China’s Environmental Balancing Act


A woman wearing a mask looks across the Pudong on 16 January this year

Source of picure: Zuma/Rex Features


By John Richardson

A DISPUTE between state-owned refiners Sinopec and PetroChina and environmental regulators serves as a good example of the difficulties China faces in reforming its growth model.

The debate about the environment is at the top of the political and economic agenda as a result of Beijing’s smog crisis.

China’s new leaders have to get this right.

“Heavily regulated fuel prices have discouraged Chinese refiners from producing cleaner diesel, as the higher costs can’t be passed on to consumers,” writes the Wall Street Journal.

“Meanwhile, trucks account for almost one quarter of China’s vehicles but contribute a disproportionate share, almost 80%, of vehicle particulate matter.

“In one example, the Finance Ministry and Chinese refiners are deadlocked in negotiations over subsidies to help offset the higher costs of upgrading and operating refineries that produce cleaner diesel fuel, according to Gong Huiming, transportation director at the Energy Foundation, a nonprofit that focuses on U.S.-China energy issues.”

If fuel prices were completely liberalised, thus motivating Sinopec and PetroChina to produce cleaner diesel, any reduction in public anger over the environment could be wiped out by increasing protests over more expensive fuel.

The majority of Chinese citizens earn less than $10 a day and when you are poor, you spend a higher proportion of your income on fuel and food then when you are rich.

And so, while China might make its middle class netizens a great deal happier if it tackles environmental problems, it could anger its much bigger constituency of low income earners if fuel costs increase.

Also, can Beijing successfully force the state-owned enterprises (SOEs) in general to clean up their environmental act? (it is unfair to just single out the refiners. They strong argue, by the way, that they have spent a lot of money upgrading their refineries to meet higher fuel standards.)

The SOEs are powerful political constituency because of their overarching role in the economy.

Thus, what they say will continue to count and they are likely to strongly resist implementation of better environmental standards.

“Handling China’s state-owned companies big and small will be a challenge to any effort by the new Chinese leadership under Xi Jinping to reform the economy,” continues the Wall Street Journal.

“While they compete for capital and resources with the private sector, they are also major employers with politically connected leaders and often function as an instrument of Beijing’s policy goals, giving them tremendous political sway.”

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