The Chinese economy has performed admirably since reforms commenced
with the decisions of the Eleventh Party Congress in 1978. The successful effects of the reforms were clearly evident through
the mid-eighties to the early nineties, as reflected in the nation’s double
digit GDP growth. In
contrast to the experience in neighboring India, China has also succeeded in
its efforts to reduce poverty during the period between 1978 and
1988. Over that
ten year period China reduced the number of people living below the official
poverty line from 570 million to 220 million while India’s figure remained at
400 million. Why did
the Chinese economy perform as well as it did throughout the early stages of
reform as compared to India? A major
factor may be that foreign-direct investment (FDI) over this period in China
amounted to 261 billion dollars (20 times the FDI directed towards
India). China’s
accumulated FDI in 1998 represented 25% of GDP. However, FDI is currently shrinking and not expanding in
China. China’s
economy is slowing down and the reasons for this trend are unclear.
One explanation may be that China accomplished the easier economic
reforms during the early 1980s. During
this period, China opened up its economy to FDI and promoted export led
growth. In more
recent years, however, Beijing has been forced to deal with the more difficult challenges posed by price deflation, a
troubled banking system, falling corporate profits, shrinking export growth and
declining FDI. That
China’s economic planners have to deal with some very daunting tasks is reflected
in the following statistics:
- Export
growth during 1998 was almost 0% in contrast to the 1997 figure of 21%. This was the worst trade performance in fifteen years.
- Two-thirds
of China’s export surplus disappeared during the first half of 1999, although
third quarter data show exports starting to rise.
- During
China’s dramatic period of growth, the trade front provided fuel for the
economic engine. This situation
no longer holds true.
For years Beijing has tried to ignore market forces and command
economic growth through Soviet-style central planning. It urged state owned enterprises to produce goods without regard
to whether they were marketable or not—and often they were not. In February 1999 Beijing announced that two thirds of its key
manufactured foods were in oversupply. In
addition to the difficulties mentioned previously, China is now facing rising
unemployment and social unrest. Beijing’s fears over social unrest stalled
attempts at deepening economic reforms during most of 1999. The leadership is on the horns of a dilemma. It must slow down any economic reform that radically worsens
unemployment. Yet if it
slows down economic growth the leadership may be destroying one of the pillars
of its own legitimacy. Seven percent GDP growth may not be high enough when viewed in the
Chinese context to keep the lid on the pot of China’s boiling economic and
social difficulties. China
needs at least an eight percent growth rate to outpace population growth and
ensure positive per capita growth. China’s
real GDP growth has fallen from 13% in 1994 to about 6% in 1999. Another reason for this reduction in growth is the shortfall in
aggregate demand. Consumers
are reluctant to spend due to fear of losing their jobs and are saving money to
offset the reduction in state subsidies.
The government has initiated a number of steps to deal with these
looming problems. It has
increased government spending to offset consumer demand shortfalls. This short-term fix is probably not sustainable. It is uncertain how long the government can invest in “make work”
programs when money is also required to service the debt, re-capitalize
insolvent state banks and establish a new pension system to replace the one
that is dissolving as the state divests itself of SOEs. Consequently the pressure for devaluation is increasing. Beijing will likely determine that preventing excessive or
disruptive unemployment is its highest priority. Social stability and availability of jobs are far more critical to
Beijing’s hold on power than any other factors. How should the leadership deal with its revenue shortfall? Certainly it could raise taxes, but this no doubt would worsen
aggregate demand. Perhaps
China’s best course of action is to scrap Central Bank control of capital
markets and opt for a Western style long- term bond market. Moreover, entry to the WTO may boost aggregate demand, foster free
competition, pave the way for further economic reforms, and reduce capital
flight.
Any degree of fragmentation or instability in China caused by
economic difficulties will affect the region. It is in the interests of China’s neighbors to provide the capital
and expertise as well as lend any cooperation they can as China finally begins
to tackle its fundamental economic challenges.
As China develops its economy, it requires ever greater supplies of
energy. Many observers believe that energy will be one of the most
serious challenges for China in the 21st century. Currently, China relies
heavily on fossil fuels for its energy supplies, with coal serving a primary
role. Other sources of energy include oil and natural gas.
Despite its possession of vast energy supplies—especially coal—China is
expected to experience energy shortfalls in the next few decades. The gap
between energy demand and supply may be as large as 140 million tons of
coal. For China, the most obvious solution is to rely even more
extensively on coal. However, in the long term, questions are arising
about whether such a strategy is sustainable. Coal contributes
substantially to China’s air pollution. It also contributes to acid rain,
a problem that is regional and not simply limited to China. Finally,
greater use of coal will ensure that China will be responsible for a greater
proportion of the world’s carbon emissions, a factor linked to global warming
and climate change. Given these challenges, the question that emerges is:
is there an alternative?
One way that China could meet its growing energy demand is by
emphasizing efficient use of energy. Although
efficiency has improved in the past several decades, it lags behind advanced
industrialized countries substantially and thus the margin for improvement is
substantial. Another
alternative might be greater reliance on natural gas which is a much cleaner
form of alternative energy. China has
about 33 trillion cubic meters of natural gas of which only 3 trillion cubic
meters have been prospected thus far.
The industrial SO2
emissions mainly found in coal consumption are the leading cause of urban air pollution observed in most
of the Chinese cities. The freer trade stimulates the rapid urban growth
resulting in a staggering
expansion of heavy industry and urbanization that requires colossal inputs of energy, almost all from
coal that is the most readily available but the dirtiest. The coal consumption has been more
than quadrupled since 1980, reaching nearly 2.81 billion tons of
standard coal equivalents
(SCE) in 2008 . The industrial sources (mining, manufacturing, and
utilities) were responsible for 85.8 percent of the reported SO2 emissions with electricity generation
accounting for 45.7 percent (China Statistical Yearbook 2009).1 Despite the
government’s efforts to
improve fuel quality and to relocate some heavily polluted industrial activities, the industrial
SO2 emissions have been still increasing because of the increasing share of coal consumption
in power generation and the lack of emissions control in the massive number of small furnaces
and kilns (especially those operated by township and village industrial
enterprises)The economic activities of production and consumption require the use of energy, and the use of energy affects the environment in the forms of water pollution and air pollution
Air Pollution
The air and water in China , especially in the urban
areas, are among the most polluted in the world. According to a report of the
World Health Organization (WHO) in 1998, of the ten most polluted cities in the
world, seven can be found in China .
Sulfur dioxide and soot caused by coal combustion are two major air pollutants,
resulting in the formation of acid rain, which now falls on about 30% of China 's total
land area. Industrial boilers and furnaces consume almost half of China 's coal
and are the largest sources of urban air pollution. The burning of coal for
cooking and heating in many cities accounts for the rest.
Another major source of air pollution is the use of oil and
gasoline in the transportation sector, especially the emission from automobiles
and jet engines. As the country becomes industrialized, pollution from both
industrial and consumer sources will increase because of higher levels of
output and consumption, the latter including the increase in the use of
automobiles and in air travel, unless pollution per unit of output or
consumption can be reduced. See Committee on Energy Futures and Air Pollution
in Urban China ,
et. al. (2007) for more information on the state of and policies for urban air
pollution in China .
Water Pollution
Mercury released into the air by coal-fired power plants is
captured by raindrops, and transferred to the soil, surface water and
groundwater. Surface water affects the fish consumed. Groundwater is polluted
by runoff from factories, smelters and mining operations, and then used by
farmers downstream to irrigate their crops. Heavy use of fertilizers has
contributed to contamination also. Fertilizers in China often contain high levels of
metals, especially cadmium, which is harmful.
Deforestation has caused the flow of bud along the rivers
and affects water supply and quality. People’s
Daily, June 12, 2007 reports that Lake
Taihu was covered with a foul-smelling
algae and freshwater was shut off for more than 2 million people in Wuxi due to the blue-algae
infestation of the lake.
Besides the poor
quality of water there is the problem of the shortage of water. Water beds of several important cities
including Beijing and Shanghai Yangtze River are running short because of diversion to
agriculture production and electricity generation along the sources.
Even though an increase in china's economy would
increase the standard of living for the people in china but i personally
think that china should not risk china's environment and the well-being of
the people just for china's economy. i think china should moderate the amount
of industries and energy consumption so that the welfare of the people would be threatened.
sources
