A June 2000 report from U.S. Embassy Beijing
With the deadline for meeting national emissions and air and water quality standards just over six months away, Chinese cities are having varying degrees of success in achieving the targets. In Northeast China’s Shenyang, for example, pollution control is tied up in the Gordion knot of state enterprise reform and the rustbelt economy. Air quality has improved primarily because large numbers of mostly small, highly polluting factories have shut down. To meet the targets, authorities will have to close more and larger pollution sources, potentially throwing tens of thousands out of work and risking social unrest. Meanwhile, in the more economically dynamic coastal city of Dalian, just over 400 kilometers away, city officials have employed plant relocations, technological upgrades, infrastructure investments and urban planning to meet the targets a year ahead of schedule -- the first and only city in Northeast China to do so. These two cases indicate that, far from worsening China’s environment, foreign trade and investment, and the technology and economic dynamism they bring, may actually provide the key to improving it.
Officers from the U.S. Embassy in Beijing and from the U.S. Consulate in Shenyang recently called on environmental officials in Northeast China’s Liaoning Province to investigate the environmental situation and progress in meeting nationally mandated standards. They visited the provincial and municipal environmental protection bureaus (EPBs) in Shenyang and the municipal EPBs in Dalian and Benxi. Benxi is preparing to implement a pilot emissions trading system that is the subject of a separate report on this web page. Liaoning (population 69 million), together with neighboring Jilin and Heilongjiang provinces, is the traditional center of China’s heavy industry. It is home to scores of huge, obsolete, financially weak, highly polluting state-owned enterprises, many of them remnants not just of the Maoist central planning era but of the Japanese occupation of 1931-45. Reforming these behemoths while maintaining social peace has been a major preoccupation in recent years.
Background: The “Two Targets” Policy
Pursuant to a 1996 decision of the PRC State Council, all industrial enterprises in China are to meet emissions standards determined by the State Environmental Protection Administration (SEPA) by the end of this year or be closed down. At the same time, provincial capitals, directly administered cities (Tianjin, Beijing, Shanghai and Chongqing), “open” coastal cities, special economic zones (SEZs) and key tourist cities are to meet national standards for ambient air and surface water quality. This has become known as the “meet two targets at one stroke” (yi kong shuang da biao) policy.
As of the end of April, according to SEPA, 85 percent of the country’s 234,000 industrial enterprises had met the emissions standards, up from 81 percent at the end of 1999. Of 18,000 key enterprises accounting for more than 65 percent of total emissions, just under three-quarters had met the standards, up from 69 percent. Of the 47 key cities, 16 had met the air quality standards and 29 the water quality standards by the end of last year. About a dozen cities, including Dalian, have been certified by SEPA as meeting both targets — ambient air and water standards achieved and all enterprises within their jurisdictions meet emissions standards. Most of these are Southern coastal cities and SEZs.
Performance differed significantly across regions. In the East, more than 90 percent of all enterprises and 84 percent of key enterprises were found to be in compliance in the April audit. In the West just 64 percent of total enterprises and less than half of key enterprises were in compliance. In Liaoning 77 percent of the 1,106 key enterprises have met the standards, according to the provincial EPB.
Shenyang: Its the (State Owned) Economy, Stupid!
The director of the Shenyang EPB rolled the number of days remaining until the two targets deadline — 210 — off the top of his head like he would his phone number. He said some factories and offices had posted countdown clocks like those that were popularized in recent years for the return of Hong Kong and Macao to PRC control.
In 1988 Shenyang was identified by the World Health Organization as one of the 10 most polluted cities in the world. The city burns about 11 million tons of coal a year for both industrial purposes and domestic heating and cooking. Sulfur dioxide (SO2) and particulate pollution are therefore especially severe. There are hundreds of metallurgical, chemical, paper, automotive and other industrial plants in and around the city. The Liaohe river, which runs through Shenyang, is one of the most polluted in China, with pollutant concentrations regularly registering off the scale of China’s water quality index. Many, mostly smaller, factories have closed in recent years with the national shift to a market-based economy, creating unemployment and concerns about social stability. A modern info-tech economy is beginning to emerge. But the landscape is still dotted with idle smokestacks, rusting metal and crumbling brick buildings.
The municipal EPB is concentrating its efforts on 348 problem enterprises, of which the director said roughly 80 percent were on pace to meet the emissions standards by year end. Many of the remaining 20 percent are large employers, and about a quarter of them are considered hopeless. Most of these no-hope cases are already making plans to shut down or go into other product lines, he said. But some are presenting major political headaches. EPB officials cited one case where they had applied four years ago to close a large, high-polluting plant but had not yet received final approval from the State Council.
Throughout Liaoning province, more than 700 factories have been closed in the last two years at least in part for environmental reasons, according to the provincial EPB. Most of these have been smaller plants. However, with the deadline approaching, the provincial EPB officials acknowledged that huge enterprises such as Anshan Iron and Steel (Angang), which has 220,000 employees, and Benxi Iron and Steel (Bengang) have little chance of meeting the standards. Closing down such huge establishments would obviously create major social problems that the region’s political leaders would probably prefer not to deal with.
The central government actively advocates the closure of small, obsolete, highly polluting power plants, paper mills, cement plants, etc., for economic as well as environmental reasons (the so-called “15 smalls” campaign). But there is much less willingness to close down equally polluting large SOEs. The data above showed that the percentage of large firms that have met the standards is disproportionately low. Statistics further show that proportionately more small polluting enterprises are ordered closed. According to SEPA, the total number of enterprises emitting above the standards fell by 2,194 between the end of February and the end of April. Of these, half were removed from the list because they had closed and half because they reduced their emissions. For large, “key” enterprises the closure ratio was significantly lower. Of 252 moved out of the non-compliance column, just 83 — less than a third — had been closed.
Shenyang’s air quality has improved somewhat in recent years. The mayor recently boasted to a visiting U.S. Department of Energy delegation that Shenyang was taken off the global top-10 list in 1998 (it was not included in a World Resources Institute report on urban air quality published that year) and was ranked 12th best among China’s 47 key cities by SEPA in 1999. The city EPB director said overall pollution, considered “heavy” in the late ‘80s according to national standards, was now moderate to light. Plant closures are undoubtedly responsible for much of the improvement. But the city has taken some more proactive measures as well:
Table: Average Pollution Levels in 1999
(micrograms per cubic meter)
|
|
|
|
|
| Shenyang |
|
|
|
| Dalian |
|
|
|
| China (II) standard |
|
|
|
| WHO standard |
|
|
|
*: The WHO standard is for NO2 , a subset of NOx.
Source: SEPA, Dalian EPB website, Shenyang Environmental Protection Industry Network (website)
Note: SEPA recently replaced its TSP and NOx (nitrogen oxides) standards with PM-10 (breathable particulates) and NO2 standards; but for purposes of the “two targets” campaign it is still applying the older standards.
Dalian: From Treaty Port to Model Eco-City
Dalian, like Shenyang, is historically a heavy industrial city. But it has been more open over the years to foreign trade and investment. Port Arthur (now Lushun), the treaty port fought over by Russian and Japanese imperialists a century ago, lies within Dalian Municipality. In 1985, under Deng Xiaoping’s reform and opening policy, Dalian was designated a special economic zone (the only one in the Northeast) with liberalized trade and investment policies to encourage the growth of export industries. By the end of 1998, more than 7,500 foreign firms had contracted to invest nearly US$16 billion in the city, according to the city’s 1999 investment guide. Economic growth has been well above the national average, running at around 12 percent annually in recent years. While manufacturing remains important, the mix has shifted more toward lighter industries, and service sector growth has been especially strong.
Dalian has invested part of the wealth generated from its boom economy in environmental improvements. About 70 percent of the city’s sewage is treated — more than twice the average for Chinese cities. Individual home heating stoves have been completely eliminated. Cogenerated steam from large power plants now provides 46 percent of residential heat; the rest comes from smaller district-level boilers. Ninety-eight percent of homes have piped coal gas for cooking and water heating. Vehicle emissions have been kept down through large investments in roads and traffic management to reduce congestion. Cars must pass annual emissions inspections. Police also use roadside apparatus to monitor emissions of passing vehicles. First-time violators are fined. Plates are confiscated for a second infraction. Our guide from the city trade promotion office claimed he had personally been cited once.
Strict zoning ordinances have required most polluting factories to move outside the city limits. Thanks to appreciating real estate values, many enterprises were able to finance their relocations, as well as technological upgrades, by leasing the land they formerly occupied. Foreign joint-venture partners often provided environmental technologies. In some cases the city bought the land and turned it into parks. Green space now covers 40 percent of the central city, and Dalian was designated one of 10 Chinese “garden cities” in 1998. Comparatively few enterprises had to be closed. According to a January article in SEPA’s China Environment News (Zhongguo Huanjing Bao) announcing Dalian’s fulfillment of the two targets, of 519 plants initially emitting above the standards, 385 complied by reducing emissions, 44 closed for unrelated reasons, relocated or restructured and 90 were ordered to shut down.
To some extent, Dalian officials have just relocated and dissipated pollution by moving plants from the city center to the suburbs. In fact, Jinzhou, a township just beyond the city limits where many factories have been moved, has the same grey, dreary appearance as other industrial areas of Liaoning. But city officials claim that environmental controls were upgraded when the factories moved and that air quality in these suburban areas meet national standards. Since it was foggy and overcast the day an Embassy officer visited the area, it was hard to verify this claim. But there was no overpowering smell. A liquid waste containment area was covered by an unattractive yellow sludge. But gravel and earth barriers appeared to be preventing seepage into neighboring water bodies. An adjacent waste dump had already been treated and capped with earth. In the foreign investment zone beyond Jinzhou, light industry prevailed and air quality (despite the fog) appeared relatively good by Chinese standards.
In 1997, Dalian was designated as one of five Chinese “model environmental cities.” The others were all recently developed Southern coastal SEZs (Shenzhen, Zhuhai, Xiamen and Shantou). There are now 13 model cities, and Dalian is still the only one in the Northeast (four are in Shandong province, the rest are all south of the Yangtze). The local EPB director said Dalian received the highest rating among the 47 key cities last year in a comprehensive evaluation by the National Environment Committee, based on 36 criteria. Average concentrations of the four key pollutants (SO2, TSP, carbon monoxide and nitrogen oxides) in 1999 all met national level II (fair) air quality standards.
Dalian has now set a goal to achieve the environmental quality of a middle income country (e.g. Spain) by 2002. But progress has not come cheap. The local EPB estimates environmental investments totaled 2.7 percent of the city’s GDP in 1999. The national average was 1 percent, according to SEPA.
Comment: Trade And The Environment
It is commonly assumed that China’s opening to the outside world after 1979, and the rapid economic growth that ensued, led to serious environmental damage, and environmental conditions clearly worsened during the 1980s and early ‘90s. But of the two cases studied here, Dalian much more clearly embodies the post-Mao economic reforms, and its environmental record is clearly superior. Perhaps it is no coincidence that coastal SEZs, like Dalian, predominate among the cities that have achieved the national environmental targets. Soviet-style planning tends to bias economic activity toward high-polluting, capital-intensive heavy industries. Those areas of China that liberalized first and had more exposure to international markets naturally gravitated toward more labor-intensive industries and services. Also, their more dynamic economies generated wealth that could be invested in the sorts of environmental improvements their increasingly prosperous residents demanded. Foreign investors were able to provide the necessary technology. In more economically backward areas, on the other hand, insolvent SOEs cannot afford to upgrade their environmental controls, and local officials cannot afford to let them all go out of business. It should come as no surprise, then, that most Chinese environmentalists we talk to see China’s entry into the WTO as good news.
The above analysis also indicates that the all or nothing gambit of the “two targets” policy, while it provided a useful sense of urgency and produced some environmental improvements, has run its course. Some cities (perhaps half) will achieve the targets, but what to do with those that do not? It is clear that some enterprises are considered “too big to fail.” The enterprises themselves must know that, and they therefore have little incentive under the current policy to reduce their pollution (emissions levies, where imposed, are typically less than the cost of abatement, and local authorities frequently find ways to compensate major employers who have fines assessed against them). SEPA has indicated that its vision for the next phase is to move to control the total volume of pollutants rather than the concentration of pollutants from particular sources or in particular localities. Polluters will be charged based on the volume of their emissions, giving them an economic incentive to make incremental reductions. These principles are embedded in the new air pollution control law that will enter into force September 1.