CHINA’S DILEMMA i ii CHINA’S DILEMMA ECONOMIC GROWTH, THE ENVIRONMENT AND CLIMATE CHANGE Ligang Song and Wing Thye Woo (eds) Asia Pacific Press Brookings Institution Press SOCIAL SCIENCES ACADEMIC PRESS (CHINA) iii Co-published by ANU E Press and Asia Pacific Press The Australian National University Canberra ACT 0200 Australia Email: [email protected] This title available online at http://epress.anu.edu.au/china_dilemma_citation.html © 2008 ANU E Press, Asia Pacific Press, Brookings Institution Press and Social Sciences Academic Press (China) This work is copyright. Apart from those uses which may be permitted under the Copyright Act 1968 as amended, no part may be reproduced by any process without written permission from the publisher. Co-published with SOCIAL SCIENCES ACADEMIC PRESS (CHINA) C H I N A B O O K under the China Book International scheme. This scheme supports INTERNATIONAL co-publication of works with international publishers. National Library of Australia Cataloguing-in-Publication entry Title: China’s dilemma : economic growth, the environment and climate change / editors Ligang Song ; Wing Thye Woo. ISBN: 9780731538195 (pbk.) 9781921536038 (pdf.) Notes: Includes index. Bibliography. Subjects: Economic development--Environmental aspects--China. Climatic changes--China. Energy consumption--China. China--Economic conditions. China--Environmental conditions. Other Authors/Contributors: Song, Ligang. Woo, Wing Thye. Dewey Number: 338.900951 Cover design: Teresa Prowse Cover photo: Jason Lyon. iStockphoto, File Number: 2831996 Printed in Australia by University Printing Service, The Australian National University, Canberra iv Contents Tables vii Figures x Symbols xiii Abbreviations xiv Contributors xvi Acknowledgments xviii 1 China’s dilemmas in the 21st Century 1 Ligang Song and Wing Thye Woo Part I Economic growth: determinants and prospects 2 Will China fall into stagflation? 13 Yiping Huang 3 American and European financial shocks: implications for Chinese economic performance 30 Rod Tyers and Iain Bain 4 Global production sharing and US-China trade relations 59 Prema-chandra Athukorala and Nobuaki Yamashita 5 Rebalancing equity and efficiency for sustained growth 90 Justin Yifu Lin 6 Rural–urban migrants: a driving force for growth 110 Xiaodong Gong, Sherry Tao Kong, Shi Li and Xin Meng 7 Rethinking thirty years of reform in China: implications for economic performance 153 Xiaolu Wang Part II Impact of environment degradation and climate change 8 China’s rapid emissions growth and global climate change policy 170 Ross Garnaut, Frank Jotzo and Stephen Howes 9 China can grow and still help prevent the tragedy of the CO2 commons 190 Warwick McKibbin, Peter J. Wilcoxen and Wing Thye Woo 10 The political economy of emissions reduction in China: are incentives for low carbon growth compatible? 226 Cai Fang and Du Yang v 11 The environmental consequences of foreign direct investment in China 243 Qun Bao, Yuanyuan Chen, and Ligang Song 12 The impact of global warming on Chinese wheat productivity 265 Liangzhi You, Mark W. Rosegrant, Cheng Fang and Stanley Wood 13 Understanding the water crisis in northern China: how do farmers and the government respond? 276 Jinxia Wang, Jikun Huang, Scott Rozelle, Qiuqiong Huang and Lijuan Zhang 14 The impact of air pollution on mortality in Shanghai 297 Health and Mortality Transition in Shanghai Project Research Team Part III Energy use, the environment and future trends 15 Energy and environment in China 310 Kejun Jiang and Xiulian Hu 16 Chinese urban household energy requirements and CO2 emissions 334 Jane Golley, Dominic Meagher and Xin Meng 17 Can China’s coal industry be reconciled with the environment? 367 Xunpeng Shi 18 Emissions and economic development: must China choose? 392 Peter Sheehan and Fiona Sun Index 415 vi Tables 2.1 Estimation of China’s cost distortion 22 3.1 Growth of US labour productivity in the non-farm business sector 34 3.2 Regional composition in the global model 38 4.1 China’s merchandise exports: composition and world market share, 1992–93 to 2004–05 63 4.2 Share of parts and components in China’s manufacturing trade, 1992–93, 2000–01 and 2005–06 64 4.3 Geographic profile of US trade 69 4.4 Commodity composition of US trade by partner country 70 4.5 Share of parts and components in US machinery trade 74 4.6 Determinants of US manufacturing imports and exports: regression results, 1992–2005 80 A4.1 Data set used in regression analysis: definition of variables, source and variable construction, and the country coverage 88 A4.2 Country coverage 89 6.1 Census: migrant numbers by city 121 6.2 Industry distribution of migrant workers in 15 cities 122 6.3 Family and individual characteristics 124 6.4 Job characteristics 127 6.5 Earnings and work-related welfare 129 6.6 Income, expenditure and housing conditions 133 6.7 Health and mental health 137 6.8 Children’s living arrangements 138 6.9 Basic characteristics of migrants’ children 140 6.10 Parental-assessed children’s health, education and other development outcomes by living arrangements 141 A6.1 Different poverty lines 150 A6.2 Different poverty lines 150 A6.3 Detailed and broad industry categories 151 7.1 Economic performance in China and Russia during the reform period 155 7.2 Farm output and income before and after agricultural reform in China 158 7.3 Proportion of products subject to market prices 161 7.4 Price reform in the first decade: inflation, unemployment and GDP growth 163 7.5 Ownership structure of the industrial sector (share in gross output value) 164 vii 8.1 A comparison of GDP, energy and carbon dioxide emissions growth rates and elasticities for the world and China, 1971–2005 172 8.2 Growth-accounting projections for China, 2005–25 176 9.1 Global economic and demographic changes, 0–2003 191 9.2 China’s share of global energy consumption and carbon dioxide emissions, 1990–2030 197 9.3 Fossil-fuel augmentation factors 217 A9.1 Overview of the G-cubed model (version 80J) 225 10.1 Summary statistics of variables 231 10.2 Economic development and sulphur dioxide emissions: two-way fixed-effect model 236 11.1 Selected literature on the relationship between FDI and pollution 246 11.2 FDI and pollution emissions among different provinces 249 11.3 Five indicators of pollution emissions in China 250 11.4 Basic statistical information on pollution and FDI 253 11.5 Total sample estimation results 253 11.6 The threshold effect of FDI for five pollutants 255 11.7 Estimation results of the three effects 257 11.8 Estimation results for coastal eastern regions 257 11.9 Estimation results for inland provinces 259 11.10 Comparisons of the FDI–pollution nexus among different regions 260 12.1 Estimated wheat-yield function in China, 1979–2000 269 12.2 Comparison: impact of 1ºC increase in growing-season temperature 271 12.3 Accounting for wheat-yield growth 272 13.1 Farmers’ judgements of water shortages in villages in northern China 281 13.2 Water-supply reliability in villages in northern China 281 13.3 Adoption rate of water-saving technologies over time in northern China’s villages 292 14.1 Summary statistics of mortality outcome, air pollution levels and meteorological measures by season 301 14.2 Relative risk (RR) and 95 per cent confidence interval (CI) of the best single lagged-day effects by linear extrapolation for a tenth– ninetieth percentile change in pollutant concentration, 2000–01 303 14.3 Relative risk (RR) and 95 per cent confidence interval (CI) of the best single lagged-day effects by linear extrapolation for a tenth– ninetieth percentile change in pollutant concentration, 2000–01 305 15.1 Chinese energy output by fuel, 1990–2006 314 viii 15.2 Gross and structure of Chinese energy production, 1978–2006 315 15.3 Major pollution emissions in China, 1995–2006 318 15.4 Energy-conservation projects approved by the Chinese government in 2005 325 15.5 Primary energy demand in baseline scenario, mtce 328 15.6 Primary energy demand in policy scenario, mtce 328 15.7 Final energy demand in baseline scenario 329 15.8 Final energy demand in policy scenario 329 15.9 Policy options used in the modelling study 330 16.1 China’s direct energy consumption in 2005 340 16.2 Shares of household consumption expenditure in total output 341 16.3 Indirect energy requirements for rural and urban households 341 16.4 Energy and carbon intensities by sector in 2005 343 16.5 Carbon coefficients by fuel 345 16.6 Average energy consumption and carbon emissions by income decile 347 16.7 Price per tonne of coal equivalent 348 16.8 Determinants of household per capita energy consumption 353 16.9 Determinants of household per capita carbon emissions 355 A16.1 Breakdown of per capita expenditure 364 A16.2 Aggregation of survey sectors into Table 16.4 sectors 365 A16.3 Emission shares of consumption goods by income decile 365 17.1 Summary statistics of the panel data 375 17.2 Estimated results of the fixed-effects SUR model 377 17.3 Emission intensity and the appearance of the zero emissions point 378 17.4 Estimated results of the provincial dummy of the SUR model 379 17.5 Summary of factors that affect the changes in sulphur dioxide, smoke and dust emissions, 1997–2006 381 17.6 Coal-based power generation technology in China 386 18.1 Energy consumption and value added by industry in China, 2001–06 403 18.2 Model parameters and assumptions for alternative energy runs: specifications for the base case and policy options to 2030 407 18.3 Summary of unchanged policy and alternative policy projections 410 ix Figures 2.1