Bashing China

This week’s Fund Strategy included a comment by me on attacks on China for not being sufficiently green.

Last week seemed to be Bash China Week. Suddenly there was a widespread discussion of China’s supposed failings.

Rather than caricature what is said, it is probably best to quote it verbatim. A cover story in Business Week, a prestigious global business magazine, started with the sentence: “Beijing can’t clean up the environment, rein in stock speculation, or police its companies.”

John Vidal, the environment editor of the Guardian, wrote on the newspaper’s comment is free website: “What we are witnessing is the mass poisoning of a people and the ecological devastation of a nation.”

Arguably the Guardian is prone to such hyperbole but Vidal’s article was based on a report from the Organisation for Economic Development (OECD) on China’s environmental performance. Naturally the OECD would not use such intemperate language as Vidal but its report was sharply critical.

No doubt there is some truth in many of these criticisms. They are also to some extent a counter to the hype about China taking over the world in the next 10 minutes. But they nevertheless exhibit a disturbing lack of perspective.

The starting point to examine this question should be the recognition that China is still a relatively poor country. As David Smith, the economics editor of the Sunday Times, pointed out in his recent book, it is 107th in the world in terms of income per head. China’s income per head averages $6,000 compared with an average for the rich countries of the OECD of $25,000 (in 2000 purchasing power parity dollars).

This may surprise people who see the headlines about China’s rapid growth. Indeed a striking news story last week was that China is likely soon to overtake Germany to become the world’s third largest economy. But the apparent paradox is easily resolved. China’s GDP has to be divided by 1.3 billion people to determine average living standards. So even though the economy is large in absolute terms the average citizen remains poor.

As a developing country, it cannot afford to be as concerned about the environment as a rich one. Environmental measures – whether reducing air pollution or cleaning up rivers – have a cost. That is one reason why economic development is positive: it gives countries the resources to clean up the environment for the benefit of their inhabitants. However, it also means that developing countries will often have other priorities, including escaping extreme poverty, which will outweigh improving the environment.

A continuation of China’s rapid economic development will put it in the best position to deal with the other problems that it faces.