Ten years ago, in an interview with Der Spiegel magazine in March 2005, Pan Yue, China’s eloquent, young vice-minister of China’s State Environmental Protection Agency (SEPA) told the magazine, “the Chinese miracle will end soon because the environment can no longer keep pace.” Pan Yue added:
“We are using too many raw materials to sustain [our] growth … Our raw materials are scarce, we don’t have enough land, and our population is constantly growing. Currently there [are] 1.3 billion people living in China, that’s twice as many as 50 years ago. In 2020 there will be 1.5 billion … but desert areas are expanding at the same time; habitable and usable land has been halved over the past 50 years.
… Acid rain is falling on one third of Chinese territory, half of the water in our seven largest rivers is completely useless, while one fourth of our citizens do not have access to clean drinking water. One third of the urban population is breathing polluted air, and less than 20 percent of the trash in cities is treated and processed in an environmentally sustainable manner …
Because air and water are polluted, we are losing between 8 and 15 percent of our gross domestic product. And that doesn’t include the costs for health … In Beijing alone, 70 to 80 percent of all deadly cancer cases are related to the environment”.
That was ten years ago. To be fair, the Chinese did try to rein in population growth with the one child policy, and it didn’t work. Or, rather, it produced a host of spoiled, single male offspring who are apparently unhappy and must be a problem. And then the Party went for helter- skelter growth, ruined their own environment, and are suffering from an oppressive, corrupt political system and massive debt that possibly threatens the whole economy. We tend to loook at China as the successor to American hegemony, but is it really a temporary illusion? Why is mankind incapable of moderation?
In an era where international organisations such as the UN and the ICC, promote an agenda of individual liberty and free markets, the Chinese one-party state looks increasingly antiquated. So to justify its continued rule to its citizens, the Communist Party tries to deliver astronomical growth. If you are an ordinary Chinese working class person, and your income is growing considerably, why risk that by revolting against the regime?
The trouble is, growth that high is unsustainable. Not just for environmental reasons, as you have quite rightly pointed out, but also due to the long term damage it does to the quality of economic growth. Keynesian orthodoxy suggests that fiscal and monetary stimulus is good if a country is in recession or has high unemployment. But for a country like China, where growth is already unusually high, the effects of stimulus tend to be inflationary. The cost of living in China is rising astronomically, hitting hard less urbanised regions of the country where wages have not increased as fast as the manufacturing and financial service economies of the eastern cities. Moreover, stimulus programs increase debt, which the government has mitigated by lowering interest rates and expanding the money supply. This reduces domestic purchasing power, rendering the economy stagnant in the long term as manufacturing moves to cheaper locations such as India or Bangladesh.
Its plain that China’s sky-high growth rate will slow. The only question is how. If Chinese policymakers continue on their current course, the country is headed for a so-called ‘hard-landing’, where a world recession triggers a collapse in demand for Chinese-made goods, and foreign investment into the country dries up, resulting in a plummeting current account balance, and almost certain civil unrest. Newly-unemployed factory workers will return to the countryside, disillusioned with the regime.
What the CCP should aim for is a soft landing, which they sort of are doing already. Sales taxes should be simplified and cut, increasing domestic demand. Plans for infrastructure upgrades should be slowed down from their current unaffordable rates. There should be new taxes on wealth and expensive property, cooling the country’s overheated housing market. Deregulation in the country’s financial service and business sectors would make the country a more attractive place to do business, easing the transition away from manufacturing. Moreover, a comprehensive welfare state should be created and maintained, which would increase the purchasing power of the poor, reduce social discontent, and improve quality of life generally.