Assessing Chinas Economic Energy and Resource Environment

Consumer, Competitor,
or Collaborator?:
Assessing China's Economic, Energy, and Resource Environment

RFF Policy Briefing
October 19-20, 2006

Briefing Overview

In recent decades, China's burgeoning growth pulled hundreds of millions of its citizens out of poverty and placed the nation among the world's economic powerhouses. At the same time, China has witnessed wrenching social changes and environmental challenges.

This RFF Council briefing, held on October 19-20, was devoted to a wide-ranging examination of economic, energy, and environmental trends in China to assess the state of progress of the world's largest nation and analyze its impact on the global economy.

At the outset, President Phil Sharp noted RFF's longstanding involvement with Chinese research efforts, including the establishment of the Walter Spofford Internships for China scholars, and assistance with the founding of the Beijing Environment and Development Institute in the late 1990s.

In his opening remarks, Nick Lardy of the Institute for International Economics asserted that the Chinese economy is not as healthy as headlines might suggest. Much of its growth has been fueled by outside investment and high export volume, while household consumption in China is the lowest, as a share of GDP, in the world.

"China currently consumes only about 40 percent of what it makes," Lardy said. "While the Chinese government has announced a laudable intent to move toward consumption-led growth, that transition is off to a slow start." While revenues from exports will remain important drivers of the Chinese economy, Lardy said, there is a growing demand for government investment on health, education, welfare, and pensions by Chinese workers.

Kenneth Lieberthal, distinguished fellow and director for China at University of Michigan's William Davidson Institute, framed a discussion about China's political system and environmental problems within the context of China's spectacular growth, resource scarcity, and changing environmental sensitivities due to wealth.

As evidence of the growing importance of the environment to the Chinese, Lieberthal noted that out of 87,000 protests in China in last year, nearly 9,000 were environmentally driven. In addition, the Chinese government has dedicated $175 billion to environmental projects. However, such momentum is dampened by a political system that favors GDP growth over the environment, he said. Because political leaders at local, state, and national levels are tasked with growing GDP at aggressive levels - and because performance reviews largely focus on GDP growth rather than environmental and other concerns - China's political economy results in a "growth machine" made up of "bureaucratic capitalists," Lieberthal said.

He also suggested that although China excels at building clean facilities, it is less skilled at using them. "The hardware is there, but software and respect for the law are not," he said. To turn this situation around, Lieberthal noted, the incentive structure for leadership needs to change; however there is currently no indication of impending changes to the current political economy.

Another China expert, James P. Dorian, a government energy consultant and long-time senior researcher at the East-West Center in Hawaii, warned the audience about China's emerging energy demands - and the possible environmental consequences. "Energy usage in China will double by 2020," he said, noting that China currently builds a new power station every 10 days.

"But by 2010, China will overtake the U.S. as the world's largest polluter," Dorian said. "Sixteen of the world's 20 most-polluted cities are in China, a condition that claims 300,000 lives a year." Moreover, he noted that China has an estimated 70 million households still without electricity, households that someday will draw power from coal-fired plants - a fact that must be integrated into the nation's plans to contain greenhouse gas emissions.

No other country in the world will have as great an impact on the world's energy industry than China, Dorian said, across the spectrum of available energy resources - coal, oil, gas, nuclear, and renewables. Given the importance of coal to China's long-term economic future and environment, and the ongoing transportation bottlenecks, plus the possibility of dramatically increased use of passenger cars over the long-term, it is arguable that these two particular sectors of the Chinese economy need more focus and analysis, Dorian said.

The two-day meeting concluded with panel discussions focused on a range of environmental challenges, including air pollution trends, willingness to pay for health-related programs, transportation issues, and water policy. In addition to comments from RFF researchers Ruth Greenspan Bell, Alan Krupnick, and Richard Morgenstern, the program included remarks from Jostein Nygard, a senior environmental specialist with the World Bank; Lee Schipper, a senior researcher at World Resources Institute's Center for Sustainable Transport; and Peter Kareiva, a lead scientist with the Nature Conservancy.

Since its founding in 1991, the RFF Council has recognized corporations and associations that contribute at least $25,000 annually to RFF and individuals who contribute at least $5,000 annually to RFF. These organizations and individuals all share RFF's interest in improving the environmental and natural resource policy debate and their contributions provide much of the general support required to run the day-to-day operations of RFF.

RFF Council members receive several benefits including special recognition in our annual report, invitations to all events, including exclusive, closed-door meetings, and complimentary copies of all of our publications. Additionally, Council members are encouraged to meet informally with our researchers to discuss current or future work, general policy trends, and other topics of interest. These meetings not only allow Council members direct access to RFF's expertise, but are also valuable opportunities for our scholars to interact with the corporate community and learn about their perspectives on legislative and regulatory issues. This sharing of information ensures that RFF's work remains balanced and informed from all different stakeholder viewpoints.

Conference Videos

October 19, 2006



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Welcome: Phil Sharp \| President, Resources for the Future Web Bio



Nicholas R. Lardy \| Senior Fellow, Institute for International Economics Presentation: "Understanding the Chinese Economy"



Phil Sharp \| President, Resources for the Future



Kenneth G. Lieberthal \| Arthur Thurnau Professor of Political Science and Distinguished Fellow and Director for China at the William Davidson Institute, University of Michigan Presentation: "China's Political System and Environmental Problems"



Remarks: Dr. James P. Dorian International Energy Economist Specializing in Eurasian Energy Issues	(Video not available)

October 20, 2006:
China's Environmental Challenges and Responses

PRIORITIES AND POLICIES




Jostein Nygard \| Senior Environmental Specialist, East Asia & Pacific Environment Unit, World Bank Presentation: Environmental Challenges in China



Alan J. Krupnick \| Senior Fellow, Resources for the Future Web Bio Presentation: Willingness to Pay for Mortality Risk Reductions in Shanghai and Chongqing, China



Ruth Greenspan Bell \| Resident Scholar, Resources for the Future Web Bio

CLIMATE, AIR AND TRANSPORTATION



Richard D. Morgenstern \| Senior Fellow, Resources for the Future Presentation: Reflections on Point Source Emissions in the People's Republic of China: SO2 and CO2



Lee Schipper \| Director of Research, EMBARQ, World Resources Institute, Center for Sustainable Transport Presentation: Carbon Emissions and Sustainable Transport in China

WATER AND BIODIVERSITY

Mark W. Rosegrant |
Division Director, Environment and Production Technology Division, International Food Policy Research Institute