China's Paper Industry: Growth and Environmental Policy During Economic Reform

China began its program of economic reforms in 1978 and has enjoyed double-digit annual growth ever since. Agricultural reforms were implemented most aggressively (Lin 1992). Industrial reforms and industrial growth followed and, as in any rapidly industrializing economy, so did industrial pollution. Indeed, many see the environment as a casualty of two decades of booming growth (e.g., Wong 1998) and the environment has become central to national policy. Premier Zhu Rongji, in the Government Report to the National People's Congress on March 5, 1999, identified sustainable development as one of China's two fundamental strategies for the 21st century. President Jiang Zemin, stressed the importance of environmental protection at the annual workshop on Population, Resource and Environment on March 13, 1999. He announced the aggressive new policy that any enterprise not in environmental compliance by year 2000 would be closed. The central government's position on the competing challenges of environment and development is pragmatic. It aggressively seeks growth but it also desires environmental protection. Its application of a system of pollution levies is the largest application of a market-based regulatory instrument in the developing world. Two questions have been central to all considerations of environmental policy: how severe is the pollution policy constraint on economic growth, and can economic instruments decrease pollution? The government has been willing to try various instruments for pollution control, and it has been willing to modify policy when the instrument of initial choice proves unsatisfactory. In the paper industry, for example, the government has used both standards and charges, closing small mills and taxing the effluents of larger mills. The relative merit of the two instruments is a topic of continued debate, although government confidence in the effectiveness of economic instruments to control pollution seems to be declining. The objective in this paper is to examine the pollution control policies applied for the paper industry. The paper industry is the source of 10 percent of China's industrial wastewater emissions and one-fourth of its chemical oxygen demand. It is the largest source of rural environmental pollution (Huang and Bai 1992).