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Greater China

Mar 16, 2005

Wrangle over green GDP
By Yan Hua

With its annual gross domestic product (GDP) growing by a breakneck 8% on average in the past 25 years, China has emerged as the picture of economic wonder. But its prosperity has come at a heavy cost to its ecology and natural resources. Alarmed by the warnings of green doomsdayers, the government now seems to have finally woken up to the problem, setting in motion a total turnaround from "black development" to the "green development" model.

State Environmental Protection Administration (SEPA) Vice President Pan Yue told a press conference on February 28 that SEPA and the National Bureau of Statistics would enforce a pilot green GDP accounting system in 10 provinces and municipalities in Beijing, Tianjin and Hebei. This would mark China's first step to evaluate the tremendous cost of environmental pollution in the course of its breathtaking economic progress.

Green GDP is the balance after the imputed environmental cost and environmental resource protection expenditure are deducted from GDP, highlighting the interaction between the environment and the economy. The lower the environmental cost and the higher the proportion of green GDP to conventional GDP, the more wholesome the economic growth. Conventional GDP accounting as an indicator of economic performance fails to factor in the resultant impact on ecology. This oversight threatens sustained economic growth and leads to environmental degradation as economic development gathers pace.

But the move has come under criticism from some quarters within China's Communist Party and the government for its supposed lack of practicability. In an interview with xinhuanet.com, National Bureau of Statistics (NBS) spokesman Zheng Jingping admitted, "as for the green GDP project, the concept is good but the practice will be difficult". He acknowledged that "the idea of green GDP indicates that the social awareness of environmental protection and resource conservation has been awakened", but warned that "the public has pinned too much expectation on the system".

Skeptics already smell a subtle divergence between the SEPA and the NBS over the effects of the new accounting system. SEPA's Pan, a 45-year-old bureaucrat, held important positions in China Youth Daily, the state-owned Asset Administration Bureau, and the Administration of Quality and Technology Supervision before he was shunted to SEPA in 2003. He is a son-in-law of Liu Huaqing, former vice chairman of the Central Military Commission of the Communist Party, and his parents have known Jiang Zemin for decades.

According to Pan, the 10 provinces and municipalities where the green GDP program is being put on a trial-run will develop an environmental economic accounting system, examine and assess the economic losses caused by atmosphere, water and solid waste pollution as well as other pollutants. They will also survey the environmental protection expenses of business and government enterprises as well as their expenditures on environmental conservation to confirm the necessary anti-pollution cost. Recently, it was reported that the green GDP indicator could be listed as a yardstick to measure the performance of officials and party cadres in 2007. In other words, the score of a local official by then would depend on how many resources have been consumed and how many pollutants were discharged vis-a-vis the GDP growth attained.

As the current assessment standard for governmental performance mainly focuses on GDP growth, local-level authorities are inclined to disregard the environmental safeguards to jockey for credit and promotion. The NBS is joining hands with the SEPA and the State Forestry Administration on green GDP research, Zheng Jingping told China Business News. "We should realize that putting green GDP into practice is a knotty process, so is determining a suitable definition," he said. There are technical hurdles to set up a method of calculating green GDP, which deducts from the conventional GDP the costs of resource depletion, pollution, and other environmental damage caused by economic development. According to Zheng, it sounds like mission impossible to price the costs of pollution and resource depletion as these may change with time and vary between regions.

Zheng's opinion has been echoed among some environment experts. They point out that Beijing, while continuing to perfect its laws on environmental conservation and its statistics-reporting regime, should keep in mind what handicaps it will confront with green GDP evaluation as there are few mature, established formulas to follow from other countries.

Zheng told xinhuanet.com that green GDP is hardly the best prescription for sustained growth. To illustrate his theory, he cited an example of a village over-exploiting adjacent sulfur mines, leading to heavy pollution. "When there are available reports of the increasing number of lung cancer patients and climbing birth rate of deformed babies, the green GDP is a meaningless indication of environmental deterioration. Green GDP hardly gives us the whole picture and does not hold the key to environment protection."

While Zheng maintained that this was merely his personal opinion, some translated the remark as a prelude to a war of words over green GDP between the NBS and the SEPA. Stepping into 2005, the SEPA has halted over 30 projects throughout the nation involving 118 billion yuan (US$21.7 billion), citing violations of the Law on Environmental Impact Assessment. Construction of these suspended projects started before their environmental impact assessment reports were approved, a blatant breach of law. With this high-profile move, the administration is understood to have shown its determination to check the general disregard for environmental impact assessment when designing projects. None other than Chinese Premier Wen Jiabao threw his weight behind the initiative.

But some observers weren't too impressed. They wondered if the state would be able to maintain its newfound love for nature, pointing out that the blacklisted projects were not so important after all. Some even doubted whether the SEPA would be able to withstand the resultant backlash. SEPA, with ministerial authority, is empowered by the law to suspend such projects, but it is beyond its purview to butt in on the business of the entities on a par with itself. In many cases, local environment departments - on the payrolls of local governments - have to bend to their employers' will of attracting investment at the expense of environmental damage. SEPA may not be able to do anything about it.

Besides, the law serves more as an exemplary warning than anything. It stipulates that the penalty can reach 200,000 yuan, a drop in the bucket for these multi-billion-yuan projects. Experts are pressing for greater power for regulators, as they fear the laws will have no teeth otherwise.

Many Chinese officials who advocate scientific management have been skeptical of the feasibility of tying in the green GDP factor with local officials' efficiency assessment, instead of with traditional GDP growth. The idea, in any case, is not likely to be put into practice any time soon as the wrangle persists over whether green GDP is the best insurance against environmental degradation.

Pan, the pioneer of this campaign, has had a history of failing to get his way with the political establishment. When working as the deputy head of the State Council Office of Economic Structural Reform in 2001, he handed in a lengthy proposal of political reform to the then Chinese president Jiang Zemin suggesting that the Communist Party evolve from a revolutionary party into a ruling regime. Jiang was so impressed that he distributed it among Politburo members. But one month later, his report was abandoned and his outspokenness criticized, probably a result of the fierce power struggle between Jiang and his rivals. When Jiang retired in 2003, Pan was transferred to the current post, far away from the political nucleus. Will history repeat itself? China's environment hangs on that question.

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