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Green GDP — The Real Chinese Revolution?

Will China factor the environment into GDP growth calculations?

September 23, 2004

Will China factor the environment into GDP growth calculations?

Up to this point, the guiding principle for most Chinese officials on the economy and the environment has been that you cannot have one without sacrificing the other.

And so far, this tenet of development has reflected China's reality. As the country's air and water have filled with toxins — and its forests and farmland turned to deserts — China's economy has boomed. Since 1980, the economy has expanded an full fourfold.

While this trend represents real gains for China, the problem remains: The GDP (Gross Domestic Product) indicator used to measure this impressive growth ignores the very ability of China's natural systems to support it.

During a trip to China's coal region of Shanxi in 2003, I witnessed first-hand what this "progress" has meant for China's heartland. Tang Dynasty texts dating back to the 7th century C.E. describe this region bordering the rich fertile Yellow River valley as covered in lush forests.

But what I discovered there was anything but flourishing. Everywhere I went in the region, my gaze was met with a dusty desert landscape and acre after acre of pitifully dry cropland, etched into a crumbly yellow earth. Modern-day Shanxi would be an alien landscape to those Tang writers.

What used to be a thriving forested area has been stripped down to bare rock and dry earth by centuries of human use and abuse. People now live in caves because there are no trees left with which to build.

The locals collect rainwater and guard it like gold, using and reusing every drop. Not only are water tables dropping at an alarming rate, they are also becoming more and more polluted.

Shanxi's coal industry, a boon to the region's struggling economy in the early 1980's, has dangerously contaminated its air and scarce water supplies.

Shanxi is not alone. According to the State Environmental Protection Administration (SEPA), China's water supply per capita is only one-fourth that of the world average. Soil erosion is increasing and crops are failing across all of China.

Pollution is also continuing to build. The amount of sulphur dioxide, a major air pollutant, discharged in 2003 per unit of GDP was 12% more than the year before and 81% more than the environmental carrying capacity — that is, the ability of the ecosystem to absorb and recycle the pollutant.

Even a small percentage above carrying capacity represents a significant threat to human and environmental health. Under such conditions, one has to wonder how much longer China's economy can continue to boom before it goes bust.

Indeed, weak spots in the economy are already starting to show as the natural systems are increasingly stressed. Deserts such as the one forming in Shanxi are expanding rapidly; acid rain, wind and soil erosion are overwhelming the nation's farmers — and yearly dust storms are shutting down urban areas.

Fortunately, Beijing is starting to take notice of these problems. China's "Blue Sky" initiative has already cleaned up many of the nation's worst polluters.

Beijing city planners are developing green construction standards to promote an energy efficient and green Olympics in 2008. Natural gas is slowly replacing coal in homes and businesses across the country.

Even more significant, the State Environmental Protection Administration and the National Bureau of Statistics (NBS) announced last week that they have set up a framework for calculating a green GDP for the country. The green GDP is calculated by deducting the cost of resource depletion and other environmental externalities from China's current GDP indicator.


According to Pan Yue, Vice-Minister of SEPA, the goal is to "increase public awareness of the damage caused by the present growth mentality based on excessive consumption of natural resources and serious environmental degradation."

They hope that by doing so, the state will create a "standard measure of China's environmental sustainability."

The administration is expected to release calculations of the cost of pollution between 1998 and 2003 by December of this year. Six test-run provinces will be selected as pilot regions to adopt a green GDP, with Shanxi province likely to be among those six.

Preliminary assessments of the region suggest that under green GDP measures, Shanxi's so-called booming economy hardly grew at all in the past two decades.

According to a study by the province's academy of social sciences, a state think tank, the officially announced 2002 GDP of 134 billion RMB would decrease 44% — if negative factors such as coal resources depleted, land resources exploited, water used and environmental pollution were accounted for. The 11.7% growth reported for that year would decrease to less than 1%.

The notion of the green GDP is still new to China and there is controversy over how to put monetary value on the degradation caused by pollution and resource exploitation.

Nevertheless, these preliminary steps mark a promising shift away from the current model of economic growth and its assumption that there is no alternative to environmental destruction.

If the current vision is executed, it would also put China leagues ahead of most other nations on Earth — by promising a standardized, government-level system of assessing and attaining a sustainable economy.

Indeed, a successful Chinese green GDP could have great ripple effects on the future of economic development worldwide. We could all stand to learn from this bold move.