Opinion, Berkeley Blogs

On life economics and the environment in China

By David Zilberman

Earlier this month, I had the pleasure of participating in the second Chinese Environmental Economics workshop in Shanghai. Professor Jinhua Zhao of Michigan State and Shanghai University, one of the best PhD students I have ever advised, organized the workshop in Shanghai.

The conference facilities were modern and impressive and most of our Berkeley facilities seemed obsolete in comparison. We had about 50 participants who were very serious and attentive. I felt an implicit social pressure to attend all of the sessions, which is unlike many workshops in the U.S., where participants may wander in and out of sessions.

The presentations are in English, and I think that the quality of the English of the Chinese speakers tends to improve the younger they are. One reason is the increased exposure to TV and the Web in recent years. The presentations and conversations with the participants and journalists were very valuable both in informing me on the environmental economics and policy in China, and on life and attitudes there.

The attitudes of many of the Chinese towards their nation and life reminded me of the attitudes I witnessed in Israel where I grew up. In both cases, people have a sense of national purpose, and both pride in recent achievements and modesty because of the apparent deficiencies. It seemed that people thought, “We are part of a great nation which has been humiliated for years. During the last few years we have made an incredible progress but we are still behind, and need to catch up, but we will be ahead one day."

I was reminded that China was the world most advanced nation until 600 years ago, but now it is on the comeback trail. The Chinese people cannot wait when few years from now China will have the largest Gross National Product (GNP) in the world. But they are also aware that they will still be behind as long as GNP per capita trails the U.S. and Europe significantly. The new skyline of Shanghai, anchored around the magnificent Shanghai Pearl tower, seen here during the day and at night, is an apparent indicator of success and source of pride.

The Shanghai Pearl Tower

My student guide around the city
My student guide around the city

The urban life is Shanghai is much less glamorous than these pictures may portray. About 28 million people live in the city and the streets are very crowded. Smog is a constant even on good days, (the air quality though is much better than in Beijing) and people live in modest quarters in high rises, like Manhattan on steroids.

Smoggy skyline in daylight
Smoggy skyline in daylight

Bustling metropolis
Bustling metropolis

I learned that the Chinese are very serious in their intentions to solve environmental problems because air pollution makes breathing difficult and is killing millions. In many regions water quality is terrible and aquifers are disappearing, and many environmental and cultural treasures were lost in the race towards improving material well-being.

Congestion, GHG, air quality

The conference participants seemed to believe that they could have an impact on policy making.  The Chinese government has introduced regulations that aim to reduce congestion, green house gas emissions and especially improve air quality.

One concrete concern was about congestion. Every year, 19 million new cars are sold in China, new roads are being built, and more people are waiting for their turn at the wheel. Yet traffic jams and air pollution are afflictions associated with these developments and policymakers need to find a way to balance material well being with environmental quality protection.

China may use either auctions or lotteries to allocate car licenses, which will slow the large-scale adoption of cars, not prevent it. In China there are perhaps 80 cars per 1000 people, while in the U.S. and Western Europe 500-800 cars per 1000 — and this wide gap will be bridged.

The negative side effect of expansion of the car fleet can be reduced by effective policy design, which is a major priority item in the research agenda of transportation and environmental economists in China. Parts of China have already developed effective public transportation.

I was very impressed by the advanced subway system of Shanghai (especially in retrospect; when I returned to the U.S., the escalator in the L.A. Airport looked antiquated and did not even function), but much more is needed to address the growing demand for transportation.

I felt that climate change was not a major environmental policy priority in China. The main attention is given to the immediate air pollution, congestion and water availability and quality problems. I mentioned it to a participant and he was not surprised.

China does not perceive itself to be a big loser from climate change. Some regions may gain from warmer climate and others will lose, but the aggregate effect is perceived to be small. I mentioned to this individual that the differential regional impacts may cause significant hardships, conflicts and relocations — and he agreed, but suggested that the Chinese politicians and public are more concerned about the serious short-term environmental problems and they will be addressed first.

There is growing awareness and concern about the intensive use of coal and a desire to reduce it, which will address both climate change and air pollution concerns. One avenue is to take advantage of the vast natural gas reserves in Western China, which are the largest in the world. But this effort is not without its drawbacks.Natural gas emits half as many greenhouse gas emissions per unit of energy as coal, which is an improvement but still significant. Its use will require a large investment in pipelines and the use of fracking,even with all of its limitations. Thus while natural gas can improve air quality and reduce green house gas emissions, emphasis should be given to technologies and incentives for their development and adoption, which will conserve energy and increase its efficiency.

The Chinese I met have emphasized that some of the main challenges facing China will be dealing with growing population and building a more effective social-welfare net. For this to happen the state has to increase its revenue. Relative to GNP, tax earnings in China (around 11%) are much lower than in the West (27% in the U.S., 36% in the EU), and that limits the capacity to support the elderly and upgrade health and welfare services. The challenge is to find effective tax sources. This may bode well for the environment, and some Chinese economists envision that a carbon tax and other pollution and sin taxes may serve as source of income for the government.  I am curious whether, and to what extent, this will happen.

Reducing corruption

Another policy priority in the short run seems to be reduced corruption.

While China has a strong central government and the party’s presence and eyes are felt everywhere (but not discussed much), the government is not strong enough to prevent the widespread corruption which, like the weather, everyone complains about and no one can control. Perhaps bribes and side payments are mechanisms by which people in power are taking advantage of their positions, while society as a whole pays a price.

I understand that there is an ongoing campaign to reduce corruption and it is manifested in emphasizing frugality in public events. For example, the traditional lavish banquets celebrating Chinese New year in state-owned enterprises were eliminated. Perhaps as a result, the food offered in our conference — which included frequent, alcohol-rich, banquets — was decent but not as spectacular as the food and drinks offered in my previous visit to Beijing and Western China.

One strength of the Chinese system is the relative emphasis on merit in school and business. To a large extent people are promoted based on performance, in exams or in office. That leads to dedication to learning, and the Chinese PhD students I met reminded me of Jewish religious scholars in their 24/7 dedication to study to the exclusion of anything else. I actually told some students that for social scientists, experiencing life (e.g, visiting a museum, a new location, or having a relationship) should not be considered “wasting time” but rather “applied research”.

It was also suggested that the internal competition between bureaucrats may lead to cheating, as they want to be promoted and thus may cheat to look good and rise to the top, and amazingly new methods were presented in the conference, to quantify and detect such cheating. It was also emphasized that the bureaucratic competition is a barrier to regional cooperation and reduces the creation of public goods, and designing incentives and policies to overcome the negative side effect of this competitiveness is a major research and policy challenge. While I realize the high price China pays for the competition in schools and government service, the emphasis on merit is a major contributor to its recent successes.

Amidst beautiful gardens
Amidst beautiful gardens

While much of the trip was dedicated to modern China, I spent the last day touring some of the treasures of the past, treasures that seem to disappear. Balancing economic growth and preservation seems to be the major challenge facing China today.