Risks and rewards in greening of China

Risks and rewards in greening of China Beijing is feeling more and more pressure to clean up the environment, writes China correspondent Rowan Callick

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March 09, 2006 AUSTRALIA digs it up, in our hi-tech, world's best eco-practice manner, ships it out, and China pays handsomely for it. Our prosperity hangs on it. After that, who cares? This arrangement - a blessed one for pragmatic shareholders - is not about to suffer serious disruption.

But among the myriad changes and challenges in 21st century China, the imperative to clean up its environment is rising ever higher. This presents Australian firms with both risk - a resources market growing less swiftly as growth moderates slightly; and opportunity - a new market for green products and technologies.

Premier Wen Jiabao, who will visit Canberra in early April, told China's parliament in opening its annual session last Sunday that in recent months the Government had "closed down a number of production facilities that had backward equipment, wasted energy, created serious pollution and were unsafe".

The Government, seeking to create "an environment-friendly society", is targeting a 20 per cent reduction in energy consumption per unit of economic output over the next five years. He said: "We need to use a combination of means, particularly pricing and taxation, to promote economical and rational use of resources."

Wen said the Government would work quickly to establish or improve conservation standards, would encourage the development of energy and resource saving products, upgrade technology to cut the consumption of materials, and create pilot "circular economy" projects to boost recycling.

But a chasm yawns, as yet, between such lofty aims, and the sometimes brutal realities in provincial China.

Wang Yongchen, the founder of Green Earth Volunteers, is one of a fast-growing number of young Chinese for whom the environment is a passionate cause, a rare outlet for acceptable community activism licensed by the central authorities. She has just returned to Beijing from her latest visit to Xiaoshaba, a village in picturesque Yunnan province that has been living for four years under the threat, or promise, of a massive dam being built to generate hydro-electricity.

She says: "This provides a check as to whether Yunnan is developing right, and beyond that, whether China is developing right. We are worried that all China's rivers are falling prey to the power companies.

"We need more energy, but we also need plans as to how to develop. Now there are none, just plants belonging to this company or that. We have five hydro companies in a World Heritage listed part of Yunnan where three rivers meet.

"But the farmers in the area, four years on, still don't know anything about what's happening, despite new environmental legislation passed in 2003 giving them the right to know and to be consulted."

Such stories can be repeated all over China.

China is also the location of 16 of the world's 20 cities whose atmosphere is most severely polluted, according to the World Bank. Children in these cities inhale the equivalent of two packs of cigarettes a day, just by breathing. Nitrogen dioxide levels in China's air have risen 50 per cent in the last 10 years. And 6000 miners died in accidents last year.

Celebrated American business economist David Hale writes in a report on China's growth for the Australian Strategic Policy Institute released last week: "Damage from the use of coal - which accounts for 68 per cent of China's primary power production - is equivalent to 8-10 per cent of GDP."

Five years ago, Hale says, China accounted for 13 per cent of global carbon emissions, and the Government expects this to grow to 18-19 per cent. Acid rain now falls on about 30 per cent of China's land area.

It is inevitable that China's high-speed economic growth places stresses on the physical and social infrastructure. Premier Wen says growth will slip slightly this year, but will persist at a still stellar 8 per cent.

The ruling communist party's unwritten mandate leans heavily on providing constantly rising wealth through such rapid growth. But since joining the World Trade Organisation four years ago China has become increasingly enmeshed in global structures, and its middle class has at the same time begun to seek, cautiously, a say on the local environment. And members of the communist party's conservative old guard have recently issued open letters lamenting that the pace of growth has been too high, and its human cost too great.

As a result, the Government has begun taking environmental regulation more seriously - at least at the rhetorical level.

To take further steps would force tough political trade-offs, at both the central and provincial levels. Officials face a painful squeeze.

The overriding priority of ensuring constant high growth means providing jobs for displaced state-owned enterprise workers and unproductive farmers who would otherwise be fomenting trouble, and eliciting from industry the fees and taxes local government bodies need to maintain services.

On the other side of the ledger is how, and how rigorously, to implement the new, ever tougher environmental and safety standards outlined in missives from Beijing.

Hale says: "If the Government significantly increases the allocation of resources to environmental protection, or raises taxes on high-income people, it could slow the economy's growth momentum."

It is very difficult, says Andres Liebenthal, the World Bank's environment co-ordinator for China "to meet the trade-offs of growth against pollution". Employment, investment and overall economic growth rates comprise leading elements of performance evaluations of government officials.

"Environmental performance is entered there too, but less prominently," he says. But China is shifting towards "green national accounts", through which the costs associated with pollution can be subtracted from such economic growth indicators. A typical problem is that the price charged for water in China only reflects its transport and treatment, not its scarcity value or the costs associated with limiting or countering pollution.

Liebenthal says: "This shift is methodologically difficult, but it is being tackled at the research and development level, and will be piloted in a few provinces and townships."

He says that shifting towards sustainable development is at the centre of the next five-year plan, just launched in parliament, "It is a big play in the political discourse in China - more centrally so than in most other countries," Liebenthal says.

China is seeking to transform its image of unbridled industrialisation before the Beijing Olympic Games in 2008, which it wishes to present as an especially "green Olympics".

Metal producers are beginning to build partnerships with Western companies that can ameliorate their impact. For instance, Jiangxi Copper Corp has recently signed a deal with BioteQ Environmental Technologies of Vancouver, Canada, to develop and operate a water treatment plant. Australian firms will win similar contracts.

Chinese resource companies, ranging ever more widely in their search for reliable access to key commodities, have been striking deals in countries with modest, or avoidable, environmental and labour standards - where Australian operators risk coming to grief, in part through being made accountable by non-government organisations, international media, or law firms like Slater & Gordon.

But as China's companies operate ever more closely alongside Australian and other Western firms in joint ventures, and as they rely more heavily on international funding, their cultures are likely to adapt to more stringent global best-practice requirements and they will start to lose some of their present advantage in gaining access to resources.

In such ways, Australian resource companies - which already market many of their commodities as superior quality and less polluting - are likely to start to benefit from the gradual greening of China, even if the overall growth rate starts to trim.