Anti-pollution people power is good for growth

PUBLISHED : Monday, 30 July, 2012, 12:00am
UPDATED : Monday, 30 July, 2012, 12:00am


Chalk it up as another victory for popular protest. On Saturday, thousands of aggrieved citizens gathered in the coastal city of Qidong in Jiangsu to demonstrate against plans to build a pipeline discharging industrial waste into the sea.

Things got heated. Protesters overturned cars, ransacked government offices, looted officials' wine supplies and bashed up police officers. The local party boss even lost his shirt in the affray.

The authorities responded by drafting in hundreds of riot police, but to forestall further protests officials also went on television to announce they were permanently scrapping plans to build the waste outfall.

The Qidong punch-up is merely the latest in a string of protests around the country in which residents concerned about high pollution levels have forced local authorities to backpedal on proposed industrial projects.

Earlier this month work on the construction of a copper plant in the Sichuan city of Shifang was halted after local residents took to the streets to complain about the environmental damage it would cause.

In December the authorities in Haimen in Guangdong province suspended plans for a new coal-fired power station in the town following mass protests. And last August demonstrators in Dalian successfully demanded the closure of a chemicals plant located near the centre of the city.

Commentators have written hundreds of articles about the political and social implications of this newfound, and newly successful, strain of environmental activism on the mainland.

But less has been said about the potential effects on business and the economy. That's a shame, because these are at least as interesting.

The mainland's economic development has been powered above all by heavy investment. And one reason that investment has been able to produce such rapid growth is that investors, especially in state-backed projects, have paid little attention to the pollutants they pump out and environmental damage they inflict.

According to one recent study by the United Nations, if environmental and health costs were fully factored in, the mainland's average economic growth rate over the last 20 years would fall from 10 per cent to just 3 per cent a year.

It's not that the mainland lacks environmental regulations. It's just that they are only patchily enforced. Researchers at University of California, Berkeley note that pollution tends to be worse in cities where the local economy is dominated by state-owned companies.

That's partly because state-controlled firms usually carry more political heft than local environmental protection bureaus, and partly because officials, in order to enjoy the revenues from fines, deliberately set the penalties on polluters lower than their cost of compliance. As a result, investment in many parts of the country has gone ahead unimpeded by environmental concerns.

The success of the recent protests in Qidong, Shifang and elsewhere, however, indicates that officials can no longer count on being able to push through polluting investment projects with impunity.

That's sure to have an impact on investment levels. A recent study by researchers at the University of Hong Kong and the National University of Singapore found a powerful pollution-haven effect at work on the mainland.

They found that cities where sulphur dioxide emission standards are tighter and more rigorously enforced received on average 41 per cent less in foreign direct investment than cities with lax regulation.

Clearly if environmental compliance costs are factored in, the attractiveness of many investment projects evaporates. And with the risk of popular unrest now forcing officials to reassess pet projects, there is bound to be a moderating effect on future investment levels.

That should be good for the mainland's environment. But with Beijing looking to rebalance the country's growth mix away from high investment, the recent demonstrations of people power at Qidong and elsewhere should also be good for the economy.