China's "Green" Investment to Outpace GDP Growth

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China’s investment in environmental protection is projected to grow faster than the county’s gross domestic product (GDP), according to Jun Ma, Greater China chief economist with Deutsche Bank. By 2010, “green” investments will account for 1.6 percent of Chinese GDP, or 1.9 trillion yuan (US$242 billion), growing at an average rate of 16 percent a year until then, China Securities Journal reports Ma as saying. GDP, in contrast, is expected to grow by 10.6 percent in 2006 and 9.5 percent in 2007, according to Deutsche Bank.

The severe pollution of northeast China’s Songhua River last November, and similar incidents since then, have focused broad attention from politicians, citizens, and nongovernmental groups on the nation’s deteriorating environmental situation. The Chinese government, in response, has begun investing large sums of money in environmental protection.

The recent China Green Accounting Study Report 2004, issued in September by China’s State Environmental Protection Administration (SEPA) and National Bureau of Statistics (NBS), shows that economic losses caused by environmental pollution in 2004 reached 511.8 billion yuan (US$65 billion), while the cost of treating and disposing of the pollutants was 287.4 billion yuan (US$36.5 billion). This represented 3.05 percent and 1.8 percent of Chinese GDP, respectively. Converting this cost to the one-off investment required to clean up all pollutants from point or non-point sources would have required investments totaling 1 trillion yuan (US$127 billion), according to Yue Pan, vice minister of SEPA. But, Pan noted, the Chinese government invested only 190 billion yuan (US$ 24.1 billion) in treatment that year, less than 20 percent of the estimated required cost.

Ming Lei, a follower of the “green accounting” school and a professor at Peking University, agrees that the 2004 pollution figures indicate a serious lag in the government’s real spending on environmental protection. Lei noted that this gap could have irreversible effects on both the environment and human health, even offsetting the growth of GDP, according to People’s Daily.

Four industries—wastewater treatment, air quality improvement, natural gas, and renewable energy—will be the main beneficiaries of the government’s burgeoning green investment program, with annual growth rates ranging from 20 to 35 percent over the next five years, according to Ma. Investments in water treatment, for example, grew by roughly 23 percent over the past three years, but are expected to increase by another 25–30 percent in the next five years. In the area of air quality improvement, the government has required that all facilities located in sulfur-dioxide and acid-rain control areas install sulfur removal devices. Investment growth in the area is expected to be between 20 and 25 percent annually through 2010.