FH Giessen-Friedberg Master of International Marketing Asian Economy

Prof.Dr.Herbert Lich Asligül Aktas Tim Horstink

Agenda  1. Introduction  Historical Background

 Transformation to Free Market Economy

 2. Status Quo - Problem Statement  3. Standing of Government  Initial Attitude  Recognition of Needed Change

 4. Impacts of Pollution  Cost of Pollution – Green GDP  Consequences

 5. Standing of Government cont.  Environmental Policies  Political Hurdle

 6. Outlook / Challenges  7. Conclusion 2

1. Introduction  Historical Background

 Trade-off between environmental protection and sustaining 

   

economic growth Transformation Centrally Planned Economy to Free market economy  Deng Xiaoping – 1978 Industrialization, Opening Free Ports  Impacts of 1997 Asian Crisis Encouraging heavy industry & urbanization How to measure the value of environmental loss How to isolate the positive impacts of growth to calculate actual loss “Grow first, clean up later” approach Vicious Circle: Growth vs. Environmental Damage

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2. Status Quo  Energy Consumption  2nd Energy Consumer

Growth

Consumption

Increased by 70% (2000 to 2005)  68% of energy is from Coal  Coal Consumption by 75% (2000-2005) Source: World Bank  Soil Erosion  Agricultural Output  Climate Change

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2. Status Quo cont.  Air Pollution  Health costs arised from air pollution

1.16 % of GDP (2003)

Source: World Bank

 50% of cities, not meet quality standards (2006)  Acid Rain effects 1/3 of agricultural land

 Water Pollution and Drought  Inefficient overuse

4-10 times more than industrialized nations  Agricultural yields & harvests of fish 

 Ageing Population triggers the complications:  Consumption vs. Productivity

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Asligül Aktas, Tim Horstink

Decreasing Growth 5

3. Standing of Government  Initial Attitude

 A possible slowdown in economy:  creates social unrest  alienates foreign investors  7% annual growth is required to preserve social stability  Recognition of Needed Change  Growing awareness started to guide national policies  74,000 incidents of protest and unrest (2004)

 The avoidance of health risks surpasses productivity

gains 08.06.2008

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6

4. Impacts of Pollution 

Growth at expense of both human health & environment



Pollution problems scattered all precedents domestic & international repercussions  1) 2)

08.06.2008

Stark

Pollution poses own threat: Recalculating GDP – Green GDP Consequences – Social & Economic

Asligül Aktas, Tim Horstink

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4.1 Cost of Pollution – Green GDP  2004 Effort by SEPA & NBS

Recalculate GDP reflecting cost

of pollution  Unique project, not executed elsewhere  Few models to emulate  Statistics fairly unreliable  Resource accounting difficulties  Relative comparison 

ESI 2005, 146 nations (Yale, WEF & EU): China 133rd; Score 38.6 (1st Finland & 146th North Korea; 75.1 resp. 29.2)

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4.1 Green GDP – Outcomes  Economic loss suffered from environmental pollution:   

WB: 3.5-8% of GDP, $73-168 billion, in 2003 SEPA & NBS: 3.05% of GDP, $64 billion, in 2004 International Agencies: 10% of GDP, $209 billion, annually Expectation real cost pollution 10-13% of GDP annually

 Officials felt threatened by results

Lobbied government to

stop  Outside world partner degrading environment, polluters manufacture cheap products fill stores in the US/EU

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Green GDP – Expectation Real Cost 16

% GDP Growth

14 12 10

////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////

8 6 4 2

20 08

20 06

20 04

20 02

20 00

19 98

19 96

19 94

19 92

19 90

19 88

0

Years Source: ’88-’07 NBS, ’08-’09 Economist

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4.2 Consequences – Social Unrest  Impact on social stability, concern leadership

 Political culture face pressure to submit to oversight from public  Episodes unrest, protests engaged upwards & become violent

Threaten party’s rule, and 



Economic consequences Long-run economic growth threatened;  Poverty,  Investments,  Secondary school enrolment System too ill equipped to stem environmental side

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4.2 Economic Repercussions  Pressures on govern. budget allocation  

 



Plunge back into

poverty Driving prices higher, spurring further food inflation Further propelling prices natural resources,  Oil: Increase ‘05-’06; 14.48% & ’06-’07; 12.3%  Coal: Increase ‘05-’06; 46.16% & ‘06-’07; 34% Risk to growth, even sustaining, level economic activity in North Loss of VSL continue offset GDP growth (absence productivity gains to GDP growth) Alienate potential fixed capital formation fuelled by foreigners

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5. Standing of Government – Policies  Leadership recognize change must occur as environmental

abuse reached epic proportions 

Leadership moved to slowly address environmental & energy concerns

 Since 2002, leadership struck consistent themes 

In energy efficiency plan numerical targets for reducing emissions & conserving energy conserving been set  Yet, most targets gone unmet Sign leadership either unwilling / unable to make fundamental changes

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5. Environmental Policies – Implications  Land, water, electricity & bank loans relatively inexpensive, state still

controls price fuel & oil  Beijing declined use tax policies / surcharges & market-oriented conservation incentives  Despite acknowledgement scale of problem, Beijing insists economic development remains higher priority  First priority, create sustainable development & reduce poverty  Regardless of support Bali agreement, party declines mandatory limits on greenhouse emissions  Rich countries caused global warming, thus solve it, without impeding China’s development  Not responsible current levels, thus not penalized by binding cuts when per capita emissions are well below those of industrialized nation 08.06.2008

Asligül Aktas, Tim Horstink

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5. Standing of Government – Political Hurdle 





In early ‘80’s & ‘90s lower-level officials obligation to increase economic growth in resp. domain & were graded in accordingly by leadership Today, crazy expansion high-polluting, high-energy industries spawned special interests & created culture of government-business collusion Despite steps by central authorities, effort largely failed as at regional/local level: 1) corruption level, 2) desire to benefit from profit & industrialization still too powerful 

08.06.2008

Only when pollution begins hurting economic growth, will local officials enforce environmental regulations Asligül Aktas, Tim Horstink

15

6. Outlook / Challenges  Come to rely on urbanization & energy-intensive heavy industry (49.2% of

GDP to 27.1% EU average & 29.6% Germany) to fuel growth  Increase both energy/water consumption, done by doubling coals consumption  Health effects of polluted community soon create political challenge  Authoritarian system proven ability suppress political threats party’s rule, yet

failed to balance economic growth & environmental protection 

Problem partly systemic - Institutional structure & local enforcement not in place Political change is needed

 People value health improvement beyond productivity gains  Challenge is to allow China to engage further, without jeopardizing goals of

economic growth & poverty reduction 

Put in place technological & financial mechanism help China fight climate change & afford environmental friendly technologies

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7. Conclusions  Raking up environmental debt, if not paid of result in bankruptcy  Good public policy in China now, is to clean up air & water pollution, as

cost of pollution significantly higher than cost of cleaning up  Interventions to improve the environment, yield to positive net benefits  Issues get harder & more expensive to address, longer unsolved  Huge economic & political interest to improve energy efficiency,

reducing dependence on fossil fuels & come to grips with air quality  Government acknowledges problem & signs change are present, yet

slowly – Beijing is taken rational decisions, yet not giving in to wants Western governments & environmentalists 08.06.2008

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17

Bibliography 

         





El Kahal, S., Business in Asia Pacific, Oxford University Press (2005) Sawyer, W.C. & Sprinkle, R.L., International Economics, Prentice Hall (2003) Economy, E., The River Runs Black: The Environmental Challenge to China's Future, Cornell University (2004) Lich, H., Overview of Selected Asian Economies, FH Giessen-Friedberg (2008) Economy, E. & Lieberthal, K., Scorched Earth: Will Environmental Risks in China Overwhelm Its Opportunities?, Harvard Business Review (June 2007) Esty, D.C., Levy, M., Srebotnjak, T. & de Sherbinin A, 2005 Environmental Sustainability Index, Yale Center for Environmental Law & Policy (2005) World Bank, State Environmental Protection Agency & P.R. China, Cost of Pollution in China, The World Bank (Feb. 2007) Jong-A-Pin, R., Measurement of Political Instability and its Impact on Economic Growth, University Groningen (June 2006) Kahn, J. & Yardley, J., As China Roars, Pollution Reaches Deadly Extremes, New York Times (Aug. 2007) Sussman, P., China: Economic growth, environmental destruction, CNN (June 2007), http://edition.cnn.com/2007/TECH/science/06/04/china.environment/, Addressed May 10th 2008 Martig, N,. Damage from China's Push for Economic Growth Decried by Environmentalists, VOA News (Feb. 2008), http://www.voanews.com/english/archive/2008-02/2008-02-29-voa22.cfm?CFID=306606997&CFTOKEN=80774657, Addressed May 10th 2008 Roeder, A., Chinese Health Care Reform: The Good and the Bad, Harvard Public Health (Feb. 2008), http://www.hsph.harvard.edu/now/20080229/chinese-health-care-reform-the-good-and-the-bad.html, Addressed May 10th 2008 Kuhn, A., Pollution May Cancel Out China's Economic Growth, NPR (Aug. 2007), http://www.npr.org/templates/story/story.php?storyId=12638591, Addressed May 10 th 2008 18

Bibliography cont.  

      

   

BBC News, Oil price ‘may hit $200 a barrel’ , http://news.bbc.co.uk/2/hi/business/7387203.stm, Addressed May 17th 2008 Economist, China Economy Outlook for 2008-09, http://www.economist.com/countries/china/profile.cfm?folder=Profile-Forecast, (May 2008), Addressed May 17th 2008 AOL News, China calls for more technology transfers to help fight climate change, http://news.aol.com/story/_a/china-calls-for-more-technology/n20080424034109990016, Addressed May 10th 2008 Australian News, China to join post-Kyoto emission deal, http://www.theaustralian.news.com.au/story/0,25197,23654063-2703,00.html, Addressed May 10th 2008 Australian News, China to study steps to help halve global emissions by 2050+, http://www.theaustralian.news.com.au/story/0,25197,23654063-2703,00.html, Addressed May 10th 2008 Yahoo News, China will go further in climate change talks, UN official says, http://news.yahoo.com/s/afp/20080424/wl_asia_afp/unclimatewarmingchina, Addressed May 10th 2008 National Bureau of Statistics of China, www.stats.gov.cnenglish, Addressed May 10th 2008 United Nations, New York (2005), Electric Power In Asia And The Pacific 2001 And 2002, www.unescap.org/esd/energy/information/electricpower/2001-2002/ElectricPower0102.pdf The Wall Street Journal Asia, (12 April 2007), http://www.wsj-asia.com Balancing Growth, Environmental Protection a Challenge for China, (2006) http://www.america.gov/st/washfileenglish/2006/February/20060202173836ASesuarK0.5212366.html China’s Profile, http://www.gerhard-k-heilig.com/cp/data/ani_pop_1.htm Double Edged Sword - Productivity vs. Consumption, (2007), http://news.goldseek.com/GoldSeek/1168211501.php Sustainable Development, http://en.wikipedia.org/wiki/Sustainable_development 19

Impacts of China's Growth on Environmental Issues

Aug 6, 2008 - manufacture cheap products fill stores in the US/EU. 08.06. ... economic growth in resp. domain & were graded in accordingly by leadership.

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