Industrial Growing Pains: The Costs of Economic Expansion

It is no surprise the investing and expanding of the Chinese industrial sector has proven triumphant for China's GDP. However, in order to get to that point, the Chinese central government has taken a very strong "pro-economy" viewpoint that has disregarded several other factors like water quality, the health of Chinese citizens, the rights of indigenous groups, and ironically enough the stability and prosperity of the economy itself.

As mentioned in my previous blog article, China has greatly expanded its industrial sector into the Pearl River Basin above Hong Kong which is having detrimental effects on the water quality and availability. The most apparent damage done because of this expansion is the overwhelming amount of pollution in the rivers. Although garbage can be seen floating on the surface, it is the high concentration of metals present in the waters that is causing the most damage. Villages throughout the Pearl River Basin that are dependent on the rivers for water are now located near these new factories and mining projects that are openly dumping waste into the water ways. Like other cancer-villages in China, Wengyuan is just one of many in a case study that looks into cancer deaths caused by the presences, of high metal concentrations and other pollutants in the water; over 700 people have died from pollution related reasons, the majority of them, cancer. Above is a map of China's "cancer-village belt" as the eastern provinces have a large number of villages with high cancer rates.

With many villages having no other access to water, they are forced to use the available water even if it may cause eventual health problems due to the chemical pollution. This is not only dangerous to the public health, but goes against the basic rights as a citizen and human to have access to clean drinking water. Another issue is that villagers may not even be aware of the damaging pollutants present in the water and will continue to use it without awareness. As the Chinese central government does not always educate the villagers on the results of tests, spreading results of test has been left to organizations like Greenpeace who document their own research and then make it available to the people.

In the recent years, China has experienced a shortage of rainfall as drought became apparent throughout regions of China. As seen in the image to the left, areas in Southeastern China, above Hong Kong have faced severe drought as they only received around a third of the usual rainfall (Civic Exchange 2011). This  lack of sufficient rain water due to climate change has caused 400 out of China’s 600 larger cities to suffer shortages of some degree and cause a total  industrial loss of over 230 billion RMB per year. This creates major issues as this shortage of rain water is said to affect over sixty million people, eighteen million livestock, and five million hectares of farmland, which is estimated to cause a loss of over twenty-four billion RMB (Civic Exchange 2011).  This massive economic loss is not just due to the limited amount of rainfall, but the allocation of that resource and the lack of efficient planning to adequately use and maintain water resources to insure that it can be pulled from continually. Knowing this, the fiscal losses are created by not just by the lack of rainwater, but how the water is distributed to respective parties. 

In addition to the health of the Chinese citizens being completely ignored, the rights and culture of the indigenous people have also been greatly reduced as they receive little or no compensation for industrial impact in their regions. Often times the indigenous people do not get compensated for the degradation of their land or water. Even worse, as the indigenous groups lack proficient access to electricity, the power plants installed in their region often do not make any effort to supply power to the groups.

In addition to the overhead costs of materials and installation of these industrial factories, the relocation or compensating these indigenous groups, (what little they receive), it is also an expensive process to complete. Dealing with moving these groups into other areas to make room for the industrial parks and trying to honor/maintain some of the cultural traditions of the group can only make it less profitable, and also ethically questionable, for these factories to move to those regions.

The rivers are not the only body of water affected from all the pollution, the coastal regions are heavily impacted from the different types of chemicals and human waste. In 2006, the Guangdong alone was responsible for over 8.3 billion tons of sewage, which was 60% more sewage than five years earlier. Because of all the pollution present off the coast, many of the fisheries off Hong Kong have been greatly stressed as the fish population has decreased massively.

Another way that pollution has an economically damaging effect is that the amount of chemical runoff that leaches into the coastal waters causes the attraction levels of the regions to decrease and makes it less desirable for tourists. The process of biomagnification, when the amount of a pollutant is compounded as it travels up the food chain, has left the fisheries used for human consumption with high levels of pollutants, making humans consume toxic seafood.

There are lots of different ways that high levels of pollutants have negatively affected and harmed the economic progress of China and while there are countless issues, the ones mentioned above are just a few direct causes. To learn more about the market and governmental failures in China to solve the pollution issues, please look at the next blog article titled
Failing to Curb Pollution: Who's to Blame?.

Failing to Curb Pollution: Who's to Blame?

While the Chinese government acknowledges the damaging side-effects of industrial expansion, there has been large amounts of criticism blaming the government for the environmental degradation taking place throughout the country.  Without proper legislation or enforcement, the regulations in place often get blatantly ignored if they limit economic progress. 


As it seems the government's inability to appropriately prevent the extreme amounts of pollutants now present in the water ways is evident, the inefficiency of the market to adequately and effectively quantify the amount of water available for abstraction as well as create a proper pricing system is also at fault. Because of the way the Chinese government is structured, the regionally sectioned provinces are individually different from its neighbor, making it close to impossible to create efficient abstraction policies and marketing schemes.  And because of the various levels of governance there is a lot of bureaucracy that creates divides between the different local governments and the central government.  There is also lots of pressure for the committees in charge of environmental conservation to adhere to the demands and ideals of the local government.
In order to give a better understanding of how the government and market failures have allowed chaos to ensue, looking at various provinces as anecdotes will serve as examples. The Mayor Zhang Guangning of Guangzhou went swimming in the Pearl River in order to prove that the government was making progress in cleaning the water to meet the requirements of "Grade III."However, soon after this initial swim by the mayor, the committee in charge of water safety advised the public not to use the water for recreational use or drink from it.  In order to understand what requirements "Grade III" meets, the bar graph above will help you understand just how bad the water quality has become. The grading system is based off of a scale from I to V: I and II are considered safe for drinking, III is considered "risky" but safe and is normally only used for agricultural or industrial purposes, and finally IV and V are considered dangerous for human health and "useless."
Another issue dealing with knowing the proper amount of water to withdraw has to deal with knowing how much water is available. Although something as simple as knowing how much water is available for consumption may seem like common sense, it is something that the Chinese government did not take into account. The logic behind a healthy level of water abstraction is often set on data from previous years and not on the current water levels, which means that it is possible for the numbers to not reflect the proper level that should be consumed.   
As the legislation in place seems to have little or no true enforcement, there has become too much bureaucracy in place behind the environmental efforts, causing disorganization and corruption.  Several examples can be pulled from the article: Market Failures vs. Government Failures. A few of them will be mentioned throughout the blog. Another example of how the governmental bureaucracy has created issues is a fact that the local government puts lots of pressure on the local committees in charge of allocating licenses to companies to use the water ways and how much they are allowed to emit.  Not only do they pressure the committees to increase the amount of licenses in order to not inhibit regional economic prosperity, but they also try to pull strings and get licenses for the companies or individuals that will benefit the governmental officials the best.As of right now, China seems to be very far away from cleaning up its act and taking the environment seriously. The need for honest and effective governmental authority is the first start to solving the many issues pertaining to water quality and the abstraction process. By eliminating the bureaucracy, it will allow the government to effectively allocate the licenses out to the public and allow those licenses to actually curb pollution.  Having a responsible government will also allow for the abstraction tolls to be collected and more revenue to be created, which will to better improve the system. Many studies have concluded that China may have reached a point of no return and that the situation will continue to get worse until the negative economic impacts completely hinder the entire nation's GDP.







Both the government and the market are dually responsible for the levels of inefficiency, for example, the funding that the different provinces receive comes from financial bureaus that control the pursestrings of the government.  However, it is up to the local government to collect the incentivized tolls to curb water dependency and enforce the abstraction policies. This establishes little incentive for the local governments to collect tolls because they know they will not receive any revenue created by the tolls. This results in millions and millions of Renminbi, or RMB, lost every year that could go towards improving the abstraction policies, establishing better monitoring systems, improving water treatment plants, etc. All of outcomes would greatly benefit the citizens, government and economy. 



This map containing all the industrial relocation parks can also be seen in my first blog article that was a basic overview of China's Water Crisis.

As these industrial relocation parks produce large profit for the Chinese economy, the side effect of having so many factories is the overwhelming demand for water and power. As the industrial demand for water has tripled from 1980 to 2007, the demand for electricity has also skyrocketed to meet the demands of the factories and influx of people. However, the fact that the Guangdong has become a new focal point for energy consumption and production, the West-East Electricity Transfer Project (WEETP) relies on hydropower plants to produce over 60% of its electricity, the water shortage has caused lots of problems.  The government's unreliable electricity programs are met with illegal citizen solutions(Civic Exchange Energy).  In response to rolling power outages, citizens often start using electric generators that have been banned by the government because of the inefficiency and high CO2 emission.  These families/individuals then start trading power amongst each other or paying for power from their neighbors, almost like a black market for electricity. All of this goes without governmental regulation.

An Overview of China's Growing Water Crisis: Pearl River Basin

For people who are not extremely in tune or knowledgeable about global economics, it is  still easy to see how China has quickly become one of the leading global economies. Over the last several decades, China has successfully surged ahead industrially and economically; however, as a consequence, both the availability and quality of water has greatly been altered.

The entirety of China has become exploited through this driving thirst for economic superiority. A perfect example of the impact this increase of industrial production has had on water quality can be seen in the Pearl River Basin(PRB). The Chinese economy has grown at a rate averaging around ten percent over the past twenty years and it currently accounts for ten percent of the global GDP. This is due to the fact that the Pearl River Basin's strategic location above Hong Kong has made it a target for industrial expansion projects. As a result, the Pearl River Basin itself has become the economic engine of Southeastern China, and it stands alone providing over eighty percent of all of China's GDP (Greenpeace 2009).

Below is an economic map from The Economist that breaks down China's regions into GDP, population, and amount of exports and then matches it with a country of similar numbers. The current map is focused on the regional GDP in correlation to other nations' GDP in terms of equal production. To put it into perspective, the Guangdong province, the region in which the Pearl River Basin is located, is on par with Indonesia in terms of GDP. It produces as much as the entire country of Indonesia, Hong Kong as much as Egypt, and so forth. 

As this expansion occurs, it has branched off into this region which is prominently responsible for supplying drinking water throughout the surrounding area, which includes Hong Kong. While only one percent of the water on earth is accessible for drinking water and the global population is estimated to reach over nine billion by 2050, the majority of which will occupy Asia, supplying clean drinking water to these masses will become increasingly more difficult because of developing conditions. The Pearl River Basin covers over forty-thousand square kilometers and is called home by over forty-five million people (Greenpeace 2009). 

Although there are other factors that have attributed to the impact on water, the industrial progress in this region has created turmoil for the environment of the Pearl River Basin. In the past decade over 35 Industrial Relocation (IR) Parks have dispersed throughout the region, including areas that hold extreme purpose for maintaining and delivering drinking water to the several dependent parties (As seen in picture below). There has been over sixteen billion RMB invested into the area. Water from the Guangdong River, which is known as the "faucet" of the Pearl River Basin, is responsible for distributing water to provinces like Dongguan, which relies on the Dongjiang River for 90% of its municipal water supply. 

                                        Image Source : Civic Exchange

As seen in the image above, the quality of drinking water in provinces throughout the Pearl River Basin are below the grade of "drinkable" water. You can read which types of pollutants are located in the different regions of the Guangdong province because of the different industrial expansions that have taken over that area. While several streams surpass the black "grade V," or " not suitable for any use," the poor water quality shown above can blame countless different types of pollutants that are abusing the rivers. Now known as the "four news": new electronics, new pharmaceuticals, new energy, and new materials, these have been the focal points of the economic expansion. Unfortunately, these products are also responsible for the great deal of pollution present in these water ways.

                                  Image Source:Google Images

This disregard for water quality has greatly limited the surrounding population's ability to utilize the water for potable, industrial and agricultural uses. Above is part of the river in the Guangdong province and the floating debris is considered the least of their worries as high metal content and other chemicals are not visible to the naked eye. While the population in the Pearl River Basin becomes increasingly saturated with industrial workers migrating to the new factories, the demand for water has also skyrocketed. The compounding effects of massive economic investment, increased population, and the increased demand on straining water sources have left China in crisis as current legislature offers little enforcement or solution.