Page 2 of 2 SPEAKING
FREELY From growth to 'quality of
growth' By Huw McKay
system entered the rhetoric
prominently this week. Practically, though, it is
difficult for the administration to make fixed
welfare commitments when the long-run demographics
are so clearly unfavorable. The unknown scale of
unfunded pension liabilities (unknown except that
it is large) increases the complexity of the
welfare issue.
Complicating the issue
further is the "harmonious society"
doctrine. China has a very
unequal distribution of income. Enhanced welfare
and better infrastructure for the central and
western provinces are clearly desirable goals.
Three-fifths of China's 1.3 billion population
still dwell in rural areas. Any ongoing commitment
to this group involves gargantuan obligations that
may not be fiscally sustainable.
The
environmental element of the quality-growth
equation is perhaps even more daunting. China
houses 21% of the world's people. Keep that ratio
in mind. To provide its people with their current
living standard, China has the following resources
to call on: 7% of the world's freshwater reserves,
11% of the world's primary energy supply, 7% of
the world's arable land, 6% of the world's roads
and 2% of the world's passenger cars. China also
produces 14% of world's carbon-dioxide emissions.
The only way to avoid the logic of this
arithmetic is to achieve a rapid leap up the
energy-efficiency curve. The official targets for
improved energy efficiency, reaffirmed at the NPC,
are highly ambitious. Highlighting the
difficulties, the interim target for 2006 was
missed by a large margin. The strong price signal
that would encourage energy savings sits uneasily
with the harmonious-society doctrine.
The
"environmental Kuznets curve" is a well-known
theoretical construct. This curve is an
upside-down "U" shape in income per capita and
energy per output unit space. Research shows that
the Chinese experience accords with the basic
tenets of the theory. It also shows that China is
still some way from the perceived turning point of
the parabola. In other words, it is on the left of
the curve, at a level of development when energy
use per unit of output is intensifying.
This "developmental gravity" highlights
the difficulty of increasing energy efficiency at
this moment. Indeed, China might rationally argue
that it needs to pollute more now to pollute less
in the future - or, more correctly, keep expanding
income per capita rapidly to get to the emissions
turning point faster.
To China's credit,
efforts are being made to clamp down on overtly
polluting activities such as small-scale
coal-based generation and ferrous-metals
processing. Yet Beijing's ability to conduct such
matters centrally is questionable, with provincial
officials seemingly mired deep in a "quantum
growth" mindset.
The incentives of these
officials must be altered. The FDI targets can
remain, but the energy efficiency and technical
sophistication of future projects must be assessed
more rigorously. Illegal land use must also be
reduced. Turning farmland into development sites
has the twin effects of reducing the available
arable area and adding to the emission problem and
general energy and resource intensity of the
economy.
The huge number of registered
protests in recent years stem largely from
complaints about land use, mainly illegal seizures
of farm tenancies for industrial use or
construction. Provincial and local officials must
end their policy of complicity with the
developers, and start enforcing central policy in
this matter. Researchers argue that between 60%
and 90% of land use currently violates the word of
the Land Law. Reform of the transfer system for
land rights and a concerted approach to legal
enforcement, would follow the "harmonious society"
doctrine in both word and deed.
In sum,
the emphasis on the quality of growth at the
policy summit is highly appropriate. Matching the
rhetoric to achievement is another matter
entirely.
Huw McKay is senior
international economist at the Westpac Bank based
in Sydney, Australia.
(Copyright 2007
Huw McKay.)
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