China¡¯S Paper Industry: Growth And Environmental Policy During Economic Reform

This paper examines the pollution control policies applied in China¡¯s paper industry during the period of economic reform from 1982 to 1992. The paper industry is the source of ten percent of China¡¯s industrial wastewater emissions and one-fourth of its chemical oxygen demand. It is the largest source of rural environmental pollution. The very small size of China¡¯s mills is comparable to that of papermills in many developing countries and this small size itself creates an interesting problem. Modern pollution control technologies were created for much larger and more capital intensive facilities like those in North American and Northern Europe. Therefore, adoption of the best technology is not a simple matter of technology transfer. We used mill-level production and pollution data to estimate (1) the effect of China¡¯s system of pollution control levies on three environmental effluents, and then (2) examined further the effect of this system of levies on the technical efficiency of mill-level production. Our results show that the pollution levies worked for those larger establishments that were the main targets of reform policies in this period. They decreased the production of effluents by causing managers to alter their mix of productive inputs, but the levies were not large enough to induce the purchase of modern pollution control technologies. The levies had an efficiency improving effect on most modern mills and also on those mills that subsequently discontinued operation. Nevertheless, we observed opportunity for further improvements in efficiency, notably through increased labor productivity. This is consistent with the government¡¯s recent decision to relax its policy of employment protection for workers in state-owned mills. Although we found no evidence of scale economies in production, we did observe that smaller mills were less efficient. This observation is consistent with the government¡¯s more recent decision to close the most environmentally offending small mills.