The price to pay

Q: Are China's current environmental issues beneficial or harmful to foreign companies with Mainland operations?
A: The picture here is mixed. Some of China's environmental challenges such as poor enforcement of environmental laws throughout much of the country may benefit companies that try to skirt environmental regulations or those that have developed special deals with their partners and local officials that undermine environmental standards. For those foreign firms that are good actors, they may suffer unfair competition – a complaint that was made frequently in the 1990s by some European and American power companies. Also, it is probably true that foreign firms come under greater scrutiny than many domestic firms. Given the rise of citizen involvement in environmental protection in China, however, many firms – both domestic and foreign – that are not adopting best practices will likely find themselves subject to protests or lawsuits in the future. Other types of environmental issues, such as China's increasingly desperate search for clean water throughout much of the Northeast and Northwest, mean that foreign companies may find themselves periodically unable to operate because of lack of access to water, a situation some foreign firms have already experienced due to energy shortages in China. As China rethinks its pricing strategy for natural resources, such as water, some of this problem may be diminished, but the cost of doing business in China will also likely increase.

Q: The world has increasingly become dependent on China as an engine for global economic growth. Why should countries care?
A: There are many reasons for the world to care aside from a general concern with the well-being of the Chinese people and their environment. First, what China does to its environment often directly affects both its neighbors in Asia and the rest of the world. Acid rain and yellow dust storms emanating from China, for example, have significant health as well as economic costs for Japan and South Korea. China's rapacious consumption of endangered wildlife species and timber from countries throughout Southeast Asia also affects the region's ecosystems. China's environment and development practices also have a significant impact on the rest of the world via global environmental challenges such as global climate change, ozone depletion and biodiversity loss. Finally, China will not be able to serve as the engine of global growth if it continues to pollute and degrade its environment at the rate that it is doing so. As its lakes and rivers dry up, for example, operating costs for foreign firms will become significantly higher or even more significantly, opportunities for further economic expansion may simply disappear.

Q: What foreign businesses stand to gain the most from a greening of China?
A: Certainly any firm that makes an effort to abide by China's environmental protection laws and regulations will benefit once China begins to enforce its regulations consistently. Also firms that make an effort to conserve resources such as energy or water will likely benefit as China raises the prices of its natural resources. Of course, firms that are directly engaged in the work of environmental technologies such as developing wastewater treatment facilities or pollution remediation efforts would stand to benefit, as would environmental consulting firms.

Q: What sort of government reforms are necessary for real environmental improvement to occur?
A: There are too many potential reforms to list, so I will just tick off a few of the ones I consider most critical: 1) enhancing the status of China's top ranking environmental body, the State Environmental Protection Administration (SEPA) or reinstating the supervisory State Environmental Protection Commission to help place environmental issues on equal footing with economic ones within the central government; 2) improving the quality and quantity of environmental protection officials, particularly in many poorer and rural areas; 3) increasing the level of investment in environmental protection from 1.3% of GDP to 2.2%, which is the amount Chinese scientists argue is necessary to keep the situation from deteriorating further; 4) strengthening the rule of law by training more lawyers who understand the complexities of environmental protection laws; 5) removing restrictions on environmental non-governmental organizations that prevent them from flourishing (e.g. forbidding branch organizations of the same NGO in different parts of the country for fear that a political movement may emerge); 6) granting SEPA greater authority over local environmental protection bureaus to help protect them from undue political influence; and 7) developing sufficient penalties and incentives for firms to adhere to Chinese environmental laws.

Q: What sectors of the Chinese economy are most likely to suffer from environmental reform?
A: As is the case elsewhere in the world, some of the most polluting firms in China include chemical, pharmaceutical, and power plants, oil refineries, and a range of smaller scale township and village enterprises, such as paper and pulp mills, brick-making factories, and textile plants, many of which simply do not bother with pollution control efforts. In the short term, many of these companies will suffer from enhanced environmental protection in China, but over the longer term, many will benefit financially from improvements in worker health, efficiency, and image.

Q: What are the prime motivating factors for foreign enterprises operating in China to be concerned about the country's environmental situation?
A: The primary consideration for a foreign enterprise is that the long term business outlook and vitality of China depend heavily on what China does to its environment. To have a productive economy, China needs things such as healthy people and access to water, otherwise industry can't operate. In addition, over the long term, as China becomes more concerned about the state of the environment, foreign firms need to be cognizant of the possibility that China will hold them accountable for actions they took, such as contaminating the soil or groundwater, before laws were on the books or before there was effective enforcement. For any foreign firm, too, the impact of a significant pollution disaster, both financially and in terms of image, could be devastating.