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China, Part II: Walking the Walk on Environmental Problems

In 1882, the Norwegian playwright Henrik Ibsen published a play titled An Enemy of the People. The leading figure in the play is a physician named Dr. Stockmann who, along with his brother the mayor, raises public and private funds to help develop some new public baths that will attract valuable tourist dollars to their town. Shortly after the baths have opened, however, the doctor discovers the town’s tannery is contaminating them and causing serious illnesses among the tourists. When his brother ignores his warnings, the doctor calls a public meeting to discuss the crisis, where he is rebuked and branded as a lunatic and "an enemy of the people." The townspeople had expected economic prosperity from the new baths, and Dr. Stockmann’s news was inconvenient at best.

Traveling in China in June this year, I was often reminded of this 125-year-old tale about the conflict between economic expansion and environmental values. It illustrates the challenge faced by China ’s leaders who are trying to achieve a better balance between their breakneck economic growth and environmental protection. Often their messages of warning are not very well received by other leaders or the public who have become solely focused on China’s economic growth, but their message is increasingly supported by or dinary Chinese who understand all too well that their health and quality of life are jeopardized if the natural environment is not protected.

Over the past 15 years, China ’s average economic growth rate has been about 10 percent a year, making it the world’s fourth largest economy. China’s rapid economic growth, industrialization and urbanization have generated extreme pres sures on the environment. In a recent environmental performance review, the Organization for Economic Cooperation and Development (OECD) identified these major challenges facing China:

  • Air pollution levels in some of its cities are among the worst in the world, and one-third of its water courses are severely polluted with consequent damage to human health, ecosystems and the economy.
  • China is the second largest contributor of greenhouse gas emissions in the world, but on a per-capita basis, it is still one-fifth to one-third of other OECD (mostly Western) countries.
  • China is the largest producer and consumer of ozone-depleting substances, but since 1995, it has significantly reduced production and consumption of these chemicals by more than any other country.
  • China’s energy intensity per unit of gross domestic product (GDP) is about 20 percent higher than the OECD average.
  • China’s energy consumption will double between 2000 and 2020, even if energy efficiency is improved by 50 percent.

During our June trip to China with colleagues from the National League of Cit ies (see "Stereotypes of China Are Best Left at Home," Western City, September 2007, online at www.westerncity.com, one of our major goals was to learn more about how Chinese national and local government officials were tackling these environmental problems. We brought a CD full of sustainable development suc cess stories from California that we shared with our fellow public officials. The impressions that I formed during that trip (and since) about how we can best assist and learn from our Chinese counterparts are striking.

The Scope of the Challenge

China is industrializing many times faster than the United States and most Western countries, and its awareness of the environmental challenges it faces is growing quickly. In 1962, Rachel Carson’s widely read book, Silent Spring, gave rise to the environmental movement in America -- 100 years after the advent of steam-powered manufacturing in the United States. It then took another decade or so before Congress passed comprehensive clean water and air laws, and most of us agree we are far from done cleaning up the environmental sins of our industrial past. China is faced with the daunting task of balancing much more rapid economic growth with environmental quality, and it won’t be easy.

U.S. and Chinese Economic And Environmental Goals Are Inseparable

As we were flying to China, many of us read a fascinating article by James Fallows in the July/August issue of The Atlantic, titled "China Makes, the World Takes." Fallows provides insights into the multi-layered connection between U.S. and Chinese economic prosperity and environmental protection, making the point that "[t]he United States is the only nation with the scale and power to try to set the terms of its interaction with China rather than just succumb. So starting now, Americans need to consider the economic, environmental, political and social goals they care about defending as Chinese influence grows."

Fallows believes the rapid economic growth of Chinese manufacturing has been successful and beneficial for both countries. It has created unprecedented prosperity in China, but it has yielded even larger gains in the United States as a result of what producers call the "smiley curve" -- the U-shaped process that runs from the beginning of a product’s creation to the end of its final sale and servicing. In their relationship with China, American companies concentrate on the beginning (invention, branding, product concept and engineering design) and the end (re- tail and servicing stages) of the process. Chinese companies concentrate on the middle (actual manufacture, assembly, shipping and distribution) of the process.

The real money lies in the two stages that American firms control, and the results are startling. Chinese factory owners and workers get only 3 to 4 percent of the total purchase price of a retail product made in China. To drive the point home, Fallows says, "Chinese workers making $1,000 a year have been helping American designers, marketers, engineers and retailers making $1,000 a week (and up) earn even more." He also points out that the Chinese worker is probably better off than an American earning minimum wage because she (typically factory workers are women) has her housing and food expenses subsidized or completely paid for by her company and keeps most of what she makes.

Fallows makes an excellent case that in dustrialization on these terms has been good for China, but he also acknowledges it could "pollute China and the world out of existence." The OECD report men tioned earlier notes that, "Environmental issues in China have often a strong inter national dimension, reflecting regional environmental interdependencies (for example, transboundary air and water issues, regional seas pollution, desertification) and global economic and environmental interdependencies." In other words, other countries -- including the United States -- are breathing China’s polluted air, consuming its tainted fish and financing aid to parts of China and other countries devastated by its polluting activities. What happens in China affects our health every bit as much as it affects our pocketbooks.

We’ve Met the Enemy, and It Is Us!

During many of our meetings in China, Chinese leaders would eventually get around to making the point that Ameri cans shoulder some of the responsibility for China’s environmental woes because its rapid economic growth has been incredibly good for American companies, stock holders and consumers. In other words, we have outsourced our pollution along with our production. Moreover, although they are opening new soft coal-burning power plants at the rate of about one a week, they reminded us that their per capita greenhouse gas contributions are one-quarter of ours -- a fact that is hard to dispute.

Many Chinese leaders also told us they know from planning and research that it will cost anywhere from 5 to 10 percent of their GDP over the next decade to manage the environmental consequences of China’s growth. When they get serious about it (and they have already started), it could have a dramatic impact on the cost of inexpensive retail goods we have come to depend on China to produce. Given the fact that today capital is mobile, a company could just as well open a new production operation in Vietnam, Malay sia, India or elsewhere if the cost of pro duction in China increases significantly. If that happens, the environmental problems will be outsourced again.

What Can We Do? Innovate, Lead, Innovate, Lead

It is well known in California and around much of the world that our state is in the vanguard of bringing about change in how our private and public sectors contribute to environmental contamination and glob al warming. Whether it is in the enforce ment of strict air and water quality laws or in the passage of AB 32 (the Global Warming Solutions Act), we understand that the California market is so big that it, along with other leading partners in the United States and around the world, can create powerful incentives for innovation and leadership in reducing pollution and global warming.

Whether it is by passing new laws that lead to cleaner fuels, creating incentives for new solar-powered homes, or requiring the adoption of best management practices to reduce water pollution, we have experience "going where no one has gone before." In so doing, California shapes markets, con sumer preferences and political trends.

Anyone who is a parent knows that the most powerful way we influence our children is not by what we say but by what we do. If we tell them not to smoke, overeat, drink or cheat and we do any of these, then we can’t expect them to obey. Similarly, if we lecture our international colleagues about doing a better job of managing their natural resources and
we squander our own, we have no right to criticize their choices.

In addition to "walking the walk" and not just "talking the talk," our state and our nation contain the greatest source of intellectual and economic capital in the world to provide innovative leadership in this area. President Reagan used to talk about the United States being an example for human freedom like a "shining city on a hill." We can also be an example by leading the world in producing and applying new technologies to reduce the pollution emissions that also contribute to global warming. And we know that in the pro cess California and our nation will benefit both economically and environmentally. The rest of the world, including China, will benefit as well.

In my last column, I closed by saying that my understanding of China will always be a journey and a work in progress. By all measures it still is, but it is a fascinating one. I invite you to come join me.