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The Economic Costs of China's Degradation

by Vaclav Smil and Mao Yushi
(Cambridge: American Academy of Arts and Sciences, 1998)
Table of Contents

A need clearly exists for a realistic assessment of the socioeconomic impacts of environmental pollution and ecosystem degradation. To achieve a realistic assessment, we must go beyond impressionistic, qualitative statements and offer sensible quantitative estimates on the impact of environmental pollution and ecosystem degradation. However, converting this need into a reality presents a daunting challenge, even for affluent countries with traditions of good statistical services and a growing interest in environmental matters.

Three principal difficulties complicate the task. First, no standard generally accepted procedures for quantitative evaluations exist. Therefore, individual researchers cannot avoid subjective judgments about what to evaluate and how to quantify.1 To give just a single example, quantification of the impact of chronically high air pollution on health may range from the minimalist account-limited to the value of labor time lost due to higher morbidity, to the all-encompassing valuation - a monetary estimate of individual discomfort and the cost of premature death. An enterprising researcher will find a relatively rich literature on this subject, but no objective criteria for quantifying the discomfort of an asthma attack. Furthermore, the researcher will discover persuasive arguments for life valuations that differ by an order of magnitude.

Even if internationally recognized methods for quantifiable evaluations existed, the second factor - the dearth of statistics - would remain. Even the most affluent countries may lack some of the specific statistics necessary to ascertain the total number of people exposed to various pollutants (for example, how many people ingest excessive doses of common pesticides), or to assess the impact of human interventions on the altered rates of biospheric fluxes (for example, the average rates of farmland soil erosion). As a result, researchers must repeatedly rely on various assumptions and develop ingenious estimating procedures.2 While this approach may produce fairly good estimates, it may also result in major inaccuracies. In the case of cumulative assumptions, for example, a slight shift in the initial value of three or four parameters may easily halve, or double, the final outcome.

And third, it is impossible to arrive at a meaningful monetary estimate of some degraded or lost environmental goods and services. How do we evaluate the loss that arises when a farmer in a fuel-scarce region of China removes cereal straw from the field in order to cook family meals or provide heating? Expressing the loss of nutrients in the soil resulting from the removal of straw (above all nitrogen, potassium and phosphorous), can be easily calculated by figuring the cost of synthetic fertilizers needed to make up the resultant shortfall. Evaluating the water-retention capacity of straw incorporated into the soil is obviously a greater challenge. Furthermore, I have yet to discover an economist even musing on how to express the lost value of straw as an indispensable feed for myriad soil bacteria and fungi, as well as for numerous earthworms - organisms without which there can be no living, productive soils, and hence, no sustainable farming.

Consequently, no correct single-figure answers exist. No valuations of this kind can be truly complete, and even the most comprehensive estimates undervalue the real impact of human actions on the long-term integrity of the biosphere. Although striving to arrive at a completely accurate total is a counterproductive quest, attempting to estimate the relative magnitude of the cost of environmental degradation and depletion is a worthwhile goal.

Needless to say, attempting to quantify the impact of human actions on the long-term environment in China - a country abounding in dubious statistics and unverifiable claims, and peopled by masses of uncooperative bureaucrats prone to treat any unflattering statistics as a deep state secret-is a far more complicated task than similar efforts in the European Union or in North America. And yet, such a study was attempted in China in 1984. Among the earliest attempts of its kind, this study estimated the cost of environmental pollution to the country at 6.75 percent of the 1983 Gross Domestic Product (GDP).3

Largely as a result of this study, I decided to prepare my own independent assessment, striving to make it as comprehensive as possible.4 While in the process of developing my set of estimates, I came to the conclusion that it would be very useful to have a small group of knowledgeable Chinese scientists prepare, quite independently, a similarly comprehensive appraisal. Thanks to funding provided by the Rockefeller Foundation to The Project on Environmental Scarcities, State Capacity and Civil Violence, directed by Thomas Homer-Dixon, we were able to commission the necessary studies. I turned to Professor Mao Yushi to recommend the authors.

Professor Mao is one of China's leading economists, a member of the Chinese Academy of Social Sciences (CASS), and the director of the Unirule Institute of Economics in Beijing. He has expressed a keen interest in the complex issues of modernization and environmental economics. To quantify the costs of deforestation, other land use changes, and pollution, Professor Mao recommended, respectively, Professor Wang Hongchang of the CASS, Professor Ning Datong of Beijing Normal University, and Mr. Xia Guang of the National Environmental Protection Agency. None of the authors had an easy task, and each developed his own approach to arriving at satisfactory estimates.

Xia's contribution benefited from previously published studies on economic valuation of environmental impacts. The author also relied on his familiarity with the relevant literature on the economic costs of environmental pollution both in China and abroad. Although he could not avoid making certain assumptions, his conclusions are based largely on many relatively reliable statistics, and on a number of well-defined cost factors.

In contrast, for lack of any definite agreement on alternative, more precise figures, Professor Ning was forced to depend on official statistics, many of which are clearly incorrect. For example, while the State Statistical Bureau claims that China has 95 million hectares (Mha) of farmland, the Land Management Bureau estimates a total of 122 Mha, and other organizations provide figures ranging from 110 to 140 Mha. When even such a basic figure is so uncertain, we cannot expect solid estimates on the costs of land conversion.

Professor Wang chose to estimate economic costs resulting from deforestation in China by taking a historical approach. Although there are clearly no binding norms on how to proceed with such an analysis, a most likely approach would be to estimate the environmental cost of deforestation on the basis of the current excess of tree cutting. However, this approach would fail if official statistics were taken at face value.

According to the most recent official Chinese claims, China's total wood increment has surpassed the annual cut throughout most of the early 1990s. If valid, this claim would mean that China has no net deforestation problem, and that there is no economic burden attached to deforestation. This claim is absurd. China's afforestation rate, as well as its rate of timber production, are clearly below desired levels. While total wood increment may indeed be expanding, the overwhelming bulk of this growth comes from young plantation trees that will require decades before being ready for harvesting. By contrast, the wood volume of the economically most valuable trees, those ready for harvesting, has been shrinking. This trend has prompted some Chinese foresters to conclude that there will be virtually no mature trees to harvest before the end of the next decade.

In view of these realities, Professor Wang's approach-basing the appraisal of economic cost on the total of accumulated deforestation losses-provides a useful corrective. In addition, his study is an interesting example of a "deep ecological" approach, calling attention to the true extent of human interference in a number of key biospheric services.

The authors arrived at estimates of economic costs resulting from environmental degradation. Xia estimates the economic burden of environmental pollution at almost exactly 100 billion yuan, equivalent to about five percent of China's GDP. When all of the values presented by Ning are expressed in terms of annual rates, the total economic loss resulting from conversions of natural ecosystems equals almost 40 billion yuan, roughly two percent of annual GDP. Finally, according to Wang's calculations, losses due to deforestation amount to almost 250 billion yuan a year, or some 12 percent of the country's annual GDP.

To reiterate, these exercises, much like any valuations of these kinds outside China, make no claims concerning absolute accuracy, and their authors would readily admit a number of shortcomings inherent in their work. The importance of these reports lies elsewhere. They confirm, and extend, preliminary work done in China during the 1980s, as well as my comprehensive evaluation prepared for the East-West Center.

Most importantly, these reports, in concert with previous studies, illustrate the costs of environmental degradation and depletion in China. Even if the cost of deforestation as calculated by Professor Wang was only half the estimated value, the price China pays for its environmental pollution and ecosystemic degradation is an annual burden on the order of 13 percent of the country's GDP. This cost is over ten times larger than total government outlays for environmental protection. This disparity clearly justifies greater attention for such matters even when judged by the narrowest cost-benefit criteria.

- Vaclav Smil


1. Even a brief perusal of the proposed international framework for assessment win show that most countries will not have relevant statistics ready for decades to come. United Nations, Integrated Environmental and Economic Accounting (New York: United Nations, 1993).

2. For a comprehensive survey of possible techniques see J.A. Dixon, et al., Economic Analysis of Environmental Impacts (London: Earthscan, 1994).

3. National Environmental Protection Agency, Environmental Forecast and Countermeasure in China of the Year 2000 (Beijing: Qingbua University Publishing, 1990).

4. V.Smil, Environmental Problems in China: Estimates of Economic Costs (Honolulu: East-West Center, 1996), p. 62.


Table of Contents

I: Deforestation and Desiccation in China: A Preliminary Study

II: An Estimate of the Economic Consequences of Environmental Pollution in China

III: An Assessment of the Economic Losses Resulting from Various Forms of Environmental Degradation in China