China Environmental Law

If you have been a reader of this blog for long you know that I do not buy the argument that the export market in China is responsible for China’s environmental problems. I have no doubt that export-driven production causes pollution in China, but to suggest that developed nations (whose consumers are the primary purchasers of Chinese exports) are primarily to blame for China’s “environmental degradation” is unsupportable and, quite frankly, unhelpful in terms of focusing remedial efforts where they need to be focused. As I noted in an article in the January - February 2008 China Business Review (see “Who’s Cleaning Up This Mess?” under “Articles & Presentations” in the right sidebar):

An even more troublesome proposition that is attracting Chinese and foreign believers attempts to blame a large part of China’s environmental degradation on US consumers (or at least the companies that sell to these consumers). Andy Xie, former chief economist for Morgan Stanley, summarized the argument in the Wall Street Journal Online last summer: “Prices in the US are artificially low. You’re [US consumers are] not paying the costs of pollution, and that is why China is an environmental catastrophe.” The logical contortions required to produce such an argument are breathtaking, but even if one subscribes to the premises, the conclusion is patently false. According to Xie’s own estimates, only “about 20 to 30 percent of China’s water pollution comes from manufacturing goods that are exported.” The total share of these exports bound for the United States fluctuates between 20 to 25 percent. Using the highest numbers in each range, US exports account for, at most, 7.5 percent (25 percent of 30 percent) of China’s water pollution-hardly enough to bear the blame for China’s national catastrophe.

I have always intuitively believed that Western companies operating in China actually raise the bar in terms of environmental compliance and environmental stewardship and have a net positive effect on China’s environment. A new “working paper” entitled “Trade Growth, Production Fragmentation and China’s Environment,” by two economists, Judith M. Dean and Mary E. Lovely, supports my intuition (h/t to Anti-Dismal). The authors report their conclusions in an article in Vox:

Chinese trade and pollution have exploded over the last decade. But new evidence shows that trade isn’t to blame for the pollution. In fact, Chinese imports and exports are becoming cleaner over time.

They note that it is “no surprise that China’s experience has fuelled the popular view that trade growth is harmful to the environment,” but

as China’s trade has grown, the pollution intensity of almost all sectors has fallen in terms of water pollution (measured by chemical oxygen demand (COD)) and air pollution (measured by SO2, smoke or dust) in 2004. This finding suggests that China has benefited from a positive “technique effect,” as emissions per real yuan of output have fallen across a wide range of industries.

Our study also reveals that China’s major exporting industries are not highly polluting, and that the export bundle is shifting toward relatively cleaner sectors over time. . . . The most polluting sectors, such as paper and non-metallic minerals, have in fact very low and declining shares in China’s manufacturing exports.

Linking industrial pollution intensities to detailed trade statistics from China Customs, we find that, contrary to popular expectations, China’s exports are less water pollution intensive and generally less air pollution intensive than Chinese import-competing industries. Moreover, both Chinese exports and imports are becoming cleaner over time.

Finally, we find some evidence that international production fragmentation, the breaking of production into distinct processes, may have played a role in reducing the pollution content of Chinese trade. “Processing trade” alone accounts for about 56% of the growth in China’s exports and 41% of the growth in China’s imports between 1995 and 2005. If investment in processing activities expands the range of the production process performed in China, this investment will tend to make China’s production and trade cleaner. Additionally, if the foreign-invested enterprises responsible for most of this trade bring greener technologies than those used by domestic producers, this will tend to make trade even cleaner. We find strong evidence that Chinese processing exports are cleaner than Chinese ordinary exports. Statistical testing suggests that processing trade has played a key role in explaining the drop in the pollution intensity of Chinese exports over time and that FDI inflows have contributed significantly to this decline, even controlling for the processing trade share.

I rest my case! Actually, I’d be happy to hear contrary thoughts on this issue.

I would also like to use this occasion to plug the blog Globalisation and the Environment which addresses, on a full-time basis and with clarity, the environmental consequences of global trade and was kind enough to pick up one of my posts recently. Keep up the good work.