a fine for failing to meet emissions standards and, should violations persist, enterprises may face additional fines. But, in practice, fees and fines are low and do not provide enough incentive for guilty enterprises to change their polluting habits. Another flaw is that part of the fees collected by local environmental agencies goes into their budget, thus creating an incentive to tolerate, if not on occasion encourage, pollution to maintain their budgets.
Consequently, pending more extensive price and enterprise reforms, neither pollution fees and fines nor administrative regulations are likely to carry sufficient force or be systematically applied to encourage the reduction of environmental degradation.
China's widespread use of obsolescent industrial and electrical equipment has raised average energy consumption and waste in Chinese plants well above international standards. One recent Japanese study, for instance, found that almost 60 per cent of China's current plant, equipment and technology was outdated; only 20 per cent was described as modern, while the remainder lay somewhere between.
The willingness and capacity of Chinese industry to install new, cleaner, energy-efficient capital stock is constrained by mounting inter-enterprise debts of over US $80 billion, ongoing social and employment burdens, and chronic operational losses. Delays in state enterprise reform will persist. In the absence of massive industrial upgrading and restructuring, there will be little significant reduction in greenhouse gas emissions and effluent discharges over the next decade.
In the longer term, the installation of modern capital equipment together with the introduction of market-oriented corporate governance and the establishment of a national social safety net is likely to improve enterprise performance. This will eventually contribute to future enterprise reductions of greenhouse gas emissions and effluent discharges.
China is undergoing a major transformation in leadership. With the succession, control will pass to a post-revolutionary generation. But it is highly doubtful that Deng Xiaoping will be succeeded immediately by a more powerful leader. Political and social stability, not sound environmental stewardship, are the key priorities for China's top leadership—and this is not about to change soon. One-party communist rule will remain unchallenged for the foreseeable future. A collapse or disintegration of the country into regional fiefdoms is unlikely, although the ability of Beijing to exercise tight central control over subordinate jurisdictions may further decrease. More realistically, China may well find itself in a state of policy uncertainty and paralysis until a dominant faction in the communist party emerges. Should a prolonged internal party power struggle ensue, massive economic and environmental costs would result.
Most Chinese remain unaware of the nature and extent of their country's environmental degradation. Although urban dwellers are acutely conscious of increased land, air and water pollution, the majority grudgingly accept this as the necessary cost of rapid economic development, social progress and improved living standards. As Chinese attitudes evolve, Chinese policy makers will need to consider citizens' demands for a higher quality of life. Meeting these demands will be a long-term endeavour.
Before environmental degradation and scarcity turn socially violent, certain conditions are needed. First, there must be broad dissatisfaction with environmental conditions. Given the choices facing the average Chinese between concern for environmental degradation and demands for better living conditions, there is little to suggest there is widespread dissatisfaction with the state of the environment. Neither Chinese peasants nor urban workers are altruistic consumers concerned with inter-generational equity. Where environmental discontent exists, or may most readily develop, it is with local conditions and not global issues.
Second, there must be obstacles to the public's ability to express preferences on environmental issues in a peaceful manner, or a complete lack of governmental response to environmental problems. There is no question but that China has a poor record of tolerating public expressions of concern. However, while the government could do more for the environment, it has taken some action to address environmental damage. The question is whether the government's actions are in keeping with the public view of what constitutes a sufficient and appropriate environmental response.
Moreover, before serious challenges to authority arise, public disenchantment needs to be organized. Currently, there is no strong, well-organized interest group in China supportive of environmental issues. Nor does it appear that the entrepreneurial class is eager to become one of environmental activists and assume a leadership role in this area. These newly emerging business people are focused on making money, not promoting broader social causes, such as income redistribution, equity, and environmental protection. This entrepreneurial class is also absorbing cadres and intellectuals who might otherwise take leadership roles.
An illustrative case of how the Chinese regime has recently responded to public views on environmental issues is the Three Gorges dam construction project, scheduled for completion in 2009 at a cost of approximately US $30 billion. This project will create a reservoir stretching 385 miles up the Yangtze River, resulting in flooding, the loss of farmland and the destruction of archeological and historic treasures. It will also lead to the resettlement of more than one million people. Even more disturbing, it is speculated that were the dam to collapse, the lives of ten million Chinese could be endangered. Despite the project's massive environmental and human costs, the government stresses the view that the megadam will provide electricity, improve river navigation, contribute to rapid economic growth and control potential floods. Ignoring general expert opinion, the Chinese leadership has put unchecked development ahead of environmental interests.
China's large and growing population is a major contributor to environmental degradation. Even the geographic distribution of the population influences the environment and can generate potentially serious environmental stress. Growth rates, and the relative rise in percentages of urban vis-à-vis rural dwellers will place increasing pressure on China's socioeconomic infrastructure. Demographic projections suggest that China's population could increase from about 1.22 billion currently to around 1.39 billion by the year 2010, 1.53 billion by 2025 and 1.61 billion by 2050. If these projections are correct, there will be enormous pressure on China's food, land, water, housing, health-care, infrastructure and energy resources.
China is expected to become substantially more urbanized. A United Nations' study shows that China's urban population could increase by more than one third from over 300 million to over 450 million people by the end of this decade. The number of Chinese city dwellers could balloon to about 840 million people (55% of the population) by 2025. Projections indicate that the populations of Beijing and Shanghai could swell to 19 million and 23 million inhabitants, respectively, over the next few decades.
If such rapid urban population growth occurs, it will put immense strain on the land and water resources of these "megacities". It is also likely to overwhelm their respective infrastructure and social service delivery systems. Railway and road traffic congestion, power shortages, water and sanitation problems are all likely to mount. This augurs ill for China's environment.
The recent mass movement of Chinese rural workers to urban centres is essentially in response to rapid and sustained economic development and improved job opportunities in the coastal region. Up to now, there has been little to suggest that environmental factors have been significant in prompting this large-scale migration to the cities. Rather, "pushed" by lack of new agricultural lands and falling demand for agricultural workers, and "pulled" by the hope of a better life in a major urban centre, millions of rural labourers will continue to be drawn to the booming coastal areas in the next decade.
The eventual demise of China's household registration system will accelerate rural to urban migration, especially towards such favoured destinations as Beijing, Guangzhou, Shanghai and Tianjin. With a "floating population" of rural migrant workers estimated at 80 million to 120 million people at present (and expected to grow to around 200 million by the year 2000), it is extremely unlikely that this surplus labour will soon be fully absorbed into China's more industrialized areas, even given the most optimistic economic growth forecast.
Reducing inter-regional growth rate disparities and per capita income gaps is one of China's top five priorities under its Ninth Five Year Plan. Despite this, central authorities will be hard pressed to raise sufficient investment development funds for its poorer inland and border areas. Not only will this exacerbate already large and growing regional disparities, it will trigger further migration toward the high-income, high-growth coastal regions. This means that overcrowding and pollution will worsen in migrant-receiving areas. Newcomers living in extremely poor conditions are likely to become more vulnerable to highly communicable diseases, including tuberculosis, cholera and dysentery. This could easily overwhelm China's health-care infrastructure, placing public health at increased risk.
Equally worrying, the mass movement of people within China is likely to pose a serious challenge to the ability of police and civil authorities in the major migrant-receiving centres to maintain law and order. This will make public administration and governance in China extremely difficult. Public safety may be endangered.
At the very least, domestic migrants are perceived to pose a threat to China's public security. Numerous Chinese media reports and Chinese authorities claim that migrants, particularly unemployed ones, account for as much as 70 per cent of all criminal activity in major urban centres, including murder, robbery, assault, theft, fraud, drug trafficking and prostitution.
From an economic standpoint, however, migrants represent a huge pool of cheap, unskilled and semi-skilled workers for the fast-growing industrial, construction and service sectors in China's major cities and coastal areas. Of equal significance, these migrants represent a major source of remittances and entrepreneurial know-how for China's labour-exporting provinces, such as Anhui and Sichuan. In 1995, for example, remittances reached seven per cent (or over US $2 billion) of Sichuan's GDP. Not only does this contribute to household earnings, it also helps to lessen regional growth disparities and per capita income differences.
There is no denying that future large-scale population movements could be environmentally- motivated, fostered by acute environmental degradation. For example, scientific evidence indicates that ongoing burning of fossil fuels is likely to lead to the buildup of greenhouse gases in the earth's atmosphere, contributing to climate change and global warming, and resulting in sea level rise and land erosion. According to one estimate, a 50cm rise in sea levels would pose a threat to over 90 million people worldwide.
If the sea level were to rise as projected, China's densely populated coastal region, especially Shanghai and Guangzhou, would be at greatest risk of flooding. That would force millions of people to flee coastal cities and disrupt both industrial and agricultural production. Environmentally motivated migrants would cause enormous political, economic and social difficulties for areas, both domestic and foreign, that were forced to receive them. Southeast Asia, Japan, Russia and western countries with sizeable ethnic Chinese communities, such as the United States and Canada, could become the main destination of Chinese migrants.
In response to the call of the United Nations Conference on the Environment and Development (UNCED) for all countries to develop sustainable development policies, China's State Council approved in early 1994 its "White Paper on China's Population, Environment, and Development in the 21st Century". This document (China's "Agenda 21") contains the right rhetoric and seems to be well intentioned. Like UNCED, it recognizes environmental problems, but is short on practical approaches and the political will to resolve them. The prescriptions of China's Agenda 21 are more of a wish list than a long-term vision to guide sustainable development. Lack of real public participation and, more importantly, inadequate funding will impede implementation efforts.
Since 1979, China has enacted a large number of laws and regulations dealing with environmental protection, the implementation of which is mainly at the subnational level. Unfortunately, under the current system, the government is, in many situations, both the principal polluter and the environmental manager/regulator. As a result, it is often difficult for regulators to carry out objective reviews or assessments of the actions of state entities, or to take contrary positions from them. It has also been reported that Chinese environmental officials accord higher priority to large-scale polluters, which are often large state-run enterprises. Lack of qualified staff and financial resources hinder action against smaller enterprises, which may use older, less environmentally-sound technologies and often lack pollution control equipment.
At present, China does not need new environmental legislation. What is required is tougher and more effective enforcement of relevant existing laws and regulations. Poor administration of penalties and spotty collection of fines and fees levied against emissions and effluent discharges imply that polluting enterprises in China have little incentive to change significantly their polluting behaviour.
Similarly, although China is party to many international agreements on the environment, including the UN Framework Convention on Climate Change and the Montreal Protocol on Substances that Deplete the Ozone Layer, there should be no illusion about the capacity of developed nations to influence events in China. This means that environmental policy in China—as for so many other spheres—will most likely be determined by domestic and not international considerations. The waning of tight central control means that officials at the centre will find it tougher to implement and enforce international accords and conventions on climate change and ozone depletion. Combined with demographic pressures and continued rapid economic growth, this implies that even if particulars of China's future greenhouse gas emissions are uncertain, the indications are that these emissions will rise. Current estimates hold China responsible for one-tenth of the world's greenhouse gas emissions.
The costs of cleaning up China's environment are immense. The government plans to invest around US $18 billion, or less than one per cent of its annual GDP, in cleaning up its polluted environment during the 1995-2000 period. China's State Environmental Protection Agency, however, estimates that environmental cleanup expenditures should be at least three times the current planned spending level (or US $54 billion).
Worse still, the funding constraints imposed by declining budgets and competing demands for scarce capital, skilled labour shortages, rampant corruption, bureaucratic foot-dragging and the sheer magnitude of environmental degradation suggest that progress on cleaning up China's environment is likely to be very slow and uneven. Delays in cleaning up China's environment will only increase future cleanup costs beyond present projections. This means that little if any noticeable improvement can be anticipated over the next decade.
China will need to attract massive foreign capital and know-how to support environmental cleanup efforts. During the 1996-2000 period, for instance, it hopes to draw US $25 billion in foreign investments annually. Of this amount, Chinese officials expect to attract around US $4 billion, mostly from international financial institutions (IFIs), in environmentally related investments. This will mean numerous commercial possibilities for foreign investors, lenders and suppliers of anti-pollution equipment and cleaner industrial technology, especially through joint ventures, direct investment, technology transfers and licensing agreements.
In 1995, Canada exported over $3 billion to the Chinese marketplace, making China our fourth largest export market. At the same time, the value of Canadian imports from China totalled almost $5 billion. The latest available data indicates that Canadian direct investment in China reached $177 million in 1993. Canadian firms intend to invest about $2 billion in China during the remainder of this decade. For fiscal year 1993-1994, Canada's total development assistance to China totalled almost $133 million. Of this amount, nearly $31 million was disbursed through the CIDA bilateral program.
Efforts to clean up China's environment offers huge trade and investment possibilities for Canada's environmental sector. The best prospects for increased export sales are for pollution control equipment, environmentally-sound waste disposal systems and water treatment plants, and for environmental consulting and monitoring services. Likewise, China's expanding grain needs should translate into increased export sales for Canada's agri-food sector, particularly wheat, barley, fertilizers, farm machinery and improved livestock breeds.
China's growing fiscal pressures, foreign debt accumulation, rising debt-servicing costs, ballooning import bills and the fierce competition for market share within the country suggest escalated Chinese requests for the transfer of environmentally-sound technology on non- commercial terms. Chinese officials are also likely to increase demands for aid, low cost loans and credits as well as innovative financing arrangements, like barter and offset schemes. Massive lending by IFIs, such as the World Bank and the Asian Development Bank, provide commercial opportunities for expanded Canadian involvement in IFI-funded environmental prevention and cleanup projects.
While opportunities may abound, China remains a high-risk business environment. Rampant corruption and growing criminal activity is likely to pose a threat to Canadian firms operating there. The South China Morning Post, for instance, recently reported that a survey of executives in Asia/Pacific had concluded that China ranked as the region's most corrupt country in which to do business. As Canada raises its commercial profile in China, Canadian firms are likely to be subjected to increased extortion, in the form of demands for bribes, administrative fees and protection money. This raises the costs and risks of doing business in China.
Left unchecked, spreading lawlessness and public disorder in China's booming coastal urban centres could expose Canadian business people, government officials, tourists and students to increased risk of personal harm, including assault, fraud, kidnapping and even murder. The lack of transparency in China's legal and regulatory systems suggests that resolution of business disputes or settlement of outstanding payments will continue to be painfully slow and costly. This could subject Canadian exporters, investors and lenders to possible financial losses. Environmental stress in China will only contribute to business uncertainty and a climate where the full impact of these social and legal deficiencies will be felt.
Canada will continue to receive immigrants in coming years. But, newcomers from China will be economically motivated rather than "environmental refugees". In the longer term, a China undergoing deteriorating economic conditions, social unrest and political instability would encourage potentially destabilizing out-migration. Environmental degradation coupled with economic dissatisfaction and a political crisis would undoubtedly induce strong desires to emigrate.
The views expressed herein are those of the author, who may be contacted by writing to :
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