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Unwrapping China: How to address the ‘new normal’

By Paul O'Brien

- Last updated on GMT

© iStock
© iStock

Related tags: China, Pollution

China is a country of epochs and eras, phases and cycles, periods and plans. It has witnessed agricultural revolutions followed by massive industrialisation, open-market reforms and WTO accession—and now technological innovation and a digitised supply-chains. 

From being the “most slept-on​”, it is now the world’s most important market and demands attention on the global stage. 

This rapid transformation of society places China in the midst of a hugely important transitional period as it attempts to channel potentially destructive energies into a cohesive stream. The forces of disparate social, economic and environmental pressures are threatening to spill over beyond the carefully followed blueprints and control infrastructure implemented by previous governments. 

Scale and unfathomable complexity make the China conundrum particularly intriguing. We see a cycle of “problem-solution​” and “action-reaction​”—a hallmark of Chinese governance also evident in its “five-year plans​”, in which the government pauses to reassess and gauge the efficacy of work done, and set up a roadmap for future reforms. 

Going forward, China should expect to face a number of issues and find ways to overcome them. 

1. The double-edged sword of growth

China is the victim of its own success in a number of ways. The massive wealth it has generated in a very short time has not come without major costs. As I browse the WeChat feeds of friends scattered across China I’m unavoidably reminded of the highest price China has paid for its newfound position as a global leader.

This is evident from eerie photos that showcase China’s “perma-smog​”—the dense blanket of pollution enveloping many of its cities. In stark contrast to this were the pristine blue skies which served as the backdrop to the recent G20 summit in my second home, Hangzhou. That factories were shut down at the time should serve as a reminder of the path China hasn’t taken… yet. 

Beyond the unsightliness of these images, there is a much darker side to China's prioritisation of economic growth. This is the toll being taken on the health of its citizens. 

Although getting reliable epidemiological data for places like Beijing, which regularly experience daily particulate levels in excess of 500ppm, is difficult, the available data is grim enough. 

Extrapolating published figures and first-hand anecdotal evidence from studies conducted in far less polluted cities, we come to hard endpoints like the increased incidence of lung cancer, asthma and chronic obstructive pulmonary disease, which are concrete metrics to highlight the true cost China is paying for its historically blinkered approach to economic development. 

2. Elevated, educated and empowered: The Catch 22 of precocious economic development

China’s economic success has elevated huge segments of its population to relative affluence. Money, education and unprecedented access to information have made China’s new rich hungry for a taste of something better. The problem is the exact reforms and economics which catapulted China to the front of the global economic pack are now coming home to bite China from behind. 

As China moves to “new normal​” economic growth—away, that is, from “Made in China​” towards “Made for China​”—it is faced with a domestic industry that in many sectors is incapable of producing goods to standards of quality and safety demanded by its elevated, educated and empowered populace. Food is among these categories. 

From an extremely protectionist historical perspective, the most important group in China’s new consumer-driven economy is looking overseas with envious eyes. On top of this the emergence of countries including Vietnam, India and Brazil is now seriously threatening China’s traditionally strong domestic manufacturing and export base, as it struggles to balance increased labour costs and the trappings of growing GDP with continued competitiveness on a global stage. 

3. Erecting the dams: Harnessing the power of consumer demand

China’s calls to give citizens increased access to imported goods is like someone watching a tsunami nearing and suggesting a good road for it to take. The demand was already there and the imported goods have been entering regardless. I guess it was just good government strategy to be seen to want this and to attempt to harness these raging torrents using “dams”​ like cross-border e-commerce (CBEC), rather than continuing on a futile journey of over-regulation. 

In the short-term this is a great strategy as it allows the government to impose taxes and to ride the wave of convenience and supply-chain digitisation championed by innovators like Alibaba. More importantly it will buy the government some breathing space to develop domestic technical capacities for key industries, flex its global financial might through a far-reaching strategy of acquisitions and mergers, and most importantly win back the hearts and minds of those domestic consumers who have a deep-seated mistrust of their own nation’s products. 

4. Regulation and enforcement: Tokenism no longer an option 

If China really wants to harness the power of domestic consumerism and develop new drivers for economic growth, it must regulate its domestic industries. When I think of regulation in China one of the first things that comes to mind is a common sentiment expressed by many: a complete dismissal of its appetite for truly regulating industries and imposing strict enforcement at both an international and domestic level (except when it serves an economic purpose). 

Frequent scandals and corruption allegations have done little to dissuade many of this belief. Yet China really doesn’t have any choice now: the integrity of its future trade balance requires it to begin strictly regulating its industries. 

The idea that China is happy to allow international enterprises to freely enter its markets, as we are seeing in CBEC, and siphon off billions in currency out of the country is just ridiculous. But given the alternative, China has little choice but to make hay while it sets about large-scale cross-sector reforms and rebuilds the reputation and quality of the products its domestic industry makes. 

5. A society built on shaky foundations: Air, water and soil reforms crucial

China’s biggest polluters include the petrochemical industry, the pesticide industry and the energy sector, particularly coal. The interconnectedness of these sectors with other socially and economically important sectors like the food industry cannot be overstated. 

Most Chinese middle-class consumers will have some degree of anxiety when purchasing domestically produced staples like vegetables, fruits, meats and dairy for fear of contamination from pesticides, heavy metals, veterinary medicines and other similarly nasty items. 

However it’s not simply the obvious and well reported scandals that have decimated China’s domestic industry. Things like animal husbandry and food-product quality are intimately related to China's environmental problems. 

This realisation has forced China to adopt a far stricter approach to regulating its heavy polluters as it attempts to clean up the foundations of its agriculture and food production system. 

Yet China needs to tread carefully here as it is still heavily reliant on primary and secondary industries as economic drivers. It will attempt to force companies to upgrade their pollution treatment facilities and reduce emission by first offering monetary incentives to enterprises with a reduced environmental impact, and then incrementally increase charges for heavy polluters.

The money collected from this will be channeled into basic soil, air and water remediation programmes. Institutional reform also highlights China’s desire to focus on the foundation elements in its current environmental predicament. It has now formed three dedicated departments for soil, air and water pollution with individual agendas in the form of the “Air 10​” “Soil 10​” and “Water 10​” action plans. 

These strategies will combine nationwide investigations to assess the actual degree of ecosystem contamination, develop treatment strategies and also include an open tendering stage in which both domestic and global industry pollution treatment enterprise will be allowed to bid on.  

China’s pesticide industry is a major polluter. Its intimate relationship with the chemical industry means that production processes generally involve a high volume of waste gases, solids and liquids. 

While these byproducts are significant contributors to China’s pollution problems, the use of toxic pesticides has a significant impact on the safety of China’s edible agricultural products, and the integrity of various ecosystems. 

Like other industries, China’s pesticide sector has been subject to large-scale institutional reform which will involve the centralisation of regulation and enforcement, with selective pressures used to curtail lower technical-capacity manufacturers and consolidate market shares into larger enterprise. It is hoped this will promote transparency and accountability throughout product life cycle and chain of custody. 

A waste emission charging system similar to what is used in the chemical industry will be implemented to offer an incentive to develop more sustainable manufacturing. Moreover, new regulatory requirements will underscore the importance of risk assessment involving the environmental impact of pesticides in actual field conditions as a prerequisite to product registration. 

In tandem with this increased regulatory burden, the government will unshackle more sustainable and eco-friendly sectors of the pesticide industry, such as biocides, by reducing or completely removing regulatory requirements and offering far greater incentives for R&D.

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