China: Selected Environmental Issues and Policies

China: Selected Environmental Issues and Policies

Order Code RL31076
CRS Report for Congress
Received through the CRS Web
China: Selected Environmental
Issues and Policies
July 17, 2001
Mary Tiemann, Susan Fletcher, Brent Yacobucci, Larry Parker
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

China: Selected Environmental Issues and Policies
Summary
China’s robust economic growth in the past two decades has resulted in serious and
widespread environmental degradation and pollution. Over this period, China has changed
from a predominantly rural economy to a much more industrialized and urbanized
economy. The country’s large population, coupled with rapid growth, has greatly
increased China’s demand for, and consumption of, energy, water, and other natural
resources. Air and water pollution have become severe in many regions, and the resulting
impacts on resources, public health, and quality of life are increasingly seen by many
Chinese officials as a threat to gains made in economic development.
Since the 1980s, the government has adopted dozens of pollution control and
resource management laws and regulations, although implementation and enforcement have
been problematic. As environmental degradation worsened in the 1990s, China
accelerated efforts to address pollution problems for human health, environmental, and
economic reasons. The government’s pollution control initiatives have targeted water
pollution from industrial and municipal sources and air pollution from various sources
including industry, power plants, coal mines, and households. In the 1990s, the government
closed thousands of inefficient, polluting factories and small coal mines and power plants,
strengthened some laws and their enforcement, and increased spending on pollution control
projects. As motor vehicles have become an increasing source of air pollution, they too are
becoming subject to regulation.
Globally, China currently ranks second only to the United States in both energy
consumption and greenhouse gas emissions. The government has not focused on
greenhouse gas reductions in their own right, but on “no regrets” strategies to reduce
energy consumption and control pollution. China’s greenhouse gas emissions declined
significantly in 1998 and 1999, for various reasons, including this strategy. Moreover, a
major success of China’s recent development is that its energy demand recently has grown
less rapidly than GDP. Like the United States, China has ratified the United Nations
Framework Convention on Climate Change, and has signed, but not ratified, the Kyoto
Protocol.
The United States and China have numerous cooperative environmental agreements
in place, and both the U.S. Government and the private sector continue to follow
environmental conditions in China with interest and concern, as China’s environmental
problems are linked with global concerns, and as the Chinese pollution control efforts
create a large potential market for U.S. exports.
Although China’s environmental problems remain challenging, some significant
progress has been made. The World Bank recently reported that China’s effort to reduce
pollution “has staved off an abrupt worsening of environmental conditions in general” and
that its “achievements are arguably unprecedented in any country at China’s state of
economic development.” However, the Bank and others also anticipate that the
environmental challenge facing China is likely to become far greater and more complex
over the next decade as growth continues. While economic growth will remain the top
priority for the government, it now appears that environmental issues will be an increasingly
prominent concern, as well.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Air Pollution: Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Health and Environmental Impacts and Costs . . . . . . . . . . . . . . . . . . . . . . 4
Government Measures to Reduce Air Pollution . . . . . . . . . . . . . . . . . . . . . 5
Achievements and Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Air Pollution Prevention and Control Law Amendments . . . . . . . . . . . . . 10
Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Energy Consumption and Greenhouse Gas Emissions . . . . . . . . . . . . . . . 11
China’s Domestic Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
China’s International Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Opportunities for U.S. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Transportation Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Mass Transit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Bicycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Montreal Protocol on Stratospheric Ozone Depletion . . . . . . . . . . . . . . . . . . . 20
Water Pollution: Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Health and Environmental Impacts and Costs . . . . . . . . . . . . . . . . . . . . . 24
Government Measures to Reduce Water Pollution . . . . . . . . . . . . . . . . . 25
Goals and Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Environmental Policies in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10th Five Year Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
China’s Agenda 21 on Sustainable Development . . . . . . . . . . . . . . . . . . . 29
Trans-Century Green Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
China’s Laws and Regulations on Environment . . . . . . . . . . . . . . . . . . . . 31
Governmental Organization for Environmental Protection . . . . . . . . . . . . . 33
United States-China Cooperation on Environment . . . . . . . . . . . . . . . . . . . . . . 35
The U.S.-China Forum on Environment and Development . . . . . . . . . . . . 36
Export-Import Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Trade and Development Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Multilateral Cooperation on Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Global Environment Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Asian Development Bank (ADB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
China’s Environmental Technology Market . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
This report was prepared at the Request of the Hon. Daniel K. Akaka, Chairman,
Subcommittee on International Security, Proliferation and Federal Services, Senate
Committee on Governmental Affairs

List of Tables
Table 1. Comparison of the Discharge of Major Pollutants in Waste Gas in
1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 2. Ninth Five Year Plan:
Total Emissions of Major Pollutants: Targets and Achievements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3: China’s CFC and Halon Production and Consumption as Reported to UNEP
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 4. Ninth Five Year Plan:
Total Water Pollutant Emissions 1995, 1998, 1999 and . . . . . . . . . . . . . . . . . 26
Table 5. China’s Environmental Goods and Services Market . . . . . . . . . . . . . . . . . . 42

China: Selected Environmental Issues and
Policies
Introduction
China’s rapid economic growth in the past two decades has not come without costs,
particularly in the area of environmental quality and public health. Over this period, China
has changed from a predominantly rural economy to a much more industrialized and
urbanized economy. The country’s rapid economic growth has markedly increased
China’s demand for, and consumption of, energy, water, and other natural resources. Air
and water pollution have become severe in many regions, and the resulting impacts on
resources, public health, and overall quality of life are increasingly seen by Chinese officials
as a threat to gains made in economic development. State environment officials and
researchers recently estimated that the cost of pollution to China’s economy may range
from 4 to 8% of gross domestic product (GDP); other cost estimates have been higher.1
In light of these circumstances, Chinese officials have stressed the need to reduce
pollution and improve resource management, with a goal of making China’s development
sustainable. Since the 1980s, the central government has adopted numerous pollution
control and resource management laws and regulations. In the 1990s, the government
closed thousands of inefficient, polluting factories and small coal mines and power plants,
strengthened laws and their enforcement, and increased spending on pollution control
projects. Additionally, environmental protection was raised to the status of “national
fundamental policy” and, in 1998, the State Environmental Protection Administration
(SEPA) was elevated to ministerial status.2 Other efforts being pursued to reduce
environmental degradation include the adoption of policies to achieve more efficient energy
production, encourage cleaner production methods, and improve the conservation and
management of water and other natural resources. Expenditures on environmental
protection have increased significantly since the mid-1990s, and China’s Environment
Minister, Xie Zhenhua, recently reported that total investment in environmental protection
increased 28.8% last year to 1.1% of GDP3. Government projections indicate that
environmental expenditures are likely to continue to grow significantly over the next 5
years.

1U.S. Embassy, Beijing, China. The Cost of Environmental Degradation in China.
December 2000. Available at Internet website:
[http://www.usembassy-china.org.ch/english/sandt/CostofPollution-web.html].
2Eduard B. Vermeer. Industrial Pollution in China and Remedial Policies. The China
Quarterly. London. December 1998. No. 156, p. 953.
3 U.S. Embassy, Beijing. Unclassified cable on China’s Year 2000 State of the Environment
Report. June 15, 2001.

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Notwithstanding government officials’ growing commitment to environmental
protection, China faces environmental and economic development challenges on an
immense scale. With a population exceeding 1.25 billion and with the annual per-capita
income of rural Chinese at roughly $250, economic development remains the key priority
for Chinese leaders. The environmental challenge China faces is how to continue its
economic growth without endangering the sustainability of that growth and the health of its
citizens. This report finds that Chinese officials are increasingly recognizing the need to
deal with this challenge, and although successes can be found there are many remaining
challenges.
The scale of China’s environmental problems and the country’s efforts to address
them are of interest to the United States and other nations for various reasons, perhaps
primarily because of China’s potential impact on the global environment through its
increasing air pollution and projected growth in carbon dioxide emissions, and because of
its continuing loss of arable land and growing demand for natural resources. Moreover, as
China more aggressively addresses its air and water pollution problems, it presents a
potentially large market for pollution control and energy efficient technologies and services.
This report provides an overview of China’s air and water pollution problems and
associated environmental and public health impacts, with attention also to the implications
of China’s growing energy needs and the issue of global climate change. It also reviews
China’s policies and laws to address pollution problems, and discusses opportunities for,
and examples of, U.S.-China cooperation on these matters. Multilateral cooperation and
assistance on environmental pollution matters are also discussed. Finally, the report briefly
looks at environmental technology issues and China’s initiatives to reduce pollution in the
power generation, automobile, industrial, and municipal sectors and mentions opportunities
for (and obstacles to) U.S. companies to participate in China’s growing environmental
technology market. This report focuses primarily on selected major pollution issues that
have played key roles in increasing the priority of environment on the national agenda; it
does not attempt the much larger task of comprehensively addressing the full array of
environmental issues, many equally challenging, such as toxic waste, pesticide concerns,
waste disposal and others. Further, it does not attempt to cover natural resource issues
such as deforestation, agriculture, and desertification.
It should be noted that the emissions data and other environmental information
reported here are based often on rough estimates or limited monitoring (a common
situation worldwide). Obtaining rigorous, reliable, and consistent environmental data
remains difficult. Moreover, environmental conditions and government monitoring and
regulatory actions in China have been in considerable flux in recent years. Consequently,
sources used for this paper have reported sometimes seemingly divergent observations and
information. However, the available information does provide a broad picture of
environmental conditions and of the government’s policies and initiatives to address them.
Air Pollution: Overview
Perhaps more than any other pollution problem, air quality concerns may have
elevated environmental regulation on the national agenda in China. Many of China’s cities
and rural areas are often cloaked in a haze of polluted air, and several of the world’s worst

CRS-3
air quality cities are located in China.4 A number of factors contribute to the country’s
severe air pollution problems. Key among these are China’s rapid growth and
industrialization, its large population and rising incomes, its heavy reliance on coal burning
as an energy source, and its relatively inefficient (although improving) energy use.
Additionally, vehicle emissions, which were not significant until recently, have become a
major source of air pollution in large cities and are increasing rapidly. Because of the
adverse impacts on public health, quality of life, and economic development, air pollution
problems have prompted a broad range of government actions that have led to some
notable improvements in recent years. Nonetheless, substantial challenges remain.
According to China’s State Environmental Protection Administration (SEPA), coal
burning is the primary cause of air pollution in China,5 with major pollutants of
governmental concern and attention being total suspended particulates (TSP) (e.g., soot,
dust, and fine particles) and sulfur dioxide (SO2), both of which are important causes of
respiratory illnesses. Coal burning is estimated to account for 70% of the smoke and dust
in the air and 90% of the sulfur dioxide emissions. In major cities, TSP and sulfur dioxide
levels were 2 to 5 times the World Health Organization’s (WHO’s) guidelines in 1995.6
In 1998, nearly one-third of 322 cities monitored in China exceeded the WHO guideline
for sulfur dioxide, and only 1 in 20 cities met the WHO guideline for total suspended
particulates.7
Coal burning in industrial boilers and small household stoves is responsible for a large
portion of particulates, especially those most damaging to health. These inefficient boilers
and stoves also are responsible for most SO2 and nitrogen dioxide (NO2) emissions.8 In
northern China, where coal has been used for residential space heating, particulate
pollution has been especially severe. According to a 1997 World Bank report, household
stoves accounted for just 15% of coal use in the mid-1990s, but were the source of 30%
of air pollution in Chinese cities. Similarly, industrial boilers consumed 33% of the nation’s
coal but accounted for an even larger percentage of pollution.9
As a result of its coal consumption, China has become the world’s top emitter of
sulfur dioxide which is a key cause of acid precipitation. In addition to local adverse public
health and welfare effects of SO2 emissions, acid precipitation is transported long distances
and has caused significant damage to crops and natural resources in China. In 1999, SEPA
reported that acid precipitation was widespread and a significant problem in nearly one-
4Corliss Karasov. On a Different Scale: Putting China’s Environmental Crisis in
Perspective. Environmental Health Perspectives. v. 108, n. 10. October 2000. p. A454.
5China State Environmental Protection Administration. State of the Environment 1999.
“Atmospheric Environment.” Available at: [http://www.sepaeic.gov.cn/SOE/99gb/air.htm].
6World Bank. Clear Water, Blue Skies: China’s Environment in the New Century. p. 6.
7Wang Yanjia and He Kebin. The Air Pollution Picture in China. IEEE Spectrum.
December 1999. p. 55.
8World Bank. Clear Water, Blue Skies. p. 8.
9Ibid.

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third of China’s territory.10 China’s SO2 emissions also reportedly contribute significantly
to acid precipitation in Japan.
Coal combustion is also the dominant source of the greenhouse gas, carbon dioxide.
China’s carbon dioxide emissions are second only to the United States. Primarily because
of the country’s heavy reliance on coal as an energy source, analysts have projected that
China would likely surpass the United States as the number one emitter of carbon dioxide
within two decades. However, China’s energy consumption declined markedly between
1997 and 1999, thus altering projections. China’s energy use and carbon dioxide
emissions are again increasing; consequently, China will remain a very significant
contributor to greenhouse gas emissions. (See climate change section below.)
Although air pollution reports usually focus on the densely populated, industrialized
eastern cities, China’s western region also experiences severe air quality problems.
According to the U.S. Embassy in Beijing, weekly air quality data reported in the Chinese
press consistently show pollution levels to be highest in western cities. Officials attribute
this situation largely to airborne soil from the surrounding arid countryside. This is a major
problem also in Beijing, which suffers from severe episodes of such dust pollution–and the
number of dust storms has increased markedly in recent years. The cause of this air
pollution is attributed partly to government efforts to move people into western regions,
introducing agriculture and deforestation into the area. In an attempt to address the
extensive land degradation that has resulted and to mitigate severe flooding problems, the
government has imposed restrictions on logging in key watersheds and is attempting to
return some cropland to forest and grassland; however, excessive logging continues,
although the overall rate of logging has declined.11
Health and Environmental Impacts and Costs. The costs of pollution in
general, and air pollution in particular, are substantial, having a serious impact on human
health as well as a significant effect on China’s citizens and economy. The following
preliminary calculations of such costs by the World Bank serve to illustrate why Chinese
officials have begun to take strong actions to address environmental degradation:
! In major cities, an estimated 178,000 premature deaths occur each year because
of pollution;
! Indoor air pollution, primarily from burning coal and biomass for cooking and
heating, causes 111,000 premature deaths each year, mainly in rural areas; and
! Roughly 7.4 million work-years have been lost to health damages related to air
pollution each year.12
10China State Environmental Protection Administration. State of the Environment 1999.
Atmospheric Environment. See: [http://www.sepa.gov.cn/soechina99/air/airdown.htm].
11U.S. Embassy, China. The Environment at the 2000 National Peoples Congress Plenary.
Report from U.S. Embassy Beijing. March 2000. See Internet website:
[http://www.usembassy-china.org.ch/english/sandt/NPCenviro.htm].
12World Bank. Clear Water, Blue Skies. p. 2.

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In December 2000, the U.S. Embassy, Beijing, reported a variety of direct and
indirect air pollution costs, including the following estimated impacts:
! The Chongqing Environmental Protection Bureau found that nearly a quarter of the
municipality’s vegetable crop was damaged by acid rain in 1993, and estimated
damages to all crops and forests there totaled $65 million;
! A 1999 Georgia Tech study calculated that reduced sunlight due to sooty air may
be depressing yields on 70% of China’s farms by 5 to 30% (Chinese factories and
households emitted more than 23 million tons of soot and industrial dust in 1999,
according to SEPA);
! More than 80% of children aged 5 to 7 tested in Guangzhou in early 2000 had
unhealthful levels of lead in their blood; studies in other cities have shown elevated
blood lead-levels (exceeding the WHO guideline) in more than 50% of children
(exposure to lead can reduce intelligence and cause other neurological problems,
especially in children); and
! Chronic obstructive pulmonary disease (COPD)–such as emphysema or
bronchitis–is the leading cause of death in China; the rate of death from COPD is
twice the average for developing countries. Moreover, the American Chemical
Society estimated that, nationwide, more that a million deaths annually (one-eighth
of total deaths) were attributable to air pollution between 1990 and 1995.13

Government Measures to Reduce Air Pollution. Because of such adverse
impacts as those noted above, the national government has taken numerous steps to
reduce air pollution, particularly in the most seriously polluted areas. Government initiatives
have targeted a range of pollution sources including industry, motor vehicles, power plants,
coal mines, and households.
One such effort has been to reduce exposures to lead, which have occurred primarily
in urban areas, largely from the combustion of leaded gasoline. In 1997, the State Council
required all sales of leaded gasoline to cease by July 1, 2000.14 Several major urban
areas, including Beijing, required leaded gasoline to be phased out by the end of 1997.15
By the end of 1999, 70% of the vehicle gasoline consumed in China reportedly was lead-
free, primarily because of the early controls imposed in urban areas. Other motor vehicle
emissions are becoming increasingly serious, and government officials at the national and
local levels have begun to address these emissions through regulations and other policy
initiatives. (See the transportation section below.)
13U.S. Embassy, Beijing, China. The Cost of Environmental Degradation in China.
14He Kebin and Cheng Chang. “Present and Future Pollution from Urban Transport in
China.” China Environment Series. Woodrow Wilson Center, Environmental Change and
Security Project. Issue 3, 1999/2000. p. 44
15Jim Stover. China’s Environmental Framework 2000 and Beyond. China Business
Review. April-March 2000. p. 51

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The national government also has targeted air pollution from industrial sources. In
1996, as part of the 9th Five-Year Plan, the State Council mandated that all of the more
than 238,000 industrial enterprises in China meet emissions standards for key air and water
pollutants by the end of 2000 or face closure. Key air pollutants identified in the Plan were
primarily SO2 and particulates (i.e., soot and industrial dust). Special attention was given
to 18,000 large enterprises that accounted for more than two-thirds of all industrial
emissions. Also by the end of 2000, 47 key cities were to meet national standards for air
and water quality.
In November 2000, a U.S. Embassy report on environmental conditions in Hubei
Province noted that,
It is conceivable that all or nearly all factories will meet (or at least be said to
have met) emissions standards without any noticeable improvement in the city’s
air or water quality. Province-wide, more than 90 percent of factories had met
emissions standards by the end of 1999, according to the EPB [local
Environmental Protection Bureau] report, but as stated above, air and water
quality were still far from satisfactory.16
The situation in Hubei might be typical for many areas. Beginning in January 2001,
most provinces and key cities reported that 90% or more of the industries in their
jurisdictions had met the standards. According to a U.S. Embassy review of government
reports, nine areas claimed 99% compliance, while Shanghai, Hainan and Yunnan reported
100% compliance.17 The Embassy noted that despite the high compliance rates and the
closure of thousands of polluting industries, most of the 47 targeted cities still fail to meet
applicable standards for air and water quality.
The Embassy offered several explanations for this outcome. First, the 1996 State
Council Decision that mandated pollution controls did not address mobile sources, and
automobiles are a growing source of air pollution. Similarly, wind-blown dust and the
residential sector are other significant but unregulated pollution sources. Second, the
Embassy suggested that emissions standards may be too lax, particularly for older
factories. (As in the United States, older enterprises were given less stringent standards to
meet than new ones. Consequently, areas with high concentrations of older industries
would still experience significant pollution, even with compliance with emission standards.)
Third, the process of certifying factory emissions “is complex and open to abuse ...”.
Fourth, the Embassy suggested that while authorities have closed hundreds of small,
obsolete, polluting enterprises in recent years, they are hesitant to shut down large
industries that have thousands of employees. (Some 500 large state-owned enterprises
have been given a two-year extension to meet standards.) Moreover, the Embassy noted
that, in the past, some bureaucrats have distorted statistics to show that targets were
achieved.18 The Embassy concluded that, as the easy actions to reduce pollution are
exhausted (e.g., most of the industries closed were small, backward, and losing money),
16U.S. Embassy Beijing, China. Hebei: China’s Environment in a Nutshell. November
2000. Available at [http://www.usembassy-china.org.cn/english/sandt/Hebeiweb.htm].
17U.S. Embassy Beijing, China. Ninth Five-Year Plan Environmental Report Card. March
2001. Available at: [http://www.usembassy-china.org.cn/english/sandt/9th5yearplan.htm].
18U.S. Embassy Beijing. Hebei: China’s Environment in a Nutshell. November 2000.

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China will need to turn to more expensive technological solutions in order to
maintain momentum in environmental improvement. China’s under-funded
environmental enforcement authorities will also need help from society in general
in preventing back-sliding in the aftermath of last year’s campaign.19
Beijing Clean Air Campaign. Many of the government’s pollution control
initiatives have focused on major cities in China, and particularly extensive efforts have
been made in Beijing, the nation’s capital. In 1998, municipal officials in Beijing undertook
a major environmental pollution prevention campaign with a primary focus on air pollution
control and prevention. This campaign reportedly was initiated in response to growing
public and official concern regarding the capital city’s poor air quality and also due to
interest in hosting the 2008 Olympics.
Since 1998, Beijing has earmarked nearly $3.6 billion for implementing 68 air
pollution control measures. According to SEPA, these measures resulted in significant
improvements in air quality by the end of 1999. Compared with 1998, SO2 emissions had
declined 31%, and NO2 had declined 7.2%, and total suspended particulates (TSP) had
declined 20%.20 Levels of these pollutants reportedly all declined further during 2000. In
addition to aggressive pollution control measures, favorable wind patterns also contributed
to reductions in pollution levels. City officials recently announced new measures for the
latest stage of this pollution prevention campaign, which include imposing stricter controls
on automobile emissions and requiring Capital Iron and Steel, the city’s largest polluter,
to curtail operations.21 Beijing is also taking actions to increase the use of cleaner fuels,
such as natural gas and low-sulfur coal.
Achievements and Challenges. Although concerns remain regarding the
government’s efforts to control industrial pollution, air quality has improved recently,
particularly from 1998 to 1999. Among the air pollution control initiatives within the 9th
Five-Year Plan, the national government required the closure of small, dirty coal mines.
SEPA reported that by the end of 1999, 31,200 illegal and “unreasonably located” coal
mines had been closed, and the production of high sulfur content coal was reduced by
more than 22 million tons. Similarly, numerous small power plants, cement plants,
refineries, and blast furnaces were closed because of their inefficiency and relatively high
pollution levels.22 Table 1 shows the reductions in estimated sulfur dioxide and particulate
emission levels from 1998 to 1999. Table 2 illustrates changes in reported emission levels
over the period of the 9th Five-Year Plan.
Table 1. Comparison of the Discharge of Major Pollutants in Waste Gas in
1999 and 1998
Unit (10 thousand tons)
19U.S. Embassy Beijing. Ninth Five-Year Plan Environmental Report Card. March 2001.
20China State Environmental Protection Administration. Report on the State of the
Environment in China for 1999. Atmospheric Environment. Available at Internet website
[http://www.sepalbov.ch/soechina99/air/airdown.htm].
21U.S. Embassy, Beijing. Beijing Clean Air Campaign Enters Third Year. Available at
Internet website: [http://www.usembassy-china.org.ch/english/sandt/Beijingairstep5.htm].
22China State Environmental Protection Administration. Report on the State of the
Environment in China for 1999.

CRS-8
Item
SO
Smoke and Dust (Particulates)
2
Year
Industrial
Domestic
Total
Industrial
Domestic
Total
1999
1460.1
397.4
1857.5
953.4
205.6
1159.0
1998
1594.0
497.0
2091.0
1179.0
276.0
1455.0
% decrease
-8.4
-20.0
-11.2
-19.1
-25.7
-20.3
Source: SEPA. Report on the State of the Environment in China 1999.

According to a World Bank analysis, China was able to continue its economic growth
in the late 1990s while achieving significant reductions in industrial and urban air and water
pollution. The main reason identified for this achievement was a reduction in pollution
among Township and Village Industrial Enterprises (TVIEs), which, from 1989 until 1995,
had increased the amount of pollution they generated by 123%. In that same period,
County-and-Above-Owned Enterprises (CAOEs, which are primarily State-Owned
Enterprises (SOEs)) had reduced their pollution load by 9.2%. From 1995 to 1998, the
average decrease in pollution rates were 39.6% for TVIEs and 22.5% for CAOEs.
World Bank analysts suggested several factors that may have had an effect on pollution
reduction: economic stagnation, regulation (notably, the closure of thousands of highly
polluting TVIEs), and restructuring in the industrial sector (e.g., a gradual shift from highly
polluting industries (such as cement making) to less polluting industries (such as electronic
and telecommunications industries).23
Table 2. Ninth Five Year Plan:
Total Emissions of Major Pollutants: Targets and Achievements
(millions of metric tons)
Pollutant
1995 actual
1999 actual
2000 target
2000 actual
% change
1995-2000
SO
23.7
18.6
24.6
20.0
-15.8
2
Soot
17.3
11.6
17.5
11.7
-33.2
Industrial
17.3
11.8
17.0
10.9
-36.9
dust
Source: SEPA. Reports on the State of the Environment in China, 1999 and 2000.
For urban-based pollution, reductions in SO2 and particulate emissions in the late
1990s were attributed mainly to stronger command and control interventions, particularly
towards TVIEs, and fuel shifting, from coal to gas. Contributing factors not related to
environmental protection efforts include the economic slowdown, reduced coal
consumption, and the application of more efficient technologies (particularly in China’s
power industry).24
Despite these substantial air quality improvements, pollution levels in Chinese cities
are still relatively high by international standards, as reflected by China’s air quality
standards. China’s standard for average daily concentration of particulates (TSP) for
23Jostein Nygard, China’s Brown Agenda: Changed Environmental Pollution Trends,
paper presented at PACE 2000 Seminar, World Bank. August 31, 2000.
24Ibid.

CRS-9
residential areas, for example, is 200 micrograms/cubic meter (ug/m3), compared to the
WHO guideline of 90 ug/m3 for TSP.25
While noting China’s significant achievements in reducing pollution loads, the World
Bank has identified major challenges that China faces in making further progress.
Increased industrial growth and continuing rapid urbanization are key among them.
Moreover, financial issues overlay these challenges. A 1997 World Bank report estimated
that China would have to spend 2.1% of GDP ($21 billion) annually to reach U.S. air
quality standards of the early 1980s by 2020. According to the Chairman of the
Environment and Natural Resources Committee of the National People’s Congress, Qu
Geping, China would need to spend $40 billion to meet Chinese standards (for just three
pollutants – NO2, SO2, and particulates) in 46 key cities.26
Chairman Qu Geping further noted that the greatest obstacle to overcome in
improving China’s air quality is the country’s dependence on coal,27 which is likely to
remain China’s primary energy source for the foreseeable future. The government has
recognized that its technology for coal energy production and use has been “comparatively
backward”28 and is looking both domestically and abroad for technical and financial
assistance and foreign investment to address this problem. Multilateral institutions and
bilateral technical assistance are playing significant roles. (See discussion on multilateral and
bilateral cooperation below.)
For the10th Five Year Plan, covering 2001 through 2005, Chinese officials identified
specific targets for reducing air pollution. Objectives include the following:
! The concentration of SO2 in areas targeted for acid rain control will meet the
national Grade II standard (i.e., daily average concentration less than 150
micrograms per cubic meter (ug/m3), and annual average less than 60 ug/m3). (The
WHO standard for annual average SO2 concentrations is 40 ug/m3.)29
! Total nationwide SO2 emissions will be capped at 19 million tons (SEPA estimated
1999 emissions totaled 18.6 million tons, down from 23.7 million tons in 1995;
emissions within the acid rain control zones will be capped at 10.3 million tons
(1999 emissions were 11.1 million tons).
! 90% of urban households will use gas for heating and cooking (84% now do).
25U.S. Embassy, Beijing. Ninth Five-Year Plan Environmental Report Card. March 2001.
26U.S. Embassy, Beijing. China’s Clean Air Price Tag: US$40 Billion. May 2000. At
Internet website: [http://www.usembassy-china.org.ch/english/sandt/airqualitycost.htm].
27Ibid.
28China Environment Yearbook: 1997. p. 123.
29Regulation of SO in the United States has evolved to extend well beyond the focus on
2
annual and 24-hour National Ambient Air Quality Standards (NAAQS) to include New
Source Performance Standards (NSPS, Sec. 111 of 1970 Clean Air Act Amendments
(CAAA)), Prevention of Significant Deterioration (PSD, Part C of 1977 CAAA), and acid
rain controls (Title IV of 1990 CAAA). Additional activities underway to further regulate
SO emissions include a fine particulate NAAQS (1997), and regional haze rules (2001).
2

CRS-10
! The number of “key” cities targeted for pollution control will be increased from 47
to 100; all 100 cities are to meet applicable national standards by 2005 for air and
water quality and noise.
! All 100 key cities are to install air quality monitoring equipment; data will be
transmitted by satellite to a national monitoring center.
A report by the SEPA-affiliated China Research Academy of Environmental Sciences
(CRAES) on the proposed 10th Five-Year Plan estimated that the investment requirement
to meet the plan’s air quality goals would be $36 billion, with one-third of that being used
to install desulphurization equipment on coal-fired power plants in acid rain control areas.
Mr. Xie Zhenhua, director of SEPA, has stated that the overall goal of the 10th Five-Year
Plan is to reduce total emissions of major pollutants another 10%, and that the air and
water pollution reduction targets might be achieved if environmental protection
expenditures over that period equal 1.4% of GDP.30
Air Pollution Prevention and Control Law Amendments. In an effort
to do more to improve air quality, China strengthened its national air pollution law in 2000.
The objectives of the amendments are to improve enforcement, address critical air quality
problems in key urban areas, and make greater use of market-based methods for cutting
emissions. The new provisions increase penalties for violations, broaden the scope of the
law, clarify authorities, and call for incentives for clean and renewable energy.31 Among the
major changes, the law prohibits pollutant emissions that exceed national standards and
imposes compliance deadlines and higher fines for excess emissions; previously, such
emissions were legal, provided that polluters paid fees on them.32 Also, the law addresses
mobile sources for the first time, and emission control systems will be required on new and
existing vehicles. As an overarching change, the amendments broaden the focus of the law
from controlling the concentration of pollutants emitted from individual sources to include
controlling the total volume of pollutants entering an airshed.
When fully implemented, the amendments are intended to stabilize total air pollution
emissions at 1995 levels by 2010. If emissions reductions reported in recent years are
sustained, many areas could meet this goal without much additional reduction in pollution.
However, air pollution remains severe relative to international standards.
30U.S. Embassy, Beijing. China’s Year 2000 “State of the Environment” Report.
Unclassified cable. June 15, 2001.
31Professional Association for China’s Environment (PACE). China Environment Briefing.
Sinosphere. v. 3 n. 3. Summer 2000. p. 3. (See [http://www.chinaenvironment.net/sino].)
32Ferris, Richard J. Jr. and Hongjun Zhang, PhD. Key Aspects of the 2000 Amendments
to the Air Pollution Prevention and Control Law of the People’s Republic of China.
Briefing for Corporate Counsel and Environment, Health and Safety Managers. Beveridge
a n d D i a m o n d , P . C . F e b r u a r y 2 , 2 0 0 1 . A v a i l a b l e a t :
[http://www.bdlaw.com/archive.asp?id=3].

CRS-11
Climate Change
Energy Consumption and Greenhouse Gas Emissions. China currently
ranks second in the world in both energy consumption and greenhouse gas emissions.33
In 1999, China consumed approximately 32 quadrillion Btu (quads) of energy, and emitted
approximately 669 million metric tons carbon equivalent (MMtCE). This corresponds to
approximately 8% of world energy consumption and 10% of world greenhouse gas
emissions. In contrast, the United States consumed approximately 97 quads, or 25% of
world energy consumption; U.S. greenhouse gas emissions were approximately 1,520
MMtCE, or 25% of world emissions.34 On a per capita basis, U.S. energy use and
carbon emissions are some 10 to 12 times those of China.
One of the key factors in China’s greenhouse gas emissions is that coal supplies over
70% of the energy in China.35 By comparison, coal supplies approximately 33% of energy
in the United States.36 Per unit energy, coal has the highest carbon content of any fuel, and
thus leads to the highest CO2 emissions. In China, the use of coal leads to 80% of the
country’s greenhouse gas emissions.37 However, despite high emissions from the fuel, coal
is an abundant resource in the country, and any development strategy will likely involve
further use.
It has been projected that China’s carbon dioxide (CO2) emissions will exceed those
of the United States by 2020.38 Further, with China’s rapidly growing economy, and
resulting demand for power, projections estimate that China’s greenhouse gas emissions
could increase seven-fold in the next 25 years.39 However, new data suggest that between
1997 and 1999, China’s energy consumption dropped approximately 13%, while
greenhouse gas emissions dropped by approximately 17%.40 The decrease in energy
consumption, mostly in the form of coal, was caused by many factors, including
improvements in efficiency, household fuel switching (primarily from coal to natural gas),
and economic reforms.41 Greenhouse gas emissions dropped more quickly than energy
33Pew Center on Global Climate Change, Developing Countries and Climate Change:
Electric Power Options in China. May 2000.
34U. S. Department of Energy, Energy Information Administration (EIA), International
Energy Annual 1999. February 2001. Tables E1 and H1.
35Pew Center on Global Climate Change, Developing Countries and Climate Change.
36U.S. Department of Energy, Energy Information Administration, Annual Energy Review
1999. July 2000.
37Marlowe Hood and William Sweet, “Energy Policy and Politics in China,” IEEE Spectrum.
November 1999. p. 34.
3 8 Jeffrey Logan, Aaron Frank, Jianwu Feng, and Indu John. Climate Action in the United
States and China. Pacific Northwest National Laboratory and Woodrow Wilson Center.
May 1999.
39Marlowe Hood and William Sweet, “Energy Policy and Politics in China.”
40EIA, International Energy Annual 1999. Tables E1 and H1.
41Jonathan E. Sinton and David G. Fridley, “Growth in China’s Carbon Dioxide Emissions
is Slower than Expected,” Sinosphere. Winter 2001. p. 3.

CRS-12
consumption because most of the energy savings were in coal, which leads to the most
significant carbon dioxide emissions.
While China’s energy use and greenhouse gas emissions have started growing again,
it seems unlikely that Chinese greenhouse gas emissions will actually exceed U.S. emissions
by 2020. Either way, China’s share of world greenhouse gas emissions will likely continue
to grow. A recent analysis by the Pacific Northwest National Laboratory projected that,
under a moderate growth scenario,
China’s overall energy use is expected to increase by just over 80 percent by
2020. Coal use will likely increase by two-thirds while growth in petroleum,
natural gas, hydroelectric, and renewable energy sources will be considerably
higher. How and where coal is used will affect emissions. Wide-spread use of
desulfurization equipment, for example, could reduce the risk of acid rain even as
coal use rises, but it will do nothing to check growth in carbon dioxide emissions.42
China’s Domestic Policy. In general, China has not focused on greenhouse gas
reductions in their own right, but on “no regrets” strategies (those that have benefits in other
areas, in addition to emissions reductions) to reduce consumption and control pollution.43
Pollution mitigation strategies include closing older, less efficient coal-fired plants and
replacing them with significantly more efficient plants, as well as research into clean coal
technologies such as integrated coal-gasification combined-cycle (IGCC) and fluidized bed
plants.
Chinese leaders have also committed to expanding natural gas, nuclear energy, and
hydropower production in the country. In 1998, power output from fossil fuel power
plants grew by 1.3%, while nuclear and hydroelectric output grew by 5.5% and 6%,
respectively. While more expensive, these fuels would allow China to limit its consumption
of coal, and cut pollutant and greenhouse gas emissions. However, especially for
hydroelectric and nuclear power plants, capital costs are extremely high. In addition, of
concern are the drawbacks to these technologies, such as waste disposal for nuclear
energy and population relocation for hydroelectric power.
To reduce domestic coal consumption and improve air quality, Beijing has banned
the use of coal by industrial and household consumers within the city.44 Further, in 1995,
the Chinese government had encouraged the use of shaped coal (briquettes) in domestic
furnaces, as opposed to raw coal.45 To replace household coal use, China is expanding
the natural gas network. Other initiatives to improve air quality and efficiency include higher
efficiency consumer goods and improved emission controls for factories and power plants.
42Jeffrey Logan. “China’s Air Pollution Down Dramatically, But Can it Last?” Pacific
Northwest National Laboratory. April 2001. Website: [http:///www.pnl.gov/china]
43Logan, et. al., Climate Action in the United States and China.
44“Coal Burning in Beijing to be Banned By Turn of Century, Officials Say,” Daily
Environment Report. June 10, 1998.
45“The People’s Republic of China National Report on Sustainable Development,” China
Environment Yearbook 1997. p. 124.

CRS-13
In addition to energy and emission control strategies, China has expanded forest
coverage and protected some forest areas (primarily because of downstream flooding
related to deforestation). Forested areas could potentially serve as carbon sinks, mitigating
carbon dioxide emissions. However, the success of forest expansion has been questioned,
as some argue that while forested landmass has increased, forest density has decreased,
leading to a decrease in the actual number of trees. One problem is that while many new
trees have been planted, husbandry has not been as successful, leading to a die-off of a
large number of planted trees.
As noted above, while China’s greenhouse gas emissions are relatively high, and
expected to grow significantly, China has had some progress in reducing its greenhouse gas
emissions, largely through improvements in energy efficiency. In the early 1980s, the
Chinese government committed itself to energy conservation, mainly to deal with energy
shortages.46 Since that time, although energy consumption has increased, energy intensity47
has dropped significantly. Energy consumption has nearly tripled since 1980,48 while
energy intensity is approximately 50% lower today than it was in 1980.49 A major success
of China’s development is that unlike most developing countries, the country’s energy
demand has grown less rapidly than GDP.50
As part of its official long-term plans, the Chinese government has set the goal of 5%
to 6% annual economic growth.51 There are concerns that greenhouse gas emissions
resulting from improved efficiency will be erased with a significant increase in energy use
expected with continued development. Increased energy consumption in the natural gas,
electricity, and transportation sectors will be a major part of this increase as consumer
goods, such as automobiles, become more common and as household energy demand
increases.52
China’s International Policy. On the international side, China has been active
in efforts to control global climate change. Both China and the United States have ratified
the United Nations Framework Convention on Climate Change (UNFCCC), which
contains voluntary, legally non-binding commitments that parties to the treaty will try to
reduce greenhouse gas emissions to 1990 levels by 2000. Further, both China and the
United States have signed, but not ratified, the Kyoto Protocol to the UNFCCC. If the
Kyoto Protocol were to enter into force, industrialized/developed nations that had ratified
46Logan, et. al., Climate Action in the United States and China.
47Energy intensity is a measure of the amount of energy consumed per unit of GDP.
48Yingzhong Lu, “The Role of Nuclear Energy in The CO Mitigation Strategy of the
2
People’s Republic of China,” The Woodrow Wilson Center China Environment Series.
49Vaclav Smil, “China’s Energy and Resource Issues: Continuity and Change,” The China
Quarterly. 1998. p. 935.
50Fred Pearce, “Mythical Monster,” New Scientist. January 9, 1999. p. 44.
51Jonathan E. Sinton and David G. Fridley, “Growth in China’s Carbon Dioxide Emissions
is Slower than Expected.”
52Robert Collier, “WTO Bid Stirs Fears About Environment: Auto Boom May Add to
China’s Pollution,” San Francisco Chronicle. May 18, 2000. p. A1.

CRS-14
it (developed countries are those listed in Annex I of the UNFCCC) would have legally
binding obligations to reduce their greenhouse gas emissions collectively by 5% below
1990 levels, averaged over the period 2008 to 2012.53
Unlike developed countries (Annex I), developing countries such as China are not
required to meet set levels of greenhouse gas reductions, but are committed in the
UNFCCC to make and report efforts to reduce their emissions. This disparity between
the obligations of developed and developing countries has been one of the major factors
in the opposition of the U.S. Senate and the Bush Administration to the Kyoto Protocol.
China’s position remains firm that the first internationally mandated steps to reduce
greenhouse gas emissions must be made by developed countries, and China does not
intend to make international commitments at this time. However, it has strongly criticized
the U.S. decision to pull out of the Kyoto Protocol negotiations.
China participates in bilateral and multilateral efforts to study the effects of global
climate change, to transfer and use more efficient technology, and to develop a coordinated
national climate change plan. Chinese activities include policy studies conducted with the
World Bank and Asian Development Bank. Currently, China is working with Japan on
methane emissions reductions from coke-gas utilization, and is negotiating projects with
other countries.54
The United States also participates in bilateral and multilateral projects with China.
Through the U.S. Country Studies Program, the United States works with developing
countries, including China, on assessing emissions, climate change risk, and potential
mitigation strategies. In addition, the U.S. Export-Import Bank (Ex-Im Bank) has
partnered with the Chinese government on a Clean Energy Initiative to improve efficiency
and reduce emissions. However, the U.S. Agency for International Development
(USAID), which has made climate change an environmental priority, is forbidden by the
U.S. Foreign Assistance Act (22 U.S.C. 2151) and other restrictions from providing
assistance to China.55
Opportunities for U.S. Business. With China’s economy developing so
rapidly, there are many opportunities for U.S. businesses, even without U.S. participation
in the Kyoto Protocol, which would allow developed nations to claim reductions in CO2
emissions if they assist developing countries to install clean technologies.56 A key area for
U.S. businesses is in nuclear, hydroelectric, and renewable energy development. The
United States is the largest producer of nuclear and hydroelectric power, thus U.S.
businesses have experience with these technologies, though not necessarily focused on
exports per se. Further, because of the high capital costs for these technologies, there
could be opportunities for U.S. investment in Chinese power plants.
53For more information, see CRS report RL30692, Global Climate Change: The Kyoto
Protocol.
54Logan, et. al., Climate Action in the United States and China.
55Ibid.
56Paul Brown, “National Roundup: BNFL Seeks Carbon Deal with China,” The Guardian.
May 23, 2000. p. 12.

CRS-15
In addition to power plants, another opportunity for U.S. businesses is in the area of
energy efficiency. Reductions in fuel use will lead directly to reductions in greenhouse gas
emissions, as well as the other pollutants that are of key concern. U.S. businesses could
export efficient domestic appliances, industrial boilers, lighting, and other goods. In
addition, U.S. businesses could participate in transit and distributed generation projects
within China.
Transportation Sector
Transportation will continue to play a key role in both China’s development and
environment. Currently, mobile sources contribute approximately 45 to 60% of nitrogen
oxide (NOx) emissions and approximately 85% of carbon monoxide (CO) emissions in the
country’s cities.57 This is largely due to poor emissions control on mobile sources.
Without new emissions controls, these emissions would increase dramatically as China’s
economy expands. China plans to further expand its growing highway system, especially
in the poorer areas of western China. In fact, this expansion is a key component of
China’s development strategy for the its western provinces.58 An increase in highways will
lead to an increase in the number of vehicles on the road, especially as passenger vehicles
become more accessible. However, new strategies already in place for emission controls,
alternative fuels, and transit will help alleviate some of the potential problems of
transportation growth in China. Further, bicycles, a national symbol, will continue to play
a key role, especially in urban areas.
Motor Vehicles. The number of motor vehicles in China is small compared to the
United States. There are approximately 16 million cars, trucks, and buses in China,
compared to approximately 210 million in the United States.59 In terms of vehicle
ownership density, this disparity is even higher. About 785 vehicles per 1000 people are
operated in the United States, compared to about 10 per 1000 people in China. Further,
relatively few of these are passenger vehicles – approximately 20% in China, compared
to approximately 97% in the United States.
However, this relatively small number of vehicles, especially passenger cars,
understates their current and projected growth, as well as their environmental impact.
Between 1994 and 2000, the number of motor vehicles grew from 2.4 million to more than
16 million.60 Between 1985 and 1995, passenger vehicle growth rates averaged 18% per
year, and China’s minibus and taxi fleets grew from insignificant numbers to 100,000 and
585,000 vehicles, respectively over this period.61
5 7 Michael P. Walsh, “Transportation and the Environment in China,” China Environment
Series. Woodrow Wilson Center. Issue 3, 1999/2000.
58“China Looks West,” World Highways. October 2000. p. 41.
59Ibid.
60Changhua Wu. “The Price of Growth,” The Bulletin of Atomic Scientists.
September/October 1999. p. 58.
61D. Tilly Chang. “A New Era for Public Transport Development in China,” China
Environment Series. Woodrow Wilson Center. Issue 3, 1999/2000.

CRS-16
Several factors will contribute to the continued growth of the vehicle numbers in the
future. First, in the mid-1990s the State Planning Commission began to promote the
“household car.”62 If realized, a car in every household could put hundreds of millions of
passenger vehicles on the road, in addition to trucks and buses. A second factor is that
China’s accession into the World Trade Organization (WTO) could greatly increase the
availability of cars in the Chinese market. Current tariffs on cars range from 80 to 100%,
and, given WTO membership, these would be reduced to 25% by 2006, greatly reducing
the cost of imported vehicles.63 In addition, tariffs on auto parts would drop from 40-50%
currently to 10% by 2006. Moreover, import quotas would be phased out by 2005.64
In order to make cars more affordable, the Chinese government is removing 238
separate fees on vehicle purchase and ownership that add as much as 40% to the cost of
a car.65 Further, installment buying is taking hold in the Chinese car market. The
expansion of installment buying should make cars more affordable for consumers.66
Because of these changes, approximately 70% of households in Guangzhou and Shanghai
wish to purchase passenger cars in the next ten years, according to China Auto News.67
Across the country, 70 million households report that they believe they could afford a
private car.68
With a growing vehicle population, the environmental effects of motor vehicles could
grow significantly. In fact, the potential environmental effects of passenger cars has
become a major concern in China, and has spurred interest in transit system development.
The environmental performance of most vehicles in China today is comparable to vehicles
in the United States in the 1960s and 1970s.69 Further, pollution control standards have
not been strongly enforced in many places. However, China has taken major steps to
improve motor vehicle emissions. As of 2000, leaded gasoline was phased out, and in
1998 China introduced catalyst-based emissions standards for all new passenger
vehicles.70 These initiatives will significantly reduce emissions of toxic and ozone-forming
compounds. In addition, Beijing is requiring emission control retrofits for all vehicles
operated there and manufactured between 1995 and 1998, and under the 2000
amendments to the national air pollution control law, emission control systems will be
required on new and existing vehicles nationwide. Further, to promote the sales of cleaner
62Chang - from Economic Daily, October 24, 1994.
63Michael P. Walsh. “China Auto Group Questions Price Cuts After WTO,” Car Lines.
May 2000.
64Thomas Lum. CRS Report RS20624: China’s Automobile Industry and WTO Accession.
65“China: Tax Incentives Offered for Cleaner Cars Meeting ‘Euro-II’ Emission Standards,”
International Environment Reporter. August 2, 2000. p. 612.
66Chang Weimin. “Car Credit May Accelerate Sales,” China Daily. May 9, 1997.
67“China: Cars’ Entering into Household Being Hot Spot,” China Auto News. May 10, 1999.
p. 3.
68“70m Chinese Families Say Cars Are Affordable,” China Market News. November 30,
2000. p. 3.
69Walsh, “Transportation and Environment in China.”
70Ibid.

CRS-17
vehicles, the sales tax will be reduced by 30% on new cars that meet the “Euro-II”
emissions standards, which took effect in the European Union in 1996.71 These standards
are significantly more stringent than the current national standards. Current U.S. standards
meet or exceed the Euro II standards, so American car manufacturers should have little
trouble building cars to meet the standards.72 However, European manufacturers, who are
familiar with the Euro II test procedures, will likely have at least a small advantage in
producing these vehicles.
In addition to emission controls on motor vehicles, major municipalities such as
Beijing, Chongqing, and Shanghai are implementing requirements for liquified petroleum
gas (LPG) and natural gas vehicles and fueling stations.73 Beijing has the largest natural gas
bus fleet in the world, and several other cities are planning to convert thousands of taxis
and buses to natural gas over the next few years. For example, the city of Haikou in
Hainan Province plans to spend $3.6 million to install natural gas systems in 5,400 buses
and cars.74 In addition, China is participating in a United Nations Development
Programme (UNDP) project to test and demonstrate fuel cell buses. These plans are
aimed at reducing vehicle pollution, as well as curbing petroleum use and greenhouse gas
emissions.
Opportunities for U.S. Businesses. With the opening of markets, and the
tightening of emission standards, there are likely to be many opportunities for U.S.
companies in China. In fact, the U.S. and Foreign Commercial Service in Beijing estimates
that by 2001, the market for emission control and emissions monitoring equipment will
grow to $270 million per year.75 The retrofit of pre-1998 vehicles will lead to growth in
the catalytic converter market in China. U.S. emissions control manufacturers have had
experience over the past 30 years in equipping American cars with such devices, and could
likely take advantage of growing demand in China, especially with the cuts in auto part
tariffs as part of WTO accession. The increasing market for cars could also allow U.S.
auto manufacturers to play a larger role in the Chinese auto market. While one possible
disadvantage for U.S. manufacturers is that China has chosen to adopt European emissions
standards, Chinese standards lag behind both European and American standards, so it is
unlikely that U.S. manufacturers will have significant problems making vehicles compliant.
As stated above, according to the Chinese government, alternative fuels will play a
role in China’s pollution control strategy. This is another potential area of opportunity for
U.S. companies. Although they are not widely used in the United States, alternative fuel
vehicles are growing in their use, thanks to supportive government programs and their
superior emissions performance. Therefore, U.S. companies have had some experience
71“China: Tax Incentives Offered,” International Environment Reporter.
72European Commission, Directorate-General for Energy and Transport. EU Transport in
Figures. 2000. Table 7.1; CRS Report RS20247, EPA’s Tier 2 Emission Standards for
new Motor Vehicles: A Fact Sheet.
73Pamela Baldinger. US-China Business Council, Environmental Trends and Policies in
China: Implications for Foreign Business. March 2000.
74Jeffrey Logan and William Chandler. “Natural Gas Gains Momentum,” The China
Business Review. July/August 1998. p. 40-50.
75Baldinger, US-China Business Council, Environmental Trends and Policies in China.

CRS-18
in manufacturing new alternative fuel vehicles, as well as retrofitting existing vehicles to
operate on alternative fuels. Furthermore, U.S. companies have had experience in
developing the infrastructure necessary to fuel these vehicles. It should be noted that due
to the much smaller role that petroleum plays in Chinese transportation, it may prove easier
to expand infrastructure for natural gas and other alternative fuels in China than it has been
in the United States. Although not environmentally related, other opportunities for U.S.
companies related to transportation include auto insurance and vehicle financing.
Mass Transit. The growth in motor vehicles has led to greater congestion and
longer commute times in Chinese cities. Because of congestion and poor bus performance
between the mid-1980s and mid-1990s, Chinese commuters began switching to other
forms of transportation. In the case of more affluent citizens, these included personal
vehicles, taxis, and minibuses. Poorer commuters switched to bicycles or walking. In
Shanghai, the percentage of commuters using bus transit dropped from 24% to 15%
between 1986 and 1995.76 The movement away from bus transit has led to a “vicious
cycle” in which vehicle congestion leads to slow bus service, causing commuters to seek
out other means of transportation, thereby further increasing congestion.
While bus ridership is declining, rail transit is expanding. The Chinese government
sees urban rail systems as key to maintaining economic growth and limiting urban pollution.
In the mid-1980s, the government stated that rail should be the primary mode of
transportation in urban areas. However, in 1995, to combat inflation, the Chinese
government placed a moratorium on most light rail projects. This was lifted in 1999, and
several projects were started or revived.77 The China Communications and Transportation
Association estimates that more than $15.7 billion will be invested in rail transit over the
next five years. Currently, subway systems operate in four cities: Beijing, Tianjin,
Shanghai, and Guangzhou. Rail transit systems are planned in cities such as Chongqing,
Shenzhen, and Nanjing.
Opportunities for U.S. Businesses. While transit projects currently are
required to use at least 70% domestically manufactured locomotives and other equipment,
municipal governments such as Beijing allow foreign companies to invest in and manage
rail projects.78 In addition to investment, opportunities for U.S. companies include
construction, locomotives and cars, and control systems, although the opportunities for
trade in equipment are constrained.
Bicycles. In Chinese cities, the bicycle plays a key role in transportation. In fact,
the bicycle is seen as a national symbol, and until recently, it was the primary mode of
urban transportation. There are between 400 and 600 million bicycles in the country.
Many planners see bicycles as a way of reducing pollution. However, for many in China
they are seen as an urban nuisance adding to congestion.
76D. Tilly Chang, “A New Era for Public Transport Development in China.”
77Ibid.
78“China to Develop Rail Transit System in Big Cities,” Xinhua News Agency. August 14,
2000.

CRS-19
Widespread bicycle ownership began after the 1949 Communist Revolution, and
ownership rapidly increased after 1979 when China opened its economy.79 Because of
unreliable public bus service in cities such as Shanghai, bicycle use surged again between
the mid-1980s and mid-1990s.80 But both bicycle production and use have dropped since
the mid-1990s. In the early 1990s, bicycles accounted for approximately 60% of trips in
Beijing. That number is now down to 40%.81 Increasing automobile ownership, along
with growth in taxis and subways has led to this decline. In 1998, annual bus, car, and
truck production in China were up 31.8.%, 4.7%, and 2.3%, respectively; annual bicycle
production declined 15.5%.82 Adding to the decline in bicycle use is the fact that in some
cities they are off limits on major streets during rush hour. This ban has made daily
commuting by bicycle impractical for many workers.
Despite the decline in the bicycle, because of such high ownership levels and
continued use, it will likely continue to play a major role in Chinese transportation for years
to come. As urban pollution continues to be a problem for the country, some Chinese
leaders are looking for ways to increase bicycle use, while avoiding some of the associated
traffic problems.
Montreal Protocol on Stratospheric Ozone Depletion
China is a signatory to the 1985 Vienna Convention for the Protection of the Ozone
Layer, the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer, and the
1990 London Amendment to the Montreal Protocol.83 As a developing country, China
is an Article 5 country under the Protocol and, as of July 1, 1999, required to meet a
chlorofluorocarbon (CFC) consumption and production freeze based on its average 1995-
1997 consumption and production levels of ozone depleting substances (ODP) of 57,819
and 47,004 metric tons respectively.84 After this date, China is required to reduce these
substances 50% by 2005, 85% by 2007, and 100% by 2010.85 Beginning in 2002, China
is required to meet a production and consumption freeze for halons based on its average
1995-97 levels of 34,187 and 40,993 ODP metric tons respectively.86 After this date,
China is required to reduce these substances 50% by 2005, and 100% by 2010 (with
79Philip P. Pan. “Bicycle No Longer King of the Road in China,” The Washington Post.
March 12, 2001. p. A01.
80D. Tilly Chang, “A New Era for Public Transport Development in China.”
81Philip P. Pan, “Bicycle No Longer King.”
82“China: Output of Automobiles Grows, Bicycles Falls,” China Business Information
Network. February 3, 1999. p. 1.
83 China acceded to the Vienna Convention on September 9, 1989; the Montreal Protocol on
June 14, 1991; and, the London Amendment on June 14, 1991. For a summary of the
Protocol and its Amendments, see: Larry B. Parker, Stratospheric Ozone Depletion: A
Chronology of Assessment and Decision, CRS Report 96-702 ENR, July 10, 1996
84 CFCs covered by the London Amendments include CFC-11, -12, -113, -114, and -115.
85 Article 5 countries are permitted to produce an additional 10% of their base production
level to meet basic domestic needs (15% beginning in 2010).
86 Under the Protocol, halons covered include halon 1121, 1301, and 2402.

CRS-20
possible exemptions for essential uses).87 Other ozone depleting substances are also on
reduction schedules based on China’s average 1998-2000 levels; however, data are not
yet available for calculating base levels.88
Data on China’s CFC and halon production and consumption is shown in Table 3.
As indicated CFC production rose sharply in the early 1990s, leveling off in the mid-
1990s at 45,000 to 50,000 ODP metric tons. Consumption of CFCs peaked in 1994 at
over 70,000 ODP metric tons, declining to 51,000 ODP metric tons in 1997. The
Executive Committee of The Multilateral Fund for the Implementation of the Montreal
Protocol reported in its December 2000 meeting that China reports its 1999 CFC
consumption is below its base levels.89 The Executive Committee also noted that
preliminary indications were that China met its halon production targets in 1999, but may
not have met its consumption targets.90
Table 3: China’s CFC and Halon Production and Consumption as Reported to UNEP
(in metric tons of Ozone Depletion Potential [ODP])
Year
CFC Production
CFC
Halon
Halon
Consumption
Production
Consumption
1986
11,540
29,237
11,200
17,316
1989
20,700
34,783
10,600
18,880
1990
20,688
41,829
10,800
17,790
1991
26,018
50,263
10,800
19,569
1992
24,941
57,045
11,000
14,404
1993
31,658
66,283
12,400
12,847
1994
50,809
70,779
21,550
20,150
1995
46,672
75,291
37,514
33,714
1996
44,016
47,089
40,269
33,115
1997
50,324
51,076
45,196
35,731
1998
n/a
n/a
n/a
n/a
1995-97
47,004
57,819
40,993
34,187
base level
8 7 Article 5 countries are permitted to produce an additional 10% of their base production
level to meet basic domestic needs (15% beginning in 2010).
88 The phase-out schedule for methyl bromide is based on average 1995-98 levels; however,
China’s 1998 levels have not been published yet by UNEP.
89 Executive Committee of The Multilateral Fund for the Implementation of the Montreal
Protocol. Report of the Twenty-First Meeting of the Sub-committee on Project Review,
Thirty-second Meeting of the Executive Committee, Ouagadougou, December 6-8, 2000.
United Nations Environment Programme, UNEP/OzL.Pro/ExCom/32/21, December 7, 2000.
p. 9.
90Ibid. p. 28.

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Source: UNEP. Production and Consumption of Ozone Depleting Substances: 1986-1998.
Ozone Secretariat, October 1999.
In summarizing China’s progress in meeting the targets of the Montreal Protocol, The
Executive Committee states:
In its submission [to the Executive Committee], China reported on a number of
important initiatives it has undertaken during its third phase of institutional
strengthening projects including: undertaking activities, to achieve 1999 freeze in
production and consumption, developing and implementing over 300 individual and
three large umbrella foam projects. In addition, China had received Executive
Committee approval for five ODS sectoral phase-out programmes in the
production sections, halons, solvents, tobacco and extended
polystyrene/polyethylene foams. For example, China has closed and dismantled
five halon production lines.... These and other activities reported are very
encouraging, and the Executive Committee greatly appreciates the efforts of
China.... The Executive Committee expresses the expectation that in the next two
years, China will continue with the progress achieved and sustain and build upon
its current levels of CFC reductions to achieve its goal of complying with the
Protocol’s ODS phase-out schedules. 91
The optimism expressed by the Executive Committee is not shared by all observers.
In 1998, The World Resources Institute (WRI) expressed concern about illegal trade in
CFCs. Citing EPA sources, WRI states: “Apparently, much of the contraband CFCs both
in the United States and Europe emanate from production facilities in China and
Russia....The situation appears to be more problematic in China, which can still legally
produce CFCs for consumption in the developing world. As it now stands, China is
apparently the biggest source of material for the CFC black market in developed
countries.”92 China is also primarily responsible for the increase in worldwide halon
production over the past five years, after ten years of decline. Thus, China may represent
significant challenges on these issues to the international community for many years to
come.
Water Pollution: Overview
China’s robust industrialization and urbanization have vastly outpaced investments in
wastewater treatment infrastructure, and this has led to widespread pollution of the nation’s
lakes, rivers, groundwater, and coastal marine waters. As with air pollution, the scale of
China’s water pollution problems is vast, and seven of the world’s most polluted
watersheds are located there.93 In 1997, the National Environmental Protection Agency
(NEPA, now SEPA) reported that the rivers, lakes and reservoirs in China were
universally polluted to varying degrees: 78% of rivers flowing through cities were not usable
91Ibid., p. 9
92World Resources Institute. 1998-99 World Resources: A Guide to the Global
Environment, New York: Oxford University Press, 1998, p. 178.
93Corliss Karasov. On a Different Scale: Putting China’s Environment Crisis in Perspective.
Environmental Health Perspectives. v. 108, n. 10. October 2000. p. A455.

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for most purposes, and 50% of urban ground water was polluted.94 Moreover, pollution
in major rivers and reservoirs was worse and more widespread than in the previous year.
In 1995, 100 centralized sewage treatment plants were in operation nationwide, and
the capacity of these plants was adequate to treat only 5% of the sewage discharged
annually.95 Such low sewage treatment levels have caused widespread contamination of
drinking water supplies, and government health statistics for the period 1990-1995,
indicated that 700 million Chinese (more than one-half the population) were consuming
drinking water that failed to meet China’s minimum contamination standards for human and
animal wastes.96
The total annual volume of wastewater produced in China has grown markedly,
increasing from 29 billion tons in 1981 to 37 billion tons in 1995, with industrial wastewater
accounting for roughly 60% of the total in 1995.97 According to SEPA, the volume of
industrial wastewater and urban sewage discharged reached 40.1 billion tons in 1999, with
sewage discharges (of 20.4 billion tons) exceeding industrial wastewater discharges for the
first time.98 SEPA also reported that agriculture-related water pollution is worsening
rapidly as animal operations become more concentrated and more fertilizer is used on
farmland.
In addition to severe water pollution problems, China is at a disadvantage regarding
water resource availability, having just one-fourth of the world’s per-capita average. The
cumulative wastewater discharges from municipal, industrial, and agricultural sources have
exacerbated water scarcity problems in many areas of the country. More than half of
China’s 668 cities experience chronic water shortages, and these shortages are severe in
some 100 cities.99 While much of this scarcity is due to uneven distribution of water
resources in the country, pollution also is a factor, particularly in southern cities, where
between 60% and 70% of shortages are attributed to pollution.100 The Chinese Academy
94China National Environmental Protection Agency. China Environment Yearbook, Report
on the State of the Environment in China for 1996. 1997. p. 56
95Crescencia Mauer and Changhua Wu, et al. “Water Pollution and Human Health in
China.” China Environment Series. Woodrow Wilson Center. Issue 2, Summer 1998. p.
31.
96World Resources Institute. Regional Profile: China’s Health and Environment. World
Resources 1998-99. 1999. p. 121.
97Ibid. p. 28-30.
98China State Environmental Protection Administration. Report on the State of the
Environment in China for 1999. Water Environment. Available at Internet website
[http://www.sepa.gov.cn/soechina99.htm].
99Maria Burke. Managing China’s Water Resources. Environmental Science and
Technology. May 1, 2000. p. 219A.
100China State Environmental Protection Administration. Report on the State of the
Environment in China for 1999. Water Environment. p. 22.

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of Sciences has estimated that economic losses from water shortages and pollution in urban
areas just in northern China equaled about $24 billion, or 3% of China’s GDP, in 1997.101
Chinese and U.S. researchers have identified 3 key causes of water quality
degradation in China: rapid and unregulated expansion of industrial activities; growth of
urban and suburban areas without adequate investment in water supply infrastructure; and
increased use of pesticides and fertilizers combined with a continued reliance on sewage
irrigation.102
Industrialization has been especially rapid among China’s township and village
industrial enterprises (TVIEs) which are more than 50% locally owned and now account
for more that 55% of rural GDP. A key issue researchers have identified here is that
industrial growth among TVIEs “has occurred outside of the central government
environmental management systems, and is only regulated to the degree that local bureaus
and authorities choose to exercise such authority.”103 Although TVIEs became subject to
state laws in 1996 and 1997, enforcement was quite lax. Consequently, most of the TVIEs
have lacked wastewater treatment facilities and have discharged more wastewater and
more highly polluted wastewater than the formerly dominant state-owned enterprises.
Recently, industrial wastewater treatment rules have been enforced more aggressively,
especially in urban areas. According to SEPA, in 1999, 87.2% of industrial wastewater
received some treatment, and 66.7% of wastewater discharged attained standards.104
Untreated municipal sewage is a worsening problem for Chinese cities, and, in 1999,
for the first time, domestic sewage discharges exceeded industrial discharges. By the end
of 2000, industrial discharges had declined, but domestic sewage discharges had increased
by more than 2 billion tons. Nonetheless, progress has been made in recent years. The
number of municipal wastewater treatment plants in China increased from 37 in 1978 to
135 in 1996, while the percent of municipal wastewater treated increased from 1.4% in
1978 to 13.1% in 1996.105 Nearly 83% of wastewater remained untreated in 1996. By
late 2000, 30% of urban sewage was being treated, according to recent government
statistics.106
Health and Environmental Impacts and Costs. Any discussion of health
impacts and costs of water pollution in China may best be done in the context of the very
significant progress China has made in controlling infectious diseases (including waterborne
101Working Group on Environment in U.S.-China Relations. Meeting Summaries. China
Environment Series. Woodrow Wilson Center. Issue 3. June 3, 1998. p. 58.
102Mauer and Wu, et al., Water Pollution and Human Health in China, p. 29.
103Ibid., p. 36.
104China State Environmental Protection Administration. Report on the State of the
Environment in China for 1999. Water Environment.
105Working Group on Environment in U.S- China Relations. Meeting Summaries. China
Environment Series. Environmental Change and Security Project of the Woodrow Wilson
Center. Issue 3 June 3, 1998. p. 58.
106U.S. Embassy Beijing. Environmental Objectives and Investment Requirements for
China’s 10th Five-Year Plan. November 2000. Available at Internet website:
[http://www.usembassy-china.cn/english/sandt/10FYP.htm].

CRS-24
diseases) compared to conditions existing in 1949. At that time, more than one-half of the
population died from infectious and other nondegenerative diseases before reaching middle
age (a statistic not uncommon for developing countries); in contrast, statistics from the
Chinese Ministry of Health show that, by the mid 1990s, infectious diseases had declined
markedly and were the cause of death for just 0.0004% of the population annually.107 This
progress is particularly notable given that China has the world’s largest population and
continues to be one of the world’s poorer nations.
Nonetheless, China’s deteriorating water quality that has resulted from its rapid
urbanization, industrialization, and intensive agricultural practices is threatening to
undermine some public health gains. Recent studies suggest that China’s severe water
pollution is increasing the traditional health risks of infectious diseases as well as the
“modern” risks of illnesses associated with exposures to industrial chemicals in drinking
water.108
In addition to public health concerns, the economic and ecological effects of water
pollution also are being felt in China. The U.S. Embassy in Beijing recently identified
several direct and indirect costs of water pollution:
! Red tides (abnormal algal growth caused by marine pollution) caused more that
$120 million in losses to the fishing industry in the Bohai, Yellow and South China
seas in 1999, according to the Ministry of Agriculture.
! Fishermen in Hebei Province filed suit in November 2000 claiming wastewater
from upstream paper mills in Henan Province killed $3 million worth of fish.
! Toxic spills killed 2 million kilograms of fish in two rivers in Anhui Province in July
2000, costing local fishermen $1.5 million in lost catch. Reports indicate that
perhaps 1,000 incidents occur nationally each year.109
The U.S. Embassy noted the general concerns that water pollution spreads diseases,
reduces agricultural output and imposes costs on industries that use water in their
production processes. While such concerns are shared by all countries, China faces these
water pollution problems on a very large scale.
Government Measures to Reduce Water Pollution. In response to the
widespread deterioration of water resources, the national government adopted several
strategies in the 1990s. These include increasing the number and capacity of municipal
wastewater treatment facilities, more aggressively controlling industrial wastewater pollution
(especially among TVIEs), and using sewage irrigation projects.
107World Resources Institute. Regional Profile: China’s Health and Environment. World
resources 1998-99. p. 116.
108Mauer and Wu, et al., Water Pollution and Human Health in China, p. 36.
109U.S. Embassy, Beijing, China. The Cost of Environmental Degradation in China.

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In 1996, Chinese officials launched a nationwide campaign to close down inefficient
and highly polluting enterprises that were affecting sensitive waterways.110 According to
the World Bank, during 1996 and 1997, the government closed nearly 17,000 small and
medium enterprises in Henan Province alone, and most of these were TVI enterprises.111
These closures correlated closely with a nearly 30% reduction in the total chemical oxygen
demand (COD) load from industries.112 Along the Huai River, 1,111 small paper mills
were shut down which reduced the amount of wastewater discharged into the river by
15%.113 The government also issued rules advancing industrial wastewater treatment in
specific sectors, and, in the late 1990s, approximately 40,000 industrial wastewater
treatment facilities were built.114
By closing polluting industries, improving the enforcement of water pollution laws, and
increasing investments in wastewater treatment infrastructure, China has made progress in
reducing the volume of polluted discharges, particularly in the industrial sector. (Table 4
compares total wastewater discharges and COD discharges from domestic and industrial
wastewater sources during the 9th Five-Year Plan.)
Table 4. Ninth Five Year Plan:
Total Water Pollutant Emissions 1995, 1998, 1999 and 2000
(millions of metric tons)
Total Wastewater Discharge
COD Discharge
Year
Domestic
Industrial
Domestic
Industrial
1995
13,370
28,160
6.1
16.2
1998
19,480
20,050
6.9
8.0
1999
20,380
19,730
6.9
6.9
2000
22,090
19,420
7.4
7.1
Increase & decrease
65.2
-31.0
21.3
-56.6
(%) 1995-2000
Source: SEPA. Report on the State of the Environment in China, 1999 and 2000.

Goals and Challenges. Chinese officials have long acted to address the serious
nature of the country’s water resource problems, and increasingly, the pollution aspect of
11 0 Jim Stover. China’s Environmental Framework 2000 and Beyond. China Business
Review. April-March 2000. p. 51
111Jostein Nygard, China’s Brown Agenda: Changed Environmental Pollution Trends.
112 Ibid. Chemical oxygen demand (COD) is a measure of the capacity of water to consume
oxygen during the breakdown of pollutants (i.e., decomposition of organic matter, such as
sewage, and oxidation of inorganic chemicals, such as ammonia or nitrite). COD
measurements are commonly made on samples of waste waters or of natural waters
contaminated by domestic or industrial wastes and are used to indicate pollution loads.
113China Environment Yearbook: 1997. November 1997. p. 130.
114Working Group on Environment in U.S- China Relations “Conservation and Pollution of
Water Resources in China.” Working Group Summaries. China Environment Series.
Woodrow Wilson Center. Issue 3, 1999/2000. p. 59.

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those problems. However, challenges remain. As one expert on China’s water resource
issues noted, China’s water problems are so serious that,
failure in the coming decades to conserve and improve the quality of water
resources will seriously undermine China’s growth prospects and threaten its
political stability. Water shortages, increasing flood damage, and rampant pollution
threaten to undermine both short-and long-term modernization goals. It is
uncertain, moreover, if sufficient fresh water will be available in the coming
decades to accommodate China’s growing water demands for agriculture,
industry, energy development, and domestic supply.115
In November 2000, China’s State Council issued a circular setting goals for urban
water conservation and pollution control. The circular set a goal for cities with populations
of 500,000 or more to be treating at least 60% of sewage by 2005, and for all cities to be
treating at least 60% of sewage by 2010.116 The 10th Five-Year Plan increases the number
of “key” cities targeted for pollution control from 47 (in the 9th Five-Year Plan) to 100.
All of the targeted cities are expected to meet national water (and air) quality standards by
the end of 2005.
Researchers have noted that, for China to meet its wastewater treatment goals, the
country will have to overcome several financial and institutional hurdles. A key challenge
is that municipal governments have had little or no experience with sewage treatment
projects. Moreover, operation and maintenance costs and training typically have not been
factored into project costs. China has relied, and continues to rely, heavily on foreign aid
to fund wastewater treatment projects.117
While noting accomplishments over the past five years, a study by the Chinese central
government, the World Bank and others project that water pollution control will become
much more complex over the next 10 years, and that it is likely that water quality in rivers,
lakes and ground water will deteriorate in many areas. The authors noted that, in many of
China’s stressed river basins, a huge gap exists between the ambient standards for
designated water uses and the actual standards that are likely to be achievable within any
reasonable planning time-frame. Pollution sources that require increased attention include
municipal wastewater discharges and agricultural nonpoint source pollution (especially from
intensive livestock production units), as well as continuing efforts to reduce industrial water
pollution.118
115Baruch Boxer. China’s Water Problems in the Context of U.S.-China Relations. China
Environment Series. Woodrow Wilson Center. Issue 2, Summer 1998. p. 20.
116British Broadcasting Corporation. Circular Issued on Water Saving, Pollution, Sewage.
BBC Summary of World Broadcasts. November 29, 2000.
117Working Group on Environment in U.S- China Relations. An Overview of Chinese Water
Issues. Working Group Summaries. China Environment Series. Woodrow Wilson Center.
Issue 2, Summer 1998. p. 47
118 World Bank. Sector Study on China’s Environmental Issues. Draft Executive
Summary. 2001.

CRS-27
Environmental Policies in China
In response to worsening pollution problems, environmental concerns have been
expressed as a national priority in government policies and documents much more often
over the past several years. As environmental pollution grew to uncomfortable and
unhealthful levels, and as severe flooding was tied more directly to deforestation in the
upland areas, recent Chinese policies and official pronouncements began to reflect this
increase in priority for environmental protection. In many cases, laws are on the
books–and have been for some time–to control pollution, but enforcement has been
problematic. The government has identified a number of areas where environmental
protection laws need to be strengthened or revised, and this process is underway. For
example, amendments to the air pollution control law last year added numerous
requirements and strengthened enforcement authority at the provincial and local levels. One
conspicuous impediment to more effective environmental management has been the
decentralization of enforcement activities, as well as lack of resources at the national,
provincial, and local levels, and the relatively weak system of legal recourse or other
methods to achieve implementation of environmental protection laws.
In general, however, while a review of major Chinese policy documents shows
increased mention of environmental priorities, and the earlier reluctance to acknowledge
environmental problems has faded, these policies also clearly demonstrate that economic
development goals remain pre-eminent, and would be likely to prevail in any perceived
conflict with environmental goals. Working in favor of stronger environmental protection
is the slowly growing perception that environmental deterioration has become a problem
in economic terms.
10th Five Year Plan. The document that most comprehensively outlines economic
and social priorities for China is the five year plan. The 10th Five Year Plan, adopted on
October 11, 2000, retains a primary emphasis on economic development, but also
includes significant references to the importance of environmental (more often translated
as “ecological”) protection, sometimes acknowledging the need to improve the current
situation.
The Plan identifies “main objectives” as “relatively fast economic growth”, doubling
gross domestic product between 2000 and 2010, establishing a social security system, and
improving the participation of state owned enterprises (SOEs) in the international economy.
Achieving these goals would enable, according to the plan, improvements in jobs, incomes,
and material conditions; and “ecological construction and environment preservation will
intensify.” The Plan clearly states, “Development is the overriding principle ... key to
addressing all the problems in China,” and generally includes environmental concerns as
the final item in lists such as “main assignments for the strategic adjustment of the economic
structure” that include improving performance and returns of agriculture, industry and
services, coordinated development between regional economies, expediting urbanization,
and “special efforts to improve the infrastructure and the ecological environment essential
for achieving a sustainable development.” Under speeding up industrial transformation,
controlling pollution is a goal, along with increasing labor productivity. The Plan specifically
targets closing factories and mines that “waste resources...and cause serious pollution.”

CRS-28
Other references to environment in the 10th Five Year Plan include water
conservancy and “great efforts to address such problems as flooding, insufficient water
resources, and water pollution.” The Plan states, “With respect to energy development,
we should...optimize the mix of energy resources, make their use more efficient, and
intensify our efforts in preserving the environment.” Improving the “ecological
environment” is a key feature in the section on development of Western China “in a Big
Way.” Another section promotes a greater degree of urbanization, stressing the role of
markets and investment and an emphasis on medium and small cities; there is no mention
of environmental concerns in the urbanization section.
Section 10 of the Plan is “Strengthen Management of the Population and Resources;
Emphasize Ecological Projects and Protection of the Environment.” It begins,
“Implementing a strategy of sustainable development has a bearing on the vital matter of
the survival and development of the Chinese nation.” Population issues are emphasized
first, followed by rational use of resources and urging protection and development of
water, land, mineral, forestry, grassland, marine, and other such national resources, in
keeping with the law. Prospecting for resources is encouraged. Strengthening “ecological
construction” and curbing “deterioration of the ecology” is identified as a goal, along with
environmental protection. The Plan states, “We should strengthen the overall control of
air, water, garbage, and noise pollution in the cities and achieve obvious improvements in
the quality of the environment in the larger cities.” It goes on to say, “The environmental
protection industry should be developed vigorously, strengthening research and
development on key industrial protection technology and processing equipment.”
Improving environmental and climate monitoring systems is mentioned, as are perfecting
and strengthening environmental protection laws and regulations, and strengthening law
enforcement and oversight.
In commenting on the Plan, Premier Zhu Rongji stated the importance of the period
for achieving the goals of the plan–economic and social development, economic
restructuring, improving the socialist market economy, and opening to the outside world;
environmental improvement was not among these top goals. However, among the
remaining problems “not to be ignored” was “worsening ecological environment in some
localities.” His comments on improving people’s livelihoods included a major emphasis on
increasing the level and scope of consumption, with a mention of improving the quality of
the environment.
China’s Agenda 21 on Sustainable Development. At the 1992 United
Nations Conference on Environment and Development (UNCED) in Rio de Janeiro,
popularly known as the Earth Summit, a 40-chapter “action plan” for environmentally
sustainable development was agreed upon by the world’s leaders.119 Each nation made
voluntary commitments (not legally binding) to engage in carrying out the goals of Agenda
21 (named for actions needed into the 21st century), as the action plan was called. China
was one of the first countries to take up the challenge of formulating an Agenda 21 for its
own development.
119For more information on the Earth Summit, see CRS report 92-374 ENR, Earth Summit
Summary.

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In 1994, China completed its Priority Programme for China’s Agenda 21, First
Tranche, prepared by the State Planning Commission and the State Science and
Technology Commission. This document outlined the “executable projects” that would
serve as the “fundamental means for implementing China’s Agenda 21,” and that would be
integrated into successive five-year plans, beginning with the 9th. Possibly reflecting
expectations of developing countries that financial assistance might later be provided by
developed countries for Agenda 21 – which has not happened to any appreciable degree
– China prepared extensive lists of possible projects related to the very broad term,
“sustainable development.” More than 500 proposals were suggested by various line
ministries of the State Council, local governments, industrial sectors, academic institutions
and other organizations.
The Priority Programme spells out 9 priority areas that encompass 62 projects. The
priority areas are as follows:
! Capacity building for sustainable development, which includes revamping legislation
and enforcement, policies, education and training, and public participation in
sustainable development, with an emphasis on environmental issues;
! Sustainable agriculture, which includes management of water resources,
development of “biological pesticides and green foods,” and demonstration projects
related to the strategy for sustainable agriculture;
! Cleaner production and environmental protection industry, including introduction
of clean technologies in principal industrial sectors and enterprises, development of
environmental protection industry, and construction of industrial parks for
environmental science and technology.
! Clean energy and transportation, including clean coal technologies, increases in
energy efficiency, utilization of renewable energy, modern transport planning, light
rail, etc.
! Conservation and sustainable utilization of natural resources, including establishing
a monitoring network for ecology and the environment, reclamation of wastes and
mine tailings, and a variety of land soil resources goals.
! Environmental pollution control, including waste water treatment and recycling, safe
management of hazardous waste and toxic chemicals, acid rain control, treatment
and disposal of radioactive wastes.
! Combating poverty and regional development.
! Population, health and human settlements, including demonstration projects in
communities on sustainable development, family planning, health care, disaster
mitigation, etc.
! Global change and biodiversity conservation, including climate change, conservation
of biodiversity, prevention and control of desertification, etc.

CRS-30
The priority program for China’s Agenda 21 makes it clear that these are projects
and areas in which investment will be sought from a wide variety of sources, including
multilateral agencies, bilateral programs, and private foreign investment. In its report in
2000, the U.S.-China Business Council reported that the Center for China’s Agenda 21
indicated that international support had been secured for 36% of the original projects
identified in the priority program, and that support for another 33% was under
negotiation.120
Representative projects associated with some of the priority areas are:
! In the cleaner production and environment industry area: demonstration projects
for cleaner production in the chemical industry; coal flue gas desulfurization
technology development and commercialization; and cleaner production
demonstration projects in the iron and steel, pharmaceutical, and alcohol industries.
! In the clean energy and transportation area: efficiency improvement and pollution
control of medium to small size boilers; exploitation, development and utilization of
coalbed methane resources; and a “green lights” program (installing energy efficient
electric bulbs lighting technologies).
! In the environmental pollution control area: minimum discharge community
demonstration; technical support and disposal demonstration project for hazardous
wastes; and a variety of water pollution control, acid rain control and other
pollution control projects for specific cities or corporations.
China’s Agenda 21 spelled out under its Capacity Building priority a project involving
the enactment and amendment of laws to strengthen areas and fill gaps where the legal
system is weak. The project identifies the lack of appropriate legislation on solid wastes,
pollution prevention, management of hazardous wastes and toxic chemicals, radioactive
pollution, and natural resources management. The Agenda 21 program noted, “Although
China has signed more than 20 international treaties on the environment and resources, the
domestic legislation to implement these treaties has not yet been enacted.” (See below for
discussion of China’s environmental laws and regulations.
Trans-Century Green Project. Another extensive list of environment-related
projects compiled by China’s government and proposed for potential foreign investment
was unveiled at the 1997 U.S.-China Environment Forum established to facilitate U.S.-
China cooperation. This list of nearly 1600 projects is called the Trans-Century Green
Project. These projects are heavily focused on pollution control and treatment
infrastructure projects, including urban sewage treatment in 17 different cities or
communities; industrial wastewater treatment for 15 cities or enterprises; urban solid waste
treatment and industrial waste treatment for 14 cities or industries; air pollution control in
18 different plants or areas. According to the U.S.-China Business Council, China’s State
Environmental Protection Agency (SEPA) has reported that by the end of 1997, some
11.3% of these projects had been completed, with total investment at $1.3 billion, with
international investment of $99.5 million. In addition, one-third of the total, 523 projects,
were reportedly underway, with investment in them of $2.14 billion, of which $290 million
120Baldinger. Environmental Trends and Policies in China, p. 57.

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were foreign funding.121 By the end of 1999, 1,053 projects were completed or initiated,
accounting for 72% of all Trans-Century projects and 60.2% of total investment for these
projects.122
China’s Laws and Regulations on Environment. As discussed elsewhere
in this report, China has enacted a wide array of laws addressing most of the environmental
issues that have been of concern over the years. Additionally, beginning in 1998, the newly
reorganized State Environmental Protection Agency (SEPA) promulgated an extensive
array of decisions and regulations to strengthen or create controls of a wide variety of
pollutants and concerning numerous activities such as environmental standards
measurement, environmental impact assessments, hazardous waste incineration, and many
others. In 2000, the air pollution control law was greatly expanded and strengthened, as
noted in the discussion of air quality.
A number of additional laws are reportedly in the drafting stage or being discussed,
including a clean production law, a new marine environmental protection law, a radioactive
pollution prevention law, and others.123
It remains problematic to determine the level of implementation and enforcement for
laws and regulations in China. The decentralization of many governmental functions, and
continuing reports of corruption–along with reports of crackdowns on corruption–make
compliance very hard to determine. The U.S.-China Business Council report notes the
disconnect that often occurs between the laws on the books and compliance with them:
As China’s rapidly expanding body of environmental legislation grows more
sophisticated, the gulf widens between what is mandated by law and how laws
are actually implemented. As in many other areas of China’s legal system,
environmental laws often reflect a vision far removed from reality. A 1998
SEPA investigation of local compliance levels, for example, revealed that about
one-third of the firms inspected were operating in accordance with the law; one-
third were not using any environmental protection equipment at all; and about
one-third operated their environmental technology “inefficiently” (i.e., only during
inspections).124
The report noted several reasons for these discrepancies, first among them, the
decentralized bureaucratic structure, in which enforcement of environmental laws and
regulations is carried out primarily by provincial and local level environmental protection
bureaus (EPBs), which report to provincial or local government authorities, not to SEPA.
Therefore, development priorities of the local governments may often take priority over
environmental protection laws. Other obstacles to enforcement include conflicts of interest
arising from funding for the EPBs which comes from fines collected and the fact that the
EPBs often have commercial subsidiaries that provide technology–sometimes encouraging
inappropriate use of them; irrational pricing mechanisms that often make paying fines more
121Ibid., p. 58-59.
122China State Environmental Protection Administration. State of the Environment 1999.
Website: [http://www.sepa.gov.cn/soechina99/manage/managedown.htm]
123Ibid., p. 14-15.
124Ibid., p. 17.

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attractive than investing in pollution control technology; and unrealistically high legal
standards or compliance timeframes. Other major obstacles cited are the lack of
environmental experience and traditions among the public and among operators of
industrial and other facilities, as well as the relatively weak system of tapping into public
concerns and the relative lack of legal recourse for public concerns.
In general, it seems clear that the Chinese government has significantly increased
efforts to mitigate environmental deterioration, and both laws and regulations are being
upgraded. While compliance remains problematic, efforts are also underway in the
government to increase understanding and support for environmental improvement and
laws among the public and among industry and economic officials. Improvements in
environmental quality, especially air quality, have been noted as plants have been closed,
often in line with environmental mandates, and as the government takes some strong
environmental steps.
Governmental Organization for Environmental Protection. As
environmental problems worsened during the first half of the 1990's, the government also
responded by reorganizing some of its environmental functions. Many experts on China
place the turning point in the mid-1990's, in particular from 1996 onward. The U.S. China
Business Council observed in its report, “The real turning point in official attitudes toward
the environment, however, came in 1996, when both President Jiang Zemin and then-
Premier Li Peng delivered speeches at China’s Fourth National Environmental Protection
Conference. For the first time the government included environmental protection projects
and targets in the state plan and unveiled ambitious schemes to attract foreign
investment.”125 As discussed below, the environmental functions of the government are
organized across a number of agencies and organizations; lines of authority among these,
however, can be difficult to ascertain, partly because of the complex, and somewhat
impenetrable interrelationship between official government structures and the communist
party hierarchy, as well as the complexity of the lines of authority between the national and
lower level governmental entities.
State Environmental Protection Agency (SEPA). The agency with most direct
responsibility for environmental protection and pollution control is China’s State
Environmental Protection Administration, the highest level administrative environmental
authority at the national level. It superseded the previous National Environmental
Protection Agency (NEPA) and was elevated to ministerial status in 1998 as part of
government restructuring, but at the same time was cut back to 200 to 250 employees, a
30% reduction in staff. It operates with very limited funding and human resources. SEPA
issues standards and regulations, and is responsible for enforcement. Although its elevation
to ministerial status may have been intended as a signal to both Chinese and foreign
constituencies that the environment has been elevated as a political priority, the reduction
in staff and resources may create additional problems in its operations.

The Environment and Natural Resources Protection Committee of the National
People’s Congress (NPC) and the State Council. This Committee is the primary
legislative entity for environmental issues, drafting legislation that is later considered by the
Standing Committee of the NPC (essentially the working body of the NPC). The State
125Baldinger, Environmental Trends and Policies in China, p. 9.

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Council is the primary administrative secretariat for decisions of the NPC, and as such is
the body to which ministerial bodies such as SEPA report. Thus the Council has key
responsibilities for approving a wide range of environmental targets, priorities and plans,
as well as SEPA’s budget.
State Development Planning Commission (SDPC). The SDPC has a key role in
comprehensive social and economic planning and development, including coordination of
the five-year plans that outline the priorities and the framework for China’s economic
strategies. It has responsibility for developing the lists of priority projects for investment,
including infrastructure. The SDPC develops major policies on such environmental issues
as climate change and for renewable energy and gas utilization. It also plays a key role in
project approval at local, provincial and national offices, and thus would be centrally
involved environmental projects per se, as well as decisions on the extent to which
environmental factors are taken into account in other major projects.
The State Economic and Trade Commission (SETC) is a key player in formulating
national economic policies and objectives for communications, commerce, trade, and
industrial technology, including domestic environmental protection technology. In the
government reorganization of 1998, this ministry also absorbed former ministries of key
relevance to environmental issues, including the former Ministry of Coal Industry, Ministry
of Chemical Industry, and it oversees the offshore oil corporation, former Ministry of
Electric Power and the State Bureau of Technological Supervision.126 The SETC also has
responsibility for approving technological expansion and renovation, especially for state
owned enterprises (SOEs), which would have import for related environmental impacts
and concerns.
Other National Agencies. According to the U.S. China Business Council, a
number of other ministries would have key roles in environmental issues connected with
their jurisdiction. Among these are the Ministry of Construction, which oversees urban
engineering projects, including wastewater treatment, waste-recycling, desulfurization, and
energy efficient heating equipment. The Ministry of Foreign Trade and Economic
Cooperation (MOFTEC) is responsible for approval of all foreign investment. A
subsidiary of this ministry, the China International Center for Economic and Technical
Exchanges, manages United Nations Development Program projects and coordinates
cooperation with international non-governmental organizations assisting in the sustainable
development area. The Ministry of Science and Technology oversees China’s Agenda
21 program for sustainable development, conducts research on new technologies, and
funds scientific initiatives. Other relevant ministries would include the Ministry of
Agriculture, the Ministry of Water Resources, and the Ministry of Land and Natural
Resources.
Provincial, Municipal and Local governments. As noted above, the interplay
among the national level ministries and between the national officials and the implementing
authorities at the lower levels of government is complex, and often presents difficulties in
the enforcement of environmental protection laws and policies. There is a paucity of
human and financial resources available for environmental protection activities at all levels,
making stringent enforcement efforts problematic. As in most nations, there are competing
126Ibid., p. 11.

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priorities between the national-level ministries responsible for economic development and
those with environmental responsibilities. Often, the economic development interests are
seen to be in conflict with, and prevail over, environmental protection goals.
According to conversations with Chinese officials at both levels, it is not unusual for
there to be differences in environmental priorities and competing perspectives at provincial
and local levels. When the national environmental officials attempt to assure
implementation of environmental goals, they may encounter resistance or apathy at the
lower levels to the extent that such implementation is either greatly slowed or obviated.
Corruption is reportedly a major problem connected with the government’s
environmental protection efforts. According to a February 12, 2001, communication from
the U.S. Embassy in China,
The State Accounting Bureau recently found serious problems in the collection,
management and use of waste emission fees in 46 key cities. The Bureau found
false accounts and mismanagement of funds totaling RMB 986 million ($120
million), or some 27% of the total budget. ... Some Chinese environmentalists
believe that corruption at all levels of government is China’s biggest
environmental problem.127
It remains difficult for China, as for most nations, to resolve conflicting environmental,
economic and social needs in order to enforce environmental requirements. In a February
2, 2001 communication, the U.S. Embassy in China reported an article in China Daily, Jan.
22, 2001, that indicated 520 “strategic” state-owned enterprises that were facing a
December 2000 deadline to meet pollution standards or be closed have been granted a
possible 2-year extension by the SEPA. Because widespread non-compliance among
these very large companies would have resulted in closings involving large-scale potential
layoffs, SEPA made the decision to allow appeals for a 2-year extension. Such extensions
would have to be approved by both local and SEPA authorities; SEPA reportedly
indicated that those SOE’s that have not made any efforts to reduce pollution would be
closed. However, many smaller companies that failed to meet the end-of-2000 deadline
have been closed.
United States-China Cooperation on Environment
U.S. foreign assistance to China is limited or prohibited by a variety of laws pertaining
to Tiananmen Square sanctions, human rights and other concerns; nevertheless, the United
States and China have entered into a large number of cooperation agreements, addressing
a wide variety of scientific and environmental issues. Numerous agreements on
environmental cooperation have been concluded and are in place between Chinese
agencies and U.S. agencies such as EPA, Department of the Interior, Department of
Energy (DOE), the National Oceanic and Atmospheric Administration (NOAA), the U.S.
Export-Import Bank (Ex-Im Bank), and other agencies. The majority of these are for
various forms of technical assistance, training, information exchange, workshops, and
127This report is available at
[http://www.usembassy-china.org.cn/english/sandt/estnews0112.htm]

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research. Few, if any, involve more than $100,000 to several hundred thousand dollars.
Most are much smaller.
Some 123 cooperative efforts involving the United States Government and China
were listed in a 1998 inventory prepared by the Woodrow Wilson Center’s Working
Group on Environment in U.S.-China Relations.128 This list included 45 agreements
between EPA and Chinese agencies, covering a wide variety of areas such as clean air and
energy technology (development of investment and market strategies for clean energy
projects); assessment of Chinese air quality management processes; phase-out of ozone
depleting substances; automotive technology/leaded gas phase out; climate change
research; coal mine methane market development; pollution prevention and control for
China’s river basins; and many others. An August 2000, EPA list showed 10 active
cooperative projects between EPA and Chinese agencies, mainly SEPA, and listed
another 9 “other” activities, including a number of workshops and meetings. During the
period July 1999 through 2000, some 37 meetings were listed on an EPA calendar of
United States-China events.
Clean energy and energy efficiency are a major focus of many of the environment-
related U.S.-China cooperative efforts across several agencies. Cooperation with NOAA
focuses on climate, weather, fisheries and coastal management.
U.S.- China cooperation on environment has a history of several decades, but has
not been highly coordinated within the U.S. government; rather, agencies pursued accords
in their areas of interest without necessarily relating to a unified government-wide strategy.
Cooperative agreements on environment continue to be conducted by a large number of
agencies, with varying degrees of interagency coordination in specific subject areas, but
on a somewhat ad hoc basis.
The U.S.-China Forum on Environment and Development. In 1997,
following Vice President Gore’s visit to Beijing, the two governments established the inter-
agency U.S.-China Forum on Environment and Development with a mission to address
issues involving climate change, SO2 emissions, energy efficiency, and water resources and
treatment. The Forum created four working groups:
! Environmental Policy Working Group, focusing on multilateral environmental issues
and negotiations, and addressing pollution prevention and control, health impacts
of pollution, waste management, and hazardous waste;
! Energy Policy Working Group, focusing on energy generation, including
conventional, alternative, renewable, and nuclear sources, and major energy
consumption in industrial, transportation, building, and utility sectors;
! Science for Sustainable Development Working Group, focusing on application of
science and technology to better understand and encourage sustainable
development in China;
128Inventory of Environmental Work in China, China Environment Series, Issue 3, 1999,
1999/2000. Environmental Change and Security Project, Woodrow Wilson Center,
Washington, D.C. p. 78-104.

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! Commercial Cooperation Working Group, focusing on trade, energy, environment,
agriculture and other aspects of U.S.-China environmental relations, and working
to identify areas in which environmental technology opportunities for U.S. firms in
terms of China’s environmental needs.129
These working groups were intended to create dialog at high levels of government,
and to increase the priority and visibility for these issues in both governments. They did not
command financial resources or result in specific project undertakings.
The second meeting of the U.S.-China Forum on Environment and Development
took place in April, 1999, on the occasion of Chinese Premier Zhu Rongji’s visit to the
United States. At the conclusion of that meeting, a Memorandum of Understanding was
signed between China’s Ministry of Science and Technology and the State of Oregon,
establishing a China-U.S. Center for Sustainable Development, based in Portland, Oregon.
The Center’s focus was described as land use planning, sustainable agriculture, sustainable
forestry, environmental technology and cleaner production practices, sustainable cities,
sustainable energy, marine environment, water resources, and capacity building for
sustainable development.
Two secretariats were established: one in China under the Administrative Center for
China’s Agenda 21, and in the United States, under the International Sustainable
Development Foundation, a non-profit non-governmental organization (NGO). As of
February, 2001, the Center was still in its organizational phase, but its website indicates
its plans to be “a new type of organization, combining the entrepreneurship and agility of
the private sector with the authority of government to make policy decisions and mobilize
resources across all levels of decision-making–national, regional and local.”130 Some of
its activities in 2000 included hosting a number of consultations, delegations of officials on
various sustainable development issues, and information exchange activities.
Export-Import Bank. The U.S. Export-Import Bank (Ex-Im Bank) supports
short-, medium-, and long-term programs in China. Short- and medium-term programs
include the trade of commodities, raw materials, and spare parts, while long-term programs
generally focus on capital goods.131
The Ex-Im Bank charter requires the bank to take environmental effects into account
in granting support for proposed programs, although these requirements only apply to long-
term programs. As part of its environmental procedures, the bank has committed to
increasing support for environmentally beneficial projects and products, especially those
that lead to greenhouse gas reductions, such as renewable energy projects.132
129Ibid. p. 85.
130[http://www.chinauscenter.org]
131Export-Import Bank of the United States. U.S. Exports to the People’s Republic of
China. November 1999. [website: http://www.exim.gov/country/ebd-y-05.html]
1 3 2 Export-Import Bank. Environmental Procedures. June 27, 2000. Website:
[http://www.exim.gov/envproc.html]

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In April 1999, Ex-Im Bank and the State Development Bank of China (SDB)
announced a $100 million Clean Energy Program. This amount is small relative to all Ex-
Im Bank programs in China, which totaled approximately $5.9 billion in 1998.133 A single
program to sell commercial aircraft to Air China, for example, totals $345 million.134 The
Clean Energy Program will promote the sale of U.S. technologies for renewable energy
generation, efficient thermal power generation, building energy efficiency, and emissions
reductions. Further, Ex-Im Bank maintains an environmental exports program, but no
projects have yet been initiated in China.135 Ex-Im Bank refused funding for the
construction of the controversial Three Gorges Dam, primarily on environmental grounds
in 1996.136
Trade and Development Agency. The U.S. Trade and Development Agency
(TDA) provides grant funding to middle-income and developing countries for studies,
training, and technical assistance. The Agency’s mission is to aid development and to help
the U.S. private sector compete for infrastructure and industrial projects in these countries.
Foreign governments use TDA grants to hire U.S. companies to perform feasibility studies,
thus involving businesses early on in projects that offer significant opportunities for export
of U.S. goods and services.
In January 2001, President Clinton authorized TDA to operate in China, pursuant to
a national interest waiver that lifted the 1989 sanction suspending the Agency’s program
there. The TDA is focusing its initial efforts on energy, environment, and aviation projects.
A preliminary list of possible projects in China included projects involving power
generation, gas development, clean coal technology, air pollution monitoring, motor vehicle
inspection, and water and wastewater treatment.137
TDA efforts often are focused on projects that may receive funding through
multilateral development organizations, such as the World Bank or the Asian Development
Bank. The scope of the effort is small, however, as the TDA has a budget of roughly $15
million for all of Asia.
Multilateral Cooperation on Environment
China is involved in a wide range of multilateral international efforts on environmental
issues. It is a recipient of funding from the Global Environment Facility (GEF)–a fund for
meeting incremental environmental elements of projects in developing countries, the World
Bank, and the Asian Development Bank. It is also a participant in a number of global
133Export-Import Bank of the United States. 1998 Annual Report: Rising to Meet Today's
Export Challenges. 1999.
134“Ex-Im Bank Backs Sale of Boeing Jets to Air China,” Seattle Times. March 10, 2000.
p. F2.
135Baldinger, Environmental Trends and Policies in China, p. 37.
136Joanna Gail Salazar. “Damming the Child of the Ocean,” Journal of Environment and
Development. June 2000. p. 160-174.
137U.S. Trade and Development Agency. TDA Reopens U.S. Export Promotion Program
in China Aviation, Energy and Environmental Sectors Named First Priorities. v.8, n. 1, 2001.
Website: [http://www.tda.gov/trade/update_index.html]

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treaties, but has binding commitments under only a few. All of these efforts involve the
scoping of environmental needs in various areas, and the engagement of private sector
entities to implement all or part of the activities being funded.
Global Environment Facility. The Global Environment Facility (GEF) was
established in 1991 to provide “incremental” funding through grants for projects that would
enable the accomplishment of goals related to the GEF’s four priority areas: biological
diversity, global climate change, international waters, and stratospheric ozone depletion.
The GEF is administered by the World Bank, with joint responsibilities by the United
Nations Development Programme (UNDP) and the U.N. Environment Programme
(UNEP). Since GEF funding is not meant to meet the costs of an entire project, but to add
to planned projects in order to fund the extra cost that enables the accomplishment of the
GEF’s goals, the amount of money for each project is much smaller than those from other
institutions.
The GEF is funding 12 projects on climate change in China, ranging from $10 million
to $25,000. They focus on such projects as methane recovery and utilization,
commercialization of renewable energy, participation in the climate change treaty process,
energy conservation, and policy development. There are 5 GEF projects in China on
biological diversity, including a variety of conservation efforts. There are also 5 projects
in the international waters category, focused mainly on pollution prevention and control in
coastal and marine areas, ranging in cost from $18.5 million to $5.2 million.138
World Bank. The World Bank lends extensively in China, but only a relatively small
number of lending projects are identified under “environment” by the Bank. Its current list
of environmental projects in China include 16 projects (not including the GEF projects it
administers), many for specific regions or cities. The lending levels range from $349 million
for the Beijing Environment Project to $50 million for an Environmental Technical
Assistance Project.139 In the “energy” category, the Bank listed 29 lending projects, of
which 3 were renewable energy, one was for energy conservation, 8 were for
hydroelectric, and 8 were for thermal power. Others included power marketing projects
and more general power development.140 Overall, the Bank reported a cumulative total
of lending in China since it resumed membership in 1980 at $35 billion as of June 30,
2000. Of this, some 19% was for energy projects, primarily thermal and hydroelectric
power, and 12 % was for urban water supply, urban development and environmental
improvements.141
In its current review of World Bank lending, the Bank’s section, “The World Bank
and China” characterized its lending on environment as follows:
138GEF project information is available at: [http://www.gefweb.org].
139For a list of projects, see [http://www.worldbank.org], and search by country and type of
project.
140For additional discussion of World Bank environmental projects in China, see China
Environment Series, Inventory of Environmental Work in China, Woodrow Wilson Center
Environmental Change and Security Project, Issue 3, 1999/2000. Spring, p. 178 - 188.
141Report available on World Bank website, [http://www.worldbank.org/eap]

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In the past few years, lending for environmental protection has become the
fastest growing area of the World Bank’s program in China. In FY2000, three
projects with aggregate lending of $700 million were approved, benefitting
environmental infrastructure development and policy reforms in Beijing,
Chongqing and Hebei Province. The Beijing project, which is associated with
Global Environment Fund (GEF) grant, supports the Municipality’s clean air
program, among other initiatives. The Bank also acts as implementing agency for
an array of other GEF projects as well as phase out of ozone-depleting
substances funded by the Montreal Protocol. On the policy side, the Bank, SEPA
and Norwegian partners are preparing an Environmental Sector Update to
support preparation of the next five-year plan—particularly in environmental
activities proposed for the western and central areas, in strengthening the
environmental dimensions of investment programs in China, and promoting
increased cooperation on environmental issues both within China and with the
donor community.142
The World Bank has been active in conducting studies and compiling statistics on
environmental problems in China, and continues to be a significant source of related
information (see numerous citations in this report). For example, in February, the World
Bank sponsored a workshop in Bangkok, “Fighting Air Pollution: From Plan to Action,”
which brought together city leaders from large cities across Asia, including Beijing and
Shanghai. A World Bank Regional clean Air Initiative for Cities in East Asia was launched
to continue information and idea sharing among these cities and donors. The World Bank
is cooperating with other multilateral donors on this project including the governments of
the Netherlands and Japan, and the Ford Motor Company.
Asian Development Bank (ADB). The ADB has provided loans to China
since 1986, when China joined the Bank. In its “country highlights” section of its most
recent annual report143 the ADB reports that as of 1999, China had received 79 loans,
with a cumulative total of $5.3 billion in contracts. For 1999, eight loans for six projects
were approved, totaling $1.3 billion, of which the ADB categorized $102 million as
“environmental improvement.” The nature of its environmental work in China was
characterized by the ADB as follows:
For environmental protection and natural resource management, ADB loans and/or
technical assistance addressed priority areas targeted by the Government, such as
water pollution control of some major river basins and air and water pollution control
in major cities. Of six loan projects approved in 1999, two projects (Suzhou Creek
Rehabilitation and Shanxi Environment Improvement) had environmental
improvement as a primary objective. Institutional strengthening of agencies involved
in environment and natural resource policy planning, management, and enforcement
is a key feature of ADB’s capacity-building and policy support programs.144
The ADB also has a number of projects classified under Energy, which includes
several wind power, acid rain control and improved coal methane projects. The Bank
142World Bank. “The World Bank and China,” [http://www.worldbank.org/eap], p. 5-6.
143See [http://www.adb.org/Countries/Hightlights/PRC.asp]
144Ibid.

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also states its policy of identifying and mitigating the environmental impacts of all types of
projects.145
China’s Environmental Technology Market
For China to achieve national goals for industrial wastewater treatment, sewage
treatment, air pollution control, and energy efficiency, investments in environmental
infrastructure must expand significantly. The government’s intent to address widespread
environmental degradation is reflected, as noted above, in the environmental objectives
outlined for the 10th Five-Year Plan. A report supporting the plan identifies projects for
which the government intends to seek funding during this period (2001-2005). Project
goals include constructing more than 200 wastewater and sewage treatment facilities and
installing desulphurization equipment on 51 coal-fired power plants.146 The investment
required for these and other environmental projects in the five-year plan is estimated to be
$85 billion, or roughly 1.3% of China’s gross domestic product over the five-year
period.147 Moreover, China’s growing pollution control requirements would be expected
to create demand for additional environmental technologies and services. For 2001, in
fact, the U.S. Department of State has included pollution control equipment on it list of
“best prospects” for sales of U.S. goods and services in China.148
The following table provides the State Department’s unofficial estimates of the value
of China’s environmental market. The authors note that it is difficult to quantify the market
“because accurate data are scarce and environmental goods and services do not fit cleanly
into standard customs classifications.”149
Table 5. China’s Environmental Goods and Services Market
(unofficial estimates, in millions of dollars)
1998
1999
2000
Total Market Size
4,030
4,700
5,500
Total Local Production
1,800
2,090
2,420
Total Exports
50
65
70
Total Imports
2,280
2,675
3,150
Total Imports from U.S.
360
450
510
Source: U.S. Department of State. FY2001 Country Commercial Guide: China
145For further discussion of the ADB projects in China, see China Environment Series,
Inventory of Environmental Work in China, Woodrow Wilson Center Environmental
Change and Security Project, Issue 3, 1999/2000, p.169-173.
146U.S. Embassy Beijing. Environmental Objectives and Investment Requirements for
China’s 10th Five-Year Plan. November 2000. Available at Internet website:
[http://www.usembassy-china.org.ch/english/sandt10FYP.htm].
147Ibid. This estimate assumes an annual growth rate in China of 7.5%.
148U.S. Department of State. FY2001 Country Commercial Guide: China. p. 2.
149U.S. Department of State. FY2001 Country Commercial Guide: China. p. 33.

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The ability to gain meaningful access to that market is perhaps the key question for
interested U.S. companies, and the answer appears to be complex and evolving. The
U.S.-China Business Council recently reported that the market for pollution control and
abatement technologies will be large, but the competition to participate in that market will
be severe:

While most environmental infrastructure projects will continue to utilize domestic
equipment and be funded locally, the PRC government is counting on receiving
at least 20 percent of total funding from foreign sources - multilateral
development institutions, bilateral government programs, non-governmental
organizations, and the private sector. Competition to provide environmental
services and equipment (an extremely broad category that ... includes water
supply and treatment; solid and liquid waste treatment and disposal; pollution
monitoring and reduction equipment; clean energy and energy efficiency
investments; and engineering/consulting services) will be fierce. Many US
companies will be at a disadvantage compared to European and Japanese firms
backed by soft loans and more consistent, supportive government policies.150
Similarly, the State Department notes that while the overall environmental market in
China is growing rapidly, only part of it is truly accessible to foreign firms. The reasons
cited for this situation include: low-cost local competition, financing and hard currency
constraints, closed bidding practices and other market barriers. However, several products
viewed as having the best sales prospects are in the air and water pollution control areas.
These include low-cost flue gas desulfurization systems, air and water monitoring
instruments, drinking water purification systems, vehicle emissions control and testing
devices, industrial wastewater treatment equipment, and resource recovery technologies.151
Research by the U.S.-China Business Council resulted in a similar view of “best
prospects” for the Chinese market. In March 2000, the Council reported that the market
for environmental protection equipment and technology was concentrated in several areas:
sewage and wastewater treatment (including treatment of high-density organic wastewater,
heavy metals, recycling and resource retrieval); dust removal equipment; desulfurization
equipment for coal-burning power plants; noise pollution control and vehicle emissions
controls; municipal solid waste incineration equipment and landfills; and monitoring
equipment.152
Because of the difficulties in gaining access to the Chinese environmental market,
most large U.S. environmental firms to date have participated primarily in World Bank and
Asian Development Bank projects. The State Department anticipates that, for several
reasons, this situation will change. First, environmental spending is expected to increase in
China, particularly in the more affluent coastal cities. Also, China’s pending accession to
the World Trade Organization (WTO) is expected to help U.S. exporters by reducing
tariffs and discouraging import substitution policies. As required of WTO members, China
has committed to provide national treatment to foreign investors whereby foreign firms will
150Baldinger, Environmental Trends and Policies in China, p.6.
151U.S. Department of State. FY2001 Country Commercial Guide: China. p. 33.
152Baldinger, Environmental Trends and Policies in China, p.31.

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be afforded the same competitive opportunities, including market access, as are available
to domestic firms. The State Department cautions, however, that changes brought about
by WTO accession are not expected to be immediate or dramatic in the environmental
sector.153 Finally, the recent reopening of the Trade and Development Agency program
in China could also help U.S. businesses to compete for participation in major
infrastructure projects.
Conclusions
It is often noted that China’s efforts to address air and water pollution and other
environmental problems occur within a context of widespread poverty, population
pressures, a shortage of natural resources, and outdated industrial infrastructure.154 The
types of environmental issues that China faces are typical for much of the world, but what
makes China different from most countries is the vast scale of these challenges. During the
past 20 years, the government has enacted numerous laws that address environmental
protection and natural resource conservation. As overall environmental degradation has
worsened in recent years, China has accelerated efforts to address pollution problems for
human health, environmental, and economic reasons. It has done this while continuing rapid
economic growth and in an evolving legal and institutional environment.
China’s environmental protection efforts have already shown significant results.
According to the World Bank,
the three most important [environmental results] have been a broad-based and
absolute reduction in industrial air and water pollutant emissions during the second
half of the 1990s, achieved thanks to a combination of regulation and industrial
reform; the reversal of deforestation through massive investments in reforestation
and afforestation; and reversal of secondary salinization in irrigation areas through
major programs of both control and prevention during the 1980s and extending
into the 1990s. These achievements are arguably unprecedented in any country
at China’s state of economic development and provide a strong indication that,
given a high level of political commitment, real progress can be made.155
Although progress is noted, the Bank anticipates that the environmental challenge
facing China is likely to become far greater and more complex over the next decade, and
the emphasis will have to shift from “fighting fires” to pollution prevention ... a challenge
familiar to all countries.
China’s continuing industrialization and quickly growing demand for automobiles,
appliances and other consumer goods will add to the challenges the country faces in
controlling pollution. The opening of China’s markets, largely through accession to the
WTO, is expected to increase foreign access to the Chinese market and potentially hasten
153U.S. Department of State. FY2001 Country Commercial Guide: China. p. 34.
154See for example, Michael Palmer, Environmental Regulation in the People’s Republic
of China: The Face of Domestic Law. The China Quarterly. 1998. p.788-808.
155World Bank. China’s Environmental Issues: The Bigger Picture. News release
regarding World Bank team’s completion (final draft) of sector study on China’s
environmental protection efforts. March 7, 2001.

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the availability of cleaner, more efficient technologies and products. Such foreign
involvement could be an important factor in mitigating some of the pollution associated with
such growth and might assist in making China’s future development to be less polluting than
its past.
The U.S. Embassy in China recently observed that environment has become a
national priority in China, and pollution control is being taken seriously. The reasons for this
heightened interest are multiple and include recognition by more officials at various
government levels that economic progress is being hampered by heavy pollution, and by
citizens increasingly concerned about the quality of the air they breathe and the water they
drink. The Embassy also projected that additional progress will be made during the next
5 years, “as new projects come on line, as new enforcement and monitoring techniques are
adopted, and as citizens become ever more interested and active” on environmental
issues.156 Economic growth will remain the priority for the government; however, by most
accounts, it appears likely that environmental problems will increasingly be pursued along
with economic progress.
156U.S. Embassy, China. Fighting Pollution in Sichuan: Mixed Results. A December 2000
report form U.S. Consulate General Chengdu. See: [http://www.usembassy-
china.org.ch/english/english/sandt/SHICUAN-ENVIRONMENT.html].