China won much praise (and prestige) for its prompt and bold response to the unfolding global financial crisis, announcing a fiscal stimulus package worth 14% of its GDP in November 2008, well ahead of other major economies (this compares with a fiscal expansion of 2.5% of GDP for the US, 4% for Japan and Germany, and roughly 2% of GDP for G20 countries as a whole). On the face of it, the Chinese stimulus seems to have paid off: the economy has clearly bottomed out and is once again set on a high growth course. But, as I argue in a forthcoming article in the China Environment Series – versions of which are published on Policy Innovations and Chinadialogue – there are serious concerns about the sustainability (economic and environmental) of the stimulus.
Back in March, I had pointed to early signs that the fiscal stimulus was starting to kick in (see my earlier post here). The latest statistics are encouraging in this regard. Earlier this month, the World Bank upgraded its 2009 growth forecast for China to 8.4% (up from 6.5% at the start of the year). According Yu Bin, a top economist at the State Council’s Development Research Center (an influential government think tank), China’s economy could grow by over 10% in the fourth quarter of 2009, and maintain double-digit growth next year.
But these ‘green shoots’ are anything but green: China may have missed a golden opportunity to use the stimulus as a crucial lever to nudge the economy on to a greener trajectory. The bulk of the stimulus spending has been funneled into energy-intensive sectors and large infrastructure projects, many of which have been on the books for years but slowed or halted by negative environmental assessments that are now being overridden in the interests of salvaging the economy. So far the main beneficiaries of the stimulus seem to have been cement, iron, and steel producers.
More worrying are signs that the government has systematically deprioritised environmental concerns in its no-holds barred approach to rescuing the economy. The rollback of Environmental Impact Assessments—through the establishment of a fast-track system, ironically called the “green passage”—is a surface sign of deeper power shifts within government. Environment vice-minister Pan Yue—once the government’s most outspoken environmental champion—was stripped of his responsibilities as environmental enforcer and has been absent from the political scene since the beginning of the crisis. The new vice-minister in charge of environmental assessments, Zhang Lijun, has announced that most stimulus projects will be eligible for fast-track environmental approvals.
This crisis should have strengthened the hand of the progressive economic reformers within government. It threw into sharp relief the structural weaknesses and vulnerabilities that they had been cautioning against long before the crisis occurred. The need for a robust counter-cyclical boost to the economy offered the opportunity of marshaling resources on an unprecedented scale toward stimulating new, greener sources of economic dynamism and growth. Spurring green innovation would not only create green-collar jobs but also strengthen competitiveness. The crisis provided an occasion for cash-rich China to purchase state-of-the-art environmental hardware at rock-bottom prices from developed economies in disarray, accelerate industrial upgrading, build technological capabilities, and strengthen its competitive edge.
The evidence, sadly, is that this golden opportunity has been missed.
