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The Contradictory Impact of Reform on Environmental Protection in China*

  • Abigail R. Jahiel
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Reform has posed a serious contradiction for environmental protection efforts in China. On the one hand, the first decade of reform (1979–89) ushered in a vast expansion of environmental protection institutions, laws and policies, a process which in certain respects continues to this day. On the other hand, the reforms also welcomed the rapid and often unrestrained growth that is responsible for the dramatic erosion of the quality of Chinas environment over the past two decades. The central governments professed concern for the environment and the national measures taken to protect it appeared, by the end of the 1980s, to have slowly caused some improvements in the enforcement of environmental policy. But by the mid–1990s, a renewed burst of economic activity following Deng Xiaopings 1992 Shenzhen trip had combined with another round of administrative reforms in early 1994 to set back these efforts.

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Research for this article is based on interviews conducted by the author in 1991, 1992 and 1995 with central government officials in Beijing and local authorities in the cities of Anyang, Wuhan and Xuzhou and their surrounding counties. Case study cities were selected to be representative of typical medium and large industrializing cities throughout China, including those that have abundant water resources and those that suffer from water shortage. Research for the article was supported by a grant from the Committee on Scholarly Communications with the Peoples Republic of China and funded by the United States Information Agency. An earlier version of the article was presented at the 46th Annual Meeting of the Association for Asian Studies in Boston, Massachusetts, 24–27 March 1994. The author wishes to thank Thomas Lutze and Melanie Manion for their extensive comments

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1 This conclusion is drawn from comments made by senior officials at the National Environmental Protection Agency. It may appear incongruous with certain national environmental statistics which suggest that since 1990 pollution levels have been more or less decreasing in urban areas. However, such statistics are incomplete; they include data predominantly from state–owned enterprises and do not incorporate data from the burgeoning private and town–and–village industries, the fastest growing sectors of the economy, which contribute a significant and increasing share of pollution each year. See n.50.

2 The earliest nation–wide environmental protection efforts made by the Chinese central government date back to Chinas First National Environmental Protection Conference in August 1973, following the 1972 United Nations–sponsored Stockholm Conference on the Human Environment.

3 Recapture and reuse of raw materials has been of concern for the financial savings to be made and has been emphasized by the Chinese media and environmental agencies since the early years of the reforms. The availability of clean resources was an issue because by the late 1970s China was already experiencing water shortages, compounded by increasing pollution problems which could interfere with production. Finally, social stability was of concern because of several incidents in the 1970s of peasant and factory worker protests over pollution problems which temporarily halted production. In addition, Deng Xiaopings view that the continued legitimacy of the Chinese Communist Party, and by association his position, were contingent upon appeals to the Chinese peoples desire for a higher standard of living, may also explain increased concern for a clean environment.

4 On the importance of bureaucratic rank and commensurate status in the Chinese system, see Oksenberg, Michel and Lieberthal, Kenneth, Policy Making in China: Leaders, Structures, and Processes (Princeton: Princeton University Press, 1988), pp. 142–45.

5 In 1991 Environmental Protection Bureaus (EPBs) were colloquially referred to as one of the five hegemonic powers (yvu ge bawang) of the local government. Along with the Tax Bureau, the Bureau of Commerce, the Electric Supply Bureau and the Water Supply Company, the EPB was now feared by factories because of its ability to prevent factories from proceeding with production ventures. Interview 42, autumn 1991. For more on the development of EPB authority, see Abigail R. Jahiel, Policy implementation through organizational learning: the case of water pollution management in Chinas reforming socialist system, University of Michigan, Ph.D. dissertation, 1994

6 The most prominant of Chinas environmental laws include an Environmental Protection Law for Trial Implementation (1979), a Marine Environmental Protection Law (1982), a Water Pollution Prevention and Control Law (1984), an Air Pollution Law (1987), a Noise Pollution Law (1988) and an Environmental Protection Law (1989). In addition, as of the early 1990s the Chinese had compiled over 100 national regulations to further define these laws, with provinces supplementing them with their own laws and regulations. Moreover, the central government had issued over 200 pollution standards. For Chinese environmental laws and regulations see zhengce faguisi, Guojia huanbaoju (ed.), Huanjing baohu fagui huibian (Compendium of Environmental Laws and Regulations) (Beijing: Zhongguo huanjing kexue chubanshe, 1990). For Chinese pollution standards see Guojia huanbaoju keji biaojunsi (ed.), Huanjing zhiliang yu wuranwu paifang guojia biaojun huibian (A Compendium of National Standards on Environmental Quality and Effluent Discharges) (Beijing: Zhongguo biaojun chubanshe, 1992).

7 The number of personnel staffing EPBs rose from 49,790 in 1987 to 81,373 in 1993 (a 63% increase in six years). Zhongguo tongji nianjian 1988 (The 1988 Statistical Yearbook of China) (Beijing: Zhongguo tongji chubanshe, 1988), p. 857. China Environmental Yearbook 1994 (Beijing: China Environmental Yearbook, March 1995), p. 125

8 The number of scientific and technical staff in EPBs rose from 29,729 in 1987 to 43,482 in 1993 (an increase of over 46% in six years). Zhongguo tongji nianjian 1988, p. 857. China Environmental Yearbook 1994, p. 125

9 These policy mechanisms include: the environmental impact statement; the three simultaneities policy; the discharge fee system; the mayorial contract responsibility system; the comprehensive clean–up system; the collective control system; the pollution permit system; and the deadline clean–up order, discussed further in Jahiel, Policy implementation through organizational learning.

10 The discharge fee system was first mentioned in Central Document No. 79 (1978) which states Environmental protection organs should co–ordinate with other relevant government organs and set up specific fee collection measures to establish a discharge fee system. Quoted in Women jianli zhengshou paiwufei zhidu de lishi huigu (A historical review of our countrys establishment of a discharge fee system), in Guojia huanbaoju (ed.), Zhongguo de paiwu shoufei: huigu yu zhanwang, 1979–1985 (Chinas Discharge Fee: A Retrospective and a Forecast for the Future, 1979–1985) (Beijing: Haiyang chubanshe, 1988), p. 2. The system is itself a product of the countrys reforms. For several years before the reforms, Chinese scientists and academics had been familiar with the concept of a discharge fee system, the practical experiences of Western European countries with its implementation and the debate being waged among Western scholars regarding its effectiveness in reducing pollution. Nevertheless, it was only with Deng Xiaopings assumption of power that a discharge fee system was adopted in China. Dengs desire to promote economic development through market competition meant that economic incentivebased systems could now be employed; moreover, his open door policy meant that non–Communist Western experiences could now be studied and copied.

11 For a recent review of various perspectives on the meaning of economic reform in China see The China Quarterlys special issue on Chinas Transitional Economy, No. 144 (December 1995).

12 On the issue of decentralization of the economy see ShirkSusan, , The Logic of Economic Reform in China (Berkeley: University of California Press, 1993). Also see Kenneth Lieberthal, Governing China: From Revolution through Reform (New York: W.W. Norton & Co., 1995), Barry Naughton, The decline of central control over investment in post Mao China, in Michael David Lampton (ed.), Policy Implementation in the Peoples Republic of China (Berkeley: University of California Press, 1987), and Christine Wong, Material allocation and decentralization: impact of the local sector on industrial reforms, in Elizabeth J. Perry and Christine Wong (eds.), The Political Economy of Reform in Post–Mao China (Cambridge, MA: Harvard University Press, 1985).

13 Zhongguo tongji nianjian, 1993 (Chinese Statistical Yearbook, 1993) (Beijing: Zhongguo tongji nianjian chubanshe, 1994), p. 409.

14 Of industry, Shirk notes that The nonstate sector became a magnet drawing the state industry away from the plan toward the market, and explains that competition from the non–state sector, over time, influenced those in the planned state sector to change their behaviour. Shirk, The Logic, p. 343. As is demonstrated later in this article, the non–state sector and its drive for profit generation has influenced not only state–owned industry but government administrative units as well

15 Lieberthal, Governing China, p. 147

16 Shirk, The Logic, pp. 199–200 notes that as early as the spring of 1978 economic journals in China were arguing that profit should no longer be considered a symbol of capitalism, that is, something to be disdained.

17 Ibid. pp. 181,182–84.Shirkprovidesagood discussion ofthevalueof industrial growth to local leaders and of the conditions which make uninhibited industrial growth favourable.

18 Oi, Jean, Rural China takes off: incentives for reform, unpublished manuscript, 1994. Susan Whiting, The political economy of rural enterprises in Shanghai, Wuxi, and Wenzhou, University of Michigan, 1994, Ph.D. dissertation.

19 Oi, Jean C., The role of the local state in Chinas transitional economy, The China Quarterly, No. 144 (December 1995), p. 1144.

20 Lieberthal, Governing China, p. 31

21 In China, standards are based both on the concentration of a pollutant in discharged waste water and on the quality of the receiving water. Fee rates are based both on the kind of pollutant and the degree to which the concentration of the pollutant exceeds discharge standards for a particular water body. Fees are set nation–wide and cannot vary by region or . industry. However local governments (provincial, municipal and autonomous) and industrial ministries have the right to increase the stringency of standards to suit local or sectoral environmental conditions.

22 See Zhongguo de paiwu shoufei zhidu guiding (Regulations on the implementation of the discharge fee system) (1982), In Guojia huanbaoju (ed.), Zhongguo de paiwu shoufei wenxian: 1979–85 (Chinas Discharge Fee: Documents, 1979–85) (Beijing: Haiyang chubanshe, 1988).

23 Throughout this article EPB is used to represent local–level environmental agencies. In reality, two types of environmental agencies have existed at the local level, Environmental Protection Bureaus and Environmental Protection Offices. This difference in nomenclature reflects a difference in bureaucratic rank which translates into a real difference in status. Offices are of a lower bureaucratic rank than bureaus and in general are predecessors of the now much more common EPBs, though, as is noted at the end of this article, setbacks have taken place in some locales in recent years, whereby EPBs have been demoted to offices

24 Such behaviour was not limited to local government actors either. Central government actors in industries that remained largely centralized (such as the energy and transportation sectors) also intervened in the enforcement of the discharge fee regulations. For example, in 1983, a large power plant in Chongqing refused to pay discharge fees for water pollution. (Fees for such power plants often run over one million yuan per year.) The Ministry of Water Conservancy, the plants parent ministry, supported the plants decision and requested that the Chongqing municipal governments Bureau of Finance similarly refuse to release funds. Ultimately, the dispute that developed between the city and provincial EPBs on the one hand, and these various other parties on the other, came before the Legal Committee of the National Peoples Congress. The Committee acknowledged legal responsibility on the part of the Chongqing power plant, but required that compassion be shown to the plant and the fee be reduced. Interview 13, spring 1991.

25 Although national discharge fee regulations were promulgated in 1982, some cities I began to design and implement their own discharge fee systems as early as 1979. It was in that year that the Environmental Protection Law for Trial Use was promulgated and use of I a discharge fee system mentioned for the first time. The first city to adopt a discharge fee [system was Suzhou, which began to collect fees in October 1979.

26 Interview 37, autumn 1991.

27 Interview 58, autumn 1991.

28 Interview 83, autumn 1991

29 Ibid.

30 Interview 37, autumn 1991.

31 Interview 74, autumn 1991.

32 Ibid.

33 See Lipsky, Michael, Street Level Bureaucracy: Dilemmas of the Individual in Public Service (New York: Russell Sage Foundation, 1980) for his discussion of street–level bureaucrats and their tendency to develop coping mechanisms to deal with implementation realities. See also James March and Herbert Simon, Organization (New York: Wiley, 1958) for their discussion on the use of satisficing as an easy and natural solution to conflicting goals under situations in which limited time and limited resources exist.

34 This is not to suggest that negotiation over fee payment never occurs any more. During the economic recession in 1989 and 1990 firms did increase their bargaining efforts. However, a senior official at the National Environmental Protection Agency responsible for the discharge fee system commented in 1991 that although the problem is [still] pervasive, theres a difference now. Now, when they [firms] argue, they do so not to get rid of the fee but to postpone payment of it. Interview 107, spring 1992.

35 Interview 33, autumn 1991.

36 Guojia huanbaoju, Zhongguo de paiwu shoufei, p. 14. Zhongguo tongji nianjian 1992 (China Statistical Yearbook, 1992) (Beijing: Zhongguo tongji chubanshe, 1993), p. 814. China Environmental Yearbook 1994, p. 124.

37 Interview 33, autumn 1991.

38 Although haggling over the payment of discharge fees decreased, it would be presumptuous to assume that the shift from door–to–door collection to bank transfer of funds was entirely responsible for the considerable institutionalization of fee collection over the last decade. Clearly, such factors as increased awareness of environmental problems, rapid economic growth, and an expanded bureaucratic apparatus may also have been relevant. However, repeated unsolicited remarks by EPB officials in each of the cities studied regarding the importance of collaboration with the local bank suggest that this shift in implementation method was a significant contributor to institutionalization of a fee system.

39 Article 10 of Chinas Regulations for Implementation of the Discharge Fee System (1982) permits the allocation of up to 80% of discharge fees paid by a firm to be returned to that firm for use in environmental prevention or clean–up projects. Firms must apply for this money – referred to as environmental protection subsidy funds (huanjing baohu buzhu zijin) – by submitting a proposal to the EPB demonstrating how the allocated money will be used, and by agreeing to match or exceed EPB funds with their own funds earmarked for pollution abatement. The local EPB then assesses the merit of each firms proposal and, in conjunction with the local Bureau of Finance, determines whether or not to fund it.

40 This county official, as of 1991 was still facing many of the problems city EPBs had already resolved several years earlier, including the problem with fund allocation that he described. Interview 74, autumn 1991.

41 Interview 58, autumn 1991.

42 As head of the State Councils Environmental Protection Commission from 1984 to 1988, then Vice–Premier Li Peng alluded or referred specifically to this problem of misuse of funds on several occasions. See Premier Li Peng on targets for discharge fee collection work, in Guojia huanbaoju, Zhongguo de paiwu shoufei wenxian, 1979–85, p. 14.

43 Interview 74, autumn 1991.

44 Li Peng, Gaige paiwufei shiyong fangshi tigao huanbao buzhu zijin shiyong xiaoyi (On reforming the usage of discharge fees to increase the efficiency of environmental protection subsidy funds), in Peng, Li, Discussions on Environmental Protection With Chinese Characteristics (Beijing: The Chinese Environmental Science Press, 1992).

45 The loan system formally became policy with the promulgation on 28 July 1988 of Measures for the Implementation of a Compensation Fund for Pollution Clean–up Projects (Wuranyuan zhili zhuanxiang jijin youchang shiyong zhexing banfa), commonly referred to by those within the environmental protection apparatus as Order No. 10 (Shihao ling).

46 Interview 33, autumn 1991.

47 Interview 58, autumn 1991.

48 Between 1978 and 1992 the proportion of national industrial output value produced by the state sector dropped from 78% to 48%. Based on information from the China Statistical Yearbook 1993, as reported in Louis Putterman, The role of ownership and property rights in Chinas economic transition, The China Quarterly, No. 144 (December 1995), p. 1049.

49 Interview 67, autumn 1991.

50 Interview 203, May 1995. According to this official, there are over 10 million town–and–village enterprises throughout China but only 300,000 to 400,000 actually pay fees, and these not necessarily regularly. Moreover, in the last few years such enterprises have developed especially rapidly and the proportion of pollution they contribute has grown.

51 Under this latest round of administrative reforms, the central government placed limits on the number of county–level government units of first–tier status. It reasoned that counties of different financial well–being have different needs and that wealthy counties have greater needs than poor ones and should therefore retain more first–tier government divisions. The central government mandated that all counties have certain specified government organs. Tellingly, however, an EPB was not one of the 18 required government offices. Therefore, to reduce the size of their bureaucracies, counties have opted for demoting or eliminating their EPBs. Interview 202, May 1995.

52 Interview 203, May 1995.

53 Interview 207, May 1995.

54 Interview 8, spring 1991.

55 To find the optimal discharge rate is, of course, no easy task. Even the famed German discharge fee system, which bases its fee rate on an estimation of clean–up costs, is criticized by some for having effluent fees lower than real clean–up costs. The Chinese rate was even farther below the mark initially, and has dropped still farther over time given the failure of the fee rate to keep up with inflation.

56 For example, one of the concessions made by the Office of Environmental Protection in the negotiating process was to reduce discharge fees for the energy sector. Although it was reasoned that added costs to the energy sector would mean price increases throughout the economy, an equally important reason was the strong power position this sector has held within the heavy–industry–dominated Chinese socialist economy. Interviews 13, spring 1991 and 19, summer 1991.

57 Interview 104, spring 1992.

58 Ibid.

59 Interview 58, autumn 1991. Although the total amount of discharge fees paid by a firm ranges widely – because of differences in variables such as industry type, location, technology and size – it is nevertheless possible to estimate an average fee. In the early 1990s, approximately 200,000 enterprises have paid fees every year, of which 40,000 to 50,000 were town–and–village enterprises. In 1991, approximately 2 billion yuan in discharge fees were collected throughout the nation. Interview 107,spring 1992. This averaged out to 10,000 yuan a year per firm, or just over 833 yuan a month. In reality, though, most firms paid considerably less since a few types of industries, such as paper mills, pay considerably more than the average. An official in a paper mill in a water–scarce region noted that prior to undertaking pollution prevention measures, his companys discharge fee rate was 21,000 yuan a month. Interview 50, autumn 1991.

60 Interviews 8, spring 1991; 107, spring 1992; and 203, May 1995.

61 Article 8 of the Regulations stipulates that state–owned firms account for discharge fees by adding them to their before–tax expenses. As a result, an interesting phenomenon has developed in which certain firms happily use discharge fee payments to reduce their tax burden. Some firms even favour increasing fees so as to further cut tax payments. Interview 99, autumn 1991. Prior to the introduction of the bogaidai system, a greater number of firms viewed discharge fee payments favourably because they felt virtually assured that the majority of fee instalments would be returned to them and, moreover, that in its returned form, as funds for technology upgrading, it would be tax–exempt. Though the bogaidai system eradicated the inevitable return of this money, firms which have financial gains to be made from adopting pollution control technology (such as steel or paper mills which can use technology to recapture wastes for reuse), continue to favour the fee system and use it to their advantage. Interview 203, May 1995.

62 NEPAs concern with the deteriorating quality of Chinas environment and with the inability of its discharge fee system to address this problem has led it to take action. Since 1994, NEPA has collaborated with American economists and the World Bank to revise the fee system. Additionally, it formally enacted a permit system as national policy, requiring all cities to implement it by early 1992. Reports from both EPB officials and scholars, however, suggest that the permit system has been difficult to implement. Moreover, as of 1995, no change in the discharge fee policy had yet been approved, let alone implemented. Interviews 203, May 1995 and 207, May 1995; and Xiaoyin Ma, Controlling industrial water pollution in China: compliance behavior of enterprises, paper presented at the Council on Foreign Relations China and the Environment Update Series, New York, 22 May 1995.

63 The finance earning goal of the discharge fee system is not unique to China. With the exception of Germany, the principal goal of most effluent charge systems in OECD countries is to raise revenue.

64 Interview 107, spring 1992.

65 Wildavsky, Aaron, The Politics of the Budgetary Process (Boston: Little, Brown, 1984).

66 This fits well with Cyert and Marchs findings that organizations seek to avoid uncertainty through negotiated environments and, to do so, they emphasize plans in this case, fee collection goals when plans can be self affirming. Cyert, Richard M. and March, James G., A Behavioral Theory of the Firm (Englewood Cliffs, NJ: Prentice–Hall, 1963).

67 Interview 33, autumn 1991.

68 The financial reward was that 8% of the above target earnings could be retained as bonuses for EPB workers.

69 Interview 58, autumn 1991

70 Ibid.

71 Ibid.

72 Interview 21, summer 1991.

73 As noted above, many county and township EPBs have been reduced from first–tier to second–tier organizations and, with this change in status, suffered a reduction in personnel. At the central level, the 1994 administrative reform meant a loss of 24 people – from 280 to 256 – for NEPA. Interview 203, May 1995.

74 Selznick, Phillip, TWA and the Grass Roots (Berkeley: University of California Press: 1949).

75 March and Olsen, Ambiguity and Choice, p. 50.

76 Ibid.

77 Interview 34, autumn 1991.

78 Interview 104, spring 1992.

79 As of 1991, some county EPBs relied almost entirely on discharge fee money for staffing their offices. The importance of this was made clear when an EPB official in Wuhan painted out that Wuchang county has done the best job of county EPBs in the Wuhan region in dealing with town–and–country enterprises. It has been able to do this because it has a large aaff– 40–50 people – and it is only able to have this because it has used its discharge fees to support this, since its personnel allotment {bianzhi) is not enough. Interview 67, autumn 1991.

80 Each of these results, in turn, has a multiplier effect on other aspects of environmental policy: hiring additional personnel for discharge fee collection frees other officials to concentrate on environmental macro–planning projects, environmental impact assessments and information gathering on pollution prevention technology; more thorough and precise environmental monitoring provides the scientific basis upon which to determine future environmentally benign locations for economic development, to prioritize clean–up projects, and to advise and manage better the pollution problems of individual firms; education projects broaden environmental awareness, potentially changing peoples attitudes toward compliance with environmental policy and thereby facilitating enforcement; and funds for NEPA have translated into extensive progress to test and recommend best available technologies for local EPBs, train local environmental cadres, and provide education information to the environmental protection apparatus nation–wide.

81 Of the 11.1 billion yuan collected in discharge fees between 1979 and 1991, as of early 1992, 6.5 billion yuan were claimed to have been used for pollution control equipment. Interview 107, spring 1992. Of the 2.66 billion yuan collected in 1993, according to NEPA officials, 1.91 billion yuan were used for the treatment of pollution problems in factories (1.21 billion yuan) and for regional comprehensive prevention and control of pollution (70 million yuan). China Environmental Yearbook 1994, p. 124. Of course some scepticism must be reserved about the actual figures provided since, as noted above, pollution control funds returned to factories have not always been used for the purposes stipulated.

82 China Environmental Yearbook 1994, pp. 436 and 438.

83 Interview 107, spring 1992.

84 Interview 113, summer 1992.

85 Interview 203, May 1995.

86 Ibid.

87 Ibid.

88 Government organs, such as the EPB, can still empower the banks to collect fees for them, but if an enterprise opposes these efforts the issue now has to be settled in court.

89 Interview 107, spring 1992.

* Research for this article is based on interviews conducted by the author in 1991, 1992 and 1995 with central government officials in Beijing and local authorities in the cities of Anyang, Wuhan and Xuzhou and their surrounding counties. Case study cities were selected to be representative of typical medium and large industrializing cities throughout China, including those that have abundant water resources and those that suffer from water shortage. Research for the article was supported by a grant from the Committee on Scholarly Communications with the Peoples Republic of China and funded by the United States Information Agency. An earlier version of the article was presented at the 46th Annual Meeting of the Association for Asian Studies in Boston, Massachusetts, 24–27 March 1994. The author wishes to thank Thomas Lutze and Melanie Manion for their extensive comments

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