I am back in Australia after a month in China in Changsha, Hunan Province. It was a most enjoyable and instructive stay. People have asked me about my visit and what I learnt and I think there are two core messages that I would like to (tentatively) convey.
Environment. The first and most obvious problems China faces are environmental. Certainly air and water pollution issues are serious – and admittedly well-recognized – problems in most of urban China. I was told no Chinese water utility supplies water that can be drunk from the tap and the damage to environmental water supplies from industry and agriculture is truly massive. Air pollution issues are widely recognized in the mega-cities of Beijing, Shanghai and Guangzhou as well as the big industrial cities – one estimate is that it kills 1.2 million Chinese each year. But my experience has been that it is quite bad in smaller Chinese cities as well. Changsha where I stayed seems to face at least photochemical smog problems although government sources cite it as having the cleanest air in China. Perhaps some of such issues have technological solutions.
One environmental problem that seems unlikely to disappear soon is traffic congestion. Consider some facts about car ownership in China. In 2010 China had 58 vehicles per 1,000 residents, the US 769. From 2000-2010 levels of car ownership in China increased 20-fold. China is now the world’s largest national car market. By 2020 car ownership, using current growth rates, will increase by 66%. Current severe congestion issues – even with dramatically improved public transport systems – will markedly worsen. So too will air-born vehicle-based pollution. The only offsetting impact should be a huge increase in the demand for liquid fuels driven by the explosion in Chinese and other BRIC demands. China currently imports more oil than does the US.
Again there are technological fixes to free the direct dependence on oil such as electric cars but still almost all planned Chinese power sector expansion involves considerably increased coal usage, at least through to 2035, which is polluting both nationally and globally without increased reliance on CCS technology. China now uses half the world’s coal and without CCS its carbon emissions will increase 35% through to 2035. The viable option for a massive switch to electric cars does not look promising. For one thing despite much of the hype demand in China for such vehicles is low.
Housing & inequality. The second issue that concerns me is China’s housing market. There are short-run macroeconomic concerns over a possible bubble in Chinese house prices. Currently house prices in Beijing, Shanghai and Shenzhen are, relative to wages, the highest of any country. But, without downplaying the severe implications of a bubble (the current bubble does need to be deflated), these sky-high prices partly represent investment decisions by a society accumulating wealth more massively than any other and using that wealth to invest in a particularly scarce resource given China’s huge population. This imposes huge problems on those earning low incomes when the distribution of incomes is highly unequal (high Gini coefficients from official sources are here but unofficial estimates suggest much higher coefficients and hence higher inequality than even these). I was interested that in talking to younger Chinese students that many focused on house prices issues and of course the underlying inequality issue. As a resource economist I see the determinants of longer-term high house prices as a resource concern that reflects limited supplies of land being purchased by an increasingly affluent population.
For environmental externality reasons associated with escalating housing and land prices I favor policies that continue to limit China’s population. It is certainly true that intervening in a couples fertility decisions involves huge transaction costs for their family but laissez-faire in population planning only makes sense if environmental externalities are being managed successfully and in China they are not. At least not yet. The more successfully such environmental problems can be addressed the better the case for reforming policies that do impose big costs such as the “one child” family policy. This policy was only ever intended to be a “one-generation” policy and clearly finding alternatives to it should be a priority. The Chinese government claim that 300 million births have been prevented because of it – and fertility rates in China of around 1.4 do seem suggestive of this – but rising living standards have also contributed to reduced fertility. Making citizens pay fully for the environmental costs they inflict on others would provide a just and natural way of retaining low fertility.
Final remarks. Even in the utopian situation where congestion and pollution are fully priced I do not believe that laissez faire in population makes complete sense because of the intrinsic value I attach to living in natural environments and because of the respect I attach to nonhuman life and landscapes. We should live well in landscapes where nature has a role in our lives – it is not simply a “resource” intended to be used as a factor of production or a consumer good. My sense is that in China this balance between humans and the non-human environment is distorted by sheer size of the human population.
While in China I visited Yueyang on Dongting Lake. The Lake itself is China’s second largest wetland and is one of the most significant conservation zones in the country. The lake faces a myriad of externality and encroachment problems – including pollution from paper mills, phosphate pollutions from agriculture, overfishing, illegal native animal harvesting, dredging as well as heavy large ship traffic that disturbs the ecology. Moreover the environmental problems here are a fraction of the broader class of problems along the mighty Yangtze that flows into the lake. In a utopian world I guess many of the pollution emissions could be priced and all the destructive usage activities managed or prevented both around the lake, in the city and along the rest of the Yangtze. But the city of Yueyang itself has a population of about 5.5 million people (not an especially large city by Chinese standards) and this city lies precisely on the boundary of this lake. The balance between human and non-human life would seem to remain strained even with utopian efficient pricing of all resources.
Arguments for abandoning the policy because of (for example) “population aging” effects seem to me misplaced. My sense is that China should take advantage of this once-and-for-all shift towards lower sustainable population to sustain a reduced population that makes fewer demands on the natural environment. This benefits both the human and the non-human life that we live with.