China’s Policy Impasse: The Case of the “Green GDP” Initiative

Publication: China Brief Volume: 11 Issue: 8

Pan Yue
China’s environmental problems are apparent to any visitor, and the statistics are striking: China is home to 20 of the world’s 30 most polluted cities, 90 percent of China’s rivers and lakes are polluted, and the Chinese government dealt with 580,000 environmental complaints in 2006 (South China Morning Post, December 16, 2008). Yet, the central government’s efforts to mitigate environmental problems through policies and regulation have encountered significant implementation challenges. In an effort to rebalance economic growth and environmental degradation, Beijing launched the Green GDP (Lüse GDP) program in 2003. The initiative was intended to quantify environmental degradation and thereby create incentives for local governments to improve environmental standards. Unfortunately, the Green GDP program was doomed from the start and was cancelled by the central government in 2007. Despite initial central government support for the project, local recalcitrance, bureaucratic infighting, and elite party politics eroded support and led to its demise. The bureaucratic and structural issues that Green GDP faced are not exclusive to this case—in fact, their impact on a wide range of policies in China make them relevant to the study and understanding of the various factors that influence the Chinese policy implementation process.

The Green GDP Initiative

Green GDP assigns a value to the cost of environmental losses (such as pollution and resource consumption) and adjusts GDP accordingly, so that GDP reflects environmental costs. The project began as a joint project between the National Bureau of Statistics (NBS) and the State Environmental Protection Agency (SEPA), which began work on how to quantify Green GDP in the spring of 2004 [1]. The Green GDP program came at a time when leaders were searching for a way to ensure policy implementation and were working to prevent overheating, in large part created by the same resource-sapping factories that cause a significant percent of pollution.

Pan Yue, vice minister of SEPA, emerged as a champion of the Green GDP project in 2004-2005. He gained notoriety by blocking billions of dollars of development projects and warning that China was going to hit an "ecological wall." He was able to be outspoken as a result of strong family credentials and the support of Prime Minister Wen Jiabao (Guardian Unlimited, March 12, 2009).

In May of 2004, Chongqing municipality was named the trial city for testing the Green GDP program. In August 2004, Shanxi, the first Chinese province to calculate Green GDP, announced their Green GDP figures. According to Dong Jinbin, deputy director of the Academy of Social Sciences in Shanxi Province, though Shanxi’s official GDP was 11.2 percent, the cost of pollution was 10.9 percent, leaving a growth rate of just 0.3 percent (Financial Times, August 19, 2004).

Support for Green GDP began to wane in the spring of 2005. In March 2005, People’s Daily Online, a Chinese official news source, published an editorial entitled "Don’t let Green GDP go to your head," warning of the problems with the Green GDP calculation (People’s Daily Online March 7, 2005). In the same month, the five-year national economic development plan neglected to mention Green GDP in its discussion of a "resources-saving and environment-friendly society" (Economist, October 22, 2005).

Based on data collected from a number of provinces, the first complete Green GDP report was released in 2006. The report, which represented the year 2004, showed that as a result of pollution, China had a financial loss of 511.8 billion yuan ($61.8 billion), or 3.05 percent of the nation’s GDP (China Daily, April 19, 2007). After the report’s release, a number of provinces and municipalities (fearing their own disastrous numbers) threatened to withdraw from the Green GDP pilot program, causing an official to admit that "the pilot project had lost its appeal" (South China Morning Post, July 24, 2007).

In March 2007, the Green GDP report for 2005 was blocked from release by NBS—the report was said to show even higher losses and reductions in GDP than the 2004 report, and also included figures on economic losses from pollution for each province, "a sensitive step in a system where maintaining economic growth can be crucial to officials’ promotion prospects" (The Straits Times, July 23, 2007).

In March 2009, the project had been completely sidelined, along with Pan Yue himself. He was passed over for a membership seat at the 17th Party Congress in 2007, became less active and bold in promoting the concept, and lost the power to block development projects and approve environmental impact assessments (Guardian Unlimited, March 12, 2009).

Why Green GDP Failed

Central Local Relations

Green GDP (and environmental policy implementation as a whole) was significantly impacted by central-local tensions and local recalcitrance. While the Hu-Wen administration has tried to change the "growth at all costs" mentality through such programs as Green GDP, there are substantial incentives for local officials to pursue growth and disregard such programs as Green GDP that seek to moderate growth.

After fiscal reforms in 1994, local government revenues declined, but demand for public services remained, resulting in financial pressures that incentivized short-term revenue and rapid growth (which can have significant environmental repercussions).

Growth and investment are the best ways to close the revenue gap. Revenue coming from commercial and residential land leasing and sales are crucial: They account for 30-50 percent of rural government revenues and 50-60 percent of city government revenues [2]. Green GDP figures would reflect the environmental impact of these sales and dampen growth figures, as well as pressure local officials to move away from environmentally-harmful short-term growth. The significant revenue pressure means that local officials have serious incentives to maintain and increase growth and thus have no reason to follow along with the Green GDP program.

Additionally, promotion of local officials also remains chiefly based on the rate of economic growth in their areas. Local officials are promoted based on hard targets, which are easily measurable, and soft targets, which are more nebulous. Economic growth is a hard target, which makes it a higher priority, and is easily quantifiable. As James Q. Wilson notes, "work that produces measurable outcomes drives out work that produces unmeasurable [sic] outcomes" [3].

Green GDP’s potential impact on promotion was a key sticking point for local officials. They had pursued economic growth without regard for the environment, and knew that their GDP figures, and thus their potential for promotion, would be dramatically lower if environmental degradation was accounted for. They also feared that Green GDP numbers would force them to address environmental degradation, which would necessitate a cool-down in growth, and a lower chance for promotion. 

In addition to being judged by their supervisors based on their growth rates, local officials also live and die career-wise by the level of social unrest in their territory.  Local officials can face demotion or firing if their locality posts high protest figures, and local officials understand the state’s overwhelming desire to keep social unrest under wraps [4]. This often translates into support for local enterprises and resistance to environmental policies (that often call for taxes and fines on polluting companies), as unemployment is a key instigator in social instability. Based on these counterincentives, local officials launched a successful pressure campaign on the central government to drop Green GDP. 

Bureaucratic infighting and Elite Party Politics

Top officials from the NBS and the Beijing Bureau of Statistics came out against the project in the spring of 2006, noting that it was too difficult to find a formula, and isolating SEPA. NBS chief Xie Fuzhan even rejected the term Green GDP, saying that "we would never call it Green GDP. There is no international standard for GDP calculations in this regard, and no country in the world has ever made such calculations" (South China Morning Post, July 13, 2007). Targeting SEPA directly, an NBS official commented that SEPA was not able to "appreciate the problems in producing a single, simple figure which reflected all the complexities of measuring environmental impact" (Financial Times, May 10, 2006). The NBS backed up its criticisms through its actions. In Anhui province, the NBS sent environmentalists, not economists, to gather economic data and in March 2007, as noted above, NBS asked SEPA not to release the most recent Green GDP figures (Economist, October 22, 2005). Wang Jinnan, chief engineer with the Chinese Academy of Environmental Planning, commented that bureaucratic infighting had "made the project almost impossible" (South China Morning Post, July 23, 2007).

Elite party politics and the timing of the 17th Party Congress in the fall of 2007 may also have played a role. President Hu Jintao’s planned political reshuffling ahead of the Congress required the support of local officials, and Hu did not want the Green GDP project to get in the way. His support of Green GDP may have been significantly dampened by his desire to keep local officials happy and satisfied. Despite the initial support of the center, the environment, and thus Green GDP, was too low on the totem pole to merit an expenditure of Hu’s political capital.

Conclusion

Green GDP was weak to begin with because the environment remains a tertiary priority behind growth and social stability. As long as growth continues to generate wealth and social stability, the central leadership will have very little motivation to prioritize the environment, and local governments will have even less motivation to follow central environmental policies. In the end, the Green GDP program was effectively a strawman set up to appease the global audience and the critics of China’s environmental record. While the initiative initially made the Chinese government look progressive and proactive, the numbers that came out of the program revealed a shocking level of environmental degradation, leading Beijing to cancel the program, rather than face the embarrassment of more damning statistics.

It is possible that there will be a reemergence of some aspects of the Green GDP program. In December 2008, the NBS held a consultation meeting in Beijing on "China’s resources and environmental statistic index system," with experts from various ministries, eventually resulting in an agreement by 7 ministries to restart discussions on resource and environmental accounting (World Finance Report. January 14, 2009). In February 2010, Southern Weekend reported on the project, noting that the index system would result in a yearly report including indicators on climate change, ecology, and the environment (Nanfang Zhoumo [Southern Weekend], February 9, 2010).

Most recently, the 12th Five-Year Plan (released in March 2011) has made an effort to address China’s environmental issues, with a number of sections promoting "green development" and environmental conservation. More specifically, the plan includes the following provisions: a 16 percent reduction in energy consumption per unit of GDP, the creation of a "green, low-carbon development concept," support of international climate change efforts, a focus on "ecological security," monitoring and enforcement systems for energy use and pollution output, and strengthening environmental protection laws and regulations. Though there is no mention of anything akin to the Green GDP program, the environmental focus of the plan indicates an increased recognition of China’s significant environmental challenges. Yet many of the bureaucratic characteristics that killed Green GDP are still present. Thus, in order for these initiatives to succeed in the future, there must be a sea-change in the central government’s, and local governments’ conception of environmental issues. Though only time will tell, the contents of the latest Five-Year Plan may be a step in that direction. 

Notes:

1. Wang, Jinnan, Jiang Hongqiang, and Yu Fang, "Green GDP Accounting in China: Review and Outlook." Chinese Academy for Environmental Planning, 5-6, http://unstats.un.org/unsd/envAccounting/londongroup/meeting9/china_country_report_2004.pdf

2. Tao, Ran and Dali L. Yang. The Revenue Imperative and the Role of Local Government in China’s Transition and Growth. Prepared for conference on China’s Reforms, July, 2008, 16-17.

3. O’Brien, Kevin and Lianjiang Li. Selective Policy Implementation in Rural China. Comparative Politics, Vol. 31, No. 2, January, 1999, 173-174.

4. Bernstein, Thomas P. "Unrest in Rural China: A 2003 Assessment," Irvine, Center for the Study of Democracy, 2004.