China, Rare Earths and Technological Edge

Introduction

By Jurii (http://images-of-elements.com/praseodymium.php) [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

Praseodymium, one of the light rare earth elements

A sign at the entrance of China’s Baotou, Inner Mongolia Pioneering Rare Earth Hi-Tech Zone quotes Deng Xiaoping’s 1992 claim: “There is oil in the Middle East, but there is rare earth in China.” The rare earth elements (REE) are a group of 17 chemically similar metallic elements occurring in the Earth’s crust that are becoming increasingly integral to the production of products ranging from smart phones and LED light bulbs to wind turbines and cruise missiles. Since the 1980s, REE mining and processing has increasingly moved to China. Due to factors such as cheaper labor and less stringent environmental regulations, China has been able to produce the elements at two-thirds the cost of non-Chinese producers. As a result, it now produces over 90% of the world’s REEs. China has also been moving from a supplier of unfinished REEs to a manufacturer of high-end REE products and it believes that mastering high-end REE technology will not only help ensure its safety given REE’s many defense applications, but could also allow it to leapfrog the US and other countries in the production, for instance, of green technologies.

China’s monopoly of REEs came to a head in 2008 when it began restricting the amount of unfinished REEs that it exported while increasing REE export taxes and removing REE VAT rebates. International concern was further increased in 2010 when China was believed to have implemented an unofficial REE export embargo against Japan for two months and the US and the EU for two weeks. A 2012 WTO complaint filed against China by the US, the EU and Japan claimed that the effect of these policies has meant that non-Chinese producers of REE products pay 31% more for their REEs than their Chinese competitors. The US, the EU and Japan also say that Chinese practices are placing pressure on foreign manufacturers to relocate their operations to China in order to minimize the impacts of rising costs and shrinking supplies, as China does not restrict or tax the export of REEs in manufactured products. China counters that its policies are necessary to improve the real environmental degradation that its lax standards have caused and to conserve its finite REE resources.

Rare Earth Elements and the History of their Development

The REEs are a group of 17 chemically similar metallic elements including the 15 lanthanides as well as scandium and yttrium. Scandium and yttrium are grouped with the rare earths as they share similar chemical and physical properties. Despite their name, the REEs– with the exception of the radioactive promethium which is currently synthesized in labs – are quite abundant in the Earth’s crust, although their crustal abundance varies significantly from place to place. The “rare” earth name comes instead from the rarity of the minerals from which they were originally derived. It also comes from the fact that the elements are rarely found in concentrations that are viable to mine.

The REEs are broadly divided into light rare earth elements (LREE) – lanthanum, cerium, praseodymium, neodymium, and samarium (atomic numbers 57-62 on the periodic table)  and heavy rare earth elements (HREE) – gadolinium,  promethium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium (atomic numbers 64-71). Scandium (atomic number 21) and yttrium (atomic number 39) are usually grouped with the LREEs. This division is somewhat random; sometimes the REEs are divided between light, middle and heavy. LREEs are more abundant than HREEs.

Although approximately 200 minerals are known to contain REEs, most REEs are mined from the minerals bastnaesite, monazite and xenotime. While these minerals usually contain the full range of the elements, either LREEs or HREEs tend to dominate one mineral or the other. For instance, bastnaesite, the most commercially productive source for REEs, tends to house a high percentage of LREEs and a small percentage of HREEs. Monazite, the second most common mineral used as a rare earth ore, also contains more LREEs than HREEs, although it typically has a higher concentration of HREEs than bastnaesite.  Xenotime, the third most important rare earth element ore, holds the highest ratios of HREEs. HREEs can also be found concentrated in some soils, absorbed in the form of ions. Bastnaesite, monazite and xenotime all contain traces of the radioactive elements thorium, although the amount varies between the minerals and between ore deposits. The presence of the radioactive element makes REE mining and waste management more difficult.

The first discovery of rare earth materials was made in the late 1800s in Sweden. Given that rare earths occur together and share similar chemical properties, it was a further 150 years until all the rare earth elements were isolated and identified. The last rare earth element to be discovered was the radioactive promethium which was found as a result of nuclear fission research carried out during World War II. In nature, promethium can only be found in trace amounts as it is highly unstable and has a half-life of 17.7 years.

Production of Rare Earth Elements

The periodic table

Until 1948, the majority of rare earths were produced in India and Brazil, followed by South Africa in the 1950s, and the Mountain Pass Mine in California from the 1960s to the 1980s. Since the 1980s, REE mining and processing, and the production of many REE products has moved to China. Between 1990 and 2000, for instance, China increased its REE production from 16,000 to 73,000 metric tons while non-Chinese producers saw their output decline from 44,000 tons to 16,000 tons. In 2009, China produced 129,000 tons while the output from all other countries dropped to 3,000 tons.

China now dominates the REE industry because it can produce REEs and REE products less expensively and with more purity than its competition. Its low cost production is the result of many factors including inexpensive labor, lower environmental standards and a REE industry which has historically been poorly regulated. It is estimated that China’s lower environmental standards have enabled it to produce rare earths at roughly a third the price of its international competitors. China has also made significant investments in REE mining and processing techniques which are now paying off in greater efficiencies. China also mines the majority of their REE as a by-product of their iron ore and other mineral mining, which also reduces their cost basis.

Where Global Rare Earth Resources are Found

The U.S. Geographical Society estimated that in 2008 China held approximately 57.7% of the world REE reserve, the Commonwealth of Independent States (which includes Russia and many former members of the Soviet Union) 13.6%, the US 9.1%, Australia 3.8%, Brazil 0.05%, India 0.84%, Malaysia 0.02% and other countries 14.9%. Additionally, the British journal Nature Geoscience reported scientists led by Yasuhiro Kato of the University of Tokyo, have found huge deposits of REEs in sea mud at 78 locations in international waters east and west of Hawaii, and east of Tahiti in French Polynesia. Japanese scientists have also identified REEs off island of Minamitorishima, an isolated Japanese coral atoll in the northwestern Pacific Ocean.

In China, REEs have been found in 21 of China’s provinces and Autonomous Regions: Fujian, Gansu, Guangdong, Guangxi, Guizhou, Hainan, Henan, Hubei, Hunan, Jiangxi, Jilin, Liaoning, Inner Mongolia, Qinghai, Shaanxi, Shandong, Shanxi, Sichuan, Xinjiang, Yunnan and Zhejiang. In general, China’s REE reserves are distributed in a light north, heavy south pattern. An estimated 75% to 90% of China’s REE output is in LREEs; 50% to -60% of its LREEs comes from its Banyan Obo mine in Inner Mongolia, and another 25% to 30% comes from mines in Sichuan Province. China’s remaining output is HREEs sourced primarily from its ion-adsorption clays located in the provinces of Fujian, Guangdong, Hunan and Jiangxi.Southern China’s ion-adsorption clays are currently one of the most important concentrations of heavy HREEs in the world. Importantly, these clays have extremely low levels of radioactive elements.

Mining and Processing of Rare Earth Elements

Most REEs are mined either by digging in open pits or in underground mines. The ore is then crushed, heated and treated with various chemicals in order to separate first the bastnaesite, monazite and xenotime, and then to separate the REE from the bastnaesite, monazite and xenotime. In order to ensure a high market value, REE needs to be of high purity. This is a difficult process because REEs share such similar chemical properties. Each REE has its own unique extraction steps and refinement processes, and often these elements need to be reprocessed in order to achieve the ideal purity. Once separated, the REEs are in the form of oxides which are then made into metals. It takes an average of 10 days to go from mining to the production of rare earth oxides. China currently leads the world in REE separation processing technology.  Chinese companies can produce REEs of 99.9999% purity compared with French companies at 99.99% purity and Japanese at 99.9% purity.

Outside of China, companies in the US, France, Russia and Japan can complete some of the refining steps, but only China has the industrial capacity to complete the entire REE refinement process for all the elements. Mining companies such as US Molycorp and Australian Lynas which extract REEs outside of China currently find it necessary for technological and economical  reasons to ship their minerals to China for processing despite their respective efforts to move further down the REE processing chain.

Separating REE from bastnaesite, monazite and xenotime is more difficult than separating REE from the ion-adsorption soils. In Southern China, most of its REEs are found in clay deposits. Not only is it easier to separate REEs from the clay compared with the hard minerals, but it is also usually easier to access the clays in the first place. The ion-adsorption clays are near the crust’s surface, and generally require little drilling or blasting to remove. China’s Jiangxi South Rare Earth Hi-Tech Company has reduced the costs of the clay processing further by pioneering in-situ mining. This method involves drilling holes directly in the clay deposits, pumping in ammonium sulphate or salt-based solutions which remove 90% of the REE from the clay and then collecting the resulting liquid from pipes drilled in at lower levels. The liquid is then pumped into tanks where it is treated with further chemicals, filtered and roasted to produce rare earth oxides.

Uses of Rare Earths Elements

Rare earths are essential in the production of X-ray machines

REEs are essential to many products that are fundamental to our modern life. REEs can be found in products as diverse as TVs, plasma screen technologies, microwave filters, ear phones, self-cleaning ovens, flint lighters and computer memories. Because REEs are extremely effective in absorbing ultraviolet light, REEs are used in glass bottles, sunglasses, and camera lenses. Because they allow for the development of powerful permanent magnets – which differ from electrical magnets in that they produce their own magnetic field – REEs create improved magnetic performance in smaller sizes. They are, thus, important in miniaturization technology, and are a key reason why laptops, cell phones and smart pads are becoming increasingly lighter and smaller.

Permanent neodymium-iron-boron magnets are also fundamental to many green technologies, especially wind turbines. Their superior magnetic strength means that they increase the amount of electricity that a wind turbine can produce. REE magnets also have the advantage that they retain more magnetism when heated. These qualities make them ideally suited for the production of hybrid cars. The Toyota Prius, for instance, contains 1 kg of neodymium in each of its electric motors. REE magnets also improve the energy efficiency of many appliances and cooling systems. REE magnets have been shown to reduce the power consumption of air conditioning systems by as much as 50%, and have led to the development of more environmentally friendly refrigeration methods. Energy efficient lighting such as the fluorescent lamp and LEDs are also big users of REEs.

REEs are also employed in other green technology applications. For instance, REEs are essential to the automotive catalytic converter whose job it is to convert pollutants in engine exhaust gases into non-toxic compounds. They also used in oil refineries to process heavy crude oil into lighter gas, jet fuel and petrol. They are also proving essential to the development of solid oxide fuel cells – a low-pollution technology which electrochemically generates electricity at high efficiencies – and other fuel cells which are being developed as power generators for zero emissions electric vehicles.

Besides, the green technology industry, REEs are also found in a wide range of industrial applications. For instance, REEs are employed in many aspects of nuclear energy production because of their ability to absorb neutrons while remaining stable at high temperatures. They are also found in ceramics, glass coloring and in the colors displayed on TV, computer and hand-held screens. They help paint pigment deflect ultraviolet light which makes them less likely to fade. Most finished glass products, such as mirrors, have been shined by REE concentrates and oxides. REEs are also a critical component in the creation of super-alloys or super-metals which are a class of heat resistant alloys used in the aerospace and power industries, particularly in gas turbine engines. REEs are also elemental to the technology that allows for the solid state storage of hydrogen.

REEs are also found in many medical technologies including x-rays and PET scan detectors. REEs not only improve the performance of MRI machines, but they also enable the physical internal scanning space of the machines to be wider, which serves to reduce feelings of claustrophobia for sick patients. Medical lasers produced with REEs are used in the cosmetic industry to remove pigmentation and scarring on skin, as well as in many other surgical procedures. There are also increasingly used in dentistry to remove tooth decay.

REES are crucial for the defense industry. They can be found in disk drive motors installed in aircraft, tanks, and command and control centers, and in radar systems and in reactive armor. They are key to the production of precision guided munitions, helping to guide the direction of the missile once it is launched. They are fundamental to lasers employed in enemy mine detection equipment, underwater mines and other countermeasure weapons systems. REEs are also found in components used in military communication networks including satellite, radar and sonar. They are also used in optical equipment and speakers.

In 2011, the US Geological Society estimated that the global use of rare earths broke down as follows: catalysts 47%, metallurgical applications and alloys 24%, glass polishing and ceramics 15%, permanent magnets 9%, computer monitors 19%, radar, television and x-ray machines 5%.

Environmental Consequences of Rare Earth Mining

The manufacture of REEs poses significant environmental hazards because of the large amounts of chemicals used in processing and because the processing waste often contains toxic gases and traces of the radioactive thorium. In northern China’s Bayan Obo  (Baiyun Ebo) mine in Inner Mongolia, for instance, REEs are mined and then transported 120km south to Baotou to be processed. Dozens of new factories have been built around Baotou’s processing facilities in what has been called Baotou’s Pioneering Rare Earth Hi-Tech Development Zone. A coal-fuelled power station supplies electricity to Baotou’s large and growing industrial complex.

The Yellow River

The Chinese Society of Rare Earths estimated that for every ton of rare earth oxide it produces in Baotou, China generates up to 12,000m³ of waste gas containing dust concentrates, sulfur dioxide, hydrochloric acid and sulfuric acid, and about 2000 tons of mine tailings. Tailings are the ground materials left over once the REEs have been removed from the ore. In northern China, these tailings contain traces of radioactive thorium. In addition, it is estimated that all factories and processing facilities in the Rare Earth Hi-Tech Development Zone create approximately 10 million tons of all types of waste water every year.  Much of this waste water along with an estimated 7-8 million annual tons of mine tailings are dumped into what has grown into an approximately 11km² waste impoundment lake without being effectively treated. A 2006 Chinese report undertaken by local authorities found that the level of thorium in soil near the lake was 36 times higher than in the soil in other areas of Baotou. From the lake, the chemical and radioactive waste has seeped into the ground water. The waste has also found its way into the Yellow River which passes to the south of Baotou before continuing another 1300 miles to the Yellow Sea. The Yellow River is subsequently used as a water supply for a large concentration of China’s population, including the residents of Beijing and Tianjin.

Around Baotou, most fish in the Yellow River have died. Agriculture has also been severely affected as lake wastewater has contaminated irrigation water supplies and the soil. Local farmers say that since the 1980s, fruit trees have either yielded no fruit or that the fruit they do grow is small and foul-smelling. Vegetable plants have stopped producing and many livestock in the area have become ill and died.

Residents inhaling the vapors and drinking the contaminated water have noticed higher incidents of diabetes, osteoporosis, respiratory diseases, leukemia and other cancers, skin and eye irritations, irritation to the gastrointestinal tract, black lung disease and kidney damage.

China’s southern REE mining and processing operations have also caused significant environmental degradation. The in-situ extraction method, which was hoped to be less environmentally damaging, has also resulted in reduced or eliminated crop yields and in fish dying in the rivers in the areas around which it is being mined. One issue in the south has been the extensive presence of illegal mines which are particularly prone to releasing toxic waste into the general water supply.

Until recently, China has never had firm pollutant discharge standards for the rare earth industry. Additionally, it poorly enforces the regulations that do exist. This lack of stringent environmental regulation and enforcement has meant that China’s REE industry produces REEs at roughly a third the price of its international competitors. While some Chinese REE companies have tried to improve their mining processes to make them more environmentally friendly, many have chosen to keep their environmental costs to a minimum in order to maintain a competitive edge in the market. In addition, as the government owns the land on which the factories lie, companies have little incentive to protect it. Additionally, China’s still-developing legal structure means that people and companies cannot easily be held accountable through the country’s judicial system. In Western countries, if employees or residents become ill due to unsafe production methods, those responsible would likely face due process which could result imprisonment and fines. This is not the case in China, unless victims have the support of the government. Yet the government often has a stake in the REE production process which acts as an incentive for the REE processing to continue untouched.

Characteristics of China’s Rare Earth Industry before Government Reform

Fluorescent light bulbs require rare earths

Starting in 2000, China’s government began to re-evaluate its REE strategy in the light of its rapid development, the poor profitability of its rare-earth producers and the rapidly growing demand for REEs worldwide. While its achievements in the REE field since 1978 are undeniable, the government has become increasingly concerned about a number of issues. These issues were outlined in Situation and Policies of China’s Rare Earth Industry published by the Information Office of the State Council of the People’s Republic of China in June 2012 and included: severe ecological damage to the environment, excessive exploitation of REE resources, poor profitability of the REE industry causing what it considered to be a severe divergence between the price and the value of REEs, and the illegal mining and sale of REEs.

While the environmental degradation that has been caused by China’s REE production is quite widely known, part of the purpose of the China’s REE report was to inform on the other challenges that China faces in managing its REE resources. Specifically, China found that 50 years of aggressive mining of its REE resources have significantly reduced its reserves. In Baotou, for instance, the report stated that only about one third of the original volume of REE resources was left in its principal mines. In its ion-adsorption clays, the reserve extraction ratio – the remaining supplies of REE in years – has declined from 50 years of remaining resources 20 years ago to 15 years of REE resources today.

While China publishes the country’s REE data yearly, these reports are not available to foreign researchers. Independently verifying the PRC’s calculation of its reserve levels has thus been difficult. For instance,

s China’s Situation and Policies of China’s Rare Earth Industry paper calculated that China holds 23% of the world’s reserves, while the 2008 US Geological study calculated that China held 58% and a 2011 British Geological Survey Rare Earth Elements paper calculated that China held 44%. That said, there can be no doubt that China has seen a rapid depletion of REE reserves in the last three decades.

China has also expressed concern about the poor profitability of the REE industry. Historically, the Chinese REE industry has been characterized by numerous, relatively small-scale enterprises, particularly in the south, which often engage in cutthroat competition. This has often meant that REE producers have often struggled to maintain profitability. Yet, as many local governments have relied on REE producers to provide employment and revenue, they have continued to encourage local production even it means exceeding national production targets. As a result, China feels that it REE resources have been sold at prices which do not reflect their real value or take into account environmental costs. To support this argument, China cites the fact that between 2000 and 2010 the price of rare earth products increased by 2150%, while the prices of gold, copper and iron all increased by in excess of 4300%.

China’s REE has also been plagued by illegal mining and smuggling. The report states, that from 2006 to 2008, statistics collected from foreign customs offices were 35%, 59% and 36% higher than the volumes that China officially exported over this time period. In 2008, it was estimated that approximately 29,000 tons of rare earth materials were smuggled out of the country, representing an estimated one-third of total REE exports. In 2014, it was estimated that illicit sales rose to 40% of all REE production or as much as 40,000 tons. Illicit REE materials are often hidden as steel composites, then reverse-engineered out when they reach the customer’s home country. It is believed that Japan is the largest importer of illicit REE materials, and may get as much as 20% of its REEs from China’s black market. Smuggling hurts China’s rare earth industry both by depressing prices, more quickly depleting REE resources and by increasing environmental damage as smugglers usually pay scant attention to pollution management.

Rapid Increase in Domestic Demand for REE Products

China has also seen a rapid increase in domestic demand for REEs, and it expects this demand to continue to increase in the future. In 2000, for instance, Chinese REE consumption was about 19,000 metric tons while non-Chinese usage was about 72,000 tons. By 2009 Chinese REE consumption had reached about 73,000 tons while other usage had declined to 59,000 tons. China uses more REEs today as its REE industry is moving higher up the manufacturing value chain. For instance, its 1987 production of products such as catalysts, magnets, phosphors, and polishing powder represented only about 1% of the total REE that it consumed. By 2008, the production of these products accounted for about 53% of the REEs used in China. Going forward, China expects its REE use in the new material technologies to grow faster than in its other traditional industrial sectors.

As an example, in July 2008, China had approximately 600 million mobile phone users; by November 2012 China’s Ministry of Industry and Information Technology estimated that China’s mobile phone owners had exceeded one billion. Similarly, in 1998, the United States, Europe and Japan produced 90% of the world’s permanent neodymium-iron-boron magnets; today China manufactures 76% of the world’s total. In 2009, China produced 12,000 gigawatts of wind power; by 2015, China aims to have 100 gigawatts of on-grid wind power generating capacity, and to be generating 190 billion kilowatt hours (kWh) of wind power annually.

China’s Reform of its Rare Earth Industry

As early as 1990, the Chinese government deemed REEs to be a strategic mineral critical to China’s long-term political, economic and military power and began restricting foreign investors from mining rare earth, or from participating in smelting and separating except in joint ventures  with Chinese firms. By 2000, Chinese scientists and military experts were calling for even greater controls over its REEs. In 2005, Xu Guangxian, China’s leading REE scientist, argued that at the current rate of extraction the Bayan Obo mine would be depleted in 35 years.

As a result, the Chinese government began to implement a number of initiatives designed to reform the industry. Laws regarding REE mining, production and waste management were reviewed, and efforts have since been made to improve enforcement. Additionally, in 2005, the government eliminated the value-added tax rebates for REEs, and taxes on the export of unimproved REEs were raised. The government also reduced the number of REE mining and processing licenses issued. In 2006, 47 domestic REE producers and 12 Sino-foreign rare Earth producers were licensed to export rare earth products from China. By 2011, that number had dropped to 22 domestic REE producers and 9 Chinese-foreign joint venture REE producers. It has also begun to stockpile REE materials with the goal of reaching reserves of 30,000 to 55,000 tons of rare earth concentrates.

Additionally, it created the 2009-2015 Plan for Developing the Rare Earth Industry, and established the Chinese Society of Rare Earths, consisting of 150 members whose aim is to develop a fully integrated REE sector. Part and parcel of this, it has divided the country into large REE districts: Jiangxi, Guangdong, Fujian, Hunan, and Guangxi in the South; Inner Mongolia and Shandong in the North; and Sichuan in the West. Between 2009 and 2015, the government expects Inner Mongolia and Sichuan to be primarily responsible for producing LREE with additional capacity coming from Shandong as needed. HREEs will be produced in Jiangxi, Guangdong and Fujian. Increased inspections by government officials will be carried out in order to ensure that facilities are not exceeding national quotas and that mining and manufacturing are meeting environmental regulations.

Since January 2014, China has pressed aggressively ahead with its efforts to consolidate the REE industry under six large state owned enterprises (SOE)including Inner Mongolia Baotou Iron and Steel Group, China Minmetals Corporaion, Aluminum Corporation of China (Chinalco), Guangdong Rare Earth Group, Xiamen Tungsten, and Ganzhou Rare Earth Group. These SOEs will control the industry by geographic region. An estimated 300 smaller, independent REE producers have been forced to shut down or  to merge  with  the SOEs. These SOEs will invest in all aspects of the rare earth industry chain. Currently, these six companies control 94% of China’s RE resources,  75% of its mines and  60% of the smelting and separating capacity. After consolidation, the six SOEs are expected to have complete control over these sectors. These  conglomerates will be supported by financial subsidies, tax breaks, and other form of government  investments, and will be encouraged  to expand their expertise  in areas such as REE recycling.

China continues to view the REE industry as of strategic importance to the country. Its goal is to have a significant market share of the entire REE supply chain from mining, smelting and separating to manufacture of high-end rare earth technologies. China’s dominance in the middle aspects of the REE supply chain – transforming mined materials into useful ingredients – enables China to draw in related domestic and multinational businesses that depend on the REE materials. This in turn increases China’s importance to supply chains in everything from mobile phones to wind turbines.

Since January 2014, Beijing has also stepped up its campaign against illegal mining. It has forced smaller, wildcat producers to close, and is now conducting helicopter searches in areas where illegal mines are purported to be operating. It is also going after the gangs who are running them as well as local government officials who turn a blind eye.

Beijing is also working to stamp out illegal production by larger, licensed companies which avoid production quotas by exporting RRE under ambiguous labels such as “iron alloy”.  New export license paperwork for the big six will be more onerous and exacting. Beijing is also trying to implement a RE supply chain trace-ability system.

Since July 2014, China has push ahead with its plans to grow  its domestic REE stockpiles.  China plans to use it stockpiles to ensure  adequate resource  supply  in the future, especially in light of growing domestic demand. It will also use it stockpiles as a mechanism  to support REE  pricing.

Export Quotas

Chinese ships loaded with rare earth minerals for export

The government also began to implement quotas on the amount of REEs that it allowed to leave the country. From the Chinese perspective, quotas felt appropriate as foreign countries, particularly the United States and Japan, were seen to be taking advantage of China’s cheap, environmentally-destructive REEs while maintaining strategic stockpiles in their own un-dug mines. Quotas would also help ensure that the Chinese had plenty of REEs for their domestic needs. Historically, separate export quotas have been set for domestic REE producers and for Sino-foreign joint venture REE producers. Between 2005 and 2007, the government authorized domestic REE producers to export 40,000 metric tons and Chinese-foreign joint ventures to export 16,000 metric tons. In 2008 and 2009, China reduced the domestic quota by 21.6% and 2.5% respectively while holding the Chinese-foreign joint venture quota steady. By 2010, China’s overall REE export quota was reduced an additional 37.1%, this time impacting both domestic and Sino-foreign joint venture producers alike.

The government’s new policies are specifically designed to restrain the export of unprocessed REEs, as no quotas have been placed on REEs exported in finished products. Part of the reason for this is that the government wants to encourage foreign REE manufacturers to relocate their production facilities to China, particularly to Baotou’s Pioneering Rare Earth Hi-Tech Development Zone.  It is estimated that approximately 50 foreign companies are already operating within Baotou’s industrial complex. From the Chinese perspective, this would allow them access to new technology and would generate jobs for its citizens. Non-Chinese consumers of REEs have criticized this policy saying that it is pressuring them to relocate to China in order to stay cost competitive. This in turn could put their proprietary REE technology at risk, and it would continue international dependence on China’s REE industry.

Chinese Suspension of Rare Earth Exports

On September 7th, 2010, a Chinese fishing trawler rammed a Japan Coast Guard vessel near to the Senkaku/Diaoyu disputed islands, known in Japan as the Senkaku Islands, and in China as the Diaoyu Islands. The islands are administered by Japan but are also claimed by China and Taiwan. The Japanese subsequently detained the captain, causing a major diplomatic dispute between the two countries.  Despite repeated demands by the Chinese government, the Japanese refused to release the captain, saying that instead his case would be handled by the Japanese courts. In retaliation, the Chinese canceled official ministerial Sino-Japanese meetings, and revoked an invitation for 1000 youths to attend the Shanghai World Expo. (Lin, 2010) Although denied by the Chinese government, on September 21st, it is widely believed that the Chinese also orchestrated an unofficial halt of REE exports to Japan by having its custom agencies prevent the export of REEs, though this has recently been questioned in academic studies, particularly in light of the fact that shipments to Europe and the US were also halted the following month, and given that the Japanese government had expressed grievances over the rare earths issue as early as August 18th. Beijing claimed instead that the export stoppage was a spontaneous, independent demonstration of support by Chinese REE exporters and custom agents. Regardless of its origin, the embargo has enabled China to exert political pressure on Japan. The unofficial nature of the embargo also made it more difficult to challenge in the World Trade Organization (WTO) which bans most unilateral export stoppages.  On September 24th, Japan released the Chinese captain, with the Chief Prosecutor citing “Japan’s national interests”.

By mid-October 2010, China was also blocking some shipments to the United States and Europe after the Obama administration opened an investigation into whether China was violating free-trade rules with its green energy policies including its restrictions on REEs. China resumed shipments to the U.S. and Europe at the end of October, but did not resume shipments to Japan until the November 24th. Part of its decision to resume shipments to Japan might have been due to the fact that many Chinese assembly factories, employing hundreds of workers, were running low on Japanese-made components when suppliers began to face shortages of some of the REEs needed in their manufacture.

Consolidating the Industry and Ending Illegal Mining and Smuggling

Since 2006, the government has stepped up its efforts to shut down illegal mines in the provinces of Guangdong, Jiangxi and Sichuan. Over the last two years, China has investigated and rectified 600 cases of illegal mining, has identified an additional hundred cases against which further action will be taken, and has closed 13 mines and 76 processing facilities. Similarly, in 2011, China launched a campaign to crack down on REE smuggling, retrieving 769 tons of smuggled REE metals and prosecuting 23 criminal suspects in eight cases.

China has also been urging its REE producers to merge together. Ultimately, the government envisions that the REE industry will be eventually controlled by a few, state owned enterprises. Surviving Chinese producers have seen advantages to this consolidation strategy as it has helped to reduce unnecessary competition and increase profitability. For instance, Dingnan Dahua New Materials Co., Ganxian Hongjin Rare Earths Co. Ltd, Minmetals Nonferrous Metals Co. Ltd have all joined together to form Minmetals Ganzhou Rare Earth Co. Ltd to process REEs in Ganshou, Jiangxi Province. Their operations are expected to slowly subsume the majority of the production of the 88 smaller REE producers that have historically been operating in the area.

Improving Environmental Regulation

Rare earths are crucial for wind turbines

China also plans to implement stricter environmental standards. The Ministry of Environmental Protection has now set discharge standards for six types of atmospheric pollutants and for 14 different types of water pollutants. China will aim for its new REE facilities to be built to ISO 9000 and ISO 14000 certificate standard. It may also force its dirty mining and processing facilities to halt operations until they are also able to secure the ISO accreditation. The ISO 9000 and ISO 14000 are internationally recognized accreditations that look at how a product is produced rather than the product itself. The ISO 14000 standards help organizations establish procedures that minimize negative effects to the environment. If China enforces its tougher environmental standards, it is estimated that it could add between $145 and $220 to the production costs of every ton of REE products. These higher costs would significantly erode China’s cost advantage in the industry.

Additionally, China intends to increase the recycling rate of both REEs in discarded electronic products as well as recycling an estimated 12.6 million tons of REE oxides that had been deposited in its Baotou tailings pond. Currently there are no cost-effective ways to recycle rare earth elements from old equipment such as computers, electric motors and cell phones. Similarly, technology to extract residue REEs in tailings ponds is also in need of further development. China is also working on technology that will reduce the amount of REEs that are flushed into tailings ponds in the first place.

China’s Rare Earth Industry Research and Investment

As China considers its REE industry to be of critical strategic importance, it is heavily investing in REE research and development. It hopes breakthroughs in REE technology will help ensure its national security, and could enable China to leap-frog the West to lead in the development of many new advanced technologies such as those found in the rapidly emerging environmental sector. Indeed, in 1999 President Jiang Zemin noted that if China could master REE technology, its REE resource advantage could then help lead China to economic superiority.

Much of China’s REE investment has been funneled through the State Key Laboratory of Rare Earth Materials Chemistry and Applications, affiliated with Peking University in Beijing, and the State Key Laboratory of Rare Earth Resource Utilization, affiliated with the Changchun Institute of Applied Chemistry which is run under the direction of the Chinese Academy of Sciences. Between the two labs, there are approximately 70 faculty members, 35 professors and 75 graduate students dedicated to REE research. Additionally, China also conducts REE research through the Baotou Research Institute in the General Research Institute for Nonferrous Metals. Each of these institutions run complementary but independent research into the efficient and environmentally friendly mining and processing of REEs, the development of technology employing REE materials, the recycling of REEs from already existing products and the reclamation of REE materials in its extensive waste ponds.

China is not only investing in REE domestically, it is also purchasing stakes in rare earths natural resources abroad. For instance, China has purchased a 25% date in Arafura Resources Ltd, an Australian Rare Earth developer.

World Response to the Reform of China’s Rare Earth Industry – WTO filing

In March 2012, the United States, European Union, and Japan filed a complaint with the WTO against China’s REE trade practices in response to export restrictions, restrictions in export licensing, higher export taxes, and the withdrawal of the 16% refund of value-added tax on exports of unimproved REEs. They argued that the effect of these policies has been that non-Chinese producers of REE products pay 31% more for their REE materials than their Chinese competitors.  The US, EU and Japan are also challenging aspects of the allocation and administration of export quotas, export licenses and the manipulation of export prices. They contend that Beijing aims to satisfy domestic REE demand first, and to control the international price of REEs abroad. They also say that Chinese practices are placing pressure on foreign manufacturers to relocate their operations to China in order to minimize the impacts of rising costs and shrinking supplies. It is expected that the complaint will take between one and three years to resolve.

WTO ruled against China's REE export restrictions

WTO ruled against China’s REE export restrictions

China has countered that its policies are intended to improve the environmental standards of its REE mining and processing facilities as well as to promote the long-term economic sustainability of its REE resources. It has rejected a call for the establishment of a WTO panel. China has also countered that foreign suppliers have not complained of China dumping low-cost REEs as they previously had with China’s export of low-priced steel and textiles.

The US, EU and Japan feel that a WTO ruling made in January 2012 supports their case. In that ruling, the WTO decided that price and quantity controls primarily targeting foreign entities were not a reasonable implementation of a resource conservation policy. It also stated that trade restriction measures for the purpose of environmental protection can only be applied in conjunction with restraints on domestic production or consumption.

In June 2014 the WTO ruled against China and in August 2014 China lost its appeal. The WTO stated that China’s efforts conserve its limited REE resources and to protect its environment by restricting foreign access to REE tungsten and molybdenum through export duties, export quotas, minimum export pricing requirements and additional requirements and procedures constitute a breach of WTO rules. Instead the WTO found that the China’s REE restrictions were designed to achieve industrial policy goals rather than REE resource conservation or environmental protection. The WTO ruled this because no measures were put in place to restrict domestic access to REE supplies. Instead the export restrictions gave domestic companies preferential access to REEs at prices below that available to foreign customers.

World Response to the Reform of China’s Rare Earth Industry – Developing New Rare Earth Sources

Car production could be affected by rare earth shortages

Many governments and companies around the world are also beginning to develop new REE sources, now feasible given the higher REE prices which have resulted from increased REE demand and China’s export restrictions. The Australian company Lynas Corporation, for instance, has invested in an $800 million processing plant located on Malaysia’s East Coast. Once fully operational, Lynas’s Malaysian processing plant is slated to become one of the largest REE processing plants in the world. Yet, the opening of the plant has been plagued by protests from Malaysian activists who worry about its environmental implications. The plant is located on reclaimed swampland just 12 miles from Kuantan, a city of 600,000 people. A particular worry is that the plant’s toxic wastewater, containing chemicals and low levels of thorium, will seep into the groundwater, and that its storage ponds could become vulnerable to the monsoons that inundate the swampy coastline each autumn. Currently, Mitsubishi Chemical is investing $100 million to clean up its Bukit Merah REE processing site which it was forced to close in 1992 when local residents began complaining of leukemia and other ailments tied to thorium contamination. This environmental contamination has caused Malaysian activists to demand greater environmental regulation for all future RE processing facilities located on its soil.

In California, near Death Valley, Molycorp Minerals has invested $781 million in the modernization and expansion of its RE mining and manufacturing facilities that were shuttered in 2002 when it was unable to produce REEs at prices which could compete with Chinese producers. Molycorp aims for its newly refurbished Mount Pass facility to be one of the most technologically advanced, energy efficient and environmentally friendly REE processing operations in the world. By the end of 2013, Molycorp expects Mountain Pass to be producing 40,000 metric tons of REEs annually. As the US currently consumes between 15,000 and 18,000 metric tons of rare earth oxides each year, this would mean that the US would turn into an exporter of REE products in the near future.

Mines are also under consideration in Canada, Australia, South Africa, Greenland, Mongolia, Vietnam and India. In 2009, Japan signed a contract with Vietnam to invest in a rare earth mine that will produce solely for Japanese vehicle manufacturers. The problem is even if these new mines and accompanying processing plants were given the go-ahead, it could still take between 3 and 10 years, not to mention hundreds of millions of dollars, before these new projects would become fully operational. Others are investing more heavily in the manufacturing of high-end REE products outside of China. Japan’s Hitachi Metals Company, for instance, is investing in a permanent magnet factory in China Grove, North Carolina instead of locating it in China as it had originally envisioned.

A concern for those investing in new REE mining and processing locations is that China could increase production again driving down REE prices just as their projects come on line, once again making non-Chinese mining and processing facilities uneconomical. Ironically, a WTO judgment in favor of the US, the EU and Japan could have this effect by forcing them to withdraw export restrictions which would once again flood the market with Chinese REE product. To protect against this, some non-Chinese scientists and industrialists have called for their governments to provide federal support in the form of loan guarantees and other assistance. Others argue that the rapidly growing demand for REEs should help maintain prices, even in the event of a significant increase in Chinese REE production.

World Response to the Reform of China’s Rare Earth Industry – Other Initiatives

International consumers of China’s REEs are also taking other steps to become independent from Chinese supplies. As a short term stop-gap, countries such as Japan and South Korea already have strategic stockpiles of rare earth metals. Countries are also increasing research into REE substitutes and REE recycling.

Trends for the Future

Rare earth mining is certain to be an important part of China’s future economy

China’s REE industry continues to grow at a strong clip. According to the Industrial Minerals Company of Australia, China’s REE annual output is forecasted to rise from 105,000 tons in 2011 to approximately 130,000 tons by 2016.

China considers the development of REE technologies a national priority. To support this objective, it will continue to invest heavily in research and development in all aspects of REE production from improved mining efficiency to the development of cutting-edge REE technologies.  It will also continue to invest in technologies that will allow it to reclaim REEs from its tailing ponds and to recycle REEs from discarded electronic products.

China should be able to have substantially greater influence over REE’s supply and the pricing. To some extent this will offset its inability to control supply and price by export quotas and by other trade restrictions now ruled to be illegal by the WTO. China will also continue to build domestic stockpiles.

The financial and academic resources China is investing in basic REE research are unparalleled anywhere in the world. Similarly, no other country has identified the manufacturing of REE technologies as a national objective and is pursuing it as single-mindedly. Given China’s significant level of naturally occurring REE reserves, its destination as a low-cost manufacturing base, and its heavy research and investment in all aspects of the REE sector, it can be expected that China will continue to rapidly consolidate its already strong foothold in the manufacture of many of the REE technologies. It is likely it will dominate the production of many of these technologies in the future.

Rising REE prices and aggressive Chinese REE policies have caused non-Chinese REE miners and manufacturers to seek alternative REE sources and alternative locations to produce their REE components. Over the next 10 years, it can be expected that new REE mining and processing sources will come on line, allowing international competitors to claw back some unfinished REE market share. In particular, US Molycorp and Australian Lynas both have brought REE mines on stream. Similarly, international REE producers, wary of the Chinese subsuming their technology, will continue to seek alternative, cost-effective places to manufacture. That said, they will struggle to compete against China’s advantages.

Hydro-Power and Hydro-Hegemony: China’s Prolific Dam-Building

The History of Hydro-Power in China

Before 1949, only 22 large dams existed in China. A dam study by Oregon State University concluded that since that time, the People’s Republic of China has undergone four waves of dam construction. Socialist agricultural policy between 1949 and 1960 encouraged the construction of many small and medium-sized irrigation dams. In particular, the 1958-1960 Great Leap Forward policy advocated that each of China’s 1,465 counties build at least one water conservation dam. As a result, tens of thousands of dams were built in China, mainly by peasant-led teams with limited equipment, materials, and training. During the period from 1968 to 1980, the pace of dam construction increased. Water projects grew in size and complexity and were progressively constructed for hydropower and flood control. While fewer dams were built between 1980 and 2000, those that were constructed were larger in scale and more technically difficult. The 1978 market reforms allowed China to import foreign technology, know-how and funding, enabling the building of dams that previously had been too difficult and expensive to undertake.

Government measures since 2003 have led to a decentralization of hydropower production. The State Power Corporation was disbanded, its assets were distributed and development rights on China’s main rivers were shared out. While the central government has a majority of stock in each of the companies into which the State Power Corporation was split, in general, the enterprises act quite independently. The “corporatization” of China’s hydropower sector has created a significant increase in domestic and overseas dam building as companies compete to secure existing assets and to develop new hydro-projects.

Today, China runs about half the world’s approximately 45,000 dams that are larger than 15 m in height. In total, the number of dams in China is estimated to exceed 85,000. In 2009, China’s installed hydropower was calculated to be approximately 200,000 MW, representing about 17% of China’s total electricity power. According to recent reports, of the 37 GW hydro-power capacity added worldwide in 2014, a full 22 GW, nearly 60%, was added in China alone, dwarfing developments in other nations (the five largest contributors behind China added a combined 8.7 GW). This has brought China’s hydropower capacity up to 27% of the world total. China continues to set high goals for itself, with China’s National Energy Agency planning to increase China’s hydropower capacity to approximately 380,000 MW by 2020. Huge hydropower cascades have been proposed and are being constructed on some of China’s remaining pristine river basin systems including the Lancang, (upper Mekong), the Nu (Salween) and upstream of the Three Gorges Dam on the Yangtze. It is estimated that China has relocated a total of almost 23 million citizens since 1949 to make way for its water projects.

The Three Gorges Dam

Large dams are enormous interventions into highly complex ecosystems. Their impact can be felt thousands of kilometers away and often occur many years after construction has been completed. It is impossible to anticipate and mitigate all the social and environmental impacts that such projects can cause. The Three Gorges Dam provides a good indication of the challenges that such large dams pose.

Originally conceived by Chairman Mao and supported by Zhou Enlai, the Three Gorges Dam, and its related infrastructure, is the largest water project in the world. It stretches approximately 2km across the Yangtze River, which flows 6,418 km eastward from the Tibetan glaciers through China’s southwest, central, and eastern regions before eventually emptying in the East China Sea at Shanghai. The Three Gorges Dam reaches nearly 200m in height and has created a reservoir 600km long with a storage capacity approaching 40 billion m³. Three Gorges generates approximately 22,000 MW of electricity, equivalent to the burning of 50 million tons of coal annually, compared with Hoover Dam, for instance, that has an installed capacity of only 2080 MW. It was built at an estimated cost of $27 billion, although if hidden costs are taken into account, some appraise the dam’s actual cost to be in excess of $60 billion. Hidden costs include losses incurred as a result of the reduction in commercial fishery production, the cost of landslides caused by frequent fluctuations in water levels and the further population resettlement that these landslides are likely to require, the costs of water pollution as raw sewage and fertilizer run-off collect in the Three Gorges Reservoir instead of being flushed downstream, the shrinking of the Yangtze river estuary, and the weakening of downstream dikes caused by the dam’s faster than anticipated water discharge. Besides generating emission-free energy, the Three Gorges Dam was built to control flooding, to improve water resource utilization and river navigation. Access to the major port of Chongqing, for instance, which receives 90% of its goods by water, has improved markedly even though it is located more than 600 km upstream of the dam. The Three Gorges’ lock system is one of the world’s largest and has also helped to increase the amount of cargo able to move into the river’s upper reaches.

Despite these real benefits, the Three Gorges Dam has also generated significant problems. Most important of these has been the disruption of the Yangtze’s ecosystem. When the river flowed naturally, it helped to cleanse industrial pollution. It also traditionally transported large sediment loads from the river’s upper reaches to the East China Sea. The Three Gorges Dam has significantly decreased downstream sediment transport, changing the river’s chemical balance, temperature, and flow. This in turn is impacting fish habitats. In addition to changing the river’s ecological characteristics, the dam is also blocking fish migration, impacting access to spawning grounds; it also may have contributed to the extinction of the Yangtze river dolphin. Between 2003 and 2005, annual fish harvests from below the dam were 50% to 70% below previous baselines; larva and eggs levels have dropped off even more sharply. Although pollution and other factors were already causing a reduction in fish stocks before the dam was constructed, the Three Gorges accelerated the trend.

The river’s reduced silt load has also deprived downstream agricultural land and fisheries of nutrients. Additionally, because less silt is reaching the river’s mouth, approximately 980 acres of coastal wetlands are disappearing each year. This has allowed sea water to intrude further upriver, affecting coastal agricultural and drinking water. Silt buildup within the reservoir is also impacting its overall storage capacity, causing higher volumes of water to be released from the dam, stressing downstream levees.

Landslides around the Three Gorges Reservoir have also been a greater problem than was first expected. The fluctuating water levels of reservoir have weakened hundreds of miles of its slopes, triggering massive mudslides. Controlling this erosion is projected to require a further investment of $10 billion or more. In some cases, landslides have produced massive waves as high as 50 meters, causing even more damage to the reservoir’s edges.

Every large dam built in China has led to the resettlement of local people because of China’s high population density along its major rivers. Over 1.2 million people have already been resettled as a result of the Three Gorge’s construction. Originally, residents were to be shifted to higher ground nearby, given new homes and new jobs. Yet, greater than anticipated erosion and landslides made large uphill areas unsuitable for building, so the displaced were eventually resettled to 11 different provinces. In late 2007, it was announced that another 4 million people – a number equivalent to the entire population of Scotland are likely to be relocated from the Three Gorges Reservoir area in the next 10 to 15 years. Officials dispute that these are related to the reservoir’s landslides and ecological degradation, arguing instead that they are part of the national experiment to ease regional overpopulation and to provide greater opportunities for industrial development.

Many scholars are now finding that people displaced due to construction projects face the long-term risk of continued food insecurity, lack of access to good arable land, joblessness, and social marginalization. Displaced women are often more severely affected than men. Taking farmland from the host population to give to the resettled groups has also often caused tensions and conflict between the two groups. Studies indicate that early resettlement efforts at the Three Gorges have indeed led to diminished living standards for many of the displaced. Local government corruption has aggravated resettlement challenges as 12% of the resettlement funds were estimated to be embezzled; hundreds of local officials have now been imprisoned.

In addition to the social costs, many now believe that large dam reservoirs can also cause seismic events as their weight can place unsustainable pressure on local faults. The Three Gorges Dam sits on two major fault lines, and scientists have acknowledged that seismic activity has increased slightly since the reservoir first started impounding water. Earthquakes can also damage a dam’s structure. Many of the new hydro-projects outlined in 12th Five-Year Plan are to be constructed in China’s mountainous southwestern region, which is crossed by numerous active fault lines. The tectonic movement in the three parallel Rivers area of the Nu, Upper Mekong and Upper Yangtze is one of the strongest in the world, for instance, yet China is planning to erect a cascade of dams in these areas. Research in the Chinese Journal of Geology and Seismology has recommended that further study be undertaken to determine the role that dam reservoirs play in triggering quake activity.

Environmental Movement Impacts Hydro-Power in China

The Chinese government has tried to address some of the problems associated with dams by improving the legislation which regulates the industry. While not always enforced, recent legislation has required more stringent procedures for environmental and social impacts assessment. A September 2003 law, for example, obliges companies planning projects with significant environmental impacts to conduct environmental impact assessments, and to have the assessments approved by the appropriate Environmental Bureau or the Ministry of Environmental Protection. Additionally, public participation in environmental impact assessment is increasingly encouraged. 2008 legislation has laid-out basic instructions on methods for public disclosure of environmental impact assessments, when to involve the public in the environmental impact assessment process, and who should be included in public participation. Indeed, in 2004 for instance, criticism from environmentalists, the public and the international media at least temporarily halted the development of a 13-dam cascade planned for the Nu River in Yunnan province, one of China’s last free flowing rivers. Laws passed in 2006 made efforts to better protect those displaced by dam construction by setting out appropriate land compensation, requiring that displaced people be provided with a level of livelihood similar to or greater than that which they had prior to the dam being built, and that resettlement plans must include economic development strategies as opposed to simply providing one-off monetary compensation.

Damming of Trans-boundary Rivers – Hydro-Hegemony

Many of China’s new planned hydro-engineering projects are on trans-boundary rivers, including the Mekong, Salween or Nu, Brahmaputra, and Amur. On the Brahmaputra River, for instance, a series of five dams is planned to be built close to disputed territory between China and India which will impact India and Bangladesh downstream, causing concern that China may divert the Brahmaputra’s water for its own needs. Many of the planned dams on trans-boundary rivers are being designed as cascades – one dam after another – or as mega-dams – with walls of 100 meters or higher-both of which have a greater impact on a river’s ecology. One of the new dams approved for the Brahmaputra, for instance, is to be twice the size of the Three Gorges Dam and situated almost on the contested border with India. Overall, about a third of China’s geography is within an international river basin, and China shares 18 rivers with its neighbors, many of which originate in China. Indeed, the Autonomous Province of Tibet provides China with access to some of the best untapped hydropower in the world as does its Yunnan province, often termed China’s hydro-power storehouse. China is acting as “hydro-hegemon” regarding its shared rivers as it is damming without the support and partnership of its neighbors, and at times in outright opposition to their wishes. But it is not just the unilateralism of its damming on international headwaters that upsets downstream countries; it is also the opacity around which it builds and runs its dams. China does not readily share environmental or technical information with its neighbors when building the dams nor, many feel, does it give real weight in its decision making as to how its dams will impact river ecology downstream. Indeed, many of China’s international river dams will provide it with the physical ability to change the hydrogeology of the rivers it is damming, thus creating new hydro-strategic and hydro-political realities, and thus allowing it to dictate the status quo of water allocation. By controlling large parts of Asia’s water tap, in an area where per capita freshwater availability is less than half the global average, China is acquiring tremendous leverage over its neighbors.

Yet, China considers developing large-scale hydropower to be critical to meeting its future energy needs and thus its national security. The Chinese government has thus worked to keep these resources under its control, and has been unwilling to sign any comprehensive water sharing agreement with downstream riparian nations or to join any river basin associations such as the Mekong River Commission, which was established in 1995 “to promote and coordinate sustainable management and development of water and related resources for the countries’ mutual benefit and the people’s well-being.” It is also one of only three countries that voted against the 1997 UN Convention on the Law of Non-Navigational Watercourses which lays down rules on the shared resources of international watercourses. Additionally, China has been reticent to share information on water levels and flows with its downstream neighbors once its dams are operational. China is now impounding water for the large reservoir behind the Xiaowan dam on the upper Mekong, for instance, which some believe exacerbated 2010 drought conditions downstream. Only after the drought became severe, and China came under significant pressure from the Mekong River Commission, did it start to provide information on daily water flows from its dam cascade.

China has tried to offset complaints and the potential creation of anti-Chinese alliances by its downstream neighbors by using trade and development incentives – developing the Southeast Asian electricity grid and building sewage and road infrastructure in Cambodia as examples – to weaken their ability to challenge China’s dam-building activities, it also engages in a public discourse that not only advocates the importance of hydropower to its national security but emphasizes exclusively the benefits of the dams without considering how they will disrupt downstream ecosystems and water access. Specifically, it talks about flood control, reduction of Chinese CO2 emissions, and the benefits of improved navigation and water flow during the dry season. In many cases, it is also helping to fund and construct dams downriver in places such as Vietnam, Laos, Myanmar, and Cambodia. Their own independent construction of dams with Chinese financing has weakened downstream riparian neighbors’ ability to protest the ecological destruction that China’s upstream dams are causing.

The Lancang Cascade

The Lancang Cascade is an example of China’s dam building on trans-boundary water. In total, China has built eleven dams on Upper Mekong (called Lancang in China). The Mekong River flows 4,800 km from the Tibetan plateau, across China’s Yunnan province, through Myanmar, Thailand, Laos, Cambodia and Vietnam, before pouring into the South China Sea. The Lancang comprises only 16% of the Mekong’s total discharge as measured in the delta, yet it accounts for 100% of the flow at the Laos border, 45% of Cambodia’s average flow in the dry season, and originates 50% of the river’s total sediment. The upper basin is characterized by deep gorges, with more than 80% of the drop in elevation occurring in Yunnan province. Indeed, Yunnan and Laos have the greatest hydropower potential in the basin. The lower basin is characterized by plains and deltas which support large-scale irrigation, fishing, and transportation. The Mekong is vital to the food, water supplies and transportation of over 70 million inhabitants in the region. An estimated 8 out of 10 people within the basin depend on the Mekong River for subsistence, either in terms of fish catch or agriculture, with at least 50% of Cambodia’s animal protein consumption coming from Mekong fish and the Mekong Delta supplying waters for more than 50% of the agricultural component of Vietnam’s GDP.

The Lancang cascade is part of China’s “Develop the West” program. Initial plans for the Lancang cascade were developed in the 1980s, before Yunnan opened to foreign trade, and when China’s political relations with its lower Mekong neighbors were not as robust as they are today. China espouses that the Lancang cascade will benefit its lower riparian neighbors by providing flood control in the wet season, increasing water supply in the dry season, improving irrigation and navigation, and reducing overall carbon emissions.

Yet, as seen with the Three Gorges Dam, large hydro-power projects change the hydrology of a river. Of key concern for the Mekong is whether the dams will negatively impact the hydrological dynamics of the Mekong’s “flood pulse” resulting from the river’s seasonal flooding triggered by the annual monsoons. Diminishing the flood pulse could result in declines in biodiversity and volumes of fisheries by altering spawning and migration cues could affect its transfer of nutrients and could limit the drift of eggs larvae and juveniles to the floodplain habitats. It could also impact rice harvests as 80% of rice production in the lower basin depends on water, silt, and nutrients from Mekong flooding. It might also cause increased salinization as seasonal flooding flushes delta areas, constraining sea water intrusion. The countries downstream are also concerned that the effective powering of their own dams will be dependent on China to discharge enough water. Impacts to water levels and fisheries have already been recorded in the lower Mekong basin which is one of the world’s biggest sources of fish. Indeed, as water levels reached 50-year lows in 2010 in the Mekong River Basin, China’s dam building along the upper Mekong was blamed as a significant contributor to the drought.

More recently, a 2020 study conducted by Eyes on Earth Inc. with funding by the US State Department’s Lower Mekong Initiative reported that the 11 Chinese dams on the upper portion of the Mekong River captured almost all the river’s flow in 2019, blocking it from reaching communities and ecoystems downstream in Vietnam, Cambodia, Thailand and Laos. The study gathered its data both through physical river gauges, and by analyzing 28 years of satellite data. This analysis illustrated that China’s portion of the Mekong saw above average snow melt and rainfall in 2019. Over the same timeframe, water levels downstream on the Mekong near the Thai-Lao border where often approximately 3 m below normal. It is estimated that 11 dams hold as much water as the Chesapeake Bay in the United States, and over the last 30 years, China’s Mekong dams have held back more water than they have released. The study argued that this water compounding has contributed to a record-breaking drought that still plagues the region and puts in jeopardy the food supplies and livelihoods of the 70 million people who rely in the river. It is hoped that this study will provide Cambodia, Laos, Vietnam and Thailand with data with which it can more effectively negotiate with the Chinese regarding their dam and water management.

By compounding water at such levels, and concurrently causing drought in downstream countries, China is demonstrating that it views the water originating on Chinese soil as a sovereign resource rather than a shared resource. Some Chinese stakeholders have expressed the opinion that water originating in China should be for Chinese use first before any is released downstream. There is also fear that China’s compounded water may be transferred for domestic uses instead of eventually being released downstream. Although they have not been executed, China does have long standing plans to redirect approximately 200,000,000,000 m³ of water annually from the upstream sections of six rivers in southwestern China including the Lancang/Mekong, the Yarlung Zangbo/Brahmaputra, the Salween/Nu to the Yangtze and Yellow Rivers. These plans may become more enticing as Himalayan glaciers rapidly melt. It may be China’s point of view that it wants to capture this water runoff for future domestic use before it leaves Chinese territory.

Building Dams Abroad

In addition to damming trans-boundary rivers, China has also stepped up its dam building internationally. As China has absorbed and copied complex hydro-engineering technology initially supplied by the West during the 1980s and 1990s, it is now able to export its own domestically produced turbines, generators and other hydro-equipment to countries abroad, along with its dam building expertise. These exports are supported by a set of schemes known as the “Going Out” strategy introduced in 2001. This strategy encourages investments, exports and subcontracting in overseas engineering projects. Specifically, the government has aided China’s hydro-engineering companies with country-specific research, financial subsidies, and cheap credit. These advantages have helped Chinese companies to position themselves as low-cost competitors. This cost advantage has also been aided by the fact that Chinese construction companies often import cheap, highly productive labor from home to staff all or at least part of their workforce. Their extensive hydro-engineering experience has also allowed them to gain real efficiencies not shared by their competitors. As a result, in 2012, it was estimated that China was involved in more than 300 dam projects in 66 different countries, including the construction of 19 of the world’s 24 largest hydropower stations.

It is not uncommon for these international hydro-engineering projects to help support Chinese strategic interests. Because of its relative isolation from international markets until the early 1980s, China has been late to develop international sources of raw materials, particularly oil, timber and mineral resources. Yet, its position as “the world’s factory” has meant that its demand for natural resources has significantly increased over recent decades. As a result, China has implemented a strategy of retrieving resource deposits which had not heretofore been developed because they have been deemed insignificant in size, geographically remote or politically risky. In many cases, accessing these raw materials has obliged China to invest in secondary infrastructure such as pipelines, roads, railways, dams, power plants and transmission lines. For instance, the Belinga Dam in Gabon is being constructed by China to power a Chinese-built and financed iron ore mine whose output is destined almost exclusively for China’s construction industry. The dam is located in the Invindo National Park  and was planned by China with no public environmental impact statement. Myanmar recently decided to halt the massive China-backed the Myitsone Dam project, which has been opposed by green groups and opposition parties because of its significant environmental and social impacts. The dam was to generate some 6000 MW of power, most of which was to be exported to China, while creating a reservoir the size of Singapore with the depth of nearly a 70-story building, displacing tens of thousands of people.

China’s flurry of rapid international dam building has been driven in large part by its ability to self-finance its projects. This has allowed it to fast-track projects that the World Bank and the European Investment Bank, for instance, have been less quick to consider because of their environmental and social risks. China’s Exim Bank, the official export credit agency of the Chinese government, has delivered vital funding for many controversial large dams, including the Merowe Dam in Sudan, which resulted in a ruinous deterioration of living conditions among displaced people. The state-owned China Export and Credit Insurance Corporation, the China Development Bank, and the China-Africa Development Fund are all also increasingly involved in financing energy projects overseas. In some cases, hydro-engineering companies provide their own financing to their international customers. Sino Hydro, for example, a large state-owned company involved in at least 42 major dam projects, often invests in many of the projects it builds as does China’s International Water and Electric Corporation, China’s National Heavy Machinery Corporation and China Southern Power Grid. For the period 2010 to 2012, Sino Hydro directed over $1 billion towards dam-building and related projects in Zambia. In 2014, the total value of contracted projects in Africa was estimated at $70.8 billion. This self-financing has put increased pressure on Western financial institutions and construction companies to also circumvent internationally recognized – but unenforced – social and environmental standards when designing and building infrastructure abroad, so that they can compete with Chinese banks and construction companies.

China remains wary of Western-dominated environmental norms circumscribing its investment and construction activities abroad. China does not accept any country imposing on it their values, social systems or ideology, nor, as stated in its ‘principle of non-interference in the internal affairs of another country’, does it feel that it should impose its value systems on other countries. China has also defended its approach to overseas investments by insisting that developing countries should not operate at the same standards as developed nations; developed countries also polluted first and then cleaned up after as its economy and technology developed. China has argued that it is unwilling to impose environmental policies on foreign countries which might slow their growth.

Yet, recently there is some evidence that China’s leaders have started to reassess the long-term costs that can come with a no-strings-attached approached to construction overseas; reckless practices, in some cases, have prevented Chinese companies from growing business internationally. The ecological destruction that some of China’s dams have wrought have aggravated anti-Chinese sentiment at several sites in Asia, Africa and Latin America. For instance, in 2006 violent protests broke out at the $2 billion dollar Merowe Dam in Sudan resulting in three dead and dozens injured. Ultimately 15,000 people were displaced, often forcibly, by the reservoir. Protests renewed in 2011 when 1000 people staged a sit-in to protests the government’s failure to compensate them as promised.

China’s frequent policy of employing a Chinese workforce to build dams and other projects abroad reinforces the perception that it is engaged in exploitative practices. To counter this criticism, in 2006, the China’s State Council issued nine principles which should guide the work of firms working abroad. These principles included safeguarding environmental protection, protecting the livelihoods of local communities and peoples, obeying host laws and regulations, and employing local workers in a friendly and fair manner. The principles, while lacking specificity as to who should regulate overseas construction companies, and as to what domestic regulatory tools should be applied to Chinese companies operating overseas, do indicate the Chinese leadership’s desire to avoid future high-profile disasters such as those occurring around the Merowe dam in Sudan. However, without specific regulatory control or penalties for breach of standards, these principles remain mostly theoretical. Some Chinese companies have begun to establish their own environmental policies; China’s Exim Bank and China’s Development Bank, for example, both have environmental policies which are to guide their lending practices, but again these policies lack detail, and do not appear to be well enforced.

Trends

At present, 3,700 dams with greater than 1 MW capacity are currently planned (83%) or under construction (17%). These projects are spread across several continents, but focused mainly in Brazil, Argentina, Central Africa, and China. Even if all these dams were constructed and realized their anticipated electric output, China would remain the world’s hydropower hegemon with an annual potential of nearly 1.8 million GWh (gigawatt-hours). While China’s position in the hydroelectric field may not be challenged in the coming years, its share within that sector is expected to diminish from 31% of world hydropower produced to around 25%.

China prioritizes the continued development of China’s hydro-power capacity to maintain its lead in production. Indeed, China’s National Energy Agency plans to increase China’s installed hydropower from approximately 200,000 MW to 380,000 MW by 2020. While greater efforts will certainly be made to better resettle those displaced by dams in the coming decades, environmental concerns regarding the impacts of China’s large hydro-engineering projects are unlikely to stop their future construction, particularly given the corporatization and increasing power of China’s hydro-power industry.

 China’s construction on trans-boundary rivers is also likely to continue even in the face of growing international concern. China will continue to follow a “carrot” strategy to blunt the criticism of these dams, providing downstream countries with infrastructure and other needs where possible in order to get them on-side with China’s actions. China has the construction ability and the finance to proceed with the construction of many of these dams quickly. There is some argument that China plans to get the dams in place before the international community can rally effective support to pressure China to reconsider its actions.

The speed of China’s dam-building has helped many of its projects, both domestic and national, bypass international environmental standards and impact studies. Though hydropower is not an exceptionally high-emission source of energy in the long run, it has been shown to be rather carbon-intensive during initial phases. In 2014, the Intergovernmental Panel on Climate Change stated that short-term emissions from damming and dam-related activity might be ten times the emissions that could have been saved if governments reduced fossil fuel usage via other means. The short run emissions are largely a result of the large reservoirs that form behind newly constructed dams. As these young bodies of water undergo various hydrological changes, they often emit larger quantities of greenhouse gases.

Over many years, however, total hydropower-associated emissions are nearly 30 times lower than coal, which is currently China’s most dominant energy source. In 2013, coal accounted for 73.8% of China’s total 5,396 TWh generated, while hydropower ranked second with a 16.9% energy share. Despite the prevalence of coal as an energy source, coal usage decreased 1.2% through October 2014, and this trend is likely to continue as northern China feels the strain of dwindling local water sources. Coal mining and processing requires an extraordinary amount of water that China can no longer afford to divert, given the drinking water demand of its citizens in northern urban centers like Beijing and Tianjin. If anything, the decline of coal will lead to an increase in the dominance of hydropower, which is already well-established in China. Dams may well supplant coal entirely and become the primary source of Chinese energy.

In July 2014, China reaffirmed its commitment to pursue further hydroelectric projects on the Jinsha River (the upper Yangtze), Yalong River, Dadu River, and the Lancang Cascade. It will also continue to aggressively pursue the international dam market, both to meet its own energy needs abroad and to create renewable, clean energy infrastructure for other countries. China’s commitment to Africa remains steadfast, with water conservancy and electric power as two of four key focus areas (the other two being communications and construction of ports, bridges, and railways). With these developments and even more plans in place, China is quickly becoming the largest, most experienced and most competitive dam builder in the world.

References

 

China’s Challenging Environment

Introduction

The state of Chinese environment today must be placed in the context of the extraordinary development that it has accomplished and of the continuing challenges it will face in the upcoming decades. Since 1981, China has lifted approximately 500 million people out of absolute poverty, an unprecedented achievement. Yet, in 2008, 172 million Chinese citizens still lived on less than $1.25 a day and about 400 million earned less than $2 a day. China’s population continues to grow, and is expected to peak at 1.4-1.5 billion people by 2030. Inequality in China has increased significantly both within the population, between rural and urban residents, and between different regions within the country. Those Chinese moving into the middle classes are demanding a better diet, modern housing, and the consumer goods which have long been common in the West.

China has raised the per capita income and standard of living of its citizens by providing an export-led, average GDP growth rate of over 8% over the last several decades. Much of that growth was fuelled by high- sulphur coal, with lax environmental regulation. The result has been a massive degradation of China’s environment. In 2006, China surpassed the United States to become the world’s largest source of carbon dioxide emissions. An estimated 70% of China’s rivers and lakes are currently contaminated, and 300 million Chinese people drink tainted water.

In part, China has achieved its unparalleled economic growth since the launch of its 1980 market reform through a policy of greater decentralization. The central government today has less of an ability to impose absolute control over provinces than it had previously. Environmental law has also been slow to develop and has not been aggressively enforced. Moreover, China’s “Century of Humiliation” has caused it to be protective of its sovereignty, and suspicious of foreigners and their environmental agenda. Indeed, China has opposed the monitoring of its greenhouse gas emissions as it views this as excessive intervention in its internal affairs. Partly as a result, China has not been transparent about environmental data. Its citizens, even its scientists, and the international community often lack the information needed to understand the full impact of China’s development on Chinese and international eco-systems. The basis of the Chinese Communist Party’s legitimacy has also shifted during the last three decades. Though it cannot ignore issues that threaten social stability, CCP power is now more dependent on its ability to continually deliver improving living standards than it was previously.

This has led China to follow a “grow now, clean-up later” approach to development. In international negotiations, China has vigorously opposed any binding, monitored agreement to reduce global emissions of greenhouse gases, although more recently it has pledged voluntarily to improve its own energy efficiency relative to economic output. Until recently, China’s calculation has been that short-term mitigation is more costly to the regime than adapting to a changing climate later, particularly given development’s immediate financial, political and social benefits. China’s 12th Five Year Plan seems to marks a shift in this attitude. Unlike previous plans, climate change and energy are featured prominently, and a strong emphasis is placed on targeting a more sustainable average annual GDP growth of 7%. The 12th Five Year Plan also adopts as binding domestic law the voluntary climate pledges China first made before the Copenhagen 2009 United Nations Framework Convention on Climate Change. More recently, in a joint announcement with President Obama in November 2014, Chinese President Xi Jinping announced a target of peaking carbon dioxide emissions around 2030 with a goal of reaching that target earlier, and an intention of increasing the share of energy coming non-fossil fuel sources to 20% by 2030.

That said, China’s 11th Five Year Plan also called for a slower average GDP growth rate of 7.5%, which China significantly exceeded. Ambitious local officials often consider Five Year Plan objectives as targets to be exceeded. GDP growth is a way for provincial officials to compete with rival regions and get promoted. Indeed, historically the performance evaluation system of government officials in China stresses the economic indexes while ignoring environmental protection indexes. This incentivizes local officials to prioritize GDP growth. As environmental protection can hamper GDP growth, environmental protection indexes have previously only constituted a small part of performance evaluation. After the 11th National People’s Congress in March 2011, Premier Wen Jiabao acknowledged this when he noted that GDP-oriented criteria for evaluating performance and government officials was an obstacle to achieving the environmental goals laid out in China’s 12th Five Year Plan. As a result, the central government would work toward adopting new performance evaluation criteria for local governments they gave more weight to the efficiency of economic growth, environmental protection and living standards improvements. Yet it will remain difficult to deter business leaders and officials who are profiting handsomely from rapid development.

Ultimately, many factors will influence China’s environmental policies in coming decades, not all of which are under central government control. Factors which encourage sustained pollution include: the continued need to provide economic growth to ensure political and social stability; the difficulty in implementing national environmental policies at the regional level; the ineffectiveness of MEP (China’s Ministry of Environmental Protection); and general corruption. Factors which are acting to protect the environment include the increasing recognition by Beijing of China’s limited bio-capacity, the increasingly vocal demands of its citizens to protect the environment, China’s significant investments in green technologies, and China’s opportunity to lead the world in green markets. It is still unclear which combination of factors will ultimately have the greatest influence on China’s short, medium and long-term environmental policies, or the state of its environment. That said, there is an undeniable trend toward recognizing the importance of environmental protection in China.

The State of China’s Environment

China’s environmental statistics are grim. In 2009, for instance, China surpassed the US to become the world’s largest energy user. While China’s average per capita emissions remain below those of the US, they have overtaken the global average, and are rising rapidly. Despite efforts by China to improve its energy efficiency, its CO2 emissions from fossil fuels rose by almost 80% during the past decade. The Chinese government recently conceded that only 3 of its 74 major cities met national air quality standards during 2013. Indeed, the Beijing-Tianjin-Hebei area had an annual average levels of PM2.5 – tiny pollutants smaller than 2.5 microns – at 106 micrograms per cubic meter, more than 10 times the World Health Organization’s safety level of 10.

This pollution is affecting countries worldwide, and not just because of the consequences of global warming. An analysis of air in places as disparate as San Francisco and Kyoto found chemical signatures of coal-fired Chinese power plants, smelters and chemical factories. Additionally, China’s water is also both in short supply and highly polluted. Growing urbanization is increasing both China’s air and water pollution and exacerbating its water scarcity since urban dwellers consume three times more water and energy than do rural residents. Moreover, an estimated 70% of China’s rivers and lakes are now polluted. In 2009, 57% of the 7 monitored river basins had pollution levels of I-III, suitable for drinking, swimming, household use, and able to support aquatic life. 24% of the water in China’s rivers had levels of IV-V, water unfit for swimming, but suitable for industrial purpose. 19% had V+, meaning that the water is considered useless, unfit for industry or agriculture. 23% of China’s key lakes and reservoirs had water grades of I-III, 42% IV-V and 35% V+. 2.3% of groundwater in 8 regions was rated I-II, 23.9% was graded III, and 73.8% ranked IV-V.

Stresses to China’s environment will continue to grow in the future. By 2030, three quarters of the 11 gigaton projected increase in energy-related global CO2 emissions is expected to be generated by China. By 2030, an estimated 390 million vehicles are projected to fill China’s roads, an almost 3 fold increase from today. Urban floor space will need to double to accommodate the approximately 350 million additional people moving into cities. At the same time, an expanding number of Chinese will rise into the middle classes, increasing demands on the environment further. Even with its aggressive development of alternative fuels, by 2030, it is still estimated that China will need to burn almost 200 million more tons of coal than in 2005 to provide sufficient heating and electricity for its new urban citizens. Indeed, overall coal-based power generation capacity is projected to triple between 2005 and 2030. Proper desulfurization of coal plants will require sizable capital investments and extensive regulatory monitoring. Urbanization and rising living standards will also increase demand for greater varieties of food. China will need to control desertification, overgrazing, the overuse of fertilizers, and over-logging in order to preserve the productivity of its arable lands. Moreover, managing the growing amount of urban waste will be a major challenge.

China’s Position on International Climate Negotiations

Yet, despite pollution levels which are increasingly having consequences for both China and the world, China aggressively defends its right to develop and thus pollute. In 2007, China’s National Development and Resources Commission reiterated China’s past position that “developed countries should take the lead in reducing greenhouse gas emissions as well as providing financial and technical support to developing countries. The first and overriding priorities of developing countries are sustainable development and poverty eradication.” In other words, as a developing country, China must give priority to economic development over environmental protection. Domestic environmental issues take precedence over global concerns. As developed countries are responsible for the large part of historical degradation, they must limit their emissions first, and pay for and transfer technology to developing states to address their environmental problems. These payments are not loans but compensation for the developed world’s historical environmental damage. Developed countries must also take a lead in the reduction of greenhouse gases, and the implementation of signed agreements. The sovereignty of the country’s national resources must be respected. There should be no linking of aid or the implementation of sanctions to any formal agreement to change environmental practices. Environmental considerations should not be used as a reason to interfere in the international affairs of a developing country, or as a reason to impose trade barriers.

China has expanded its position in recent years by noting that population control is one of the most successful strategies to curb emissions. China argues that given its effective population control since 1970, China should be given credit for this key mitigation effort. Additionally, as China has four times more people than the US, China should have a higher emissions quota. China has also advanced the argument that having a modest but dignified level of well-being – which some reason to be about $7500 annually – is a basic human right which takes priority over environmental concerns. China argues that those below this development should be exempt from any requirement to pay for climate policy which indeed includes a large part of its citizens. China contrast this argument with the fact that the richest 20% of the world use over 75% of global resources and emit 51% of global CO2 emissions to maintain their way of life. The Chinese also point out that the ownership and responsibility for emissions is a nuanced discussion; approximately 33% of China’s domestic 2005 CO2 emissions, for example, resulted from the production of exports, raising the question as to whether consumers also bear responsibility for these emissions because of their purchasing decisions.

To bolster its negotiating position, in the past China has formed an alliance with developing and very poor nations. In 1991, for instance, in advance of United Nations Conference on Environment and Development, China convened a forum attended by 41 developing countries which resulted in a unified negotiating position largely reflective of China’s views. During 1987 negotiations for the Montréal protocol to protect the ozone layer, China joined India and Brazil to insist that without significant financial support and transfers of technology from the international community, neither country would sign the Montréal Protocol on Substances that Deplete the Ozone Layer. This resulted in the establishment of the multilateral fund to offer developing countries assistance in the form of both financial compensation and technological transfers. The international community agreed to establish the fund because China and India’s emissions would cancel out the positive impact of the other signatories if they did not participate. That said, China was quick to sign the 1993 Convention on Biodiversity as it was not a threat to its economic growth. With funding in hand, China has worked to meet its commitments under the Montréal Protocol. For instance, in December 2011, China’s Ministry of Environmental Protection announced its HCFC Phase-out Management Plan (HPMP), a US$270 million project to cut consumption of Hydro chlorofluorocarbons (HCFCs) by 1 January 2015 by 17%. As China is the largest producer, consumer and exporter of HCFCs in the world – more than 70% of global HCFC production, and 50% of total consumption of developing countries – its current campaign is essential for the successful implementation of the Montreal Protocol. The plan is aimed at halting the 11% annual growth in Chinese HCFC production that has occurred in the last three years. Christophe Bahuet, United Nations Development Programme (UNDP) Country Director of China expressed optimism that China would reach its targets. Recently, China’s climate stance alongside developing and very poor countries has shifted. During the 2009 Copenhagen conference, for instance, China joined forces with the large, increasingly wealthy so-called BASIC developing states – Brazil, South Africa, India and China – to refuse binding limitations on greenhouse gas emissions, despite entreaties from extremely vulnerable poor countries, especially small island states, whose very existence is at threat by global warming. To this extent, China is no longer an unqualified defender of the developing world.

Increasingly, China has set forth voluntary, non-binding, and non-verifiable emission reduction targets as it did before Copenhagen, when it stated that it would “endeavour to lower its carbon dioxide emissions per unit of GDP by 40-45% by 2020 compared with the 2005 level; decrease its share of non-fossil fuels and primary energy consumption to about 15% by 2020; increase forest coverage by 40 million hectares, and forest stock by 1.3 billion m³ by 2020 from the 2005 levels.” Likely, China’s willingness to put forward these targets was because they were consistent with policies China was already adopting nationally. Indeed, China has many domestic policies related to climate change – to increase energy efficiency and to use more alternative energy, for example – yet these policies are often driven by objectives such as increased energy security, enhancing technological innovation and arresting desertification instead of outright greenhouse gas mitigation.

The Cost of Environmental Degradation to China

Despite its negotiating position in the international community, domestically, China recognizes that environmental protection is a pressing issue. In 2007, the World Bank assessed that China’s combined health and non-health cost of outdoor air and water pollution to be $100 billion annually conservatively estimated, or 5.8% of the country’s GDP. Four of the ten most polluted cities in the world are in China. The World Bank calculated that up to 400,000 people in China die each year from outdoor air pollution, 30,000 from indoor air pollution, and 60,000 from water pollution. An estimated 40% of all the global deaths linked to air pollution occur in China. This is reflected in greater rates of lung cancer and respiratory system problems. China’s water is also producing higher rates of various health abnormalities including liver and stomach cancer, stunted growth, miscarriages and birth defects. Polluted water is also exacerbating China’s severe water scarcity problems. It is conservatively estimated that urban water scarcity costs China about $14 billion annually in lost industrial output, and rural water scarcity generates an additional $24 billion in annual costs. In 2000, the Ministry of Agriculture related that almost 20% of agricultural and poultry products in major industrial and mining districts are irrigated with contaminated water. On China’s current trajectory, the health costs of air and water pollution could triple by as early as 2020, particularly as China’s population begins to age more rapidly.

Moreover, China’s 2011 “Second National Assessment Report on Climate Change” estimated that global warming will significantly impact China in the coming decades. In particular, the report predicted that China’s grain output could fall by between as much as 20% by 2050, putting greater pressure on food prices, and threatening China’s food security. The report also forecasted that global warming would lead to severe imbalances in China’s water resources within each year, and across the years. By 2050, eight of China’s provinces and provincial status cities could face severe water shortages (meaning less than 500 m³ per resident), and another 10 could face less dire chronic shortages. Additionally, since the 1950s, over 82% of Chinese glaciers which feed many of China’s major rivers have been in a state of retreat. With the report predicting that global temperatures will rise between 2.5 and 4.6°C above the 1961-1990 average, this rate of glacial retreat will increase. The report also estimated that sea levels will rise between 10 to 15 cm in the next 30 years, pressing up against China’s big coastal cities and export zones, making them more vulnerable to typhoons and flood tides unless China invests heavily in new coastal embankments.

Social unrest is also an increasing consequence of environmental degradation. The Chinese government received 750,000 environment-related complaints in 2008, a number that has increased approximately 30 percent annually since 2002. This environment-related social unrest risks threatening central authority. Moreover, it is estimated that by 2025 between 30 and 40 million more people may need to relocate due to environmental degradation. The environmental migrants are on top of the high numbers of Chinese citizens slated to be relocated as the result of China’s aggressive dam building.

Challenges to Implementing Environmental Policy in China

Yet while China recognizes the danger of its increasingly stressed bio-capacity, implementing effective environmental policy remains difficult. Perhaps the greatest challenge to implementing effective environmental policy in China is the sheer number of Chinese citizens still well within poverty levels, and the inequality of wealth distribution throughout the country. Until poverty and inequality eradication have been generally achieved, economic growth will be prioritized. Wu Shunze, Deputy Director General of the Chinese Academy of Environmental Planning noted this when he stated that China estimates its industrialization will be completed by 2030, that its use of resources and energy will peak between 2020 and 2030, and that between 2030 and 2050, China will then begin to see a greater shift toward a service-driven economy, and begin to repair environmental damage. China thus anticipates that until 2030, the relationship between the economy and the environment will be “in contradiction”, and will only become preliminarily “harmonious” by 2030.

Until then, China will look for win-win solutions where its environmental policies improve energy security, reduce production costs, promote job creation, and provide it with technological advantage in the world markets without impeding development at home. China’s belief in its ability to “clean-up later” is founded not just on western experience, but on its millennia old tendency to control and shape nature – uprooting forests, redirecting rivers, filling in swampland, building dams and dykes. Successive Chinese dynastic and now Communist governments have long pursued domination over ecological resources.

China’s growing focus on inequality is an increasingly key factor in its environmental discourse as inequality is potentially an existential threat to the Communist Party’s monopoly of power. As opposed to always approaching China as if it were monolithic, international engagement with China about the environment needs to be across multiple levels. What might be expected of China’s increasingly wealthy urban coasts can be an unreasonable demand for China’s poor western areas. Similarly, it is difficult for Beijing to set uniform, national environmental policy. Internal pollution mitigation will require strategies that address challenges at the global, regional, intraregional, city, small town and village levels. In 2009, President Hu articulated this by arguing that China’s wealthier eastern regions must take the first major step toward emissions mitigation, while poor western regions continue to catch up economically.

Since 1980, China has nevertheless implemented a flurry of environmental regulation. Decentralization after the 1980 market reform means that Beijing’s has increasingly imperfect control over its local governments. This exacerbates the environment’s “Tragedy of the Commons” principle. The problem of discharge into China’s rivers is illustrative. To enhance their competitiveness, each locality has an incentive for its factory to discharge its waste as cheaply (often illegally) as possible, with each factory’s waste seemingly inconsequential in relation to the river as a whole. Ultimately, the accumulation of its and other factories’ waste devastates the river. This effect is compounded by the fact that pollution fines are low and that natural resources are undervalued. Additionally, those most affected by river pollution do not always speak out against pollution when their livelihoods are dependent on the offending industry. While farmers, for instance, might suffer lower crop yields, sick animals, and deteriorating health because of polluted water, their income can nevertheless be reliant on the polluting factory which may be providing family members with jobs, investing in local infrastructure and purchasing farm produce, which in itself might be contaminated.

The ineffectiveness of local environmental protection bureaus compounds the problem. Numerous Chinese agencies are responsible for overseeing environmental protection depending on the pollution problem. These ministries often compete for international and domestic environmental funding. Their poor coordination and delineation of public duties creates conflicts of interest, especially at the local level. Nationally, responsibility for environmental protection in China rests primarily with the Ministry of Environmental Protection (MEP) formerly the State Environmental Protection Agency (SEPA). While elevation to a cabinet level ministry has enhanced its power, MEP still remains a relatively weak voice within China’s government. Historically, environmental funding has been low. China’s Environmental Protection Bureaus (EPBs) monitor environmental conditions at the local level. Despite MEP supervision and the bureaus seemingly large manpower – China’s roughly 2500 EPBs employ some 60,000 people – in general, the EPBs report to local governments for budget and resource support. This gives the local government leverage to protect local interests. A chronic lack of funding also hampers enforcement. Bureaus often have insufficient staff and cars for inspections. Factories are aware of these constraints and use this to their advantage by, for instance, discharging at night. Even when bureaus launch campaigns to close or sanction problematic companies, the companies often relapse into violation or reopen once the campaigns quieten down. Also, fines often cannot be applied to companies across administrative boundaries. Counties and cities have often shifted polluting enterprises near the border with downstream counties, so river discharge is carried quickly into the next province. Pollution fines also partly fund EPB activities. This can lead to perverse incentives where a bureau can encourage the persistence of pollution problems in order to pay its wages.

Courts are also often ineffective and enforcing environmental law. While China has an increasing level of environmental legislation, public awareness of environmental law remains poor. Given the poor availability of environmental data, when cases are brought to court, it is difficult for victims to provide conclusive evidence. Additionally, many polluting companies pay relatively significant levels of local taxes. As most courts are funded and staffed by local governments, there is an incentive to interfere with court proceedings in order to protect polluting companies and the taxes which flow from them. As a result, many environmental court cases are thrown out on the basis of flimsy reasoning.

Corruption is also a factor in China’s environmental degradation. In China, corruption can be seen as bribery and cronyism when developing environmental policy and when promoting harmful environmental practices, embezzlement of environmental funding, and bribery during environmental inspections and issuing of permits. Environmental corruption can also be connected to organized crime, particularly in mineral, timber and wildlife trafficking.

Trends

What is certain is that, even if it were to implement every environmental strategy discussed in China’s 12th Five Year Plan, China’s greenhouse gas emissions will continue to rise. What is uncertain is the level of that increase. Many factors influence the rate of environmental degradation within China, and its contribution to global warming. On the negative side, the decentralization that has occurred as China has transitioned to a market economy means that it has less absolute control over its regions than it did historically, so that enforcing national environmental regulation remains challenging. Moreover, courts and regional Environmental Protection Bureaus are often funded at the local level, reinforcing regional control over the implementation of environmental policy. Currently, most market and political incentives encourage local officials to continue to prioritize rapid economic development. While Beijing has indicated a move toward decoupling promotion from GDP growth, most local party officials will continue to be strongly incentivized by the financial benefits that accrue to their region and to themselves as a result of strong economic performance. Corruption will also continue to undermine environmental protection.

As the Chinese Communist Party’s legitimacy now rests in large part on its ability to provide a rising standard of living for its citizens, China will continue to need strong economic growth to raise its approximately 400 million citizens still living on $2 or less per day out of poverty, and provide them with a “modest dignified level of well-being”. In addition, growing inequality throughout the country is placing greater pressure on CCP leadership to provide opportunity for those regions, mainly in the west, that significantly lagged behind wealthier east coast provinces. While China increasingly speaks of the importance of sustainable development, and although it is increasingly investing in green technologies, it is unlikely that these technologies can come online rapidly enough to offset all the pollution that will be emitted as China works to provide a reasonable standard of living for the bottom third of its population. Additionally, China is racing against the problem of a rapidly aging population, trying not to grow old before it grows rich and before the competitive advantage of its huge inexpensive workforce begins to dissipate.

Given the challenges of China’s decentralization, and the pressures of poverty, inequality and a rapidly aging population, what is most likely is that China will continue to be the world’s largest contributor to greenhouse gas emissions and environmental degradation for at least the next two decades. Yet within this high greenhouse gas emission model, there will be an increasing trend toward bringing on line a rapidly growing level of alternative fuels, green technologies and pro-environmental protection policies such as environmental taxes and cap-and-trade pilot programs. Indeed, by the end of 2030, it is possible that China will be a world leader in many of the green technologies that will be most impactful on protecting our global environment going forward.

In international climate change negotiations, China will continue to refuse to be constrained by internationally imposed targets which can be monitored by outside countries. Yet, China’s growing implementation of environmental technologies at home will allow it to be a much more constructive player in international negotiations in the future. Increasingly, China is likely to hold up its environmental accomplishments at home as an example to other countries; for example, by 2015, China is expected to lead the world in installed hydro, solar, wind, and nuclear capacity. Thus, China’s future in the field of environmental protection will be, paradoxically, both world-leading but also internationally uncooperative.

Rising Income Inequality in China: A Price Worth Paying?

Introduction

J. Margolis

China, a country of continental scale, has experienced inequality in many shapes and forms throughout its 4000-year history. Part of this inequality is regional; attributable to China’s sheer size and the diversity of its geography. Lack of water, arable soil, and good links to transport networks significantly affect an area’s ability to prosper. Areas that suffered from such deficiencies in China 1000 years ago tend to be the same areas that struggle with limited resources today. For instance, China’s southeast, with its abundantwater resources and excellent access to international markets, continues to be one of the wealthiest parts of modern China. China’s western plateaus, sparsely inhabited, with poor arable land and water resources, limited transport and infrastructure systems, remain poorer areas of the country today.

Inequality during the Mao Era

During the Mao era, the Chinese government set income equality across China as an important goal, although it was never fully achieved. Topographical advantage remained determinative, even in the face of economic policies aimed at reducing it. The CCP enforced a hukou family register system, which eliminated the ability of China’s citizens to move about the country, limiting them to the area in which they were born and their family registered. What this meant in practice was that those born in regions that lacked resources, or those born in the countryside, had relatively less wealth than those born in more resource-rich regions or in urban areas. Thus inequality during the Mao era was principally between urban and rural areas, as opposed to between individuals in the same area. Nevertheless, high ranking party officials did enjoy more relative wealth than those who were not part of the Communist Party, yet the lack of consumer goods and isolation from the international economy meant there were not many opportunities for even high-ranking party officials to have conspicuous consumer advantages over rank-and-file citizens. In fact, until the Reform era brought more consumer goods to China, most Chinese citizens merely strived for the four “must-haves”: a bike, a watch, a radio, and a sewing machine.

Inequality in the Reform Era

J. Margolis

In 1978, this all began to change with the implementation of the Dengist reforms. Deng explicitly declared that some should be allowed to ”get rich first”, with the implicit understanding that others can get rich later. This was a significant alteration in policy; for a communist government to accept, and even encourage, societal inequality was certainly groundbreaking. As China began to make the transition from planned- to market- economy – a journey that has, by no means, been completed – income inequality increased in measure with its transition towards capitalism. However, the early years of the reforms, at the beginning of the 1980s, were marked by a fall in overall inequality, driven by the loosening of restrictions on rural areas selling their excess produce for profit. This allowed those rural producers of food to close the income gap with their urban counterparts. Chinese official statistics struggle to provide an accurate picture of Chinese incomes today; the wealthy often under report their earnings and the very poor can be underrepresented as their geographical isolation and high illiteracy rates can make them difficult to track. Yet even those official figures that can be produced, which may try to disguise large disparities, have shown income disparity to be increasing. China’s Gini coefficient – the most commonly used measure of inequality under which an entirely equal society would have a coefficient of 0 and one that is entirely unequal would register as 1 – stands today at 0.47. This is considerably above both the World Bank’s ‘critical threshold’ of 0.4 and the US Gini of 0.41, and shows signs of reaching the extreme levels that plague Latin America. This statistic becomes even more alarming when viewed against the levels of inequality at the outset of the economic reforms: in 1980 the Gini coefficient was 0.28. In essence, inequality has risen in China by over 50% in thirty years. While this is in line with the Dengist policy of ‘letting some get rich first’, it is evident that continued increases on anything approaching this scale over the next thirty years would cause difficulties for the CCP both in terms of potential social unrest, something that is already a growing problem, and of its ability to undermine the CCP’s legitimacy base. The CCP has begun to recognize this rhetorically as well as in policy with speeches from Wen Jiabao and Hu Jintao peppered with references to the need to address income divisions.

Regional Inequality

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Today, the biggest discrepancy of incomes can be seen between regions. China began its capitalist experimentation in the Pearl Delta region of Guangdong province, where its workers sewed piecework for Hong Kong textile manufacturers. As more and more of China’s GDP began to be generated by international trade, this and other industries spread northwards along its coast. Consequently, China’s east coast is now its most developed area, with income levels at purchasing power parity (PPP) approaching those of countries such as Saudi Arabia or Singapore.

In the first 12 years of economic reform, growth in China’s interior regions was driven by a re-introduction of private markets in the agricultural sector, as well as increased productivity during the ‘green revolution’. This increased productivity allowed peasants to move into rural industry, such as the manufacturing of farming equipment, further driving rural GDP and income growth. Although this did initially cause the income gap between urban and rural areas to fall in the early 1980s, geographical inequality has since been rising and shows little sign of reaching a plateau.

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When it comes to inequality between coastal provinces and their poorer inland neighbors, differences in income have been rising ever since the start of the reform era, as the coastal east has benefited from China’s export driven economic growth. Apart from the obvious geographic advantages for trade, coastal provinces have benefited from government initiatives such as favorable tax and financing regimes. As a result, through much of the 1990s, coastal growth rates were three percentage points higher than those of inland regions and China’s coastal provinces remain more affluent than its interior regions. There is, however, some evidence that the phenomenon of coastal GDP growth outpacing the interior is starting to change, as rising wages in coastal areas and the consequent reduction in international competitiveness, has driven some industries inward in search of lower costs. One notable example is Foxconn, the giant consumer electronics manufacturer that produces goods for companies such as Apple and Sony, which has relocated part of its production line to the interior. That said, China’s interior western provinces still have a long way to go. In 2011 Guizhou, China’s poorest province, had a GDP per capita of 16,000 RMB (approx. $2,400), while Tianjin’s was 84,000 RMB (approx. $13,000). The three provincial-level cities in the east – Beijing, Tianjin, and Shanghai – have the largest incomes per capita by some distance, each with a per capita GDP of in excess of 80,000 RMB, while Tibet, Gansu, Yunnan and Guizhou – all in the far west of the country – are all under a quarter of this total.

Although huge differences in income between regions evidently remain, the central government has shown an increased interest in resolving this inequality. In 1999, President Jiang Zemin announced the “Develop the West Program”. As well as addressing ecological and security concerns, the “Develop the West Program” was intended to stimulate development in China’s least prosperous provinces and to soften the blow to China’s interior as China entered the World Trade Organization in 2001. This policy has had reasonable success; in particular, it has encouraged significant infrastructural investment in China’s western provinces. However, though it may have slowed down the rate of increasing inequality between east and west, the pattern has continued throughout this time, leaving those in the west relatively poorer than they ever have been.

Getting Rich First?

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Within any one region, individual income inequality is also now evident. Economic development tends to lead to income inequality in every society and China has been no exception. In June 2012 it was reported that the number of dollar-millionaires in China had reached 1.4 million, while the number of billionaires has been placed at between 100 and 600, second only to the US; at the same time there are still 400 million Chinese who live on less than $2 a day, and around 172 million on less than $1.25. Many workers have seen great returns on their education and skill levels; those with higher levels of education, experience, and skills were rewarded with increased incomes. Some were well positioned during privatizations, having party and other connections which allowed them to win contracts or acquire state assets at significantly reduced prices. Studies show that CCP membership is positively correlated with income. A report in 2009 said that around 90% of China’s billionaires are so-called “princelings”, the sons or daughters of leading Communist Party cadres. China does, however, have a long history of entrepreneurship and many Chinese have embraced this tradition. Some were just plain lucky, had a good idea, or were in the right place at the right time. Zhang Yin, for example, rose from humble roots to become China’s first female billionaire. She earned her fortune by buying scrap paper from the US, importing it to China where she turned it into cardboard before selling it back to US manufacturers.

Gender Inequality

project1photography / Shutterstock.com While one can point to stories of women such as Zhang Yin as examples of the relative freedoms and opportunities offered to Chinese women, nevertheless there remain real income differences between the sexes even within the same geographical area. Though Mao declared, “women hold up half the sky,” meaning that women were to be freed from the subordinated expectations of dynastic China, and to work as equals with men, this is seen by many not as demonstrative of his opinions surrounding gender equality, but rather his obsession with increasing the Chinese labor force. The male communist worker was still, on average, better compensated than his female compatriot. Yet the income-earning opportunities of women in the Mao era were unimaginably better than those of their ancestors, many of whom were confined to the house, teetering on 3 inch feet. Today, the pay gap between male and female workers shows no signs of decreasing. This is by no means confined to the elder generation; female graduates earn on average 13% less than their male contemporaries. Still, opportunities for women in China are often strong when compared with those of many other countries. For instance, 19% of Chinese companies employ female CEOs, compared with 9% and 5% in the EU and North American markets respectively.

Ethnic Inequality

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Another group that has consistently been at China’s lower income levels is China’s ethnic minorities. Part of this inequality may be caused by the fact that most Chinese minorities live in the western fringes of the country which often suffer from water scarcity, short growing seasons, and difficult access to transportation systems and international markets. The minority populations living in these areas often suffer from lower wages and living standards than those who have made their way to the east and the gap between Han and ethnic minorities can, to some extent, be explained in these geographical terms. Still, it is also true that the average Chinese ethnic minority suffers at least some discrimination regardless of where location, and often does not have the same opportunities as the average Han Chinese.

Inequality at what cost?

China has tolerated its growing inequality in order to achieve the rapid rates of economic growth that is has experienced since the 1980s. The CCP’s fear is that once economic growth starts to slow, which grows more likely given the continuing financial and economic challenges of the west, then the unequal distribution of wealth at various levels will cause major social unrest. The Tiananmen Square incident of June 1989 was partly caused by high levels of income inequality and in reaction to high levels of inflation that were squeezing the living standards of the poorest in China. Beijing is wary of the possibility of the reoccurrence of such an event, especially given the recent events taking place in the Middle East in what has come to be known as the ‘Arab Spring’, itself partly driven by dissatisfaction with levels of inequality. Additionally, as the poorest provinces in China are generally those with the highest percentage of ethnic minorities, China fears that their social unrest may exacerbate feelings of resentment towards Beijing and stoke ethnic tensions within society. Violence directed towards Han Chinese has already occurred in several parts of Chin, notably among the Uyghurs of Xinjiang, the Tibetans in Lhasa, and the Hui in Henan.

Chinese intellectuals today debate whether economic growth at all costs should be tolerated. Many propose a more “socialist” or European model of social development, where the state shares some of the responsibility for ensuring that all its citizens reach a basic level of economic prosperity. This prosperity would be significantly aided by the re-creation of China’s health and pension systems, which were often commune-based and largely dismantled when China privatized many of its state-owned industries. Developing its national healthcare and pension systems would also help China shift its economy from being largely export driven to being one that relies on much greater domestic demand. Currently, the average Chinese citizen saves aggressively in anticipation of future healthcare and pension costs that will need to be self-funded. A first attempt at providing a very basic social security was launched in 1999 with China’s creation of the Minimum Living Standard Guarantee Scheme (Dibao) designed to aid those most in need in the form of a very basic welfare package. The income limit for becoming eligible to this however is incredibly low. In urban areas, the average level is just over 200 RMB ($30) per month, while for rural areas it is below 100 RMB ($15) per month.

Future Trends

The persistence of inequality in China today is a thorn in the side of the CCP. Having largely moved away from its communist ideological base, the CCP’s legitimacy is largely based on nationalism and the promise of economic prosperity. China is faced with the double challenge of not only ensuring that its economy continues to grow, but of trying to see that its wealth is shared out as equally as possible. The potential for friction in society – and the threat that might pose to the CCP – is implicitly acknowledged in Hu Jintao’s drive for a ‘harmonious society’, the principle tenet of his ideological musings. It is important to note that despite the rise in relative inequality, the absolute living standards for almost every single Chinese person have increased since the economic reforms were implemented. Since the reform era began, China has lifted around 400 million people out of absolute poverty, an achievement unmatched anywhere in the world and throughout human history. This should not be underestimated even as the problem of relative wealth disparity is, correctly, addressed as a pressing issue.

It is of course impossible for any nation to be completely equal and most developed countries have their own problems with unequal distribution of wealth. China, with its vast size, enormous population, and varied geography, will always struggle with inequality. Inequality persists throughout China. While it is true that the west is poorer than the east, there are pockets of abject poverty even in the richest provinces and rich parts in the poorest areas. From the Communist Party’s perspective, its key task is to prevent income inequality from rising to such levels that widespread social unrest threatens its control of power. As China’s wealth grows, and as it invests large parts of its enormous surplus within its own borders, more government initiatives are expected to be designed to develop the prosperity of provinces and sectors of society that lag behind the rest. Nevertheless, in the short term, income inequality will continue to increase as China’s rapid economic development lifts its population from poverty at varying rates. The mammoth task for the CCP will be to ensure that inequality doesn’t rise at a faster rate than GDP growth. While the living standards of the majority are being raised it is likely that increases in inequality will not prove perilous for the authority of the CCP, especially as much of this inequality is between areas that are thousands of miles apart. The next 30 years will prove very difficult for China to maintain the balance between consistent economic growth and raising the living standards of those at the very bottom of the income ladder, although this can be managed as long as China continues to move towards a domestic demand-led, and not export-driven, economy.

Water in China: A Thirsty Country

Introduction

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China faces severe water shortages. Its current water per capita is one quarter of the world average, yet its overall per capita usage is still low by international standards, but this will increase over the coming decades. The water that China does have is often badly polluted and is inefficiently used. Moreover, China’s water is unequally distributed with the Yangtze River basin and areas to the south enjoying 84% of China’s naturally available water compared with just 16% in China’s north.

China’s water scarcity will challenge its future economic expansion. Already, agriculture, industry and China’s growing cities all compete for scarce water resources, as do China’s different regions. Decades-old economic priorities such as food self-sufficiency will be increasingly difficult to maintain because water used in industrial output creates more economic value than it does in agriculture. Water scarcity also creates domestic unrest. Increasing illness caused by polluted water is driving up healthcare costs and generating more internal dissent. In 2009, the Chinese government acknowledged that 90,000 “mass incidents” (a euphemism for protests) occurred, many of which were sparked by environmental and water degradation.

Population and its Impact on the Hydrological Cycle

Right from China’s earliest dynasties great attention was paid to agricultural productivity. The Chinese bureaucracy mobilized the Chinese masses to construct irrigation systems and to clear land. This created an agriculture-population feedback loop. Increased agricultural productivity led to a rise in population, requiring further hydro-engineering and agricultural innovation to maintain China’s swelling numbers. In an agrarian society, large families of many sons offered rural parents security both in terms of providing labor for farming and care in old age. In this way, China has remained the world’s most populous country for thousands of years. China is still the world’s most populous country today. In 2019, China’s population was approximately 1.434 billion people. By 2035, China’s population is expected to peak at 1.461 billion people. By 2050 and 2100, China’s population will reduce to 1.402 billion and 1.064 billion, respectively.

 

China’s large population today has risen in part because of a significant population surge between 1950 and 1980. During the period, China’s population grew from 554 million to just over 1 billion people. In order to feed its enormous and rapidly growing population, Mao mobilized its masses to create new agricultural and grazing land through the clearing of forests, the filling of lakes, the draining of swamps and wetlands, and the creation of large irrigation projects. While placing more agricultural land under plow and significantly expanding its irrigation networks, this significant transformation of China’s natural environment into an agricultural environment has impacted China’s hydrological cycle. When land is cleared of plant life through unsustainable farming and grazing methods, the local hydrological cycle is disrupted, and desiccation – the drying out of the environment – occurs. Instead of catching precipitation in the region and allowing rain to repeatedly return to the area hrough the process of evapotranspiration, deforestation, over-grazing and over-farming causes surface water to run immediately into streams instead of permeating the soil. In the north and northwest of China, it has been estimated that the average annual precipitation has decreased by one third between the 1950s and the 1980s; overall China has 350 billion m³ less water than it had at the start of the century equivalent to the amount of water that flows through the mouth of the Mississippi River in nine months.

China’s Significant Desertification

Approximately 28%, around 2.5 million km², of China’s land is desert or suffering desertification. China’s deserts have expanded significantly over the last six decades. China’s Environmental Protection Agency reported, for instance, that the Gobi Desert grew by 52,400 square kilometers (20,240 square miles) from 1994 to 1999. Overall, China’s semi-arid regions have increased 33% during 1994–2008 compared to 1948–62, and its deserts continue to expand at an estimated rate of 1,300 square miles a year. In addition to topographical and geographical conditions, factors driving China’s desertification include over-cultivation, overgrazing, pollution, wind erosion, water erosion, salinization of soils through over-irrigation, over-cutting firewood, water misuse, and industry and mining-related land destruction.

The cost of desertification is real. It is estimated that China loses approximately $6.8 billion annually from its growing deserts and arid lands. Desertification leads to depreciated land values, food insecurity resulting from reduced crop yields, heightened healthcare issues, and increased costs resulting from land protection efforts. Desertification and deforestation have also caused sediment levels to significantly increase in all of China’s river systems due to severe soil erosion. Greater soil levels in river water can impact the functioning of China’s many hydropower systems.

To fight China’s desertification, China unveiled the Great Green Wall program.  Launched in 1978 and targeted to continue until 2050, the program’s objective is to plant a shelterbelt of trees across the northwest rim of China skirting the Gobi Desert. The Great Green Wall is expected to be 4,480 km long and 560-1460 km wide. To date, an estimated 66 billion trees have been planted.

However, this massive reforestation program has been controversial. Much of the shelterbelt area, except for areas to the east, is not highly suitable to forest growth. Trying to plant trees in ecosystems not suited to forest can diminish biodiversity, reduce water recharge, and cause a loss of soil quality and moisture. Additionally, China has tended toward the planting of a single species of trees over large areas. In Ningxia, for example, 70% of the trees planted were poplar and willow. Monocultures tend to be more vulnerable to disease.  In 2000, for instance, one billion poplar trees were lost to disease, wiping out 20 years of planting effort. Additionally, monocultures do not increase biodiversity as they are not appropriate either for plants and animals normally found in the native, dry-land ecosystems or for the animals and plants that might want to migrate to newly forested ecosystems.

Another disadvantage of planting trees on grasslands is that they tend to absorb large amounts of groundwater. In Minqin, an area in north-western China, studies have shown that groundwater levels dropped by 12–19 metres since the advent of the project. As these trees absorb water levels, shallower-rooting native shrubs and grasses can die off. When this occurs, the soil on the forest floor is susceptible to wind erosion, the very challenge that the trees were planted to thwart.  As evidence of this risk, sand storms from wind erosion have become more frequent despite China’s herculean tree-planting efforts. Fifty years ago, dust storms plagued China about once every seven or eight years; now they occur annually.

Given the challenges of the Great Green Wall, there is growing realization shrubs and grasses native to the region may be much more effective in restoring degraded dry lands and holding sand in place. As a result, there has been some movement toward replacing the planting of trees with the sowing of native flora.

Water Scarcity

Overall, China is an extremely arid country.  As China’s population has swelled over the millennia, its per capita water has decreased. China now has an estimated 2,029 m3 of water per capita per annum, one quarter the world’s average. This per capita water figure is projected to decrease to 1,875 m³ by 2033. This water scarcity is exacerbated by China’s uneven water distribution. China’s precipitation patterns are heavily affected by the East Asian monsoonal climate. Its mountainous geography impedes and drains the monsoonal rains as they move from the southeast into the northwest of the continent. On average, southern China – including the Yangtze River basin and areas to its south – has approximately 80% of China’s water, yet the area supports 54% of its population, 35% of its arable land, and 55% of its GDP Conversely, northern China collected only 20% of China’s water to maintain 46% of the population, 65% of the arable land and 45% of its GDP. In some northern areas, strains on water resources are even worse. Beijing’s and Tianjin’s Hai River basin, for instance, receives approximately 1.5% of China’s water to support 10% of its population and 11% of its arable land. Moreover, 47% of total industrial output is fabricated in China driest 11 provinces including: Beijing, Gansu, Hebei, Henan, Jiangsu, Liaoning, Ningxia and Shandong. These 11 water-parched provinces account for just 7% of China’s total water resources but produce 36% of China’s agricultural production and 43% of total GDP while supporting 38% of the population.

Approximately 400 of China’s cities currently face water shortages, and over 300 million people drink water contaminated with pollutants including arsenic, excessive fluoride, toxins from untreated factory wastewater, agricultural chemicals, leaching landfill waste and human sewage. Moreover, China’s per capita water footprint is growing. China will not only have more people competing for its finite water resources in the coming decades, but each person will individually demand more water. Today, China’s overall water footprint per capita is still about half that of the US but is expected to grow by between 40% and 50% by 2030. Factors such as higher living standards, increasing urbanization and further industrialization are driving water demand. China’s rising wealth has meant, for instance, that its citizens are eating substantially more meat. The production of one kilogram of beef requires 600 liters of water compared with the 100 liters required for a kilogram of wheat. This shift in diet can be seen in China’s food footprint numbers. In 1961, China used 260 m³ of water per capita to grow food; by 2003 this figure had more than trebled to 860 m³.

Agricultural, Urbanization, Industrialization, Water Wastage

Currently, 62% of China’s water is used for agriculture, a sector which is responsible for approximately 13% of the country’s GDP. About 50% of China’s farmland requires irrigation, more than double the world average. Nearly 75% of total grain production and over 90% of China’s cash crops are sown on irrigated farms. According to China Water Risk, irrigation water usage was approximately 340 billion m3 in 2013, equal to the average annual flow from China’s Pearl River, China’s third longest river.  Yet agriculture water usage remains extremely inefficient, with an estimated 45% of agricultural water lost before it even reaches crops.  By contrast, water used for industrial output is 70 times more productive in terms of financial value than that used in wheat production.

That said, the water productivity of Chinese industry is also low by international standards. The industrial added value per 10,000 yuan of water consumption is about 50 m³ compared to 7-9 m³ in developed countries. Additionally, the industrial water recycling rate is less than 50% compared to 85% in developed countries. Overall, China’s overall water productivity – calculated by dividing GDP by annual total water withdrawal – remains low: $15 in 2015 compared with $318 for the UK, $115 for Singapore, $103 for Germany, $67 for Japan, and $36 for the United States.

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China’s growing urbanization is also requiring more water per capita. 70% of Chinese citizens are projected to be living in cities by 2030, up from 59% today. This is significant because urban dwellers consume three times as much water and energy as rural residents. Between 2000 and 2020, for instance, the World Bank estimated that China’s urban water consumption increased by 60% as its urbanization rate rose from 36% in 2000 to 57% in 2020. Moreover, more urban dwellers will require more electricity. Currently, it is estimated that 59% of China’s primary energy consumed was powered by coal.  Coal requires more water to produce them all other energy sources. Moreover, over half of China’s coal deposits are found in its north, the Chinese region which suffers from the most water scarcity.  Coal mining, processing, combustion, and coal-to-chemical industries are the country’s second largest water consumer after agriculture. Therefore, consuming more coal to produce more electricity will put additional stress China’s limited water resources. Finally, China’s urban water distribution networks are particularly leaky. In 2002, an investigation of 408 cities conducted by the Ministry of Construction found that urban water supplies lost an average of 22% of their total water flow.

Water Pollution

Despite China’s efforts over the last three decades, water pollution has spread from the coastal to inland areas and from the surface to underground water resources. An estimated 70% of China’s rivers and lakes are now polluted. In 2009, 57% of the 7 monitored river basins had pollution levels of I-III, suitable for drinking, swimming, household use, and able to support aquatic life. 24% of China’s rivers had levels of IV-V, water unfit for swimming, but suitable for industrial purpose. 19% had V+, meaning that the water is considered useless, unfit for industry or agriculture and unsafe for human contact even after treatment. 23% of China’s key lakes and reservoirs had water grades of I-III, 42% IV-V and 35% V+. 2.3% of groundwater in 8 regions was rated I-II, 23.9% was graded III, and 73.8% ranked IV-V.

Causes of water pollution include the disposal of industrial chemicals and waste, agricultural waste, and residential wastewater. Of these pollution sources, approximately 70% of the water pollution nationwide comes from agriculture, particularly runoff from fertilizers, pesticides, and animal waste. For millennia, China’s farmers produced agriculture through “organic” farming methods. Farmers collected every bit of organic waste to ferment for fertilizer. Nothing was wasted, and even human waste, or “night soil”, went into “honey buckets” to transport to the fields. Every winter and spring farmers dredged nearby rivers and canals to add sediment to the fertilizer. Particularly in the south, dense grass at the water’s edge was added to pig fodder, which, after being digested by the pigs, produced manure, and helped keep the rivers and lakes clear from vegetation. The entire process of recycling was labor-intensive but efficient. The rivers and lakes remained relatively clean despite thousands of years of intensive farming.

Yet, since 1978, fertilizer applications in China have increased fivefold. In general, animal and human feces are no longer collected for fertilizer, and instead are discharged untreated into rivers.

In addition to causing pollution, fertilizer runoff is also raising the instances of eutrophication. Although blooms of aquatic biomass are spurred by a variety of factors including nutrients, light, temperature, water flow, turbidity, zooplankton grazing and toxic substances, the main factor contributing to the growth of algae is the supply of nutrients.  Chemical fertilizer runoff has significantly accelerated eutrophication of many of China’s lakes such as Dian Chi in Yunnan Province, Chao Hu in Anhui Province and Tai Hu in Hubei Province where algae blooms absorb a significant portion of the lake’s oxygen, choking off fish and other aquatic life. Large algae blooms also broke out right before the 2008 Olympics, forcing Beijing to launch a massive emergency clean-up to ensure the sailing events could go ahead as scheduled in Qingdao, in Shandong.

In addition to pollution caused from fertilizer and pesticide runoff, rural areas also contribute to contamination by poor wastewater management. According to the 2017 China Statistical Yearbook, for instance, while nearly 95% of municipal wastewater generated by urban residents was treated, this number dropped to 25% for rural residents. Additionally, small-scale rural enterprises have less rigorous environmental monitoring, but frequently engage in all manner of heavily polluting production, such as the operation of paper mills, tanneries, and breweries. Pollution from the small-scale rural enterprises is aggravated by the fact that they are more likely to use outdated equipment and have less resources to spend on pollution abatement.

About 80% of China’s 7500 most polluting factories are located on rivers, lakes, or in heavily populated areas. While occurring less frequently than in the past, these factories have been known to release untreated waste and chemicals into China’s waters either intentionally or by accident. Example of this is the 2012 cadmium spill in Guangxi which polluted an approximately 100 km stretch of the Longjiang River at a level of more than five times the official limit, contaminating water supplies for Liuzhou, a city of 3.2 million people. Cadmium is poisonous and can cause cancer. Another example is the 2020 Heilongjiang province spillage of 2.53 million cubic meters of water containing molybdenum ore waste into the local river system. The spill contaminated water for 110 km southwest of the mining site, where the chemical oxygen demand reading (DOC) – a measure of water quality – was 5.7 times higher than standard levels.

China’s factories also release dangerous airborne pollutants that are absorbed into groundwater or contaminate rivers by way of urban runoff. Some of the most harmful are categorized as polycyclic aromatic hydrocarbons (PAHs), and an estimated 90% of water located in sources near Chinese cities is now dangerously polluted because of their presence.

Economic and Health Cost of Water Pollution

pcruciatti / Shutterstock.com The World Bank estimated that China’s water crisis is reducing China’s GDP by approximately 2.3% annually, with 1.3% attributable to water scarcity, and the other 1% caused by the cost of water pollution  estimates do not include the costs of ecological deterioration caused from the eutrophication of lakes and rivers. Nor do they reflect the economic cost of disease caused by water pollution, conservatively estimated at an additional 0.5% of GDP. In China’s most polluted areas, water has also been blamed for the recent high rates of various health abnormalities including liver and stomach cancer, stunted growth, miscarriages, and birth defects. This pollution can also be absorbed through China’s food supply. In 2011, it was estimated that up to 10% of China’s rice crop might contain unsafe or nearly unsafe levels of cadmium because of widespread irrigation with cadmium-poisoned water. A more targeted 2014 Greenpeace study testing rice harvested in Hunan province near a smelting site found that the rice contained dangerously high levels of cadmium, lead and arsenic.

China has also seen a rise in cancer rates. Contemporaneously with the rise in pollution levels in China’s lakes and rivers, digestive tract cancers including stomach, liver and esophagus have also risen and are now responsible for approximately 36.4% of cancer-related deaths in China compared to less than 5% of total cancer deaths in either the US or the UK. Additionally, there have also been incidents of contaminated river water from industrial activities leading to outbreaks of cancer concentrated in some villages. These villages have become colloquially known as Aizheng Cun, which literally translates as “Cancer Village.”

Flooding – Yellow River and Yangtze River

Not only are desertification and deforestation exacerbating China’s water scarcity, they are also aggravating China’s flooding challenges. The Chinese Minister of Water Resources, Chen Lei estimated in 2007 that China has lost 2% of national GDP annually to flooding since 1990 and a recent study placed the total costs of floods from 2000 to 2012 at 105 billion RMB annually (US $17 billion). Flooding has challenged Chinese rulers for millennia. From 602 BCE to 1938 AD it is estimated that major collapses of Yellow River dikes occurred once every two or three years. Then, every hundred years or so, the river would change its course. Many of the resulting floods were some of the deadliest natural disasters ever recorded. For millennia, the Chinese constructed dikes along the lower reaches of the Yellow River trying to contain its torrents, yet constant ecological destruction along the upper reaches increased erosion which intensified river silting. The silting raised the riverbed above the countryside. This “suspended” river greatly increased flood damage when the river inevitably breached its dikes. After 1949, the CCP built almost 3000 dams on the Yellow River, and heavily reinforced its levees and embankments. These hydro-engineering projects involved the equivalent of 500 million workdays and 1.4 billion m³ of reinforced concrete – enough to build 13 Great Walls. Yet many of the Yellow River’s dams have fallen short of physical and economic targets, and have resulted in huge losses of forest lands, wildlife habitat and aquatic biodiversity. Global warming has also increased evaporation at many of the dam sites.

Similarly, parts of the Yangtze River have flooded continually for millennia. Yet, as deforestation and reclamation of land has increased, floods have become more frequent and more destructive. The CCP attempted to solve the flooding by increasing the height of 3,600 km of embankments and more than 30,000 km of levies. The work required more than 4 billion m³ of dirt and stone, or enough material to put a wall around the globe three times. Yet these raised structures could not offset the loss of water absorption capacity caused by the rapid deforestation and agricultural land reclamation that occurred during the same period. As a result, the Yangtze experienced a series of significant floods in 1980, 1981, 1983, 1991 and 1996. Then in June 1998, China suffered one of its worst floods in 40 years, leaving 3,700 people dead, 15 million homeless and causing $26 billion of economic damages. The reinforced embankments and levees proved largely ineffective, with approximately 9,000 of them collapsing. As well as providing hydropower and improved navigation, the controversial Three Gorges Dam was built in large part to control the Yangtze’s flooding, although many scientists believe that the Yangtze is still vulnerable. Additionally, after the 1998 flood, China began to place greater importance on the role of ecology in flood prevention and has begun an extensive campaign of reforestation and forest preservation.

Drought

Because of the variability of the monsoonal rains and other factors, like flooding, drought has plagued the country for millennia. Yet desiccation, reduced precipitation and rising temperatures in many areas have made China’s droughts more frequent with longer durations extending over greater areas than at any previous time. For instance, research has shown that since 1980, severe droughts in China’s northeast have increased in frequency, severity, and duration. Between 1960 and 1980, acute droughts struck approximately once a decade. From 1980 onwards, droughts have occurred with greater frequency: in 1981, 1986, 1992, 1994, 1997, 2000, 2001, 2005-2007, 2010, 2017-2018, 2019, 2020. China’s southwest to northeast belt was the area most affected by drought. Regions most impacted include Inner Mongolia, Hunan, Yunnan, Hubei, Jilin, Anhui, Sichuan, Liaoning, Guizhou, and Shandong.

Although difficult to pinpoint specifically, it is estimated that China lost $7 billion annually due to the economic cost of drought between 1984 in 2017. If global warming continues apace, these economic losses could increase to between $47 billion annually if temperatures rise an additional 1.5°C to $84 billion if global warming drives temperatures above 2°C.  China has been essentially self-sufficient in grain for decades. This self-sufficiency camouflages the fact that China produces one-sixth of the world’s wheat output and one-fifth of global corn. China is thus enormously important to the world’s food supply. If drought significantly disrupted China’s food production on a large-scale, it could significantly impact world food prices. The risk is real. In every year since 2005, drought has challenged China’s grain crops, and the government has been forced to spend billions of dollars digging wells and cloud seeding to encourage rain. In 2010-201, northern China suffered its worst drought in 60 years, impacting most of China’s wheat producing regions. At its peak, it is estimated that 36% of China’s northern wheat fields were affected, and that 2.57 million people and 2.79 million livestock suffered from a lack of water. The water shortages also affected around 161 million people, with an economic cost estimated at $2.8 billion. In 2017, China’s Inner Mongolia region experienced a severe drought which affected 120,000 people and 500,000 livestock and 16 million acres of pastureland. It is estimated that the drought caused economic losses of approximately $780 million. In 2019, China’s Hebei province experienced a serious drought which impacted almost 800,000 ha of cropland and left 15,700 people and ,3000 domestic animals with diminished access to drinking water.

Drought has not been restricted to China’s drier north. In western Sichuan, for example, rapid deforestation caused Sichuan’s forest cover to fall from 3.6 million hectares in in 1985 to 2.34 million hectares in 1995 which has led to decreased precipitation. In the 1950s, serious droughts hit Sichuan about once every three years. In the 1960s, this became once every two years and by the 1980s, drought troubled Sichuan counties annually. In 2010, more than 20 million people in Yunnan, Guangxi, Guizhou, Sichuan, and Chongqing were left without adequate drinking water and a 2011 Sichuan drought affected almost 8 million people. Looking at drought conditions in Guangxi province specifically, records show that from 1618 to 1943, major droughts hit the region once every 33 years. From 1946 to 1972, the interval fell to every six years, and in the 1980s, it fell to every two years. There were four major droughts in the three-year period from 1989 to 1991. Since 2000, drought has plagued Guangxi annually. In 2004, for instance, 1100 Guangxi reservoirs went dry, and hydropower generation was cut dramatically. In 2007, one million residents in Guangxi and 250,000 in neighboring Guangdong faced water shortages during the worst regional drought in more than 50 years. In 2009, Guangxi, which produces 60% of China’s sugar cane, had a 10% drop in its production due to drought conditions. In 2010, 12 of the 14 cities in Guangxi were affected by water shortages. As another example, in 2019, Anhui Province, was plagued by the worst drought it had experienced in 50 years. Rainfall was at only 40% of normal levels. The neighboring provinces of Hubei, Jiangsu, Jiangxi and Zhejian were also significantly impacted.

Climate Change

How climate change will impact China’s water scarcity is still being studied. A study published by the Proceedings of the National Academy of Sciences estimated that drought related losses caused China approximately $7 billion annually between 1984 in 2017. If temperatures were to rise 1.5°C, these losses could grow to $47 billion annually. Above 2°C, drought losses could rise as high as $84 billion annually. Overall, however, a clear understanding of the impact of climate change on China’s water resources and agriculture is not definitive. Most scientists agree that more work is needed on regional climate simulations-especially simulations of precipitation-to better understand how a warming environment will impact everything from crops to diseases to future per capita water resources. (Piao, 2010)

What is definitive is that global warming is having an undeniable effect on the Tibetan Plateau. Like the Arctic and Antarctic, the Tibetan plateau is warming three times faster than the global average at .3°C per decade. In Tibet’s case, this accelerated warming is driven significantly by its Tibet’s high elevation which averages 4,500 meters. The plateau holds the largest amount of snow and ice after the Arctic and Antarctic, an estimated 14.5% of the global total including 46,000 glaciers. The plateau is also the source of 10 of the world’s largest rivers including the Yangtze, Yellow, Ganges, Brahmaputra, Mekong, and Indus Rivers which in turn provide water to over 1.6 billion people.  An estimated 80% of Tibet’s glaciers are now melting more quickly than originally thought. Many Chinese scientists believe that one-third of the glacial area in Tibet will disappear by 2050, and half will disappear by 2100.

Greater melting rates will have several effects. Melting glaciers often create glacial lakes dammed by unstable moraines. These moraine dams can unexpectedly burst, causing catastrophic flooding. Greater glacial melt water in the short term will increase river runoff. In the long term, as glaciers diminish or disappear, the resulting depletion of meltwater runoff is likely to deplete the year-round viability of Tibetan originating rivers, threatening the lives and livelihoods of billions of people downstream.

Power Outages

China’s water scarcity has also resulted in lower water levels of many of China’s major river systems. For instance, Chinese researchers have discovered that the volume of water entering the Yangtze River at its source on the Tibetan plateau has dropped by 15% over the last four decades. Similarly, a study regarding Yellow River water found that runoff has runoff decreased significantly between 1956 and 2009. Moreover, a 2013 study conducted by China’s Ministry of Water not only corroborated that the Yellow and Yangtze Rivers are experiencing declining water levels, but also found that approximately 28,000 of China’s original 50,000 rivers have now disappeared.   Part of the reason  for the disappearing rivers has been attributed to improved mapping techniques; however, the fact that rivers are disappearing has been validated by other studies. Other rivers, especially in the north, have become seasonal rivers flowing most strongly during the spring melts.

Diminishing flow levels in China’s rivers mean that the country will be challenged by power outages due to inadequate flow through its hydropower dams. Hydropower accounts for approximately 22% of China’s total installed capacity. It is estimated that the lack of water to run hydropower dams has cut hydroelectric power production by 20% and China may be forced to burn 1 million more metric tons of coal a week to cover the shortfall.

Trends

Serious water scarcity looms in China’s future. This scarcity is likely to increase competition between Chinese regions, between sectors of the economy and between urban and rural residents. It will also raise tensions between the government and parts of society that lack access to adequate, clean water sources. Moreover, the Tibetan Plateau is a source of rivers that reach 16 downstream countries including Pakistan, India, Bangladesh, Burma, Bhutan, Nepal, Cambodia, Laos, Thailand, and Vietnam. China’s damming, polluting, and use of international rivers is likely to increase tensions with these countries as populations in downstream riparian countries grow, and as  these economies continue to develop  and urbanize. Many of these countries, especially India, are already facing their own severe water crisis, which will only be exacerbated if China diverts river water that needs to be shared internationally.

Additionally, China’s water contamination risks exporting China’s pollution and water-borne disease to its neighbors downstream. This water pollution is exacerbated by rapid glacial melting. Glaciers capture atmospheric pollution; dangerous pesticides such as DDT and pollutants such as perfluoroalkyl acids are increasingly coursing downstream in meltwater and collecting in sediments and in the food chain.

Political relations could be further stressed if water shortages cause mass migrations of people. In fact, some analysts suggest that the so-called “oil wars” of the 20th century could be replaced by “water wars” in the 21st. Over the last 30 years, China’s Mekong dams, alone, have held back more water than they have released. There is some argument that, in anticipation of the fact that Tibet’s glaciers will likely be rapidly depleted in the next 80 years, China is compounding glacier melt for its future needs.

China’s immediate water solution is to use water more conservatively, and to improve pollution control. Historically, China has solved growing water demands through the construction of massive hydro-engineering projects such as the Three Gorges Dam and the South-North Water Diversion Project. In the future, China will increasingly need to solve its water deficit through ecological conservation, pollution management, more efficient water usage, and a redistribution of economic output by raising the price of water to reflect its scarcity and true economic value.

References

China’s Geography: The Physical Story

Introduction

With a total area of nearly 9,600,000 square kilometers, China’s landmass is slightly smaller than that of Europe. It stretches about 5,000 km from east to west, and about 5,500 km from north to south. China has land borders with 14 nations including Afghanistan, Bhutan, Myanmar, India, Kazakhstan, Kyrgyzstan, Laos, Mongolia, Nepal, North Korea, Pakistan, Russia, Tajikistan, and Vietnam.

Mountains, hills, and highlands cover about 66 percent of the nation’s territory. China’s surface slopes down in steps, starting from the Tibet plateau at 4000 m. China’s second geographical step averages 1-2000m and includes the Mongolia, Loess, and the Yunnan-Guizhou plateaus, and the Tarim, Junggar and Sichuan Basins. The third step, with an average elevation of 500- 1000 m, begins roughly at the edge of the Greater Hinggan, Taihang, Wushan and Xuefeng mountain ranges, and continues east to the coast.

Descending these geographical steps, China’s major river systems wind their way from west to east. Its largest river systems include the Yellow River in the north, the Yangtze River in central China, and the Pearl River in the south, all of which flow from the higher plateaus to the eastern Oceans. Along China’s east runs a 14,500 km coast.

Much as any other nation, the development and the history of the Chinese civilization have been profoundly influenced by its geographical setting. As early as 400,000 BCE, cave dwellers lived in China. Beginning in approximately 8000 BCE, people in north and central China began domesticating animals and growing food, especially millet in the Yellow River valley of the north and rice in the Yangtze River valley to the south. A warming climate aided agricultural innovation. The surplus food production allowed more populous and complex societies to evolve. By 5000 to 4000 BCE Neolithic settlements were scattered throughout China. By 2000 BCE these village settlements saw people begin to specialize in different kinds of productive occupations. By 2200 BCE, China’s first dynasty was formed. By 1500 BCE, the Han Chinese had developed a sophisticated civilization with character writing, bronze technology, the world’s most productive agriculture, walled cities and towns, and a powerful, national army.

Once China was established, it mountains, deserts, empty steppe lands and uninviting coast provided natural barriers that helped China to maintain remarkable continuity in language, cultural values, and social and political institutions, making China the world’s longest continuing civilization. China has historically been an inward looking country, content to develop within the confines of its vast continent. That said, it has also been shaped by a continual stream of outside influences, such as the arrival of Buddhism from India, the periodic invasion by Mongols from the north, and the trade of goods, most famously along the commerce networks of the renowned Silk Road.

China’s Western Lands

The western land of China is characterized by high plateaus and multiple mountain ranges which are broken by vast basins and deserts. This land is arid and cold, and suffers from constant drought. The lack of water has limited the number of people living in the region. Only 6% of China’s total population lives in the western half of the country.

Most of China’s mountains, including its five main mountain ranges, trend west-east. In southwestern China, the Himalayas and the Kunlun Mountains enclose the Tibet Plateau, which encompasses most of Tibet Autonomous Region. The Tibet Plateau with an area of 2.5 million kilometers, is China’s highest and largest plateau, about four times the size of France. Mount Everest is part of the Himalayan range and is located on the China-Nepal border. The Gangdise range parallels the Himalayas to its north. The Tien range crosses between the massive Tarim Basin to the south and the Junggar Basin to the north. Rich deposits of coal, oil, and metallic ores lie in the Tien Shan area. Between these two basins lies Turpan Pendi, which at 154 m below sea level, is the lowest point in China and the second lowest place in the world after the Dead Sea.

To the north of the Tibetan Plateau lies the Gobi and Taklamakan deserts, which stretch from the extreme northwest eastwards through Mongolia. The Gobi is the largest desert in Asia, covering parts of northern and northwestern China and Mongolia. The Gobi was part of the Mongol Empire and was traversed in part by the ancient Silk Roads. It is a cold desert for much of the year, and it is not uncommon to see frost on its dunes. Northeast of the Gobi, the Heilongjiang or Black Dragon River flows for 3,101 kilometers.

South of the Gobi lies the Inner Mongolian Plateau, an average of 1,000 m above sea level. The Yin mountain range, averaging elevations of 1,400 m, extends east-west through the plateau’s center. To its south is the largest loess plateau in the world, covering 600,000 km. Loess is a yellowish soil originating from the Inner Mongolian deserts. The soil is carried easily on the wind, and through the centuries, it has choked the Yellow River with silt. The Loess sand also plagues Beijing and its surrounding areas with dust storms, which turn the sky yellowish-gray and force people indoors or into protective gear. A March 2011 sandstorm, for instance, affected about 250 million people over an 808,000 sq. km area. China is planting thousands of acres of vegetation to stop spreading desertification, but the work will take decades to finish.

Along an arc that roughly outlines the southern edge of Inner Mongolia, the Great Wall of China extends approximately 8850 km, including 6260 km of actual wall, as well as trenches and natural defensive barriers such as hills and rivers. The wall was built to protect the northern borders of the Chinese empire against invasions by various nomadic tribes.

Eastern China

The eastern part of China is divided north-south by the Qinling Mountains, an extension of the Kunlun Mountains. This boundary is both physiographic and cultural. To its north flows the Yellow River, travelling through the North China Plain to the Yellow Sea. Home of Beijing, the Yellow River basin is called the “Cradle of Chinese Civilization.” It was the most prosperous region of early China, and has been the center of Chinese expansion and influence since ancient times. The North China Plain is vulnerable both to flooding and earthquakes. Over the last 3000-4000 years, the Yellow River has flooded over 1500 times often with catastrophic effect. For example in 1931, the flooding of the Yellow River, in combination with the Yangtze and Huai rivers, is estimated to have caused between 1 and 4 million deaths.

South of the Qinling mountain range are the heavily populated and exceedingly developed lower and middle plains of the Yangtze River and, on its western reaches, the Sichuan Basin. Crossing 6,300 km through the heart of the country, the Yangtze is China’s longest and most important waterway. It is navigable over much of its length, and has a vast hydroelectric potential. The Three Gorges Dam, for instance, spans the Yangtze at the town of Sandouping in Hubei province. Connecting the Yellow and Yangtze Rivers is the 1776 km long Grand Canal, one of the greatest engineering projects in China, and the longest artificial river in the world. Constructed between the 5th century BC and the 7th century AD, it is the only major Chinese waterway running from north to south.

Second only to the Qinling range as an internal boundary is the Nanling mountains, the southernmost of the east-west mountain ranges. South of the Nanling mountains is the Pearl River and its many tributaries which all flow into the Pearl River Delta. The Pearl River – used as a catchment term to refer to the watersheds of the Xi, Bei, and Dong (West, North and East) Rivers – is China’s third longest river after the Yangtze and Yellow Rivers and second largest by volume after the Yangtze. The Pearl River takes its name from all the Pearl colored shells which lie at the bottom of the river in the section which flows through the city of Guangzhou.

West of the mountains of the Pearl River, the Yunnan-Guizhou Plateau rises in two steps toward the mountain regions of the eastern Tibet Plateau. In Yunnan province, the plateau averages 2000m is characterized mountain peaks as high as 3700 m. In the Guizhou range, the plateau averages 1200 m in height, and is characterized by rolling hills, deep river-carved gorges and mountains marked with geological faults. Karsts – distinctive geological features caused by water eroding the limestone underlying the plateau- dominate the landscape. Such karst features include sinkholes, caves and natural bridges, and large underwater aquifers. The Yunnan-Guizhou plateau is the source of the Yangtze and Yellow Rivers.

In spite of the 14,500 km coastline fringed with offshore islands, China has traditionally oriented itself not toward the sea but inland, developing as an imperial power whose center lay in the middle and lower reaches of the Yellow River on the northern plains. The southern part of the coast is rugged and mountainous so that its good harbors provide poor access to the inland regions. The north coast is low and swampy. The Yellow, East China, and South China Seas are all part of the larger Pacific Ocean.

Arable Land

Because of the mountainous and arid nature of its geography, only about 15% of China’s total land area is suitable for farming, almost all of which is under plow. The lack of and the nature of its arable land has also led to one of the most labor-intensive agricultural systems in the world. Farming in the arid north along the Yellow River has required much coordinated effort, both to create irrigation systems and to build dykes to prevent the Yellow River from constantly flooding. Similarly, in the south, rice cultivation has always been extremely labor-demanding. From creating the clay-bottomed rice plots that trap water, to laying the muddy ground into which the pre-grown rice shoots are planted, to the intricate fertilization and pest removal that each shoot requires, to the rapid harvest of the ripe rice and quick re-planting to ensure two and sometimes three crops per year, wet rice production in the south is one of the most labor intensive crops in the world. Rice cultivation is also one of the most efficient in the numbers of people it can sustain. In fact, for much of its history, China has been one of the most populous countries of the world.

It has been argued that the demands of China’s irrigation, water and agricultural management have caused the Chinese to be a collective minded rather than individualistic people. What is true is that the Chinese have historically shown a great ability to organize its people to undertake tasks on a large scale such as the building of roads, dams, canals and defensive walls as well as the large scale production of iron and porcelain. It has also been argued that the nature of rice agriculture has caused China to develop a tradition and culture of hard work which is manifest in China’s work ethic today. What is indeed true is that the Chinese rice farmer works significantly more hours per year than a farmer sowing other crops such as wheat and corn.

China’s most important food crops are rice and wheat. Due to its high water and warmth requirements, most of China’s rice crops are planted in the south. This region also produces tea, sugarcane, and the mulberry leaves which feed the silkworms. Wheat is the chief crop of the north. Other northern crops include millet, maize, kaoliang (sorghum) and soya beans. In a few areas, cotton and peanuts are grown. Cattle, sheep, and horse ranching are limited to the grasslands of Inner Mongolia, Xinjiang, and Tibet. Ranching is rare in China proper because there are not the wide open plains necessary to maintain large herds. The optimal use of land is for cultivation of crops and animal husbandry, and most farmers keep chickens, ducks and pigs. This land constraint explains why there is a large-co-habitation between foul, swine and people in China, and why it has proved to be an effective breeding ground for such viruses as SARS and Swine flu.

China is currently losing arable land due to desertification and rapid urbanization. Currently, approximately 400 million people live in towns and cities, and China now has over 160 cities with populations greater than 1 million people, the largest being Shanghai and Beijing. By 2050, China expects 1.1 billion of its citizens to be in urban settings.

Climate

China’s climate is as varied as its topography. China’s climates range from the cold-temperate north to the tropical south, with subarctic-like temperatures in the Himalayan Mountains. In the winter, there is little rain or snow anywhere in China. In the summer, the warming land draws tropical sea air saturated with moisture into southern China. As the air encounters mountains and cooler inland air masses, rains fall plentifully in southern China. As the summer monsoon moves northwest, it brings less rain, meaning that overall China’s north is dry and its south is verdant. In bad years, the monsoons are too weak to cross into the Yellow River Valley, and become stuck over the central mountain belts, causing drought in the north and flooding in the south. In 2011, for instance, large floods in Southern China killed 132 people and displaced 800,000.

Nevertheless, overall, China is an arid country and is facing an increasingly severe water crisis. In 1997, for instance, the downstream stretches of the Yellow River ran dry for 226 days. In a project reminiscent of the Grand Canal, China has plans to build a vast new aqueduct – the South-North Water Diversion Project – which will divert at least six trillion gallons of water each year from the Yangtze River to satisfy the water needs of the North China Plain. The project has been likened to diverting water from the Mississippi River in the United States to meet the water requirements of Boston, Washington and New York and is projected to cost $62 billion, twice the cost of the Three Gorges Dam, the world’s largest hydroelectric project.

People

Around 1.3 billion people, or approximately a fifth of the world’s population, live in China. The Han Chinese, the native Chinese-speaking people, comprise approximately 90% of the population. 55 different ethnic groups, including the Uighurs, Mongols, and Tibetans account for the remaining 10%. China has seven large language groups each of which contain hundreds of dialects. Mandarin, based on the Beijing dialect, is China’s common language, and can be spoken by most Chinese people who have completed primary education.

Although the Communist regime has discouraged the practice of religion, temples and pagodas are found in most Chinese cities. For millennia, Chinese life has been influenced by the teachings of Confucianism, China’s major belief system. Buddhism and Taoism are also significant religions in China, and Islam is practiced by many of China’s ethnic minorities.

China’s Geography Today

The geography of China today has been altered over thousands of years by human habitation. The cleverness that enabled the Chinese to to support a population that exceeded 100 million people as early as the 12th century has extracted a real ecological toll on the country. One of the great tests facing China today is whether it can protect its natural resources during its current rapid development.

At the heart of this challenge is China’s scarcity of water. With 20% of the world’s population, but only 7% of global water resources, China faces severe water challenges. Mainland China has a per capita share of water of 2700 m³ per day, or one quarter of the world’s average. Moreover, the area south of the Yangtze River, which accounts for only 37% of China’s physical land, has 81% of China’s total water supply, while the 63% of land north of the Yangtze has only 19% of China’s water. Northern water demand is depleting underground aquifers. Drilling deeper to gain new water access has caused naturally occurring arsenic pockets to be reached, increasing the presence of arsenic in some water supplies. The World Bank predicts that by as early 2020, there may well be as many as 30 million environmental refugees within China due to lack of water and desertification.

The fresh water that China does have is often heavily polluted. 90% of the city’s groundwater and 75% of rivers and lakes are contaminated, and it is estimated that 700 million people drink polluted water daily. Water pollution occurs from industrial and municipal emissions, pesticides and fertilizers, and acid rain. Additionally, industrial pollution incidents, such as Songhua River toxic chemical spill in November 2005, have become more common.

The diversion to China of more of the water resources of major trans boundary rivers such as the Brahmaputra River and the Mekong River, risks being an increasing source of tension between China and countries such as Vietnam, Laos, Cambodia, Thailand, India and Bangladesh. For instance, China has built two dams on the Mekong, and has plans to build three more, inciting anger in Vietnam, Laos, Cambodia and Thailand. In the book Tibet’s Waters Will Save China, Chinese ex-officials have looked at ways for China to keep more of the Brahmaputra River to meet China’s growing water needs.

Another water related issue is China’s rapid building of dams to capture its hydro-electrical potential. Projects such as the Three Gorges Dam have not only raised environmental concerns as ecosystems are disrupted, but they have caused increased social unrest as millions of people are uprooted, sometimes without fair compensation. Environmental and social concerns around dam building will remain key points of debate in China in the near future.

There is a high correlation between the fertility and resources of its various areas and the wealth of its populace. Most of the wealthiest Chinese live in China’s southeast, where water is abundant, where as many as two to three rice crops can be harvested each year, and where easy access to export markets caused the region to lead China’s re-integration into the global economy. Similarly, the east coast of China is wealthier than its hinterland as it has better access to global trade. The poorest Chinese live in the arid north-west where deserts, mountains, and high-elevation plateaus prevail. Increasing inequality, caused in no small part by China’s geographical diversity, is an important concern for Communist party leaders. Growing social discontent at the increasing difference of wealth between regions and between people is a real risk to the Communist Party’s control of power.

Tectonically, China remains one of the most active seismic regions of the world. The country has a long history of being hit by deadly earthquakes. The largest earthquake occurred in 1556, where it was estimated that over 800,000 people died. Since 2005, China has experienced four deadly earthquakes in 2011, 2010, 2008 and 2005. According to official figures, the 2008 Sichuan earthquake killed over 69,000 people, and left almost 5 million people homeless. These earthquakes will continue to generate debate not only about Chinese construction standards and Chinese compliance with building codes, but also about the quality of China’s public health care system. Many of the 2008 Sichuan victims, for instance, had little or no health insurance, and poor access to healthcare facilities.

Flooding will also remain an issue for China. The summer monsoon draws tropical sea air saturated with moisture into southern China. In bad years, the summer monsoons become stuck over China’s central mountain belts and fail to reach the Yellow River Valley, causing drought in the north and flooding in the south. In 2011 it was estimated that floods caused $1.2 billion in losses, disrupted the lives of approximately 5.7 million people and damaged or destroyed more than 7000 homes. Areas most vulnerable to flooding include Zhejiang, Sichuan, Chongqing, Hubei, Anhui, Jiangxi, Hunan and Guizhou.

Agriculture and Food Security: A Long-Term Priority

Introduction

Throughout China’s thousands of years of history, famines have often led to rebellions and instability which in turn has led to many a dynasties downfall. Therefore, ensuring food security in China has been both a priority for Chinese leaders throughout the ages, and it remains a priority for the Chinese Communist Party today. China’s challenge is that it supports approximately 19% of the world’s population on approximately 9% of the world’s arable land and 7% of the world’s fresh water. Despite these constraints, China has met its food needs through a policy of agricultural self-sufficiency. Today, China is the world’s leading producer of rice, wheat, and soybeans, the world’s second largest producer of corn and the seventh largest producer of sorghum. Additionally, China is the world’s largest producer of pork, the third largest producer of chicken and the 10th largest producer of beef.

That said, China’s ability to maintain continued growth in agricultural output is under threat unless there is further reform in the agricultural sector. Increased urbanization, plateauing yields, water shortages, small farm sizes and uncertain property laws are all making it difficult for China to continue to increase agricultural production. China’s 13th Five Year Plan (2016-2020) recognizes these challenges. Investing in hybrid seed research, repairing and improving on irrigation infrastructure, reclaiming rural land that has been lost to environmental degradation, shoring food safety mechanisms, expanding agricultural mechanization, and increasing the use of agricultural technology in order to improve yields have all been stated as clear priorities. The plan also recognizes the continued need to invest in rural areas of the country, so that China’s remaining farmers can earn a reasonable living and adequately invest in their children’s future within and beyond the farm sector.

In addition to investing domestically, China is significantly increasing its investment in agriculture abroad. According to a United States Department of Agriculture 2018 report, “1,300 Chinese enterprises had overseas investments in agriculture, forestry, and fisheries valued at $26 billion in 2016. The investments include crop and livestock farming, fishing, processing, farm machinery, inputs, seeds, and logistics in over 100 countries.” These investments have primarily been focused in the regions of Southeast Asia, Russia’s Far East, Ukraine, Africa, Australia, and New Zealand.

China’s Agriculture under Mao Zedong

Paddy Field Plougher near Inle Lake Myanmar (Burma)

When the PRC was founded in 1949 its new leaders continued to support a policy of agricultural self-reliance. This agricultural policy was driven by Mao Zedong’s view that the post-World War II order, with its corresponding American ascendancy, was potentially aggressive and imperialistic. Under this view dependency on grain imports risked making China vulnerable to having its food needs being turned into a weapon against it. In addition, Mao wished to use his country’s limited foreign exchange resources to purchase industrial plant and equipment rather than food, aiming for rapid industrialization. Indeed, until the famine caused by the Great Leap Forward (1958-1961), China exported grain to the Soviet Union in order to purchase plant and heavy equipment, at the expense of providing adequate per capita calories for its citizens at home.

Agriculture thus became the basis on which China’s planned economy was built. As China transitioned to a planned economy, the Communist planners began to underprice farm products relative to heavy industrial goods. This was because the planners were trying to ensure that the industrial sector produced high profits which could be plowed back into industry. To keep industrial profits high, costs had to be kept low; the most easily affected cost was labor. In order keep wages low, food needed to be cheap. Thus, farming became the key to the success of the entire Chinese planned economy. To achieve China’s goals, soon after he took power in 1949, Mao orchestrated the largest act of expropriation in world history. Approximately 200 million acres of land were taken from wealthy landowners and redistributed to nearly every peasant family in China. An estimated two million landlords lost their estates, sometimes through violence and almost never with compensation. Mao soon undercut this mass creation of private land ownership by implementing socialist policies of collective agriculture. The launch of the First Five Year Plan in 1953 saw farmers organized into cooperatives where they pooled their land and shared the proceeds. Under the collective structure, each farmer kept title to his land and was paid both labor wages and a dividend based on the value of the land contributed to the collective. After some success under the cooperative model, Mao went further. In 1958, Mao began to move farmers into communes to gain greater control of agricultural output. Mao believed that communes would generate greater farm output as it allowed an increased usage of irrigation and mechanization. As an added benefit, the surplus farm labor that would theoretically be created by collectivization could then be redeployed into the rural and urban industrial sectors. He also believed that healthcare and education for the rural citizens could be more easily delivered in a collectivized environment. Just as importantly, communes would be an effective platform for mass political indoctrination. Mao’s communes pursued a “grain first policy” in which basic crops such as rice, wheat, and corn were planted regardless of the suitability of the soil and other conditions. The shift to communes eliminated household farming, except on small family plots, and all land ownership transferred to the state.

As a result of Mao’s policies, from 1952 to 1978, China increased industrial production as a percentage of national income from 19.5% to 49.4%. Grain production rose by 86%, an average annual increase of 2.5%. However, grain production increased at a rate about equal to him population growth, meaning that average grain output per capita stayed roughly steady during this period. China also increased the production of cash crops by 16%. Up until 1960, China exported grain, peaking at 5 million tons in 1958. After the famine of the Great Leap Forward, China began to import grain, yet these imports averaged 1.6% of total consumption, meaning that China was almost completely self-sufficient in food under the planned economy.

These statistics, however, are deceptive. Much of Mao’s industrial development was inefficient. Poor economies of scale, inadequate transport, and poorly skilled labor meant that China’s huge industrial investment generally failed to effectively build upon China’s existing industrial base, although its development of human capital skills and rudimentary infrastructure did lay the foundations for broader industrialization during the Reform Era. Throughout the socialist period, Chinese consumers remained on strictly rationed diets consisting primarily of coarse grains. Most consumers were deprived of daily access to cooking oil, sugar, meat, and vegetables for extended periods. In the 1970s, despite increases in grain production, urban residents ate an average of 2,328 calories per day, while rural intake was even lower at 2,100 calories daily. Average grain output per capita remained virtually unchanged and the absolute poverty rate hovered between 30% and 40%.

The primary weakness of communes was the absence of incentives. Farmers did not keep produce from their lands, which undermined their work effort. Instead, commune members were given work points based on tasks; these points were converted to grain and cash pay-outs at the end of each crop year. Free riding and an inability to monitor agricultural labor became endemic. Output also suffered because decision-making was concentrated in the hands of collective leaders who themselves were frequently following dictates from above, stifling any prospect for innovation. The pricing during this era also did little to encourage the efficient production or allocation of goods and services. Additionally, agricultural inputs such as fertilizer were in constant short supply. Because of the hukou housing registration system (which, while more relaxed, remains in force today), farm labor had no opportunity to move from agriculture to industry as the hukou system completely restricted the mobility of China’s people. This entrapment of Chinese villagers in rural areas effectively designated them as second-class citizens.

Agriculture during the Reform Era

After 1978, a series of reforms was introduced into the rural sector to improve its economic performance. One step was to de-collectivize Chinese farmers into what was termed the Household Responsibility System, where the government leased agricultural land to households. The government then raised the prices that farmers would receive by 41% for grain and by around 50% for cash crops for any farm output farmers produced above mandatory quota deliveries. Initially, the state purchased all grain sold by farmers above quotas. Eventually, private agricultural markets were re-established. Greater freedom of choice was allowed in terms of the types of crops cultivated. Fertilizer and new high-yield seed usage became more widespread. The result was a surge in agricultural output. Grain output swelled from 304.8 million tons in 1978 to an estimated 650 million tons in 2018.This growth reflected a significant rise in crop yields as grain sown area has increased at a smaller rate than crop yields. In 1978, China had approximately 120.6 million hectares under plow; in 2017, this figure increased to approximately 135 million hectares. Overall, it is China’s stated goal to maintain cultivated land at around 124 million hectares. Rising crop yields have resulted in grain price reductions. Since 1978, maize prices decreased 33% and wheat 45%. Coupled with rising incomes, these decreases meant that grain, as a percentage of rural and urban household consumption, fell from 40% and 20% respectively in the late 1970s to about 14% and 3% in 2004. These higher yields and lower prices have resulted in more food per capita. Per capita caloric intake rose from 2328 calories per day in 1980 to an excess of 3,000 calories per capita per day by 2008.

Additionally, since 1978, China’s agricultural output became significantly more diversified. Chinese farmers have moved into labor-intensive cash crops such as aquaculture, cotton, edible oils, fruits, and vegetables. Between 1978 and 2007, for instance, crop farming went from 80% of agricultural gross value output to 50.4%, while animal husbandry and fisheries increased from 16.6% to 42.1%. Between 1990 and 2004, China’s vegetable output expanded so quickly that China added the equivalent of California’s vegetable industry every two years in, and orchards now cover over 5% of China’s farmed area, double the share of any other major agricultural nation. As a result of this diversification, the Chinese diet has come more varied. Most Chinese households consume a more varied diet adding meat, poultry, fish, eggs, a variety of vegetables and dairy produce to their diets.

Maintaining Grain Yields – Water and Pollution Challenges

Throughout this period of reform, China maintained its policy of grain independence, never importing more than 5% of its grain needs. As stated in China’s 13th Five Year ensuring basic self-sufficiency of grain and absolute security of stable food remains a clearly stated goal. That said, with 19% of the world’s population being supported by approximately 9% of its arable land, this goal remains challenging. This means that China does not have a comparative advantage in land intensive products such as grain. Moreover, China’s population will continue to rise until around 2035, meaning that China will need to increase yields in order to maintain current grain per capita levels. Furthermore, as China continues to urbanize, more of its usable land will be refashioned into cities and supporting infrastructure. Additionally, pollution, soil erosion and desertification continue to negatively impact the agricultural land that is available. As a result, it is estimated that by 2050, the total demand for arable land will outstrip supply by more than 12%.

Part of the reason that China achieved such high grain production over the last two decades was yield improvements driven by the use of new high-grade seed varieties and by massive inputs of chemical fertilizer. Yet further benefits from these inputs are beginning to diminish. In 1975, total fertilizer usage was 5.5 million tons, but this rose to 47.7 million tons by 2005. China’s per hectare fertilizer usage was second only to Japan in the 1990s. Overall, it is estimated that China uses 30% of the world’s fertilizers and pesticides on 10% of global farmland. Fertilizer saturation is such that previously good or excellent soils are cresting, hardening and becoming devoid of organic material such that further application of fertilizers is leading to diminishing crop yields as well as causing considerable environmental problems such as eutrophication and particle pollution in the air. Yield benefits from the extensive use of plastic are also plateauing. Finally, large-scale deforestation has led to soil erosion.

Water shortages and water pollution may also limit future yields unless China is able to implement significant reforms in its water management. China’s freshwater of approximately 2156 m³ per capita is less than one third of the world average. This is projected to decrease to 1875 m³ by 2033. Water shortages are expected to worsen as current water demand is still relatively low at 461 m³ per capita compared with the world average of 645 m³, but this number is projected to reach 665 m³ by 2030. Water shortages will be worse in the arid and semi-arid areas in China’s northern plain from which much of the future grain output growth will be generated. In addition to water shortages, problems with irrigation system will also stymie yield growth. During the Mao-era, irrigated area tripled. Since de-collectivization, the irrigation system has deteriorated. With the reversion to family and commercial farming, control of the irrigation system has fragmented, and it is harder to mobilize mass labor for maintenance and construction. The introduction of water fees in the 1980s was designed to encourage more efficient water usage, but the fees were not sufficiently high to have the desired effect. Water designated for agricultural usage continues to be subsidized at a far higher rate than it is for industry and household use, and raising agricultural water fees remains politically difficult. Moreover, the collection of water use data remains imperfect, thus further challenging China’s ability to effectively price water used for agricultural purposes. Going forward, increasing water charges it is likely to be an essential step to dealing with China’s water shortages.

As water becomes increasingly scarce, the agricultural sector will continue to compete with the industrial sector and with households for scant water resources. According to the Ministry of Water Resources China now uses as much as 60% of the water running in many of its rivers, including the Liao and Yellow Rivers, and as much as 90% of the Huai River. China has increasingly turned to aquifers and lakes to meet water demands no longer satisfied by rain and river water alone. Groundwater now provides potable water for nearly 70% of China’s population and irrigation for approximately 40% of its agricultural land in China’s dry northern and northwestern regions. Nationally, groundwater usage has almost doubled since 1970, and now accounts for almost 20% of China’s total water usage.

Due to an uneven distribution of water resources between the north and the south of China, aquifers are especially important in China’s north, where farmers have been relying heavily on groundwater resources to increase agricultural yields. Yet China is now draining its aquifers at an unsustainable rate. At current rates of depletion, the World Bank estimates that China’s northern aquifers could effectively run dry in as little as 30 years or less. China’s northern megacities now rely on underground water sources for two-thirds of their needs. For example, in Hebei province, which surrounds Beijing, aquifer levels are dropping by approximately 3 meters annually, forcing the digging of ever deeper wells. These deeper wells in turn increase both the risk of both saltwater and arsenic intruding into the water supply and likelihood of land subsidence. With aquifers and rivers suffering from overuse, lakes are also diminishing. The province of Hebei, for instance, has already lost a staggering 969 of its 1052 lakes. While China’s ‘Water Pollution Prevention & Control Action Plan’ has establish targets to restrict ground water extraction and groundwater pollution by 2020, water restriction measures have both proved unpopular and hard to enforce.

Pollution is also challenging China’s agricultural output. China’s use of coal that is high in sulfur and heavy metals to power many of its electricity plants. The pollution from these power plants combined with additional industrial and agricultural pollution contaminate both China’s soil, air, and water. In the north, for instance, the same northern provinces that accounted for 55% of China’s farmland also hold 86% of its coal reserves yet have just 16% of China’s water resources. In the south, over 50% of China’s rice is grown in provinces which account for 52% of its arsenic, 58% of its mercury and 72% of its chromium discharges.

Maintaining Future Grain Yields – Small Farms

China’s future yield growth is also hampered by the small area plowed by each farmer, averaging .65 hectares or 1.6 acres. While de-collectivization from large communal plots to small family farms initially led to a surge in output growth, the segmentation of communal plots is now proving a constraint on grain yields. It has been estimated that increasing farm sizes could increase grain output by as much as 70 million tons annually. Small farm sizes restrict growth by preventing farmers from capturing economies of scale that could be derived from greater mechanization, from the more efficient dissemination of new seed technologies and from the improved maintenance of irrigation structures. Small farms also make it more challenging for farmers to participate in modern supply chains, to offset market volatility and to adapt to climate change, Additionally, small farms tend to use fertilizers and pesticides inefficiently. Research by Nerissa Hannik found that a 1% increase in farm size was linked to a .3 and a .5% decrease in fertilizer and pesticide use per hectare, respectively. Excessive use of fertilizers and pesticides in turn pollute soil and water which in turn depresses crop yields.

Small farms drive down rural incomes. As approximately 35% of Chinese workers or about 311 million people were employed in agriculture in some form in 2017, the impact on rural incomes is significant. In 2018, the annual per capita disposable income of urban and rural households in China was 39,251 and 14,617, respectively. Reduced rural economic opportunity in turn dis-incentivizes younger and more educated workers from pursuing a career in agriculture As a result, the average age of the Chinese agricultural worker is higher than the age of Chinese workers generally and is increasingly less educated than his urban counterpart. Older, less educated farmers could cause structural stagnation in the agricultural sector.  Such farmers may fail to adopt new technologies, innovate, and adapt to changing market conditions.

The fact that farmers lease – as opposed to own – their land has also worked to constrain grain yield by discouraging long-term investment and growth in land size. Individuals cannot privately own land in China but can acquire transferable land-use rights for some number of years. Currently, for example, land-use rights for residential purposes is 70 years. All farming or rural land is owned by rural collectives which distribute contract rights for plots of farmland to eligible households. The first leases issued in 1983 were for a duration of 15 years. These were renewed in 1997 for 30 years and again in 2017 for an additional 30 years. As part of its land-use contract, Chinese farmers have the right to decide which crops to plant, to keep all agricultural proceeds, and to sublease their land to others for agricultural production. Chinese farmers are prohibited from using contracted land for non-agricultural purposes, to leave their land fallow for more than two years or to legally oppose the government if it decides to acquire the property for development purposes. To help improve rural household stability, in 2003, China passed the Rural Land Contract Law. The law endeavors to improve the security of land tenure, to clarify the transfer and exchange rights of contracted land, and to permit family members to inherit land during the contracted period. Above all, the law reflects the government’s attempts to allow those staying in farming to gain access to additional cultivated land and to increase their incomes and competitiveness. It strives to encourage farmers to use the land more efficiently.

GuoZhongHua / Shutterstock.com

Working against government efforts to improve plot size, however is the belief by some Chinese leaders that family farming provides at least nominal proof that China is still communist as its land is not privately held, and as its land is relatively equally distributed. Many Chinese leaders also believe that agricultural land provides a social security system for its population, as every rural family is theoretically only one season away from being able to feed itself.

That said, the fact that the government no longer plays a significant role in agricultural production. Aside from restrictions on land ownership, China today has one of the least distorted domestic agricultural economies in the world. Most grains, oilseeds, and fiber crops, and all horticultural and livestock products are sold to small private traders who compete in efficient and integrated markets with minimal regulation.

Insuring Safe Food

In 2008, Chinese domestic milk and infant formula was found to have been purposely tainted with melamine, sickening 300,000 babies, and killing six. Other food scandals include contaminated pork, fake eggs, gutter oil, and counterfeit foods mislabeled as brand name or organic products. These scandals have caused many Chinese to express serious reservations about the quality of domestic food sources and to call for industry reform. The 13th Five Year Plan addressed these concerns by committing to upgrade agricultural standards and to ensure the quality and safety of all food products over the entire journey of agricultural products from farm to table.

In May 2019, the Chinese Communist Party reinvigorated this goal when China declared that it would be stepping up its enforcement of food safety legislation as part of the Communist Party’s campaign called “Staying True to Our Founding Mission”. Between June and December 2019, its increased efforts have resulted in the identification of 70,000 food safety violations, culminating in the suspension of over 2400 food manufacturers and the meting out of approximately $130 million in fines. Additionally, China is increasingly implementing technologies such as sensors, artificial intelligence, and block chain IDs to improve the traceability of food products from farm to table. Other measures include increased supervision with more random checks and the tightening of food safety standards. By 2035, it is China’s goal to have in place world-leading food safety standards and globally advanced risk control capabilities.

GMO in China

Genetically engineered or transgenic organisms, also known as genetically modified organisms (GMOs), were first made available to US consumers in 1994. By 2014, approximately 28 countries sowed GM crops on more than 181 million hectares, equaling 13% of the world’s arable surface. GM soybeans, cotton, maize, oilseed, and rape account for approximately 82%, 68%, 30% and 25% of the total planted area for these crops, respectively. In 2015, the United States Food and Drug Administration authorized the first genetically modified animal for human consumption.

Advocates of GMO food note that such crops could help the world adopt to changing climatic conditions including drought, cold and soil salinization. Additionally, by genetically coding in natural pesticides and other disease-resistant characteristics, GMO foods also offer the opportunity to fight off pests and diseases while correspondingly lowering the use of pesticides. Crops can also be modified to increase crop yields. Among their many concerns, opponents of GMO foods note that the long-term health consequences of consuming GMO food have yet to be determined. Additionally, opponents fear that GMO plants will diminish biodiversity by contaminating wild species.

Despite the risks of GMO plants, China’s 13th Five Year Plan sets as a goal to develop a modern seed industry, including the development superior seed varieties, and cultivation breeding-promotion operations. In January 2020, the Chinese government stated that genetically modified corn, cotton, and soybean species had passed biosafety evaluations, inching the country closer to commercialization of new GMO food sources. These crops were modified to be more resilient against disease and pests. On paper, China has approved biotech cotton, papaya, tomatoes, sweet peppers, petunias, and poplar trees. However, commercialization has been allowed only for papaya and cotton.

In 2018, the global market value of GM crop seeds was $20.1 billion and is expected to grow to $30.2 billion by 2026. As one of the world’s leading countries in the research and development of agricultural biotechnology, China’s issue of bio certificates for soybeans, cotton and corn indicates its interest in capitalizing on its billions of dollars of investment in the field, including its $43 billion purchase of the Swiss pesticide giant Syngenta in 2016. Not only would China benefit from commercializing its GMO seeds to sell globally, but many studies have indicated that China would also enjoy substantial economic benefits from the cultivation of GMO food crops domestically.

The commercialization of China’s GMO technology has been hampered, however, by the Chinese public’s negative attitude toward GMO crops. As per a 2010 online survey interviewing 50,000 people, about 84% of respondents said that they feared GM foods for safety reasons. A 2018 nationwide survey found that those views had not substantially shifted with 46.7% of respondents expressing negative views of GMOs and with 14% considering GMO products to be form of bioterrorism targeting China.

The Chinese public’s disapproving views concerning GMO products likely originate from their experience of the various food scandals that have plagued the country. This adverse experience has likely also negatively impacted their views of genetically modified foods. Exacerbating their concerns has been the discovery that GMO food products have already been farmed illegally in China. In 2014, China Central Television (CCTV) tested five bags of rice from a Wuhan supermarket in Hubei province, and discovered that three of the five samples had been grown from genetically modified seeds. In the same year, illegal large-scale planting of GMO rice and corn in four provinces were reported. In 2016, it was revealed that 93% of corn from Liaoning province demonstrated traces of GMO contamination. In response, the government destroyed crops, confiscated illegal seeds, and prosecuted perpetrators.

The Chinese government is now working to change Chinese opinion regarding GMO products. Given what is at play, the stakes could not be higher. Not only has China made massive investments in the technology that it now wants to commercialize, but water shortages, climate change and its growing population will continue to place unprecedented pressure on its food supply. GMO products can help China adapt to these challenges. GMO crops should also enable China to reduce its extremely high use of fertilizers and pesticides which in turn will have positive impacts on its environment and food supply.

The Automation of Agriculture

While the percentage of the Chinese workforce involved in farming has decreased from 55% in 1991 to 18% in 2017, approximately 250 million Chinese still work as farmers. However, as China’s rural young becomes increasingly educated, and as China’s economy continues to expand, many are migrating to urban areas seeking better opportunity. As a result, approximately 60% of people working in Chinese agriculture are over 45 years compared to just 14% of farmers who are less than 35 years. This decline in farm labor is projected to increase over the coming decades even as China’s population is projected to continue to grow through 2035. Contemporaneously, China’s population is expected to become wealthier. Growing wealth correlates with a rising consumer demand for greater food variety and for more animal-based proteins. The water footprint per calorie pulses, eggs, chicken, pigs, sheep, and beef is 2.5, 2.0, 2.6, 3.6, 5.3, and 9.4 times larger than grains, respectively. This increase in water per calorie will further stress China’s polluted and limited per capita water supply.

AgridronesChina is answering these challenges by significantly investing in agricultural technologies including artificial intelligence, big data, robotics, and automation.   Not only will these technologies help improve the efficiency and sustainability of China’s agricultural market, but they also represent a big and rapidly growing global business. The market for global agricultural robots, for instance, is projected to exceed $20 billion by the end of 2025, with growth in precision agriculture as a major driver. Artificial intelligence, automation, big data, and robotics are expected to find applications in everything from herding and fish farming to planting and harvesting. Other uses include seeding, irrigation, water leak detection, fertilizing, crop weeding, spraying, crop monitoring and analysis, disease and pest identification and eradication, thinning and pruning, and tracking the growth of plants. In addition to robotics, drones are also increasingly being used to monitor crops, conduct field analysis, manage livestock, plan interrogation and crop spraying. Drones aid farmers to see the big picture of their farmland and to make educated decisions that help to maximize crop yields.

Improving agricultural sustainability is another factor motivating China’s adoption of agricultural technology. China’s farming industry has a significant carbon footprint, with Chinese farmers using 30% of the world’s fertilizers and pesticides on 9% of global farmland. In addition to developing drones and robots that can help to reduce fertilizer and pesticide needs, Chinese scientists are also turning to big data to determine best farming practices. Over 20 million farmers have since benefited from China’s big data research; it is estimated the findings have enabled farmers to increase yields while slashing fertilizer use generating total financial savings of an estimated $12 billion.

China’s Growing Presence in Agriculture Abroad

In the coming decades, China will face of an increasing divergence between demand for food and its ability to produce that food domestically. This divergence is driven by factors such as a population that will continue to grow through at least 2035, a more wealthy population that is demanding a more varied and a more meat-based diet, and limited and polluted land and water resources. As a result, China is increasingly looking to international markets to meet its food shortfalls.

According to the United States Department of Agriculture’s 2018 report, in 2016 an estimated 1,300 Chinese enterprises had made overseas agriculture, forestry, and fisheries investments in over 100 countries. These investments were valued at approximately $26 billion. The investments were placed in a variety of sectors including land purchase, land leasing, seeds, farm inputs, farm machinery, food processing, farm logistics, farm machinery, livestock farming, and fish farming. China’s National Bureau of Statistics noted that Chinese investment in foreign farming, forestry, and fishing grew fivefold from 2010 to 2016. Many of China’s agricultural investments are now made in conjunction with its China’s Belt and Road Initiative.

As has been the case in other foreign investment sectors, China’s government has supported this international investment by favorable lending, brokering deals, formulating strategic plans which support low-cost bidding, and providing Chinese agricultural investors with training and information services. China subsidizes these investments for both political and economic reasons. Economic aims include the continued growth of the Chinese economy, securing access to raw materials, the expansion of exports, helping Chinese companies garner a larger share of profits from imported commodities, creating new markets for Chinese products, enabling tariff-free access to developed markets, shifting some of Chinese domestic manufacturing and domestic agriculture overseas, providing domestic companies with international experience, food security, gaining and imparting technical and managerial experience, and exerting influence on global prices. Political objectives include the preservation of the Communist Party rule, reestablishing China’s place as a leading world power, the promotion of multi-polarity, countering US hegemony, increasing Chinese influence in multinational institutions such as United Nations and World Bank, strengthening its alliances with other countries, particularly in the Third World, preventing Taiwan independence, and projecting political influence abroad.

Future Trends

There will be several trends to watch for in the Chinese agricultural sector in the coming decades. Firstly, China will make every effort to maintain its agricultural yields and its food self-sufficiency. Despite its rapid rate of urbanization, China is committed to maintaining a baseline for cultivated land area at 124 million hectares. It is investing heavily in agricultural research to increase yields and is launching a campaign to win public support for the introduction of more GMO crops.

China is also committed to increasing the sustainability of its agriculture and the safety of its food supplies. China is investing heavily in big data, drone technologies, artificial intelligence, and automation to reduce its use of pesticides, fertilizer, and water. Upgrading antiquated and leaking irrigation networks is a high priority. China is also using technology to start tracking its food as it journeys from farm to table; therefore, when food safety breaches arise, it can more effectively follow the breach back to the source. China will also continue to improve its food safety both through increased inspections, and better safety practices and standards.

China will also carry on investing in international agricultural, livestock and aquaculture food chains. These investments will help China ensure reliable and secure overseas food resources. They will also help to increase global food production overall, therefore helping to keep in check global food prices.

Finally, as the number of Chinese working as farmers further declines over the coming decades, China will likely begin to amalgamate its millions of small farms into increasingly larger parcels. Increasing farm sizes will free labor to work in areas which will provide China a higher return on labor capital.  Larger farm sizes will also increase productivity by creating more opportunity for mechanization, and by reducing demand for farm inputs such as pesticides and fertilizers.

References

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Population Power: China’s Shifting Masses

Introduction

China’s enormous population is one of the country’s most defining features. With the largest population in the world, almost one-fifth of the global total, it factors into nearly every significant issue facing the country including employment, consumption, the environment, and migration. In the 1970s, faced with the prospect of its population outstripping its economic and agricultural output, Beijing reversed early Maoist policies encouraging population growth. China’s 1970s aggressive fertility education programs and its 1980 “One-Child Policy” succeeded in reducing births per woman from their peak of 5.8 at the beginning of the 1970s to approximately 1.6 in 2019. The success of China’s population control policies has had unexpected disadvantages including a male/female sex imbalance, a rapidly aging population and a shrinking labor force. In 2016, such difficulties caused China to change the One-Child Policy to a Two-Child Policy.  Nevertheless, despite policy changes and China’s declining numbers, China’s large population still poses significant challenges for the country.

Global Population Trends

Understanding global population trends brings context to China’s individual demographic numbers. According to the United Nations 2019 Population Report, the global population is expected to rise from 7.7 billion in 2019 to approximately 10.9-11.2 billion in 2100.  By then, approximately 81% of the world’s population will be living in Africa and Asia.

 

UN Population Statistics – Geographical Regions  
Regions 2019 2019 2030 2030 2050 2050 2100 2100
World       7,713       8,548       9,735     10,875
Sub-Saharan Africa       1,066 14%       1,400 16%       2,118 22%       3,775 35%
Northern Africa and Western Asia           517 7%           609 7%           754 8%           924 8%
Central and Southern Asia       1,991 26%       2,227 26%       2,496 26%       2,334 21%
Eastern and Southeastern Asia       2,335 30%       2,427 28%       2,411 25%       1,967 18%
Latin America and the Caribbean           648 8%           706 8%           762 8%           680 6%
Australia/ New Zealand             30 0.4%             33 0.4%             38 0.4%             49 0.5%
Oceania             12 0.2%             15 0.2%             19 0.2%             26 0.2%
Europe and North America       1,114 14%       1,132 13%       1,136 12%       1,120 10%

 

Sub-Saharan Africa will experience the greatest growth. As a proportion of global population, between 2019 and 2100, the region will increase from 14% of the total or 1.1 billion people to 35% or 3.8 billion. Between 2019 and 2050, the world’s 47 least developed countries will grow the fastest, with many countries doubling in size. Of the 2019-2050 expected increase of 2.1 billion people, half the increase is projected to be driven by just nine countries: India, Nigeria, the Democratic Republic of the Congo, Pakistan, Ethiopia, the United Republic of Tanzania, the United States, Uganda and Indonesia.

Sub-Saharan Africa

As a proportion of the global total, the rest of the world will experience flat or decreasing population levels. Flat-growth regions include North Africa and West Asia which are projected to grow from 7%-8% or 527 to 924 million people between 2019 and 2100. Oceania will stay steady at .2% or 12 to 26 million people. Australia and New Zealand will grow from .4%-.5% or 30 to 49 million people.

 

Those with shrinking populations between 2019 and 2020 include Europe and North America which will decline from 14% to 10% of the global total, holding steady at approximately 1.1 billion. Latin America and the Caribbean will drop from 8% or 648 million to 6% or 680 million people. Central and Southern Asia will drop from 26% or 2.0 billion to 21% or 2.3 billion people. Eastern and Southeastern Asia will decrease from 30% or 2.3 billion to 18% or 2.0 billion people. In Europe, the population is expected to peak in 2030 at 510 million and then decrease to 465 million by 2100.

In 2019, China at 1.4 billion and India at 1.3 billion accounted for 37% of global population. In 2100, China at 1.1 billion and India at 1.45 billion will drop to 23% of the global total. By 2024, India is forecasted to overtake China to become the world’s most populous country.

Rapid worldwide urbanization is a big driver in the decreasing fertility rates seen in most regions.  In 2019, approximately 55% of people worldwide lived in cities. By 2050, the percentage increases to 68%, and by 2100 to 84%. Urbanization places downward pressure on birth rates because children that were once useful as farm labor become burdens in cities where they need to be educated and trained in order to be economically productive. Additionally, urban women have better access to education, healthcare and work opportunities, all of which make them less inclined to have large families.

Worldwide, in most countries where populations are declining, people are also quickly aging. In 2100, the number of people 60 years or over is expected to grow to 28% of the total population, from 1.0 billion to 3.1 billion people. The number aged 80 or over will increase to 8%, from approximately .1 billion to .9 billion people. Correspondingly, the global fertility rate is expected to drop from 2.5 in 2019 to 1.9 births in 2100. The global fertility rate is expected to fall below the replacement fertility rate by the year 2070, with the replacement fertility rate being the level of birth that each female is required to have to keep up with the population size. This aging population is expected to affect everything from economic demand to social safety nets.

Emigration and immigration are also impacting population levels in some countries. Countries such as Bangladesh, Nepal, the Philippines, Syria, Venezuela, and Myanmar have seen over 1 million of its citizens emigrate since 2010, either in search of work opportunities or to escape war or internal domestic conflict. Conversely, since 2010, over 36 countries have welcomed over 200,000 immigrants.

China’s Population Trends

China is experiencing rapid demographic change that mirrors many global trends. As is happening in many East Asian countries, China’s population is declining both in absolute numbers and as a percentage of the world total. According to UN statistics, in 2019, China’s population was approximately 1.434 billion people or 19% of the global total. By 2035, China’s population is expected to peak at 1.461 billion people or 16%. By 2050 and 2100, China’s population will reduce to 1.402 billion or 14%. and 1.064 billion or 10% respectively. Currently, the fertility rate of China is 1.55 births per woman.

China’s population faces a significant sex imbalance. In 2019, there were approximately 37 million additional males to females, with males accounting for 51.30% of the total.  While the absolute number of additional males is forecasted to decrease, as a percentage of China’s total population, males will continue to outnumber females through 2100. By 2050, for instance, China will have 24 million more males than females, with males accounting for 50.87%. By 2100, males still exceed females by 25 million or 51.15% of the total.

China’s population is also aging rapidly. In 1980, China’s population aged 50+ was 14% of the total, with people aged 75+ accounting for just 1% of those in the 50+ category. In 2019, China’s population aged 50+ increased to 32%, with people aged 75+ accounting for 3% of 50+ category total. By 2050, China’s population 50+ surpasses 47%, with 14.1% of this group aged 75+. By 2100, this group exceeds 49%, with 20% of this group being 75 years or older.

UN Population Statistics – China – By Age Category  
Age Demographics 1980 2020 2050 2100
0-14 35.9% 17.7% 14.1% 13.8%
15-49 49.7% 49.5% 38.7% 36.6%
50+ 14.4% 32.8% 47.2% 49.6%
75+ 1.2% 3.7% 14.1% 20.0%

China’s Population Post-1949

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For the best part of two millennia, China had been the most world’s populous country. In the early 1800s, for instance, one-third of the world population was Chinese. While still having the world’s largest population in 1950, between 1850 and 1950, high death rates caused by disease, crop failure, natural disasters, and war restrained China’s population growth to 0.3% per year. In 1949, after the Chinese Communist Party (CCP) victory in the Chinese Civil War, early CCP policies led to improvements in nutrition, sanitation and increased access to healthcare. Chinese mortality rates, especially those of infants, plummeted and the population began to grow rapidly. Initially, China’s leader, Mao Zedong, considered a large and rapidly growing population to be a positive asset. More people meant more workers to aid in economic development. More people meant more soldiers to ensure Communist domestic control, to secure China’s international borders and to prosecute war. Mao believed that Malthusian theory –the principle that exponential population growth can lead to an inability to feed the population – was a capitalist paradigm that did not apply to Marxist production methods where more people created more economic output.

As a result, China’s population continued the tradition of seeking as many sons as possible. According to U.N. statistics, between 1950 and 1980, China’s population almost doubled, increasing from 554 million to just over 1 billion. Officials in China were aware of China’s exploding population in the decades after 1949. Yet, any talk of population control or family planning was labeled as defeatist.

By the end of the 1960s, concerns regarding China’s exploding population began to be more discussed more openly. In 1970, Beijing decided to implement a voluntary birth control system. The government made contraceptives more widely available and educated the public on new government family planning policies with slogans promoting “later marriages, longer birth intervals and fewer children”. The program was largely successful. China’s total fertility rate, which measures the average number of births per woman, plummeted from 5.8 in 1970 to 2.7 in 1978. A 1980 study, undertaken to determine what would be China’s ideal population in 2080, assuming significant modernization and economic growth, concluded that the optimum level was between 650 and 700 million. As China’s population in 1980 had already exceeded 1 billion citizens, the government decided to implement more draconian population control measures.

The ‘One-Child’ Policy 

In September 1980, China launched the One-Child Policy. Family planning was written into the constitution two years later. The policy was not implemented uniformly across the country. Most ethnic minorities were permitted to have two children and many Han living in rural areas could have a second child if the first child was a girl. Additionally, parents whose first child was disabled could have a second child. Nevertheless, by the late 1990s, China’s total fertility rate fell to between 1·5 and 1·7 where it has remained.

The One-Child Policy was implemented relatively easily in the cities, where both spouses often worked and where living conditions were cramped. Resistance in the countryside was greater. The rural desire for larger families and many sons has been deeply rooted, not least because more hands make agricultural work easier for all. In general, there has been a high correlation between higher income and the willingness to accept the One-Child Policy.

One result of the policy has been greater incidences of forced sterilizations and abortions (Short, 2000). More commonly, couples defying the One-Child Policy were subject to fines, loss of jobs, reduced wages, loss of work unit benefits or, in some cases, loss of bonuses for the entire workgroup. In some areas, relatively wealthy families who worked in the private sector were able to pay the fines imposed. Those working in the public sector did not have this freedom as a second child usually meant a loss of employment. Others did not report females at birth. Unregistered girls were at risk of losing access to many legal benefits, including education and other forms of social welfare. It is not clear exactly how many unregistered girls were born in China since 1980, but research by John Jay Kennedy at the University of Kansas estimates that 10 million undocumented girls were born from 1980-2010.

The One-Child Policy has also led to an imbalance in the male/female sex ratio. In 2019, there was an estimated 37 million more men than women. Termed “Bare Branches” in China, these men are statistically unlikely to find partners in a society where universal marriage is the norm; 99.5% of Chinese women and 97% of all Chinese men marry.  Men who do marry tend to be those with higher incomes, better educations and higher-value assets, including an apartment, house or car. Surplus men tend to be concentrated in rural villages that are poverty stricken. Those men unable to find wives statistically are more likely to engage in prostitution, social unrest and crime.

A benefit of this imbalance has been a greater trend toward gender equality.  Historically, Chinese parents devoted relatively few resources to their daughters.  A 2018 study by Yi Zeng and Therese Hesketh found that without brothers with which to compete, there were no significant differences between single-girl and single-boy families in terms of a family’s investment in and expectation for health and education outcomes. In 2018, women made up 52% of undergraduates and 48% of postgraduates.  Having less children has also improved women’s access to well-paid work and career advancement. In 2018, it is estimated that as many as 25% of CEOs of medium and large Chinese companies are women.

China’s Rapidly Aging Population

The One-Child Policy has also contributed to China’s rapidly aging population. In 1980, China’s population aged 50+ was 14% of the total, with people aged 75+ accounting for just 1% of those in the 50+ category. In 2019, China’s population aged 50+ increased to 32%, with people aged 75+ accounting for 3% of 50+ category total. By 2050, China’s population 50+ surpasses 47%, with 14.1% of this group aged 75+. By 2100, this group exceeds 49%, with 20% of this group being 75 years or older.

 

china population 2100

This rapidly aging population will place a great burden on the younger segments of society as the elderly dependency ratio increases sharply. The elderly dependency ratio is defined as the number of people aged 65+ years divided by number of working-age people aged 18–64 years. As dictated both by Chinese culture and by Chinese law, Chinese children are obliged to care for their retired parents. The strain of caring for the elderly is expected to be more significant in the countryside. The elderly in rural areas generally enjoy a less robust social safety net compared to those living in in urban areas. On average, rural lifetime incomes are less as well, leading to lower retirement savings. Rural elderly are also more vulnerable to living alone, as many rural children have migrated to cities to find work. Rural empty-nesters, especially those living alone, are more likely to suffer mental health, financial and other problems.

The Two-Child Policy

Because of these negative population trends, in January 2016, China’s One-Child Policy changed to a Two-Child Policy. For the first time in 36 years, no one in China is limited to having just one child. The policy was aimed at the 90 million women within the reproductive age that presently had a child and now would be permitted to have a second child. In some provinces, these policies have been supplemented by incentives such as encouraging employers to provide more services for families, to lengthen maternity leave, to offer aid to women returning to work after birth and to grant tax incentives, housing benefits and education cost deductions. Some provinces are making abortions harder to obtain and using courts to discourage couples from accessing divorce services.

Despite these efforts, the significant socioeconomic changes that occurred since the onset of the One-Child Policy have caused China to transform into a low fertility culture. These changes are consistent with the pattern countries follow as they become more developed. Studies have indicated that most Chinese rural women want 1 to 2 children compared to greater than 5 children desired in the 1970s. Most urban women continue to want only one child. Urban women’s list of reasons for their one child preference include the high cost of raising and educating children, the negative effect a larger family would have on her family’s lifestyle and her individual liberties, the greater strain more children would place on family income and the impact more children might have on a her career. Factors affecting rural fertility include a woman’s marriage age, the cost of children, income forgone for having children and the social security benefits available. The Two-Child Policy is therefore unlikely to unleash a baby boom, but rather should cause a modest increase in fertility. That said, many of the negative effects of the one-child policy are likely to disappear. These include forced abortions and sterilizations, female infanticide or abandonment and unregistered girls at birth.

The Changing Structure of the Labor Force

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Since 1980, the age structure of China’s population has provided China with an enormous competitive economic advantage. Specifically, since 1980, China’s population has been both young and relatively free of dependents, whether they are children or elderly parents needing care. In 1980, for example, 85% of its population was aged 49 years or younger, with 50% of that population falling into the 15-49 year working age bracket. In 2019, 50% of China’s population was still aged 15-49, but its total population aged 49 years or younger has decreased from 85% to 67%. China’s current low dependency rate derives from the fact that Chinese ‘baby boomers’ born in the 1960s after the Great Leap Forward, and their children born in the 1980s, are now of working age. During the 1980s, China’s working age population increased 2.5% annually; this increase, coupled with high rural-to-urban migration, meant that the overall urban labor force has grown at about 4% per year between 1978 and 2010. It is expected that between 2010-2027, the number of Chinese workers will level off and then begin to drop approximately .5% per year. This decline will mirror a rising dependency rate as the ratio of producers to total population decreases.

The historically low dependency rate has created a “demographic dividend” for China.  The demographic dividend is the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population is larger than the non-working-age share of the population.  China’s low dependency rate since 1980 has also helped drive high savings rates, as individuals tend to save when they work and then spend their savings upon retiring. This savings has provided the Chinese economy with significant investment capital which in turn has led to the creation of more jobs. China’s young, unencumbered population has also benefited China economically, as it has been more adaptable to the rapid social and economic changes that have attended China’s transition to a market economy.

In 1978, 99% of these Chinese laborers worked in government-owned enterprises. In 2014, Chinese workers are employed by a more diversified set of companies in terms of ownership structure. While 25% of urban workers still work for the government or government-controlled entities including collectives and state-owned enterprises, 43% work for privately-owned firms, and 32% are self-employed or work in the informal economy.

Going forward, the growth of China’s labor force will slow as the last baby boom cohorts are absorbed. According to UN population calculations, by 2050, 47% of Chinese people will be over 50 years compared to 33% in 2019. Between 2020 and 2050, Chinese workers – those aged between 15-59 years – will decrease by over 200 million people, an average of 7 million people annually.

To offset its diminishing labor pool, China has many tools at its disposal. A start has been the easing of the One-Child Policy. Although it is too early to measure accurately the impact of the Two-Child Policy, early research indicates that the population bump will be relatively small. Population is now expected to peak at 1·45 billion in 2029 compared with a peak of 1·4 billion in 2023. In addition to implementing the Two-Child Policy, China can continue to modernize and mechanize China’s farming. Chinese fields typically average 2.5 acres, one of the smallest averages in the world. Increasing farm size will facilitate the use of modern farming technologies. Both will create opportunities for the remaining 27% of Chinese workers still employed in agriculture to migrate to the industrial workforce. Automation and robotics can also offset labor declines and increase labor productivity. Overall, Chinese labor productivity is likely to rise in coming decades because incoming labor cohorts are more educated than their parents. China can also extend the retirement age. Currently, men retire at 60 years and women retire at 55 years.

Urbanization

Rapid urbanization has accompanied China’s economic development. Historically, China has been a country of farmers. In 1950, when the Communists took control, only about 10% of the country lived in cities. Early Chinese Communists policies reinforced this rural population bias by creating what amounted to a two-tier economic system.  Chinese urban citizens, enmeshed in danweis or urban work units, enjoyed social benefits and welfare entitlements not available to farmers housed in the rural collectives. This inequality was designed to generate rapid industrialization. Rural China was to provide low-cost food and other agricultural products to city workers who used the savings from these low-cost goods to invest in and build China’s factories.

In order to prevent peasants from migrating to seek better work and greater benefits, the household registration system (hukou) was developed which was accompanied by a system of vouchers which were required to acquire food and clothing. By the early 1960s, it became almost impossible for rural workers to obtain an urban hukou, and rural to urban migration was almost completely halted. Indeed, internal migration between 1964 and 1980 was almost exclusively from the city to the countryside as happened during the Cultural Revolution when approximately 17 million middle school graduates were sent to the country to “learn from the peasants” and as happened when workers were sent to develop industry in Western China. As a result of these measures, by 1978, only 17.92% of Chinese lived in cities.

After 1980, China began to rapidly urbanize as its economy expanded. According to World Bank statistics, in 2018, approximately 59% of Chinese live in cities or almost 850 million people. By 2030, it is estimated that 70% or one billion of Chinese will be urban residents. Some urban growth has occurred by reclassifying rural areas to urban areas, but most of the growth in the urban residential rate represents real rural to urban migration. Currently, China has 65 cities over 1 million people, and 15 cities with population larger than 10 million. According to World Atlas statistics, in 2019, Ghangzhou was China’s largest city with 44.2 million people followed by Shanghai with 36 million people.

Internal Migration and the Hukou System

To control its large population, in the 1950s, China implemented the household registration or hukou system. This system effectively tied people to the place in which their Hukou registration card was issued. Children inherited their hukou status from their parents. Besides controlling internal migration, the hukou system controlled the internal distribution of resources such as food and clothing. The hukou system prioritized urban workers over rural workers. Non-agricultural and urban residents were granted significantly better benefits including superior employment opportunities, free education for their children, free and more-advanced medical care, subsidized housing and retirement pensions. By contrast, rural residents received few benefits and were also required to sell their produce to the government at discounted rates in order to finance urban subsidies. Inferior benefits and poorer educational and work opportunities has meant that rural residents have experienced significantly less upward mobility when compared to urban inhabitants. Chinese police have also used hukou registration to more closely watch problematic citizens such as political activists or convicted criminals.

In the 1980s, agricultural reforms led to surplus labor at a time when industrial economic reforms caused the demand for urban workers to increase. As a result, China began to cautiously modify Hukou restrictions. In 1984, for instance, China created the “self-supplied food grain” hukou which allowed rural residents to live in market towns if they had local employment, housing and food. In 1992, wealthy and educated individuals could earn urban residency under the “blue stamp” hukou designation if they had significant funds to invest in urban areas.

In addition to workers migrating with new Hukou status, millions of rural Chinese have also traveled to cities illegally. Illegal migration has been facilitated by the steady reduction in the use of Hukou ration vouchers, meaning that unregistered migrants have been able to purchase food and clothing once they have reached the city. According to Chinese labor bulletin statistics, in 2018, approximately 30% of the workforce or 288 million workers are currently part of what is termed China’s floating population. Most of these migrants live on the periphery of cities often in substandard housing. They work long hours and expect to return home once they have met their financial objectives. Migrant workers tend to take jobs that urban residents are either unable or unwilling to do. Male migrants, for instance, dominate employment in sectors such as construction, while females work in textile and other factories were work is strenuous and often dull.

Migrants lack channels into urban society including access to education, housing and social services that go with full urban citizenship. In comparison to urban residents, rural people have lower educational levels and are equipped with less capital. They also suffer the economic and emotional impact of remoteness and they endure incomplete markets for many needed resources. Without access to education, many migrants leave their children behind with family members in the countryside. Typical work schedules mean that visits home occur infrequently, often just once a year.

As its floating population has grown, China has continued to address migrant disadvantages through gradual modifications of registration requirements.  This process has been implemented in starts and stops. Reforms began first in small towns and cities. Where migrants can demonstrate extended residence, secure housing and steady income, it has become easier to transfer their hukou registration. Since 2001, larger cities have also begun some limited easing of hukou restrictions. In 2014, the national government has reiterated its pledge to continue to gradually eliminate the urban registration system. Cities and towns with populations under 1 million people are now required to eliminate restrictions entirely and promptly. Cities of 1- 5 million people have been given more open-ended deadlines to meet hukou reform goals. Cities with populations greater than 5 million people can continue to restrict access to permanent registration.

Where local cities have tried to push back on allowing more migrants to formally register, they have done so by defining criteria strictly. For instance, many cities have interpreted the steady source of income criteria in a way that excludes the unskilled jobs that employ many migrants. Other cities have required educational or wealth criteria that are often not met by many in China’s floating population.

These criteria effectively keep in place the significant barriers stopping low-wage earners from being upwardly mobile. They have minimized the impact of the reform by limiting its benefits to a small part of the migrant population. Cities often support these barriers because adding migrants to the formal registration system generates meaningful educational, healthcare, housing and other social costs. Barriers also entrench urban privileges from which city officials themselves benefit, and act to keep urban populations loyal. Hukou restrictions have prioritized the economic growth of China’s urban areas over rural areas. Rural migrants subsidize urban industrial growth by providing low-cost, benefit-free labor. Hukou allows urban environments to control the numbers of such workers by preserving their option to remove illegal workers from the city when their labor is no longer beneficial.  One way that local Chinese governments have tried to mask the existence of continuing barriers is by eliminating hukou labels – rural, urban, blue stamp, etc. – while keeping in place the criteria that made the labels relevant in the first place. That said, overall, the trend is that household registration restrictions are continuing to ease even if progress is slow.

Additionally, other migrant-beneficial reforms are being promoted. For instance, there have been efforts made to rein in detrimental police practices including coercive custody and repatriation, dragnet sweeps and extortion. Other directives have stipulated that more effort should be made to educate the children of migrants working within local jurisdictions. Some local governments have tried to skirt this requirement by making education available only to those migrants who have no family members still residing in their hukou registration jurisdiction. Where education is provided, migrants often are required to pay additional fees not required by local hukou holders. These fees often represent a significant percentage of the migrant’s annual income and represent an additional income source for schools. In order to prevent the loss of these additional school fees, the establishment of private migrant schools has often been strongly discouraged.

Limited educational access is also at play when trying to gain access to colleges and universities. Competition for acceptance to local universities is fierce even if students are legal. Non-registered students are often required to achieve significantly higher test results compared to registered students when vying for the same place. By limiting labor mobility, China’s amplifies the income disparity between urban and rural residents, creating a hereditary economic barrier.

Chinese Diaspora

Chinese Diaspora or Overseas Chinese are people of Chinese birth or Chinese descent currently living outside the People’s Republic of China and the Republic of China (Taiwan). Today there are an estimated 40 million overseas Chinese living in 148 countries around the world. The majority lives in Southeast Asia. Ethnic Chinese constitute approximately 74% of the Singaporean population as well as significant minority populations in Indonesia, Malaysia, Thailand, the Philippines and Vietnam.  Historically, most came from the southern coastal provinces of Guangdong, Fujian and Hainan. In each geographical region where Chinese reside, many of the Chinese diaspora have kept their languages and cultural identity while integrating to varying degrees into their host country.

Map of Chinese Migration 1800-1949

Map of Chinese Migration 1800-1949

Chinese migration came in four waves. According to research by Poston and Wong, the first wave was characterized by merchants and traders who emigrated to create businesses abroad. The more successful their businesses, the more likely these migrants were to preserve their Chinese attributes and their connections with China. Most of these merchant migrants traveled to Asian countries, particularly to Southeast Asia before 1850. A second wave of migration occurred between approximately 1840 and 1920 when Chinese immigrated to the Americas and Australia to work as cooks, miners, laundry men and railway construction workers. Most of these immigrants were male, of peasant origin and many returned to China after working for years or decades in their host country.

Chinese emigration to America: sketch on board the steam-ship Alaska, bound for San Francisco

A third wave of migration occurred for several decades after the fall of the Qing Dynasty in 1911 and was characterized by well educated professionals. Between 1920 and 1950, many of these immigrants were teachers who traveled to Southeast Asia to educate the Chinese children of families who had emigrated previously. A fourth wave of migration occurred after 1950 when Chinese in countries such as South Asia migrated to other foreign countries.

Since 1979, approximately 4.5 million Chinese students have traveled to the United States and other Western countries to seek university education. As China’s footprint in the world expands, educational destinations have expanded with it. Overall, according to UNESCO, in 2016 over 801,000 Chinese students pursued university education overseas. A significant minority of these students have elected to remain in their host countries at least for some period after graduation. For instance, the US Department of Energy’s Oak Ridge Institute for Science and Education noted that 92% of Chinese who earned science and technology doctorates in the United States in 2002 still resided in the US in 2007. Similarly, a 2013 National Science Foundation report noted that 86% Chinese science and engineering doctorate students hoped to remain in the United States after finishing their degrees. China has tried to reverse this educational brain drain by offering subsidies and perks for student returnees. Their efforts are beginning to show effects. The rate of return of overseas Chinese rose from a low of 25% in 2005 to 33% in 2010.

In 2000, the immigration rate of China’s highly educated population is now five times as high as the country’s overall rate. It is not just wealthy and middle-class students that are traveling abroad. Increasingly, middle-class and wealthy Chinese elites are increasingly pursuing work opportunities overseas or applying for immigrant investor visas where residency is offered to wealthy foreigners in exchange for a specified sum to be invested in the host country. In 2014, for instance, Chinese citizens received 85% of all U.S. immigrant investor visas. Wealthy Chinese cite several reasons for their wish to immigrate including the wish to join previously emigrated family members, pollution, poor food safety, weak rule of law and concerns about long-term political, economic and social conditions in China.

Chinese Diaspora and Economic Advantage in Southeast Asia

China’s emigration legacy has created immense economic advantage in many of the Southeast Asian countries.  Except for Singapore, ethnic Chinese represent minority populations in Indonesia, Thailand, Malaysia, the Philippines, Myanmar, Vietnam, Laos, Cambodia and Brunei, but dominate the economic activity of their host countries. It is estimated that Chinese migrants control approximately 60% of the region’s private corporate wealth.

 

Chinese in Southeast Asia
Ethnic  
Ethnic Ethnic Chinese %  
Host Chinese in Chinese % Control  
Host Country   Population 2011 Country 2011 Total (1) GDP Host (2)  
Indonesia         248,000,000        8,010,720 3% 71%
Thailand           64,260,000        7,512,600 12% 81%
Malaysia           28,730,000        6,540,800 23% 63%
Singapore (3)             5,260,000        2,808,300 76% 96%
Philippines           95,830,000      12,413,160 13% 62%
Myanmar/Burma           62,420,000        1,053,750 2% 76%
Vietnam           89,320,000            992,600 1% 41%
Laos             6,560,000            176,490 3% 99%
Cambodia           14,430,000            147,020 1% 92%
Brunei                410,000              51,000 12% 24%
(1) Research by Poston and Wong: The Chinese Diaspora: The Current distribution of the overseas Chinese
(2) The economist later replicated by many sites
(3) % Ethnic Chinese calculated as % of Singaporean citizens not total Singapore population

 

 

 

Southeast Asia

Source: The economist

Activating the Chinese Diaspora

Since the fall of the Qing Dynasty in 1911, overseas Chinese have played an important in both the politics and economics of China. For instance, much of the funding for the 1911 Chinese revolution was donated by Chinese living abroad.  After 1980, when China began undertaking economic reform, the People’s Republic of China actively recruited the assistance of its overseas population both in terms of skills and capital. More recently, China has worked to maintain the allegiance of recently emigrated Chinese, especially those professionals and students working and studying in foreign countries. Xi Jinping believes that the Chinese diaspora can play a significant role in helping China to reclaim its status as a premier nation both economically and politically. Overseas Chinese are some of the world’s most educated and successful professionals and entrepreneurs. With estimated total liquid assets of $1.5-2 trillion, the Chinese diaspora holds a substantial capital as well as expertise and relationships to be tapped for the continuing economic growth of the mainland. Additionally, it is estimated that the Chinese diaspora returns approximately $50 billion annually to China in terms of remittances.

In order to capture their expertise, Xi Jinping has launched a range of policies designed to encourage their continued engagement with the country. Such policies include the creation of over 200 Confucian institutes globally which have encouraged overseas Chinese to connect with their language, culture, homeland and each other. China has also been successful at encouraging ethnic Chinese to return to China to startup companies. Incentives proffered include the provision of free real estate or office space in high-tech parks, preferential tax treatment, preferential access to banking and credit, venture fund matching and streamlined regulatory processes. As an indicator of effectiveness of such policies, Greater Pacific Capital estimated that 25% of all tech startups in China are founded by returnees as opposed to home-grown entrepreneurs.

China has also worked to more effectively connect with the Chinese diaspora who intend to remain in their host countries. Programs include connecting overseas Chinese in academia and the science and technology sectors with their mainland Chinese counterparts as well as providing funding for their endeavors. Confucian Institutes help Chinese stay in touch with their language and culture while transmitting traditional Chinese culture and values around the world. Government web portals such as China Scholar Abroad and China Diaspora Web link ethnic Chinese with the mainland. The Chinese government has also hired top brand consultants and policy strategies to improve its international image and to advance policy agenda worldwide.

Additionally, China is also working at keeping it Chinese diaspora on message and sympathetic to China’s domestic and international policy objectives by creating a Chinese digital space where its points of view can be articulated. To this effect, China has acquired the control of newspapers, television stations and radio stations targeted toward the Chinese diaspora; it has used its economic clout to influence the reporting of independent media that have business ties with China; it has acquired both broadcast time and advertising space from existing independent media; and it has encourage ethnic Chinese to work in foreign media outlets in order to influence their reporting from within. Often, it has softened its messaging by placing its national goals under the banner of ethnic unity and common ethnic interests.

Trends

  • A declining workforce will necessitate China to shift from a low-wage, labor-intensive model to a one where resources are used more efficiently, where there are increases in labor productivity, and where automation and robotics technologies help offset labor declines. There will also be pressure to increase the retirement age.
  • The change from the One Child Policy to the Two Child Policy will result in only a small increase in China’s population.Significant socioeconomic changes that have occurred since the onset of the One-Child Policy have caused China to transform into a low fertility culture. These changes are consistent with the pattern countries follow as they become more developed.
  • Going forward, China’s large population will continue to provide the country with enormous challenges. As its population continues to age, China will be challenged by slower GDP growth and the need to create pension and healthcare systems that will help relieve the burden of the young to care for the old. Additionally, China’s growing population, which is predicted to peak by 2035 at approximately 1.461 billion people, will continue to put enormous demands on its scarce natural resources. Water management, in particular, will be a huge future challenge.
  • The challenges of China’s rapid urbanization are significant. Rapid economic growth will be necessary not only to the finance the enormous cost of this level of urbanization, but also to ensure that when centralized, urban populations do not protest government policy, as they did in Tiananmen Square in 1989. This could be a particular risk if long term migrant workers continue to be denied the same basic rights as registered urban residents, particularly as those urban residents will become an increasingly smaller percentage of the total urban population. Continuing to favor the original urbanites with government services risks long-term disadvantaging a large section of the population.
  • Additionally, urban residents use, on average, 3.6 times as much energy as rural residents, creating greater demands on energy grids. Urbanization can also lead to greater motorization, taxing China’s new road infrastructure. Greater urbanization will also generate higher levels of pollution, further exacerbating China’s already polluted air.
  • More changes in the household registration system, which identifies a person as a resident of a specific region—the so-called hukou reform—could accelerate the move of workers from rural areas to cities and help reduce the country’s growing inequality. HuKou reform will continue to proceed gradually, with second tier and smaller cities seeing reform while large metropolises such as Beijing and Shanghai keeping residence restrictions firmly in place. In the near term, urban hukouresidents will continue to get better ranking jobs, better wages, and benefits.
  • China’s diaspora will continue to see growth in the coming decades. Part of this growth will be driven by university students continuing to remain in their host countries after graduation and part of the growth will be driven by wealthy and skilled professionals leaving China to seek better work opportunities and a better quality of life. Additionally, as China continues to build infrastructure globally, some Chinese migrants that have worked on the infrastructure projects will seek to remain in their host countries. For instance, it is estimated that approximately one million Chinese have emigrated to Africa since 2001. These immigrants have come both via state projects and via their own initiative.
  • China will continue to activate its diaspora to achieve its domestic and foreign policy objectives. China views its diaspora as a source of capital and expertise. It also views it as a way to influence host countries from within.

References

China and the European Union: Principles and Pragmatism

Introduction

One of the fundamental difficulties with assessing the relationship between China and the EU is one that is inherent in all analyses of the EU: that it is not a single entity. Constituted of 28 member states (since Croatia joined in 2013) ranging in size from Malta (with fewer than half a million inhabitants) to Germany (home to over 80 million people), the EU is linguistically, economically, culturally, and demographically incredibly diverse. While there has been a much increased pooling of sovereignty within the EU in recent years, each member state retains the right and ability to conduct its own external affairs. However, the EU has worked hard to increase its unity on the international stage. For example, in 2009 the EU appointed a President of the EU Council in order that its external relations are managed more coherently. Even before then, the EU negotiated numerous treaties with key partners in the international arena. These treaties play major roles in the relationships between these international partners and both the EU has a whole, as well as its constituent member states. Additionally, any state wishing to conduct high levels of trade with individual EU member states cannot realistically do so without dealing directly with the EU, alongside its dealings with the states in question. For these reasons, it is valid to speak of the relationship between China and the EU, though with the caveat that the China-EU relationship does not always supersede China’s bilateral dealings with particular EU member states.

Trade

Without question, the single most important factor of the China-EU relationship is trade. The EU, taken as a whole, is China’s largest trading partner accounting for more bilateral trade than even the US or Japan. It is the largest market for China’s exports and has been a significant source of China’s economic growth in the reform era. The importance of the relationship is not just one-sided; China matters to the EU just as much and it is its second largest trading partner after the US, and would be its largest if trade with Hong Kong were to be included in the figures.

As with the China-US relationship, there is tension within this economic success story, particularly in the form of a considerable trade deficit. In 2010, the total value of two-way trade reached its highest point to date at $527 billion, but this resulted in the EU stomaching a deficit of almost $225 billion. Preliminary figures for 2012 show a drop in trade of around 4%, probably driven by Europe’s economic travails, but the overall deficit remains fairly constant. While this represents a significant amount, it also demonstrates that the imbalance in the trading relationship is not as severe as exists in China-US trade; although the figures for absolute deficit are fairly similar (the figure for the US in the same period was equivalent to approximately $236 billion) the EU deficit was generated from a two-way trade figure that was more than one third larger than that of China-US trade, meaning it was proportionately much smaller. It is also important to consider that although this deficit is high, it is relatively stable as both exports and imports continue to grow at a similar pace. Thus, whereas the trade deficit in 2007 was $222 billion, only fractionally lower than it was in 2010, this represented more than half of the overall two-way trade for that year. In fact, across the last five years exports to China from the EU have grown at an average of 15% per year, making China Europe’s fastest growing market by some margin, while imports grew at just below 10%. A continuance of this trajectory will see the trade imbalance become even less of an obstacle to relations in the future.

There is, of course, imbalance within the EU regarding the importance of China as a trading partner. As outlined earlier in this article, while the EU often negotiates as a single entity on the international stage, it is an organisation that has 27 member states, each of which retains its sovereignty. The result of this is that the figures on two-way trade above perhaps give a skewed outlook on the relationship. Of the $527 billion in two-way trade in 2010, fully one third was between Germany and China, and the majority of the trade is with the EU’s four largest states (Germany, UK, Italy and France). When separated out this way and placed into the context of the global economy, the figures are not entirely surprising. It is to be expected that Germany is China’s largest European trading partner, both because of the size of its economy and the level of complementarity, as the majority of trade with Europe is in industry and machinery, sectors in which the German economy is strong. However, the significance of even smaller countries within the EU lies in the collective negotiating position that the EU has, allowing them to be part of a much larger negotiating team in dealings with China; this has the twin effect of increasing these countries’ relative leverage as well as to enhance the EU as a whole vis-à-vis China.

vpix / Shutterstock.comChina has taken on an even greater significance to the EU and its member states since the economic crisis of 2008 and the subsequent debt crises that have emerged in Europe, particularly in those countries that use the Euro. There have been some quite naked attempts from within Europe to woo the Chinese into buying up bonds to ease this situation. China has vested interests in ensuring the stability of the European market on which it relies so heavily for exports, prompting the leadership to issue broad statements of support and pledges to invest in Eurozone debt, especially from Italy, one of the countries most heavily in debt. However, these statements and pledges have also been augmented by warnings from China that Europe must do more to put its own problems right in this area and, most importantly, to protect Chinese investments in the EU. While it is clear that China holds most of the cards in this predicament – the Europeans cannot realistically solve the debt crises without Chinese investment – it is not in China’s own interests to exacerbate the situation and assistance is, therefore, likely to be forthcoming.

The European Debt Crisis

In order to join the European Union, potential member states had to sign the Maastricht Treaty which was to bind them into limiting their deficit spending and debt levels. Some European Union member states, Italy and Greece for instance, dodged this obligation by hiding their debt and deficit levels through the use of complex currency and credit derivative structures. Having entered the Eurozone, Greece and several other EU countries continued to run large deficits through the 2000s. In the early part of the decade, these deficits were less problematic as they were supported by economic growth. In Greece, this growth was driven by its shipping and tourism industries. With the 2008 financial crisis and the accompanying slowdown of the world economy, however, Greece’s debt, and that of other EU countries, began to rapidly build-up.

As government budget deficits and sovereign debts have increased sharply, a crisis of confidence has emerged which has resulted in Italy, Greece, Spain and Portugal’s credit ratings being downgraded, and in increased borrowing costs for those countries. These sovereign debt issues have become a perceived problem for the Eurozone as a whole, not the least because many of the struggling southern euro countries have received bank loans from France, Germany and other more solvent Eurozone members. France’s banks in particular have extensively lent to southern European governments. In September 2011, two of France’s largest banks, Societe General and Credit Agricole, were downgraded because of their exposure.

By April 2010, the EU and IMF agreed to an initial bailout package of €45 billion for Greece. In May 2010, austerity measures were proposed to reduce Greece’s deficit, as the country’s slow growth meant that it would be unable to repay its debt without significant cuts in spending. Many Greek citizens were unhappy with the severe austerity measures and have held national strikes in protest. A protest on 5th May 2010, for instance, was widespread and became violent, resulting in three deaths. Nevertheless, in the same month the IMF and the euro zone countries approved a €110 billion loan for Greece, conditional on the implementation of measures to reduce government spending. The Greek loan was followed by a loan of €85 billion for Ireland in November, and a €78 billion rescue package for Portugal in May 2011.

In May 2010, the 27 member states of the European Union agreed to create a €440 million European Financial Stability Facility, a legal instrument designed to maintain financial stability in Europe by being able to provide rapid financial assistance to European governments in need. These funds were to be made available in conjunction with €250 billion from the IMF. In January 2011, the European Union designed the European Financial Stabilization Mechanism, a €60 billion emergency lending program backed by all 27 European Union members. The idea is that EFSF and EFSM are to be replaced by the European Stability Mechanism due to be launched in mid-2013.

In order for Greece to be eligible for the next tranche of its bailout loan, in May 2011, the IMF proposed spending cuts amounting to €28 billion over five years. Greek citizens again took to the streets in protest. In October 2011, leaders of the 17 year zone countries met in Brussels to discuss a package aimed at addressing the crisis. A deal was reached in which it was recommended to write-down by 50% the Greek sovereign debt held by banks, to enlarge the European Financial Stability Facility to €1 trillion, to increase the mandatory level of bank capitalization, to ensure that Italy would make commitments to reduce its national debt, and to pledged €35 billion in credit enhancements to offset losses incurred by European banks. The package has yet to be put into effect, however, as Greek citizen resistance to continued austerity first caused Greek Prime Minister George Papandreou to propose a referendum on the package, then to withdraw the referendum, and eventually, to step down as the Greek Prime Minister. The Greek political situation currently remains unclear with voters apparently unwilling to sanction to agreement to slash public spending on which its bailout money depends.

Currently, the situation remains unresolved. Borrowing costs in Spain, Italy, Portugal, France and Greece have continued to rise up to the point where their debt levels could become unsustainable. In fact, bailouts for Irish and Spanish banks were issued in 2012. Part of the issue has been that the weaker economies of southern Europe have not been able to devalue their currencies in order to remain competitive as they surely would have done if they were single, sovereign entities, while Germany has enjoyed an artificially depressed currency allowing their exports to rapidly grow. Individually, the southern European countries could have more easily preserved their competitiveness through greater tolerance for inflation and corresponding regular devaluations. They would have had the ability to keep interest rates low and to engage in quantitative-easing and fiscal stimulus. They could have supported job-targeting economic policies, instead of introducing inflation- targeting policies as they are required under their current commitments.

This inability to make competitive adjustments through currency variations has created an imbalance of payments in the southern European countries. To correct this imbalance, without the ability to individually raise interest rates or to impose capital controls, the southern European countries have been borrowing to fund their deficits. As their deficits have reached unsustainable levels, they are now being asked to reduce their consumption in order to hike their savings rate and to reduce the capital outflows. This has come at a time when slower GDP growth rates have led to slower growth in tax revenues and higher social security spending, increasing deficits and debt levels further. The French May 2012 election of Francois Holland may mark a shift toward EU economic policies that emphasize growth instead of just austerity; certainly there has been a big upsurge in calls for simulative economic policies. In what form these policies take shape is still under negotiation.

Ultimately, the long-term sustainability of the Eurozone will require a common fiscal policy in addition to a common economic policy. Whether sovereign countries will be willing to let outsiders dictate their tax and government spending policies is yet to be seen. European economies, with high wages, large government social services and subsidies, and complex regulations and taxes are becoming increasingly uncompetitive in the global economy. These factors have been aggravated by Europe’s aging population, the growing use of technology to replace skilled labor, and globalization which has caused European manufacturing and services to relocate to lower-cost production centers.

What China’s role will be in the debt crisis remains to be seen. In the short term, Europe’s debt crisis is likely to be stabilized through financing from the EFSF, the IMF’s use of special drawing rights, or a combination of the two. Exactly how of if China contributes funds to this process is still an open question. Europe is China’s largest export market. If Europe derails, it also will drag down the global economy, which will negatively impact China’s own economic expansion. Although it is not known for certain, it is estimated that a quarter of China’s approximate $3.2 trillion in foreign exchange reserves are denominated in euros, so China has a vested interest in maintaining their value. China continues to need to diversify its foreign reserve holdings and Europe represents one potentially viable area for investing excess Chinese funds; China can only invest so much in its domestic economy without worsening inflation, creating asset bubbles or mal-investing. Playing a more active role in the European crisis might help solidify China’s positioning as a responsible power and enhance its clout on the global stage. It may also boost Beijing’s leverage with Brussels on issues such as gaining “market economy” status, increasing its role in international organizations such as the IMF and the World Bank, and on getting the US to stop pressuring it to ease its foreign currency controls.

That said, it is likely that bailing-out Europe would prove unpopular at home. On a per capita basis, China is much poorer than Europe; bailing-out Europe would give the impression that China is supporting rich foreigners at the expense of its citizens, especially given the widespread sentiment in China that Europe is in crisis in the first place because of its own profligate spending. The safety of EFSF issued bonds is also a concern for China. On numerous occasions, China has insisted that it cannot consider investing until Europe’s financial house is in order. Also, as China rises, disquiet in the West about China’s intentions intensifies. Depending on how China handles it, its efforts at assistance could be misconstrued as opportunistic mercantilism, especially if it invests in industries that it could later use as a springboard for further market penetration, as opposed restricting its investment to buying bonds.

Human Rights

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The EU describes its core interests in the relationship with China as going beyond trade to incorporate matters of human rights and political reform. The way in which the EU seeks to alter China’s actions in this area is governed, as the rest of the relationship is, by the 1985 EC-China Trade and Cooperation Agreement (TCA). Although originally negotiated by a European Community that consisted of just 9 states, the TCA has since been updated and remains the bedrock of EU-China relations today. Under the terms of the TCA, the EU commits itself to engagement with China, particularly with regard to trade, in order that it may encourage the liberalization of China both politically and economically. The EU’s China policy, therefore, rests on a fundamental assumption that engagement is good and will encourage liberalization in China.

As part of the agreement the two sides hold regular summits on specific issues, including a biennial “Human Rights Dialogue” during which representatives of the EU offer assessments on the extent to which China has fulfilled previous human rights commitments and has the opportunity to raise individual cases of concern with their Chinese counterparts. This process is not entirely one-sided; the Chinese side frequently uses these meetings to point out what it considers to be issue of discrimination against people of Chinese origin within the EU, though the evidence produced for this is ordinarily quite unconvincing. The Europeans point to some limited successes from these dialogues, particularly in the release of political prisoners, such as Tibetan activists, ostensibly at the request of EU representatives. However, examination of the reports of these dialogues released by the EU shows that frequently the same cases are repeatedly raised, usually without any concrete action resulting. On the occasions where cases have been resolved there is little evidence that this has happened as a direct result of EU concern. However, it can be argued that a success of the EU’s approach is that it has institutionalized China’s acceptance of the discourse on human rights, allowing regular reporting to take place on its record in this area by an external party. Critics may see this as paying lip service to the idea, but others argue that this is just one stage in a long-term process of norm development.

The gulf in perceptions of human rights between Europe and China came to the fore in the run up to the 2008 Olympics in Beijing. Following the series of protests that occurred in Tibetan regions of China in March of that year, and the concomitant crackdown by Chinese authorities, many groups in Europe sought to register their anger and protest by targeting the Olympic torch relay as it passed through Europe. The reaction was strongest in France, where several protestors tried to grab, or even extinguish, the flame, while numerous pro-Tibet banners and flags lined the route. These scenes were mirrored in other EU countries, including the UK, and caused serious disquiet amongst both Chinese politicians and the general public, many of whom considered it to be an undeserved sleight on the Chinese nation. What followed was a period of particularly frosty relations, especially between France and China. A fairly widespread internet campaign, for example, urged the boycott of Carrefour, a French supermarket chain that has almost 200 stores in mainland China. After much speculation that he would boycott the opening ceremony of the games, the French president Nicolas Sarkozy appeared to back down and made public his intention to be present. This calmed the atmosphere at the political level, and the controversy now appears to have had no serious lasting impact on either Franco-Chinese or EU-China relations.

Arms Embargo

The biggest and longest running issue in China-EU relations, however, remains an arms embargo that was put into force in 1989 following the Tiananmen Incident. The embargo was the centerpiece of the European response to the crackdown which had been widely condemned among Western countries. It remains the only sanction imposed during that time not to have been lifted. What it means in practice is that no EU member state may sell weaponry to the PRC and this includes a responsibility to ensure that no third country acts as an intermediary. During a period of rapid modernization in the Chinese military, this has been a source of concern both to the Chinese government, who would like the freedom to purchase advanced military technology from EU suppliers, and also to some in the defense industry in Europe, which considers China to be a massive untapped market. It is an item that is on virtually every agenda at summits between the EU and China, but there is currently no realistic prospect of it being lifted. A groundswell of opinion did begin to form around lifting the embargo in the early years of the twenty-first century, with the then French president, Jacques Chirac, chief among those calling for at least a limited amount of arms sales to be permitted. While some countries supported this idea, it was opposed strongly by the US, a crucial ally of the EU. In direct response to US concerns BAE Systems, a British firm which is the largest manufacturer of arms in the EU, stated publicly that it would not countenance selling weapons to China even if the embargo were lifted. The debate came to an end in 2005 when China passed its Anti-Secession law, explicitly authorizing the use of force to regain sovereignty over Taiwan. Following this, even the most pro-Chinese European leaders realized that ending the embargo was a political impossibility. The question of lifting the embargo continues to be raised within Europe from time to time, most recently by the Spanish in 2010, but the prospects of it being lifted seem distant and unlikely. This is a continuing cause of irritation in China, where it is viewed, probably correctly, as more of a strategic decision than a statement on its human rights record.

Future Trends

All relationships that involve the EU are complicated by the fact that it is both a single entity and a diverse collection of 28 sovereign states. The diversity of the EU brings with it an incoherence in its strategy towards China. While all states value the increased and increasing levels of two-way trade and understand the centrality of China to future European economic growth, other aspects of the relationship are not dealt with in such a unified manner. The trajectory of economic expansion seems set to continue and the growth of exports to China within this expansion mean that any tensions that are caused as a result of the trade deficit will not be of great significance to the relationship. While the EU continues to define the issues of human rights and political liberalization as core to its China strategy, it could be argued that it is now taking a much more pragmatic approach in this respect. The policy of engaging with China in order to promote these aims rests on the fundamental principle that such engagement will help to bring about the desired changes in China, but this is not really borne out by the evidence. It seems unlikely that the EU will make serious inroads into its human rights and political reform agenda in China and, for their part, the Chinese seem willing to engage discursively in this process while continuing to place economic growth at the center of their strategy. With the core interests of both sides seemingly converging around trade, the issue of human rights seems likely to take more of a back seat. The exception to this will continue to be the arms embargo which is likely to remain in place for the foreseeable future, though this has now taken on more of a strategic importance, both to states within the EU as well as to key allies such as the US, rather than genuinely seeking to address issues of liberty in China.

In terms of the Eurozone debt crisis, it is hard to predict future outcomes given the incredible volatility of the current situation. Given all that China has at stake in Europe, it is unlikely that it will remain categorically on the sidelines. Given a choice, China has expressed a preference to buy European assets as opposed to government bonds, although it anticipates that Europeans may likely be more resistant to this idea. In such a case, it is likely that China will be more willing to provide funds for Europe through the IMF, especially if it’s increased funding buys it a greater voice in IMF policy making. Gaining greater clout in international organizations is a Chinese objective. Additionally, supporting the IMF will be easier to sell at home than investing in a strictly European-based financing mechanism. The IMF’s authority and experience at restructuring countries struggling with their finances will also provide China with additional comfort that its investments will not be squandered.

The Chinese Environment: Positive Trends toward Environmental Protection

Introduction
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Environmental degradation in China has increased significantly in the last 30 years. In 2000, China’s Environmental Protection Agency found that two thirds of China’s 300 largest cities had air quality which exceeded WHO standards for acceptable levels of total suspended particulates. Additionally, China’s water is also both in short supply and highly polluted.  Stresses to China’s environment will grow in the future. By 2030, it is estimated that approximately 300 million new vehicles will fill China’s roads; an additional 350 million people will move into China’s cities; and an expanding number middle class will demand better food and more consumer goods. By 2030, even with China’s rapidly developing alternative fuels capacity, it is estimated that China will need to burn almost 200 million tons more coal than in 2005 to provide sufficient heating and electricity for its new urban citizens. Indeed, overall coal-based power generation capacity is projected to triple from its 2005 rate by 2030. In 2007, the World Bank assessed that China’s combined health and non-health cost of outdoor air and water pollution to be conservatively $100 billion annually, or 5.8% of the country’s GDP, and that up to 500,000 people in China die each year from air and water pollution.

Yet, despite the magnitude of China’s environmental crisis, positive trends are emerging which will begin to slow the damage being inflicted on China’s and the world’s environment. Perhaps most importantly, Beijing is increasingly recognizing that China is placing unsustainable stress on it ecology. For the first time, China’s 12th Five Year Plan prominently features both the importance of improving energy efficiency, and of mitigating climate change. As a result, in the next five years, Beijing will invest heavily in green technologies, alternative fuels, and energy efficiency. Beijing sees these investments as one way for China to take the lead in green industries; indeed, by 2015, for example, China is projected to have the world’s largest installed capacity of alternative fuels.

This trend toward greater environmental protection is also being driven by a growing emphasis on green lending within China’s banking sector, and by China’s need to comply to international environmental standards such as the ISO 14001 in order to compete in international markets. Domestic and international NGOs are also gradually raising environmental awareness in a whole range of areas. Multinational corporations, too, are playing their part, progressively insisting that their Chinese factories meet local environmental regulations, and introducing into China environmentally friendly technologies and practices.

China’s 12th Five Year Plan –Featuring Climate Change Prominently

shutterstock_87381041For the first time, China’s 12th Five Year Plan highlights climate change and energy efficiency prominently. The plan sets a GDP growth target of 7%, which would be a significant slowdown from the average 11.2% rate of growth reached between 2006 and 2010. The 12th Five Year Plan and subsequent commitments also adopt as domestic, binding law the voluntary climate pledges China made at Copenhagen in 2009. Specifically, by 2015, China plans to reduce its carbon intensity by between 40% and 45% from 2005 levels, to increase its forest cover by 12.5 million hectares and its forest stock volume by 600 million m³. As of 2015, these same goals remain unchanged, and China has pushed them another five years into the future. The country now hopes to realize these reductions by 2020. Measuring China’s progress towards these goals remains inaccurate because the nation has not released many reliable and updated figures on carbon intensity to the public. The figures remain ambitious: by 2020 China aims for an energy distribution of 350 GW in hydropower, 200 GW in wind power, and 100 GW in solar power.

The five year plan sets several separate targets for 2015, including: a 16% reduction in energy intensity; a 17% reduction in CO2 emissions per unit of GDP;  an 8% reduction in demand for both chemical oxygen and sulfur dioxide; a 10% reduction in both ammonia nitrogen and nitrogen oxides. The plan also highlights the need to improve sewage and sludge treatment, and to better the rates of desulfurization and de-nitrification. It also seeks to protect the living environment with policies to reduce rural pollution from agriculture, to expand nature reserve development and biodiversity conservation, and to extend waste management infrastructure. Beijing is also planning to upgrade subway and light rail in cities that already have urban transit systems, as well as to construct new systems in at least nine other cities. It will also build 35,000 miles of high speed railway with the ultimate goal of connecting every Chinese city of 500,000 or more people. China may also soon unveil plans to create 10 million electric car charging spots by 2020.

Looking at the layout of the 12th Five Year Plan, decisions 52 through 54 of the 12th FYP are especially promising. The 52nd decision puts forward a commitment to establishing national parks and outlines a more flexible plan for local governments. Municipal officials in environmentally damaged areas who were once expected to meet certain GDP targets will no longer be held accountable to those numbers. Instead, their decisions and implemented policies will be closely monitored to assure that they are not furthering the environmental damage in their respective regions. The 54th decision works together with the 52nd, laying out the groundwork for a system where all environmentally-related developments must be licensed. With the added scrutiny and pressure to meet economic goals removed, it will be much more difficult for government officials to find legitimate reasons supporting preferential treatment for companies damaging local rivers and farms. Decision 53 acts as a capstone to this policy outline, reflecting China’s recognition that the current environmental situation has resulted from years of damaging habits and forming a national plan to rehabilitate damaged farmland.

China’s 12th Five Year Plan –Emphasis on Renewable Energy

The 12th Five Year Plan also seeks to have renewable energy account for 11.4% of China’s power consumption by 2015. China plans to increase wind power by 70 gigawatts. With regard to nuclear power, China projects installing 40 additional gigawatts of safe capacity by 2015, though after the disaster at Fukushima in Japan, China has also vowed to review and strengthen the safety of all its nuclear power as part of its expansion strategy. China anticipates increasing its hydropower to approximately 380,000 MW by 2020 and expects to have solar capacity of between 10 GW to 30 GW by 2020. Indeed, seven of the planet’s top 10 solar panel makers are now Chinese. At the end of 2014, the China Electricity Council reported that renewable energy sources had increased their share by 19%, while fossil fuel usage declined 0.7%. Energy capacities also increased significantly: China’s non-fossil fuel energy capacity rose by 55.8 GW to 444GW, with solar, hydro, and wind power rising by 10.6 GW, 22 GW, and 23.2 GW respectively. These changes surpass those outlined in China’s 12th Five Year Plan, and put it on track to meet 2020 targets. Should it meet them, China will have the most installed wind, nuclear, and hydro-power in the world, and will have one of the largest solar capacities.

As a whole, China’s renewable energy sector has expanded dramatically over the last few years. From 2009 to 2013, the total production of renewable energy sources expanded nearly 13.3% annually, and is expected to remain fairly high at 11.8% per year in the five years ending 2018. National investment in green energy has also increased quite healthily, with USD $87.5 billion invested in total during 2014, up 36% from 2013 and comprising just over 32% of global investment in the sector. All of these positive changes have catapulted China into the number one spot in many renewable- and green energy-related production indices, and have made the nation the world leader in renewable power development. In the 2015 report from the Renewable Energy Policy Network for the 21st Century, known as REN21, China took the top spot in 11 of 26 categories: greatest investment in 2014 in renewable power and fuels, hydropower capacity, solar photovoltaic and water heating capacity, wind power capacity, and greatest generation by volume of renewable power (both including and excluding hydropower), total hydropower capacity, total wind power capacity, total solar water heating capacity, and total geothermal heat capacity. Wind power continues to rise in China, with Asia as the dominant market for the past seven years. As of 2014, the total capacity of wind power in Asia has surpassed that of Europe, in large part because of China’s extensive investment in the field. Indeed, the whole renewables industry has momentum that will carry China forward into future years and determine goals established in further Five Year Plans.

China’s 12th Five Year Plan –Pushes More Effective Pollution Data Collection

Of key importance to its environmental efforts is China’s intention to implement comprehensive data collection and monitoring systems, soon allowing it to follow a more data-driven approach to environmental policy. Yet, it is not clear how much of that data will ultimately be made available to either the public or the wider world. China’s political vulnerability because of environmental pollution is still a serious concern within a Chinese leadership that fears environmentally triggered “mass incidents” (a euphemism for protests or social unrest) and the resulting social instability. There is also concern that foreigners will use environmental data to interfere in China’s internal affairs.

For example, recent air quality monitoring by the US embassies in Beijing, and most recently Shanghai, has led to controversy as US reading  contradict Chinese official data. Increasing numbers of Chinese citizens, along with many in the expat community in China, are turning to US environmental data.  In 2011, for instance, Beijing health authorities insisted that air quality was perfectly safe 80% of the time while US statistics rated the air quality is good for about  4% of the time. The discrepancy in readings results from the fact that the US Embassy monitors small air particles known as  PM 2.5 which Beijing authorities have neglected to include in their data. Chinese authorities have work to quell increasing controversy by agreeing to measure the PM 2.5 particles as of 2015. They have also called into question the accuracy of the US readings. According to Wikileaks, in 2009, Chinese officials went as far as to request that the US Embassy stop tweeting its air pollution data because it said the conflicting data was “confusing” and could cause “social consequences”.  As of May 2012, the US Consulate in Shanghai has also begun issuing pollution statistics. The US Consulate alerted Shanghai officials in advance that it would be publishing pollution data. In its tweets, the US Consulate emphasizes that the pollution results are derived from monitoring equipment solely based at the US Consulate, and do not necessarily reflect the air pollution quality of the entire city. Again, US data conflicted with the official Shanghai statistics, with the US consulate finding the air quality as unhealthy, where the Chinese data finds the air quality good.  By June 2012, the Shanghai Environmental Protection Bureau will also release air quality data including PM 2.5 particulates.

Like the divergent air quality statistics, reports on provincial emissions often differ significantly from on-site data. Some suggest that this may be the result of China’s national carbon emission reduction targets, because businesses find it easier to meet their carbon goals if they overestimate them at the outset. To remedy this inconsistency, the Chinese Academy of Sciences has begun a year-long study to identify the largest carbon emission culprits and their numerical contribution to China’s carbon outlay.

Studies on the pollutants affecting China’s soil quality also remain scarce. Some of the more recent statistics indicate a large, but largely ignored problem. Pollution in 16% of all Chinese soil exceeded standards, and 19.4% of all arable land contained heavy metals, also above acceptable limits. Enough productive land has been affected that China may be risking a loss of food security and self-sufficiency should the decline in land quality continue. The 12th Five Year Plan does push for improved data collection, but China still has areas in the environmental sector that need improved data collection before resources are destroyed beyond repair.

China’s 12th Five Year Plan –Looking to the Market to Help Protect China’s Environment

In addition to new pollution targets and better data gathering, China 12th Five Year Plan articulates market-driven solutions to reduce pollution domestically, including: offering financial incentives to enterprises engaged in sewage treatment, sludge treatment, desulfurization, de-nitrification and waste disposal; strengthening the pollution charging system so that high-pollution production faces higher costs; encouraging lending to green projects; and increasing the portion of green products on government procurement lists.  Beijing is also considering evaluating party member performance on pollution mitigation as well as GDP growth targets. The plan also proposes an environment tax in order to deter pollution, promote clean technology and create funding for environmental clean-up. It is likely that the tax will be first introduced in China’s wealthier provinces, and then rolled out nationally. Cap-and-trade carbon pilots on the national scale are also being deliberated, as is an expansion of the 11th Five Year Plan “1000 Enterprises Program” to “10,000 Enterprises Program.” Regional carbon trading programs have already officially begun pilot testing in several provinces, with the ultimate goal of creating a unified carbon cap-and-trade system sometime around 2017. Going estimates place the size of this potential market at around RMB 100 billion by 2020.

In 2005, it was determined that the energy consumption of the top 1000 Energy Consuming Enterprises accounted for 33% of national and 47% of the dead industrial energy usage in 2004. Under the program, 2010 energy consumption targets were determined for each enterprise. High energy consumption enterprises include those competing in the iron and steel, petroleum and petrochemicals, chemicals, electric power generation, non-ferrous metals, coal mining, construction materials, textiles, and pulp and paper industries. While detailed information on program results is difficult to attain due to confidentiality, a 2010 study by Lynn Price, Xuejun Wang and Jiang Yun indicated that the Top 1000 Enterprises Plan was tracking positively to reach its goal of saving 100 metric tons carbon equivalent (Mtce) in 2010, could even surpass the figure by as much as 48 Mtce. When calculated in terms of reduced CO2 emissions, the effect of the Top-1000 program is enormous. Meeting the 2010 100 Mtce savings target will result in energy-related CO2 emissions reductions of 300 MtCO2, an amount equivalent to the 2005 annual emissions of Poland.

Indeed, improving energy efficiency is key to China’s new, “scientific outlook” on development. The scientific outlook most immediately focuses on technological solutions, notably through improved efficiency as the principle short term way to conserve resources. The program also promotes the idea of a “circular economy” where China actively reduces, reuses and recycles. It is by efficiency gains, the pursuit of the circular economy, the employment of alternative energies, and the embracing of new green technologies that Beijing believes that it can significantly grow GDP while ensuring sound ecological conditions.

Large Projected Investments in Green technologies

If all the measures proposed in the 12th five-year plan are implemented, China will be creating a huge market for clean technologies, with the potential to exceed $1 trillion. Beijing will be investing heavily in the sector. During the 12th five-year planning period, Beijing’s green sectors investments are expected to reach $468 billion, up from $211 billion over the previous plan. The bulk of the investment is slated for waste recycling and reutilization, green technologies such as alternative fuel vehicles, and renewable energy. This investment will drive projected annual growth in China’s environmental protection industries to an average of between 15% and 20% through 2020. World Watch Institute, a research institute devoted to the analysis of global environmental concerns, expects that China will create as many as 4.5 million new green jobs during that period.

With these and other investments, in the future, China hopes to lead the world in green technology, leapfrogging the developed world’s carbon-based economies. The transition costs to a less carbon-dependent economy will be less for China than for advanced economies, because it is not locked into a high-carbon model to the same degree. Also, green technology levels in the developed and developing worlds are on par, so that China also does not have to play catch-up to be competitive in the sector. Indeed, many in the international environmental movement have expressed hope that China may ultimately lead in climate change initiatives, particularly given its large and growing investments in the sector.

Other Factors Working to Reduce Environmental Degradation in China – Green Lending

In February 2012 the China Banking Regulatory Commission (CBRC), China’s top banking regulator, issued the Green Credit Guidelines to help facilitate China’s transition to a more environmentally friendly development model. The guidelines apply to domestic policy banks, commercial banks, rural cooperation banks and rural credit cooperatives, as well as village banks, loan companies, rural funding cooperatives and non-banking financial institutions. . The guidelines encourage lenders to reduce loans to industries with high levels of energy consumption and high levels of pollution, and to strengthen financial support for green industries and projects. Specifically, the guidelines require the financial institutions’ Board of Directors or Council to take charge of establishing a “green credit development strategy”, as well as to approve green credit loans, issue regular green credit reports, and supervise the institution’s green credit performance.  Senior management will be responsible for reporting annually to the Board of Directors and regulators about the progress of green credit practices. Additionally, banks will also be required to maintain a list of high-polluting clients, and urge these clients to take pollution mitigating measures. In the future, banks will also be expected to do more thorough environmental due diligence before lending, and restrict credit to highly polluting clients.

Even if credit has been granted, disbursement of the loan proceeds can be suspended or terminated if the client begins to engage in environmentally damaging practices. Post-lending, banks are required to report to regulators any behaviors by its borrowers which are resulting in environmental damage. For overseas projects, financial institutions must ensure their financing is for projects complying with local environmental regulation. Banks are also required to conduct internal audits of their green credit practices regularly; every two years, a comprehensive evaluation of its green credit practices are to be submitted to the CBRC. The CBRC is to conduct off-site and on-site inspections to ensure that financial institutions comply with its Green Credit Guidelines.

These regulations are designed to further develop what was already a growing trend in green lending in China. By end of 2011, China’s six largest banks – China Development Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications – had a total of $301.75 billion in green credit lending. In particular, in 2011, China Development Bank lent $104 billion to support environmental protection, energy saving and emissions reduction projects, accounting for 12.7% of the bank’s total outstanding loans. Even before the 2012 guidelines, green lending in China was growing because of rising demand by customers, and because government support for green projects has meant that many green loans have lower non-performance ratios. Ultimately, the future success of the guidelines will be dependent on the banking industry’s ability to collect accurate environmental data on its customers. Certainly, the government’s 12th Five-Year Plan indicates a greater commitment to environmental data gathering. Again, it still remains to be seen whether Beijing will then allow this information to be more widely circulated.

Other Factors Working to Reduce Environmental Degradation in China – Meeting ISO Standards

shutterstock_104036633China’s participation in standardization laws are also helping to drive pro-environmental business practices. ISO, an international organization headquartered in Geneva, issues two kinds of specification standards to which China strives to comply: those which facilitate commerce by normalizing product standards and those which standardize procedures. The IS0 14001 incorporates environmental policy into its framework by creating a standardization of management practices and implementation of environmental procedures. Since 2006, China has led the world in ISO 14001 certificate registrations. China’s ISO compliance efforts are driven by the fact that many of the markets into which China exports now request ISO 14001 observance.

Other Factors Working to Reduce Environmental Degradation in China – NGOs

Domestic and international NGOs are also becoming increasingly important to China’s environmental activism. The Academy for Green Culture, now called Friends of Nature, was the first environmental NGO formally registered in China in 1994. Since then, several hundred international and domestic NGOs engage in nature conservation, species protection, environmental education, policy advocacy, data collection, legal advocacy, environmental information exchange, wasteland reclamation and organic farming. Indeed, leaders of three Chinese NGOs were appointed as environmental advisers to the Beijing 2008 Olympic Bid Committee and were instrumental in helping China win its bid. These NGOs work both at a community and a national level. Examples of NGOs active in China include Green River, Global Village of Beijing, Institute of Environment and Development, the World Wildlife Fund, Green Earth Volunteers, Green-Web, the Natural Resources Defense Council, Greener Beijing, and the Center for Legal Assistance to Pollution Victims.

Despite their growing presence, NGOs face real challenges when working in China. NGOs often lack any real influence, particularly when faced with entrenched business interests. Domestic NGOs are often challenged by fund raising difficulties. On many occasions, new NGOs have been refused registration, thus denying them the benefits of NGO status. The government also closely scrutinizes the work of these NGOs in order to prevent environmentalism from evolving into a push for broader political reform. In general, domestic NGOs are reticent to criticize the central government publicly, and work hard instead to engage in cooperative relationships with local officials.

Other Factors Working to Reduce Environmental Degradation in China – Multinationals Making a Difference

Multinationals are also beginning to positively impact environmental protectionism in China. Given that China is often their factory, and given the growing environmental activism within China at the governmental, NGO, academic and social levels, multinational corporations are increasingly under pressure to ensure that their production, and the production of their suppliers, in is in compliance with local environmental standards. For example, in August 2011, Apple received bad press for ignoring its suppliers’ outstanding public pollution violations which had been brought to its attention by a consortium of five Chinese environmental NGOs. Within a month, Apple was working with its suppliers and the NGOs to improve environmental performance.

Multinationals are also increasing taking initiative in helping their Chinese suppliers use energy, water and materials more efficiently, and reduce emissions where possible. Shell China, for instance, one of the largest multinational companies operating in China, has been introducing better environmental practices and technologies. In 2009, in the Changbei Gas Field, where it works jointly with PetroChina, Shell increased gas production by 11% while decreasing energy intensity, resulting in annual savings of around 2500 tons of standard coal – enough to provide sufficient power to support 10,000 urban Chinese families for three and a half years.  The project also reduced the volume of its wastewater by 70%. These environmental practices are good business as they improve profitability. Yet, they are also introducing methods and technologies that are then absorbed more broadly. Multinational investors also drive environmental practice in China. Worried about environmental liability, they encourage multinationals to implement stricter environmental practices.

Trends

shutterstock_110013224Despite the many factors which will continue to perpetuate environmental degradation in China over the coming decades, and the magnitude of China’s environmental challenge, China’s environmental trends are not all grim. Indeed, many developments indicate that China will make increasing progress in the field of environmental protection.

One of the most important of these developments is the growing emphasis Beijing is placing on environmental protection. Indeed, not only is Beijing beginning to articulate a well thought out and increasingly detailed plan as to how China can begin to protect and restore its bio-capacity, but it is also backing that plan with an unprecedented level of short-term investment. This investment will soon allow China to take leading positions in many environmental sectors. For instance, by 2015, China will have more installed alternative fuel capacity than any other country.

This investment will create huge opportunities in China’s green technologies market. Investing heavily in green technologies may enable China to gain an advantage over developed countries with a heavy reliance on their carbon-intensive economies. For instance, China now has the largest solar water heater market in the world. Approximately 95% of patents for core solar water heating parts are owned by Chinese companies. These patents allow heaters to function even under grey skies and at temperatures well below freezing. It is estimated that at least 30 million Chinese households now heat their water with solar panels.

Indeed, leading the development and implementation of green technology is one of the ways China is creating the competitive edge it needs to remain an economic powerhouse in the future, especially as its rapidly aging and shrinking workforce means that it will not be able to indefinitely compete just on the basis of cheap, plentiful labor. As the impact of global warming is increasingly felt, and as growing fossil fuel demand continues to put upward pressure on fuel prices, demand for green technologies will rise. China will position itself to profit from these opportunities by first introducing green technologies at home before aggressively seeking to export them to foreign markets.

China will begin to lead the way in green architecture and urban development as 70% of its population settles into cities by 2030. It will increasingly introduce technologies which will avoid high electricity consumption in buildings. Specifically, we will see China install more energy-efficient lighting, appliances, heating, ventilation and air-conditioning systems, and better insulation in walls, windows and roofs. Similarly, it will also prioritize retrofitting its existing building stock with energy-saving features.

shutterstock_104036633China will also invest in the development of alternatives to internal combustion engine (ICE) transportation. This can already be seen in its growing commitment to the construction of rail and mass transit systems. China can also be expected to increasingly reduce emissions and increase fuel efficiency in the ICE cars that do reach its streets. It will also continue to invest heavily in alternatives to ICE cars. Specifically, China plans to push the full range of advanced battery technology for electric vehicles. Indeed, by exploiting its current pool of low-cost labor, along with its fast-growing domestic car market, its proven success in rechargeable battery technology, and its substantial investments in R&D, China has the potential to emerge as a global leader in electric vehicle technology in the coming decades. Indeed, its plans to create 10 million electric car charging parking spots by 2020 suggests that it the pursuit of affordable, high-performance electric vehicles will continue to be a priority. Currently, China has 16,000 AC charging spots in operation.

Despite China’s growing commitment to alternative fuels, its use of coal will still rise significantly in the future. Increasingly, China will work to offset its carbon emissions by investing in technology that sequesters carbon emissions for next-generation coal plants. Indeed, China wants its clean energy sectors and it clean energy technology to become 15% of its economy by 2020.

Also of note is China’s growing nuclear program, which has exhibited consistently high rates of growth over the last 15 years. Consumption in the sector is expected to increase by 15.4% for the next five years ending 2020, while renewable energy is projected to grow around 7.5%—though this is likely due to the high level of development that China has already achieved in its fairly mature renewable energy sector (which accounts for 9% of energy production in the nation, compared to the 1% share occupied by nuclear energy).

Furthermore, China currently produces a lot of industrial municipal waste that it does not recycle or properly manage. China will increasingly rectify this by employing technologies that will allow it to convert its waste into useful material. For instance, there’ll be a growing trend toward coal-bed methane recovery and recovery of blast furnace slag resulting from steel production. It will also seek to burn more of its municipal waste to generate electricity, instead of sending it all directly to landfill.

Green lending, ISO compliance, the influence of domestic and international NGOs and multinationals will also continue to drive positive environmental behavior in China. It can be expected that China will also be inviting more foreign investment in the green technologies sectors.

All that said, many of China’s dominant economic and political incentives have not changed. 129 million Chinese citizens still live on less than $1.25 a day, and 400 million earn $2 a day. China’s population will continue to grow through at least 2030, and inequality in China has increased significantly both within the population, between rural and urban residents, and between different regions within the country. Those Chinese moving into the middle classes will demand a better diet and consumer goods. China’s government will thus remain under enormous pressure to improve the standard of living of its people and to reduce inequality nationally.  Proponents of low carbon future for China thus face significant opposition by others who suggest that China should focus on unrestrained development until more of its population has reached a modest but dignified standard of living.  China’s 11th Five Year Plan also advocated a slower, more balanced GDP growth, yet China’s GDP growth exceeded 11% during the period. Local governments, in particular, have many incentives to keep to business as usual.

Still, within the international climate community, there is some hope that China may come to take a leadership role in climate change mitigation. They note that China has not stepped back from its 2009 voluntary Copenhagen commitments; instead it has translated them into binding domestic law. They also note China’s opportunity to leapfrog the carbon-based infrastructure installed in developed countries, partly because of its history of radical experimentation, but also because of the greater ability of its authoritarian government to dictate far-reaching environmental policy. China’s obvious desire to profit from the rapidly growing green technology sectors is, therefore, potentially good news for everyone.

Ultimately, Chinese leaders have an opportunity to follow a path of development that diverges from a Euro-American capitalist model that is no longer accepted as indefinitely sustainable; in the long run, the world does not have the bio-capacity to support billions of new people consuming like Americans and Europeans. The Chinese leaders seem to increasingly acknowledge this. In 2008, for instance, Ambassador Yu Qingtai noted that while he could not accept that as a Chinese, he was only entitled to one quarter of what western developed nations have enjoyed, he also recognized that it would be a nightmare for China if its 1.3 billion people had the same per capita emissions as the Americans. That representatives of the Chinese government are beginning to articulate that high Chinese per capita emissions would be a nightmare for the Chinese themselves is also grounds for optimism about the possibility of improved global environmental protection. The outlook continues to be positive. In November 2014, China announced plans to halt emissions increases by 2030. With these national efforts China will certainly see large changes, and perhaps the birth of entirely new markets, in the coming years.