China From Red to Green

By Roger Bate Posted: Wednesday, March 22, 2006 Via AEI.org

Senators Charles Schumer (D-NY), Lindsay Graham (R-SC) and Tom Coburn (R-OK) arrive in China today to discuss the US-Chinese relationship. One area the Senators should address is the sustainability of China's growth. Financial and labor constraints may be the current focus of concern, but a far greater threat to China's long-term economic growth lies in its lack of attention to ecosystems.

Chinese surface water is depleting rapidly in quality and quantity. As the Peruvian economist Hernando De Soto says:

"For most Americans, it is unimaginable that the great Mississippi River would one day dry up and not reach the ocean. Yet between 1974 and 2000, China's Yellow River....ran dry 18 times. In 1998, the Yellow River failed to reach the ocean mouth for more than 250 days. With 1.3 billion people to feed, such water shortages are not just a major agricultural problem but a serious threat to China's economic and political stability."

And it's not just surface water: The deep aquifer under the North China Plain in Hebei Province (around Beijing) -- which will not be adequately replenished and is generally used as a last resort when the shallow aquifer runs dry -- is now being drilled and depleted at 10 feet a year, says the 2001 survey by the Geological Environmental Monitoring Group in Beijing. The impact of surface and groundwater depletion could be significant and soon: Charles Wolf of the Rand Corporation estimates such water shortages could indefinitely lower annual growth by as much as 2%.

But there is plenty of water in China, it's just in the wrong places for development and massive hydraulic infrastructure projects are needed to address the imbalance. But more importantly, property right systems are needed to ensure that allocations of water are used fairly and efficiently, particularly the new water brought by the huge engineering projects.

China should also adopt a system of water property rights much like that in US western states. Having successfully incorporated market forces into other areas of its booming economy, it's time to extend the same approach to the environment.

China's leadership needs to understand that market mechanisms can protect the environment every bit as effectively as they boost the production of CDs and cars.

But the Chinese Government will not get much support from the international community for this approach. To those meeting in Mexico for the fourth World Water Forum, climaxing today with UN's World Water Day, market solutions are rarely mentioned and never encouraged, and hence China considers itself safe to ignore such approaches.

To be fair China's task is made more difficult by the human rights and green groups, currently in Mexico, which undermine their own credibility by opposing dam development as a matter of principle. From the Three Gorges in China to the Narmada Dam in India, these groups ignore the benefits such projects can bring, such as generating electricity, reducing the risk of flooding and providing better irrigation for food production. Their exaggerated approach obscures the valid concerns about the dangers of ecological catastrophe and relocating tens of thousands of inhabitants. This makes China's Government defensive and less open to any sensible advice coming from international experts.

China's development patterns resemble those in the West in the early 20th century, when pollution was viewed as the inevitable price of growth. That's a common attitude in China today. For example, one Chinese businessman told me that pollution is a "price worth paying" -- an opinion shared by many local officials.

In building the Three Gorges, China has embarked on the largest dam development program the world has ever seen. According to the 2003 World Commission on Dams, China has the vast majority of the world's dams (47,655 representing 46% of the world's total) and the largest dam projects -- the Three Gorges Dam contains 26.43 million cubic meters of concrete and is twice the size of the former largest water conservation project in the world, the Itaipu Dam in Brazil. On the heels of that, the south-to-north water diversion project aims to divert water from the Yangtze to the Yellow, Huahe and Haihe Rivers at a rate of 38 - 48 billion cubic meters of water a year to accommodate the needs of 300 million people.

Yet although 70% of China's water supply is used for agricultural purposes, China's food production is not benefiting as much as it should. The efficiency level for crop production (the amount of water absorbed by plants and not lost to evaporation) is well below 50%, compared with over 65% in the U.S. Part of the reason is that many of China's irrigation Schemes were hastily designed, poorly constructed and built with inferior materials. Another reason is that China's massive size and population exacerbate the degree of damage done by any policy failure.

So why is China now facing a far greater ecological danger than the one those Western countries experienced when they went through similar phases of rapid development in the 20th century? The reason is that in the UK and the US, individuals had ownership rights over their local environment, even if they weren't always enforced. Ordinary Chinese, on the other hand, have never had those rights.

Efficient water use is closely linked to rights of property afforded by the English common law, for example, as all landowners may demand that water flowing past their land remains in decent, natural condition. The remedies available are injunction against polluters, enforceable by law and carrying a prison sentence for breach; and importantly, the polluter is responsible for compensating the owner for any loss and restoring the water to its former quality.

By the 1960s, lawsuits brought by individuals against polluters in the UK had led to the cleaning up of many rivers, long before government agencies added a layer of bureaucracy to such efforts.

In the US, river water is effectively owned by local landowners and fishermen in places like Montana and Wyoming. Although excessive federal government regulations often makes it difficult to trade, or even exercise, such rights, their very existence can empower individuals and act as a constraint on still greater government interference. And in many other countries, from Chile, to South America, Mexico, and especially Australia, allowing individuals to own water rights has benefited the poor and helped to improve the environment.

In the absence of such market solutions, China's rapid development has brought it to the brink of ecological disaster. Pan Yue, vice minister of the environment, addressed the problem at a news conference last year: "'China's population resources and environment have reached the limits of their capacity to cope. If we continue on this path of traditional industrial civilization, there is no chance that we will have sustainable development."

This problem cannot be solved until China allows local people, especially farmers, to own their water and trade usage rights. Allowing them to do so would ensure more efficient farm production, and lead to less water waste. Over the long-term, ownership rights can empower people and lead to political pressure for change.

As Russia is discovering, it's not possible to throw off the shackles of communism and then confine yourself to the bits of capitalism that appeal to the current oligarchs. Success will require the discipline of the market as much as the opportunity and growth it brings, and growth without responsibility is not sustainable.

Perhaps if the US Senators arriving today in Beijing discussed these issues with the Chinese Government they could do more for economic freedom in the region and strengthen ties with America's largest future trading partner. They would also be protecting the often beautiful but rapidly degrading Chinese environment.

Roger Bate is Resident Fellow of the American Enterprise Institute and his book "All the Water in the World" will be published later this year.

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