The environmental impacts of regionalization and marketization in contemporary China

Abstract

China’s modern development has been a long-hauled process paved with great difficulties. While China was becoming the world’s second largest economy, behind only to the United States, anxieties on the Sino environmental condition grew perhaps just as much as its gross domestic product. The purpose of this research is to contribute to a better understanding of the relationship between China’s political and economic transformations and the country’s evolving environmental quality.

This study first isolates and determines the ecological consequences attached to China’s political regionalization. In doing so, it primarily looks at environmental protection investments at the provincial level as an indicator for regional environmental quality. Results show that under China’s federalized circumstances the proportional size of total public budgetary expenditures (TBEs) allocated to environmental protection investments (EPIs) is negatively associated to a province’s wealth. However, EPIs/TBEs ratios are nonetheless found to be inter-regionally converging for period between 2007 and 2013. This study then additionally analyzes the effect of in-budget provincial deficits as to explore what can influence the size of the budgetary pie conferred to EPIs. The outcome of the Tobit regression model reveals that an increase of 1% in the region’s in-budget deficit against the provincial GDP is significantly correlated to a 2.75% decrease in the proportional share of EPIs in the TBEs.

In a second instance, this research assesses the environmental impacts related to the penetration of market-oriented features into China’s regional economic structures. In making such endeavor possible, the levels of regional marketization, as provided by the indexes of the NERI Annual Provincial Marketization Reports, are set against provincial figures for air, water and land pollution. First discovered is the negative spatial-temporal correspondence between levels of marketization and pollution intensities, whereby provinces with higher marketization rates have mostly sustained lower environmental pollution emissions in GDP terms. This association is further statistically tested through a panel data fixed effect analysis. The results show that regional marketization levels have an "L-shaped" curve effect on pollutant intensities for Sulfur Dioxide, chemical oxygen demand and industrial solid waste disposals.

The findings of this study converge towards two major sets of implications. With respect to the regionalization, this work highlights that the fiscal prerogatives which accompanied China’s political transformation have indeed fertilized the grounds for the “growth first and treat pollution later” developmental trap. Yet, it specifies in that sense that a province’s environmental behavior still largely varies based on the quality of its fiscal management. From the marketization perspective, this study supports that there is in China an underlying complementarity between economic decentralization and environmental quality. Market penetration walks alongside changes in the economic arrangement, which in turn, alters the impact of regional productive activities on the environment. As marketization is most advanced in costal China, larger cuts in the pollution intensities were historically seen in those areas. It is therefore implied that the greatest environmental gains from marketization now reside in furthering the economic transformation of central and western provincial economies.