Are Foreign-owned Enterprises Disproportionately Harming The Environment In China?
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- Words: 607
- Pages: 26
The Impact of Enterprise Ownership on China’s Environment
By Candace Williams
China in the News
Central Goal: Clean-up
I’m not dying of cancer!
Questions
• What are the costs of pollution? • How do privately-owned enterprises (POEs), state-owned enterprises (SOEs), collectivelyowned enterprises (COEs), and foreign firms contribute to pollution? • Are there specific strategies that we can employ that address the strengths and weaknesses of each type of firm?
China’s Growth
GDP per capita from 1975 - 2002
China’s Growth
China’s Growth
How Dangerous is Pollution?
2001: the World Bank reported that 16 out of the world’s 20 most-polluted cities are in China.
China loses 5.4% of its GDP ($160 billion) per year because of environmental degradation.
Air Pollution: Costs
1% of China’s city 560 million citydwellers breath air considered safe by the European Union
Crop yields have decreased by 30%
760,000 PREMATUR E DEATHS
Air Pollution: Causes
Industry: 80% Inefficiency Energyintensive Coal and Oil
Transportation Boom: 14,000 new cars each day
Water Pollution: Costs
More than 75% of water that flows through faucets is deemed unsuitable for drinking or fishing
UNICEF says that 320 million people lack access to clean drinking water
Water Pollution: Causes
One-third of all industrial wastewater and two-thirds of household sewage remain untreated. China’s industries use 10 – 20% more water than similar industries in developed nations
Political Costs
51,000 environment-related protests in 2005
International Issues
Neighbors: 15% of sulfur deposits in South Korea, and 50% of deposits in Japan, are windblown from China.
Los Angeles: 25% particulate pollution in the atmosphere over Los Angeles originates in China
Why does ownership matter?
State-Owned Enterprises (SOEs)
Collectively-Owned Enterprises (COEs)
-Dropped from 80% share to 20% share in 30 years
-Small share of enterprises (decreasing)
-Inefficient
-In a position to internalize local externalities
-Internalize national externalities -Bargaining power
-Slightly more efficient than SOEs -Local bargaining power
Privately-Owned Enterprises (POEs) -Over 70% share today (5.5 million)
-41,485 new contracts in 2006 alone ($70 billion)
-No incentive to internalize externalities
-Wholly-owned foreign enterprises: 75%
-Strive for efficiency
-Rest are joint ventures
-Least bargaining power
-Race to the bottom vs. new
Foreign Firms (FDIs)
Why does ownership matter?
Why does ownership matter?
Wang and Jin (2002) -Determinants: ownership, factor costs, pollution abatement costs, technology, location, policy variables, community variables, type of industry - Best to worst performance: FDIs, COEs, POEs,
Why does ownership matter?
Is “race to the bottom” wrong?
• Pollution is not a large cost for most private firms operating abroad • There are community-level penalties even if formal regulations do not exist • Abatement reduces costs: pollution is an “unamarketed production residual” resulting from inefficiency
Dean, Lovely, and Wang (2005) and Wheeler (2001)
COEs and Public Influence Di and Wang (2002)
COEs and Public Influence
COEs and Public Influence
Reasoning behind GreenWatch: •
Firms may take initiative in regulating themselves if they feel that it will help them market their brand.
•
The public expectation of ratings could also provide an incentive for regulatory institutions to keep accurately records and disseminate information in a timely matter.
•
Other actors in the economy may exert pressure over firms.
•
Provides firms with an evaluation tool and decreases the costs of monitoring. Wang et al (2002)
COEs and Public Influence
11% 4%
Hohhot 1999
Hohhot 2000
Wang et al (2002)
Black Blue Yellow Red
20% 65%
Black Blue Red Yellow
Lesson Learned: Power of the Public
Lesson Learned: Efficiency
Barriers to Efficiency: - Subsidies - Factor Prices - Some enterprises do not have the goal of efficiency
- Phase out subsidies
New Policies
- Change prices - Increase awareness - Provide more outlets for public pressure
By Candace Williams
China in the News
Central Goal: Clean-up
I’m not dying of cancer!
Questions
• What are the costs of pollution? • How do privately-owned enterprises (POEs), state-owned enterprises (SOEs), collectivelyowned enterprises (COEs), and foreign firms contribute to pollution? • Are there specific strategies that we can employ that address the strengths and weaknesses of each type of firm?
China’s Growth
GDP per capita from 1975 - 2002
China’s Growth
China’s Growth
How Dangerous is Pollution?
2001: the World Bank reported that 16 out of the world’s 20 most-polluted cities are in China.
China loses 5.4% of its GDP ($160 billion) per year because of environmental degradation.
Air Pollution: Costs
1% of China’s city 560 million citydwellers breath air considered safe by the European Union
Crop yields have decreased by 30%
760,000 PREMATUR E DEATHS
Air Pollution: Causes
Industry: 80% Inefficiency Energyintensive Coal and Oil
Transportation Boom: 14,000 new cars each day
Water Pollution: Costs
More than 75% of water that flows through faucets is deemed unsuitable for drinking or fishing
UNICEF says that 320 million people lack access to clean drinking water
Water Pollution: Causes
One-third of all industrial wastewater and two-thirds of household sewage remain untreated. China’s industries use 10 – 20% more water than similar industries in developed nations
Political Costs
51,000 environment-related protests in 2005
International Issues
Neighbors: 15% of sulfur deposits in South Korea, and 50% of deposits in Japan, are windblown from China.
Los Angeles: 25% particulate pollution in the atmosphere over Los Angeles originates in China
Why does ownership matter?
State-Owned Enterprises (SOEs)
Collectively-Owned Enterprises (COEs)
-Dropped from 80% share to 20% share in 30 years
-Small share of enterprises (decreasing)
-Inefficient
-In a position to internalize local externalities
-Internalize national externalities -Bargaining power
-Slightly more efficient than SOEs -Local bargaining power
Privately-Owned Enterprises (POEs) -Over 70% share today (5.5 million)
-41,485 new contracts in 2006 alone ($70 billion)
-No incentive to internalize externalities
-Wholly-owned foreign enterprises: 75%
-Strive for efficiency
-Rest are joint ventures
-Least bargaining power
-Race to the bottom vs. new
Foreign Firms (FDIs)
Why does ownership matter?
Why does ownership matter?
Wang and Jin (2002) -Determinants: ownership, factor costs, pollution abatement costs, technology, location, policy variables, community variables, type of industry - Best to worst performance: FDIs, COEs, POEs,
Why does ownership matter?
Is “race to the bottom” wrong?
• Pollution is not a large cost for most private firms operating abroad • There are community-level penalties even if formal regulations do not exist • Abatement reduces costs: pollution is an “unamarketed production residual” resulting from inefficiency
Dean, Lovely, and Wang (2005) and Wheeler (2001)
COEs and Public Influence Di and Wang (2002)
COEs and Public Influence
COEs and Public Influence
Reasoning behind GreenWatch: •
Firms may take initiative in regulating themselves if they feel that it will help them market their brand.
•
The public expectation of ratings could also provide an incentive for regulatory institutions to keep accurately records and disseminate information in a timely matter.
•
Other actors in the economy may exert pressure over firms.
•
Provides firms with an evaluation tool and decreases the costs of monitoring. Wang et al (2002)
COEs and Public Influence
11% 4%
Hohhot 1999
Hohhot 2000
Wang et al (2002)
Black Blue Yellow Red
20% 65%
Black Blue Red Yellow
Lesson Learned: Power of the Public
Lesson Learned: Efficiency
Barriers to Efficiency: - Subsidies - Factor Prices - Some enterprises do not have the goal of efficiency
- Phase out subsidies
New Policies
- Change prices - Increase awareness - Provide more outlets for public pressure
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