Chapter 4 - Economic Poligies for Sustainable Development

INTRODUCTION

4.1 Since late 1978, China has been experiencing a period of fundamental economic restructuring, involving a gradual transition from a centrally-planned economy to a socialist market economy. Success in this transformation is attracting the world's attention. Based on calculations in comparable prices, from 1980 to 1990, China's GNP and national income registered annual growth rates of 9.0% and 8.7% respectively. China's national economic strength has been clearly enhanced and its economy is being gradually integrated into the global economic system.

4.2 In order to enhance overall national strength and improve people's living standards, it is necessary for China to experience sustained, rapid and strong economic growth, without damaging resources and the environment upon which economic growth is based. Therefore, there should be complementary policies for resources, the environment and the economy. As China moves toward a socialist market economic system under the government's macro-control, market pricing mechanisms will play increasingly important roles in standardizing attitudes and behaviour towards the environment. Therefore, the Decisions by the Central Committee of Communist Party of China on Several Issues Relating to the Establishment of Socialist Market Economic System must be implemented. Under the current favourable economic situation, it is necessary to combine the use of economic and legal means with appropriate administrative measures for enhancing China's overall capacity to address issues concerning the environment and development and helping China move towards sustainable development.

4.3 This chapter contains four programme areas:



PROGRAMME AREAS


A. Establishment of the Socialist Market Economy System

Basis for action

4.4 The socialist market economy is characterized by the guiding principle that, under the state's macro-control, public ownership is dominant and diversified economic elements are allowed to develop to enable the market to play a fundamental role in resource allocation and distribution. When the market deals inadequately with matters of income distribution and protection of natural resources and the environment, the government's macro-controls must be strengthened.

4.5 Generally speaking, the process of the economic reform in China is following the route of giving free rein to market mechanisms. The previous highly-centralized planned economic model characterized by mandatory planning has been changed dramatically in the following aspects:

  • (a) In terms of structure of ownership, the former single public ownership is changing into a system dominated by public ownership, but with individual, private, and foreign capital ownership as well;

    (b) In terms of income distribution, the former single distribution pattern has been changed into one based on distribution according to work done, combined with other considerations;

    (c) In economic operations, the former approach of having a unified plan has been replaced by relying on a combination of both planning and market mechanisms; price controls on most commodities have been removed;

    (d) With respect to economic decision-making, the formerly highly-centralized system of decision-making is being decentralized to form a system of multi-level involvement in which localities, enterprises and individuals can play a very active role under the direction and macro- regulation of the central government.

4.6 Major problems confronting China's economic restructuring are as follows:

  • (a) Enterprises, and particularly state-owned large and medium-sized ones which are the main entities in the market, have not really become truly responsible for their independent operations, for profits and losses, for self-monitoring and appropriate development; the relationship of ownership has not been clearly defined and there is a lack of adequate division of political leadership and administration;

    (b) A sound, integrated, open and orderly market system and a system of coordination and management are yet to be established; in addition, the development of market-oriented factors of production, such as capital, technology, the labour force and information, are at an early stage;

    (c) A sound, effective system of macro-economic control and regulation has not yet been set up. The role of the government in economic management needs further adjustment, especially in overall economic management areas such as planning, finance and banking;

    (d) A multi-level social security system covering unemployment insurance, occupational insurance, pensions and health insurance has yet to be established; this severely constrains the smooth advance of other reforms.

Objectives

4.7 The ultimate target of economic restructuring in China is to establish a socialist market economy by the end of this century. The objectives in the near future include:

  • (a) Deepening the reform of enterprises by adjusting business practices in state-owned enterprises and establishing a modern enterprise system which meets the demands of a market economy;

    (b) Fostering and establishing a standardized market system in order to allow market mechanisms to play fundamental roles in resource allocation;

    (c) Adjusting the role of government; strengthening and perfecting the system of macro-economic control and regulation so as to make planning, banking and finance mutually supportive, thereby ensuring the sound development of the national economy;

    (d) Deepening reforms in the income distribution system and establishing a sound social security system;

    (e) Deepening reforms of the rural economy; adjusting the structure of production in the rural areas; developing social service systems and township enterprises; strengthening development in order to eradicate poverty;

    (f) Lifting all restrictions to opening to the outside world and reforming the system of economic links and trade with other countries;

    (g) Making further improvements in the scientific, technological and educational systems; promoting the integration of science, technology and the economy; improving people's levels of competence and training personnel;

    (h) Strengthening legal institutions and using legal measures to manage the economy.

Activities

4.8 Adhere to principles set forth in the Constitution; accelerate the promulgation of economic legislation; further improve civil laws, commercial laws, criminal laws and laws governing the state's institutions and administration; by the end of this century, establish a legal system appropriate to a socialist market economy.

4.9 Continue to implement the Law for State-owned Industrial Enterprises and Regulations on the Transformation of Operational Mechanisms in State-owned Industrial Enterprises; give state enterprises complete autonomy for their operations, particularly with respect to decision-making rights regarding production, management, investment, pricing, management of imports and exports, use of labour and distribution of salaries and bonuses.

4.10 Establish a modern enterprise system based on public ownership; develop a corporate system in state-owned enterprises; transform most state-owned enterprises into limited companies or limited-liability companies after appraising existing assets and delineating property rights.

4.11 Actively encourage enterprises to take initiatives to form economic alliances; encourage various forms of enterprise takeovers; adopt comprehensive laws to allow enterprises, which have a history of making losses or which are unable to pay debts, to declare bankruptcy, in order to adjust and optimize the organizational structure of enterprises and increase economic efficiency.

4.12 Focus on the development of financial, labour, real estate, technological and information markets; nurture and develop an integrated, open, competitive and orderly national marketing system; give free rein to the market's fundamental role in resource allocation.

4.13 Develop the intermediary organizations associated with a market economy, with attention turned, in the short term, to establishing firms of accountants, auditors, lawyers, notaries, arbitration agencies, information consultants, and agencies for conducting appraisals of assets and credibility.

4.14 Make further adjustments to the role of governments at various levels in exercising indirect control over the macro-economy through the use of economic, legal, and administrative measures as required; strengthen the government's role in the macro-regulation of natural resources and environmental protection; use policies to coordinate economic development and protection of natural resources and the environment.

4.15 Reforms of the financial, tax, banking, investment and planning systems will be accelerated as follows:

  • (a) The focal point for the reform of the tax revenue system will be to adopt a system of tax- sharing between local and central authorities, to improve the tax-collection system, and to improve and standardize the double-entry budget system;

    (b) The key point in the reform of the financial system will be to make the Chinese People's Bank into a central bank independently implementing monetary policy; establish policy-oriented banks and convert the existing professional banks into commercial ones;

    (c) National planning will be focused primarily on establishing guidelines for the formulation of rational strategies for national economic and social development, on macro-regulation of national economic targets and industrial policies, on economic forecasting, on outlining plans for major economic frameworks for the distribution of production, for the management of national lands and for major construction;

    (d) Changes will be made in the system of fixed assets investment in order to establish mechanisms to govern responsibilities for risks for investments and bank loans. Bidding in project competitions can be determined by enterprises, which are then responsible for their own profits and losses. The state will assume the risk for investments in key construction projects for improving the infrastructure, basic and support industries, as well as in high-tech industries.

4.16 Put into practice the policy for opening to the outside world; actively participate in international economic competition and cooperation; establish a more open economy; further reform the foreign trade system; vigorously introduce capital, technology, talented personnel and managerial expertise from abroad.

4.17 Income will be distributed primarily according to work done, with efficiency and fairness also being considerations. This system will be supplemented by various other forms of distribution. The state will protect all legal income and property, and will permit all funds, technology and other factors of production to be considered when determining the distribution of income. Income distribution will be adjusted according to laws and policies and will help backward regions to accelerate their economic development.

4.18 Establish a unified, multi-tiered social security system appropriate to the development level of production; pension and health care insurance for employees in cities and towns will be the responsibility of both place of work and the individuals themselves; care of the elderly in rural areas will be primarily the responsibility of families, working in cooperation with community services; develop and improve the rural cooperative medical care system.


B. Promotion of Economic Development

Basis for action

4.19 Though China has entered into a period of rapid economic growth, its present economic development is constrained by a non-rationalized structure, imbalances in regional development, low technological levels and inadequate support mechanisms, primarily in the following areas:

  • (a) In the field of agriculture, production is scattered and is far from reaching economies of scale. This has resulted in enormous environmental costs. There are immature markets for agricultural products. The structure of rural industries and patterns of agricultural production need to be adjusted. Because rural reforms and development are uneven, it is necessary to assist rural people in backward regions to eliminate poverty as soon as possible;

    (b) With respect to industry, facilities are obsolete, technological and management levels are low. The infrastructure, especially in terms of the energy, transportation and communication sectors, is increasingly constrained by "bottle necks" and a shortage of funds;

    (c) The overall level of development in tertiary industries is low due to imbalances in their structural disposition, a low level of specialized skills and the fact that tertiary industries have not been common;

    (d) China's current economic development basically follows the traditional development model of high resource and energy consumption and extensive management, which not only leads to great damage to the environment, but also makes it difficult to sustain its economic growth. Therefore, shifting the development strategy and embarking on the path to sustainable development is the correct choice for China to make to accelerate its economic development.

Objectives

4.20 Accelerate the shift in China's economic development to a sustainable development model, where the socialized economy is coordinated and stabilized with resource and environmental considerations.

4.21 By the year 2000, by improving quality, optimizing structures and increasing efficiency, China's national economy should achieve an annual GNP growth of 8-9%, thereby enhancing the overall quality of its national economy and strength.

Activities

4.22 Attach great importance to and strengthen agricultural development, promote the steady development of the rural economy and continuously raise the income levels of rural people by:

  • (a) Fostering the concept of macro-agriculture and continuing to rationalize the organization and arrangement of agricultural production;

    (b) Endeavouring to develop high-yield, top-quality and high-efficiency agriculture; promoting education in the sciences to boost agricultural production; increasing investments in agriculture; strengthening capital construction; intensifying agricultural operations and broadening the scope of agricultural production;

    (c) Establishing integrated rural community service systems, liberalizing the circulation of agricultural commodities and improving systems for popularizing technologies, as well as other service systems;

    (d) Energetically continuing to develop township and village enterprises and rural tertiary industries, in order to absorb the surplus labour force in rural areas and to hasten the pace of helping rural people overcome poverty and become better off; gradually bringing about the modernization of agriculture.

4.23 Continue to develop secondary industries and make adjustments in the structure of industry, especially in terms of reinforcing the building of the infrastructure and fundamental industrial sectors, with respect to transportation, communications, energy, major raw materials and water conservancy; vigorously promote the development of key industrial sectors of national economy such as the machinery and electronic industries, the petro-chemical industry, the automobile industry and the construction industry, while encouraging them to use cleaner production technologies when they undergo technological renovations.

4.24 Persevere in developing tertiary industries; implement the Decision by Central Committee of Communist Party of China and the State Council on Speeding up the Development of Tertiary Industries; gradually strengthen comprehensive urban and rural social service systems and social security systems appropriate to China's situation.

4.25 Speed up scientific and technological progress and increase the proportion of scientific and technological content in economic growth; develop high-technologies; establish a high-tech industry and, as appropriate, transform traditional industries by using high-technologies.

4.26 When formulating industrial policy and adjusting the industrial mix, give consideration to important factors such as both the consumption of resources by various industries and environmental impacts; strictly limit the development of the enterprises which have high energy consumption, waste resources and produce pollution; vigorously develop high quality and efficient industries, and science and technology-led energy-saving industries; give enterprises that are the most serious polluters deadlines for controlling pollution; strengthen research on pollution prevention and control technologies; governments at various levels should give correct guidance to and greatly support the development of the environmental protection industry and consider it a priority area for development; develop and popularize environmental protection equipment.

4.27 Under the guidance of the unified national plan, in line with practical conditions and according to the principles of rational distribution, complementarity of superiorities, shared development and bringing into play each other's strong points, strengthen the union between eastern and western regions; expand economic and technical cooperation between advanced and poor, backward areas so as to promote a rational distribution of industries and the sound development of regional economies. As for the central, western and border regions, efforts should be made to develop superior industries and products; in particular, efforts should be made to help the areas inhabited by minority nationalities, border regions and poverty-stricken areas in developing their economies.

4.28 Further open up to the outside world and strengthen international economic and technical exchanges; cooperate in promoting the development of foreign trade; continue to improve the investment environment by providing foreign business people with legal protection for their investments and convenient conditions for conducting their business operations, so that foreign business people can carry out business operations smoothly in China in accordance with international practices; direct foreign investment in projects that build up the infrastructure and basic industries, to the technical renovation of enterprises, and to capital- and technology-intensive industries, while preventing "pollution shifts"; pay attention to absorption capacities when upgrading with imported technologies; reduce duplication in the introduction of technologies.


C. Effective Use of Economic Instruments and Market Mechanisms for Promoting Sustainable Development


Basis for action

4.29 General consideration of economic, social, resource and environmental factors should be given when formulating policies, making plans and managing operations. These considerations will exert significant influence on governments, on the industrial sector and on individuals working in the field of sustainable development. In recent years, China has already subjected government institutions to major restructuring and has started to attach great importance to issues of natural resources and environmental protection in their economic decision-making and endeavoured to reflect them in the national policies, laws and regulations, management and socio-economic activities, as well as the international cooperation.

4.30 In order to achieve sustainable economic and social development, China can not follow the old path of "polluting first and cleaning later" or "damaging first and repairing later", but must rely on full use of economic measures and market mechanisms to promote sustainable development, based on existing conditions and work. Simultaneously achieve rapid economic growth, eliminate poverty and protect environment. The establishment of a socialist market economy will serve to help to promote sustainable development.

4.31 The establishment of a sustainable economic system will require large amounts of financial resources. It will require much support from the international community, in addition to domestic resources. It will require the establishment of policy and legal systems which promote sustainable development and put in place management mechanisms for sustainable development. It will require the sustainable use of natural resources and the environment. It will require the development of a new generation of technology and improvements in technological systems. In addition, it will require that the whole society, and especially leaders at various levels, develop an awareness of sustainable development, thereby enhancing the overall capacity of the society to achieve sustainable development.

4.32 This programme area is concerned with support activities for most of the objectives contained in China's Agenda 21 and sets forth various appropriate measures for achieving those objectives. Objectives

4.33 Consider environmental costs when making decisions and conducting analyses of the economy, thereby reversing the tendency to treat the environment as a source of "free goods" and passing environmental costs on to the general society.

4.34 Make effective use of economic and other market-oriented measures to promote sustainable development.

Activities

4.35 Under the overall control of the state, adjust economic policies and utilize economic measures and market mechanisms to promote sustainable economic development. Major activities for the near future will include:

  • (a) Removing or reducing those subsidies that do not conform with the objectives of sustainable development;

    (b) Reforming or adjusting the existing economic and fiscal incentives to conform with environmental and development objectives;

    (c) Establishing a policy framework that encourages the creation of a new system of pollution control and environmentally sound resource management;

    (d) Establishing a pricing system consistent with the objectives of sustainable development.

4.36 With the support of the international community and in line with China's existing conditions, upgrade traditional technologies and develop a new generation of technological industries appropriate to sustainable development, for instance by:

  • (a) Formulating economic policies, vigorously developing and popularizing the use of the production technologies and processes which can save energy and resources and reduce the release of wastes; replacing traditional technologies with new ones; developing and utilizing technologies which are conducive to the rational exploitation and comprehensive use of resources and which promote the addition of value to resources;

    (b) Using economic measures and market mechanisms to promote the development, introduction and popularization of environmentally-sound technologies in fields which have close links with the environment and resources, such as energy, transportation, industry, agriculture, forestry, aquatic products, health care and tertiary industries.

4.37 Reform the irrational pricing system and establish a system of compensation for the use of resources, thereby gradually changing the current situation of low costs for raw materials and free use of resources. Adjust the cost of resources by relying on the law of value and on supply and demand. Fundamentally change the current situation in which energy and resources are wasted, and in which environmental pollution and damages are caused by the low cost or free use of resources. Gradually establish a resource-saving economic model.

4.38 Use tax revenue policy to promote sustainable development by:

  • (a) The departments for environmental protection, taxation and finance will start to study ways, measures and criteria for imposing fees for the discharge of waste water, waste gas and solid wastes, and experiment in some parts of the country with levying fees;

    (b) Offering preferential taxation to environmental protection projects and ecological rehabilitation projects, while the country begins to study the formulation of a policy on compensatory charges for the exploitation of natural resources.

4.39 Use credit loans and other measures to promote sustainable development including:

  • (a) As soon as conditions allow, establishing a national environmental protection fund, so as to strengthen the nation's capabilities in the macro-control of pollution prevention and control and in environmental protection;

    (b) A more favourable interest rate will be offered for loans for environmental protection projects and for projects to apply and popularize fully-developed processes and technologies which are of benefit to the society, economy and environment;

    (c) Encouraging state, localities and enterprises to expand the use of foreign capital in solving problems relating to environmental protection.

4.40 With the support and assistance of international economic and environmental organizations and research agencies, studies will be conducted on China's sustainable economic policies with emphasis on the following:

  • (a) Developing a system of environmental tax revenues suited to China's practical situation, a system of compensation for the use of resources and a policy for resource pricing;

    (b) Investigating the impact of economic measures and market incentive mechanisms on competitiveness and international trade, and investigating the potential requirements for future international cooperation and coordination;

    (c) Studying potential impacts of the use of economic measures on society and the allocation process and developing response strategies.

4.41 Enhance studies and training on the economics of sustainable development by:

  • (a) Encouraging institutions of higher learning to reconsider their curricula and to strengthen their study of the economics of sustainable development;

    (b) Encouraging regional and international economic organizations and research institutions with expertise in this area to provide training sessions and hold seminars for government officials;

    (c) Encouraging managers of industrial sectors and enterprises to take part in training programmes on management and technologies for sustainable development.


D. Establishment of an Integrated Environmental and Economic Accounting System

Basis for action

4.42 In order to incorporate the capacity for sustainability into economic decision-making, it is necessary, first and foremost, to measure the crucial role the environment plays as a source of natural capital and as a sink for the by-products generated by anthropogenic activities. GNP, a traditional indicator for the national economy, does not reflect ecological damage, environmental degradation and the loss of resources caused by economic growth, nor does it calculate the values of non-commercial labour services, nor reflect investment orientation. More and more countries and organizations are coming to realize that these adverse impacts will weaken the bases for future economic growth. Therefore, it is necessary to establish an integrated accounting system, which considers resources and the environment as well as the economy, so as to monitor the performance of the entire national economy.

4.43 At present, China is conducting research and tests on natural resources accounting and analyzing the possibility of including it in an accounting system for the national economy. Those researches are aimed at developing a theory of resource accounting, at proposing ways for evaluating and pricing resources, at analyzing the relevant domestic cost of resources as compared with the comparable international price of the same resource, and finally, at suggesting ways of incorporating resource accounting into the accounting system for the national economy and of establishing a pricing policy for natural resources. Based on this development, the Chinese Government will be able to gradually establish a comprehensive new accounting system, which will enable more rational and more economical use of natural resources. Moreover, it will allow the improved coordination between long-term and short-term development policies and serve as an effective instrument for coordinating economic development and the protection and sustainable use of natural resources.

Objectives

4.44 Expand the existing system for national economic accounting to integrate environment and social dimensions into the accounting framework. The integrated environmental and economic accounting system will include at least one supplementary accounting system for natural resources.

Activities

4.45 Conduct studies on the establishment and adoption of a new integrated national economic accounting system. The studies should include:

  • (a) Improving the national accounting system. The study and formulation of a programme for implementing a national accounting system shall be done by governmental agencies responsible for national economic accounting working in close cooperation with departments for national environmental protection and resource management; other government agencies concerned should play a crucial role in the establishment, improvement and normal operation of an integrated environmental and economic accounting system;

    (b) Establishing an assessment procedures. The Chinese Government will cooperate extensively with international institutions in order to enhance the existing data collection and information system for sustainable use of natural resources, as proposed in Chapter 14, "Conservation and Sustainable Use of Natural Resources"; China will enhance the country's capacity in data collection, management, analysis, review and systematic assessment so as to strengthen the nation's overall capabilities in data application; the government will assess various measures to correct policies which result in distortions in the cost of land, water, energy and other natural resources and in environmental deterioration.

4.46 Enhancing international cooperation and exchange refers primarily to the following considerations:

  • (a) China will try to acquire technical expertise in methodologies for Integrated Environmental and Economic Accounting (IEEA), and will participate in technical cooperation and exchange with the governments of other countries in order to further develop, test, refine, standardize and apply the concepts and methods developed by the United Nations; China will cooperate closely with other international organizations and other countries in training personnel for developing a national accounting systems and in the establishment, revision and development of a system for China;

    (b) With the support of the Department of Policy Coordination and Sustainable Development of the United Nations, China will also consider expanding its current research and implementation programme in order to use sustainable development indicators in national economic and social development planning and decision-making practices, with a view to ensuring the full integration of IEEA in planning for economic development at the national level and the improvement in the system of collecting environmental, economic and social data at the national and provincial levels;

    (c) With the assistance of the UN Statistics Office and UNEP, China will participate in technical exchanges and cooperation with other countries in the area of establishing IEEA, in adopting ways for accounting for non-market natural resources and in data standardization.

4.47 Institutional and capacity building activities will include:

  • (a) Strengthening integrated national environmental and economic accounting agencies and inter- departmental coordination to ensure the effective integration of environmental and developmental considerations in planning and decision-making; formulating management systems, guidelines and mechanisms for the exchange of information and transfer of technologies so as to ensure the most effective and widespread use of the integrated environmental and economic accounting system;

    (b) Enhancing capabilities in data collection, storage, organization, evaluation and utilization in the process of decision-making, and conducting training in IEEA at different levels, including training for decision-makers and technical training for people engaged in environmental and economic analysis.

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