2001 Marked a Change in China's Quality of Growth
Tue, 05/25/2010 - 15:46 — bens
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Time Period:
Boom with No Bust
Quote:
China was able to grow in a way that didn’t really present significant...environmental challenges.
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NO
Video Transcript:
<p>I think what’s more important than the speed of growth is the quality of that growth, from a resource standpoint. And so, the 9% growth between 1978 and 2001 was achieved while the energy intensity of growth declined. So, for every unit of economic growth, less oil and gas was needed, less coal was needed, because of all this restructuring in the economy, because all these bad habits of the Mao Zedong economy were getting worked out. And so, for 20 years, China was able to grow in a way that didn’t really present significant energy and environmental challenges. And that changed in 2001, and it’s not so much because the speed of economic growth increased, it did a little bit, but the quality of the growth changed significantly. So, China went from what had made it rich over the past 20 years, again, that labor-intensive manufacturing, doing what the rest of East Asia had done to develop, and moved back in an energy-intensive direction. So, instead of investing in light manufacturing facilities and service sector activities, China started investing in energy-intensive industry again, the same things that had bankrupted the country under Mao Zedong. So, more steel mills and more cement kilns. Now, the investment in those industries was driven by urbanization and a need for steel and cement to build out China’s new cities. But, for the previous ten years, China had imported from abroad a lot of the steel and cement that it needed to urbanize. And starting in 2001, it not only began to produce all of that steel and cement for itself, but started to export it as well. And the energy implications of that on the country were massive. So, we went from each unit of economic growth only requiring half as much energy to each unit of economic growth requiring one and a half times as much energy, so a tripling of the amount of energy required for the economy to grow. And that was entirely because of a shift from less energy-intensive drivers of growth to more energy-intensive drivers of growth. And that’s what caused the country’s energy footprint, its environmental footprint, to double between 2001 and 2008. The country’s leaders have recognized, and recognized two or three years ago, that this wasn’t sustainable. If you took the past 7-year trend and you forecast it out over the next 30, you get to some pretty catastrophic implications both for China and for the world. And so, Beijing has been eager to try to, what they call, rebalance economic growth, to move it back towards more sustainable, more labor-intensive light industry and services, and away from that energy-intensive heavy industry. If they’re able to do that, there’s no reason why the economy can’t grow at 8% or 9% for another decade while being environmentally and energy sustainable. It wasn’t because the country’s leadership decided, "This is what we’re going to do." It was very unlike Mao, where a couple of elite leaders said, “We’re going to make steel. We’re going to make cement.” It was, instead, hundreds of companies responding to incentives that they faced day to day, and doing what seemed profitable given their costs. And since environmental externalities, as economists say, aren’t included in the cost of production in China, because environmental enforcement costs are low, because the cost of energy in a lot of places in the late 90s was very cheap, it made sense to do that type of activity. And you saw a lot of companies investing in it. In addition, local governors, at the provincial level and then local officials, at the township level, were eager to see these big, prestigious projects, like steel projects, and cement projects, take place in their province. Because they came with large price tags in terms of investment. And so, you would see governors and mayors trying to attract investment in these energy-intensive industries, even if investing in 1000 textile mills would have been more productive than investing in one steel mill. That one steel mill came with more prestige and it was an easier way to go collect taxes, rather than chasing around a 1000 small light manufacturers, you could just go to the one state-owned steel company and collect your taxes there.</p>
description:
Trevor Houser explains that China's quality of growth has changed since 2001 to make its development less sustainable. He talks about why China's economy has taken a turn towards heavy manufacturing and cautions that, unless changes are made, this course may be unsustainable both for China and for the world.
