Cory J. Combs
Johns Hopkins SAIS
Submitted for Course “Comparative Energy and Environmental Governance”
Professor Jonas Nahm | JHU SAIS Assistant Professor of Energy, Resources, and Environment
October 17, 2018
Word Count: 2060
Grade: A
How can a state that suffers from some of the world’s most pressing environmental problems also be a world leader in clean energy? While the result is surprising, relatively strong assumptions of uniform state priorities and policies are required to make it appear a paradox. Allowing for fissures in both policy formulation and implementation, the result is noteworthy but far from unintelligible. The question, then, is precisely what shape these fissures take and why.
Looking specifically at the Chinese state, its centralization around the Communist Party does not, by itself, in practice generate a coherent set of goals and policies that would, in theory, yield either both clean energy leadership and fairly robust environmental governance, or neither. What accounts for incongruity in China’s goals and policies? Our readings for this week shed light on several related causes, which we assess in turn: fiscal decentralization, policy cleavages, and competing national needs. To contextualize China’s situation, we end by asking: is it unique?
China does not have a “federal” system, per se, because provinces and other subnational governments have no constitutional or other permanent, independent rights. Instead, to the extent subnational governments have flexibility, freedom, and rights, they are granted by the central government, typically with explicit purposes and with the option of change or removal.
That said, the center’s allocation of subnational government flexibility overall results in a semi-decentralized system analogous to fiscal federalism (as Oates defines it; Oates 1121-1122); the center manages macroeconomic policy, generally allocates resources, and allows provinces and other subnational governments to manage more precise fiscal allocations and policy implementation. Kamp et al., for example, note that China exemplifies the “model of high expenditure decentralization paired with highly centralized fiscal authority” (Kamp et al. 166). China also shares with fiscal federalism the capacity for learning between local governments and flexibility to adapt to local circumstances (Oates 1131-34).
From another view, China attains something akin to “laboratory federalism” (Oates 1132). It does so with more or less centrally approved goals and central leverage, given its capacity to revoke authority, change leadership, etc., at any time, but it nonetheless demonstrates a diverse history of local experimentation subsidized by the center, from fiscal contracting systems in the 1980s and early 1990s (Kamp et al. 1723) to special economic zones (SEZs) such as Shenzhen and then high-tech industrial development zones (HTZs) (Nahm 711).1
How has such a system emerged in China? China may well be shaped by cultural legacies favoring hierarchy and centralization, as Economy summarizes (Economy 30-36). However, whether tied most closely to Confucianism, Buddhism, or some other strand of cultural heritage, it is all but certain that pragmatism has forced the ideologically centralized state that Mao Zedong brought onto the global stage to adapt as its needs evolve (see Economy 47-52).
What consequences has China’s system wrought?2 In addition to growing leadership in clean energy and lasting environmental problems, it has also left open possibilities for policy evolution. As Nahm, Jin et al., Kamp et al., and Economy all demonstrate in various facets explored below, China’s system enables a surprising degree of both shortcomings and dynamism.
China’s center is not a monolithic “Leviathan” as a first cut theory would suppose (Oates 1140) If anything, it is more of a hydra, many-headed and often facing multiple directions simultaneously. Central goals and policies, often conflicting, then run through multiple levels of governance below: provincial, prefecture, county, township. China suffers enormously from fragmentation that “undercuts incentives for responsible decision-making,” with differing priorities plaguing the process and opening the way for political conflict and failure to observe competing directives (Oates 1143). But this fragmentation also opens the door for greater influence from other actors - for better and worse.
Economy’s The River Runs Black puts in sharp relief both the center’s hydra-like nature and the opening for influence at multiple levels. Beginning with the “death of the Huai River,” Economy follows how, despite nominal central attention to growing river pollution, economic mandates overrode environmental management at the level of implementation. The government-founded Huai River Valley Bureau of Water Resources Protection and the Huai River Conservancy Commission of the Ministry of Water Resources, with “no funding and no real authority,” had neither economic nor political capacity for influence (Economy 3). Moreover, the central mandate for economic growth was both a national top priority and a natural incentive for all factories on the ground trying to turn profits for both personal and national gains. The “economic versus environmental” issue demonstrates a common and fundamental policy cleavage that helps explain China’s incongruous outcomes.
As Economy describes, the actions of figures such as Song Jian, then chairman of the State Environmental Protection Commission (a central level official), Vice Chairman of the Anhui People’s Political Consultative Conference Su Kiasheng (a provincial level official), and remarkably, national and local media (see more on media on Economy 21), demonstrated the stark misalignment between the environmental concern of these officials and actors, across various levels, and the national mandates for economic growth - and local efforts to achieve them - that resulted in such harm to the Huai River. This unhappy case shows clearly the tension between parts of the complex system. While not necessarily conflictual, economic growth and environmental stewardship have too often, in practice, led to incompatible central mandates.
Given the presence of conflicting central mandates for both financial gains and environmental protection, the next question is what determines which policies “win”: which are actually implemented? The answer lies in the incentive structures under China’s fiscal decentralization.
Of first note, Oates writes that the “basic presumption here is that more decentralized political systems are conducive to increased citizen impact on political outcomes and political participation” (Oates 1138). As a starting point, we should note that empirical works such as Andrew Mertha’s China’s Water Warriors demonstrate a far more complex picture of the conditions under which Oates’ presumption bears out. Decentralization does not necessarily lead to a role for citizen impact or participation. But it remains true that any system with some degree of fragmentation leaves the door open to influence beyond that of the central planners. To see how that door swings, though, we need further evidence.
The core element of interest from our considered set of research is the gap between the center, on one hand, and the provincial and municipal levels, on the other. In the latter we emphasize the provincial level, but the municipal also plays a role (especially in Nahm); for simplicity, we will refer to them jointly as “local.” Within this gap, fiscal incentive structures take center stage.
First, Jin et al. shed light on a fundamental question: is decentralization alone sufficient, or are other mechanisms at work? They find that “stronger fiscal incentives are associated with faster development of non-state enterprises… [and] also associated with greater reform in state-owned enterprises” (Jin et al. 1736). Fiscal decentralization, while critical, is not alone sufficient to explain the growth of the non-state sector; fiscal incentives also play an explanatory role.
Kamp et al. enrich this picture, studying how “a city’s ability to independently generate revenue affects transparency and political compliance” (Kamp et al. 168). They find an important “bifurcation in development strategies”: “in fiscally strong cities, increased foreign investment leads to greater compliance with national environmental mandates,” while in fiscally weak cities, it leads to the ignoring of environmental mandates and local pollution havens (Kamp et al. 164). Given the center’s hold on the power of the purse, even though the city has relative freedom in expenditure, the city’s ability to independently secure income (hence the focus on foreign investment) ultimately skews its incentives. At risk of over-simplifying, if a city feels insecure, its emphasis on profit will outweigh its attention to other mandates. When secure, the environment is a higher priority. Here, then, is a crucial element determining the policy “winner.”
Nahm approaches another element: whether the implementation gap between the central and local levels was a boon or a burden for renewable energy upgrading. Counter to the expectations of many observers - and likely even China’s central leadership, given its continued crackdown on officials for straying from the central line - Nahm finds that the implementation gap has not hindered wind and solar industry innovation, but instead “broadened the resources available to entrepreneurial firms seeking to upgrade in environmental sectors in China” (Nahm).
Nahm’s research raises the immediate question: under what conditions do firms seek to upgrade? Kamp et al. in particular help propose the beginnings of an answer, namely that foreign investment, which helps free cities from dependence on the center for income, plays a role. Economy’s research shows, more broadly, the importance of interested and capable leadership for improved environmental outcomes - an element also critical to Mertha’s China’s Water Warriors and also embodied in the work of non-state environmental leaders such as Ma Jun, leader of the Institute of Public & Environmental Affairs which engages “citizen science” to publicly track and “name and shame” corporate polluters. While it is perhaps trite to note, it is nevertheless true that the landscape of “why?” is complex and requires continued research.
Had John Donne been a comparativist, his poem may have read: “No state is an island, entire of itself.” While China’s energy and environmental policy formation is overwhelmingly driven by domestic goals and constraints (see any reading except Oates), it is economically enabled - and in some cases hindered - in significant part by regional and global markets.
If there were no export markets for solar panels, China’s capacity for solar panel production would be limited. If China could not import requisite inputs for manageable prices, its electric vehicle and other clean energy products would face far higher barriers. As we see in China’s efforts to migrate from coal to natural gas, reform is stymied not only by fragmented domestic policies, which remain the core issue, but also by the risks and political difficulties of international transport across Myanmar and Russia. In the first place, then, our focus on China’s domestic circumstances must also be contextualized within global market, geographic, and political circumstances that enabling or hinder various courses of action.
In the second place, though, and germane to our present assessment, we must ask: is China notably different from other states? As the most obvious example, does the U.S. not comprise both California - a leading voice in environmental protection and climate change - and Texas - far from one? This is to say nothing of smaller but jointly sizeable Alabama, Louisiana, Mississippi, Missouri… Looking at the aggregate outcomes of U.S. subnational government decisions, one will find a multifaceted landscape that through the presidential and congressional elections ultimately also produces shifting national commitments to combatting - and even belief in - climate change.
Yet Louisianans in the energy sector with whom I have spoken point out that they need neither the central government’s direction nor its permission to delve into the clean energy realm; nor do they need to take any position at all regarding climate change, though they may if they so wish. Rather, those who see business opportunities in renewables take them - and have opportunity to do so without conflicting government mandates. Free market business is the driver; government regulation is the constraint. While business opportunity certainly drives much in China, the central government also much more clearly occupies both driving and constraining roles - as Jin et al. notes, it can be both a “grabbing hand” and a “helping hand” (Jin et al. 1720) for local business development and innovation.
All of this is to say that there are certainly notable procedural differences between China and the U.S. However, the larger question still stands, and requires further research from a comparative perspective: just how unusual is China’s policy incongruity of outcomes - and to what extent is China of more interest because of its size, rather than its nature? Without further evidence, I would venture to hypothesize that much more lies in its nature than so far I have found apparent. But I believe that a clearer answer that dispels possible misunderstanding of China’s real “difference” would provide valuable insight into the evolution of global environmental stewardship and climate adaptation.
1 Also of interest in discussing fiscal federalism is the Tiebout model, in which people “vote with their feet.” Such is not an option for many in China due to the hukou system; as such, the question arises, can the model really apply to China? Oates argues that federal decentralization as a model is not dependent on the Tiebout model (Oates 1124). However, I would suggest that there could also be such a result for firms, if not people, “voting with their feet,” e.g. firms opening in special economic zones, such as Shenzhen. ↩
2 It has resulted also in another issue that lies beyond the scope of this paper: massive local debt build-up. Local debt, owed to the central banks, is now a national ball and chain and a massive source of macroeconomic risk. Fiscal federalism can be non-progressive (Oates 1128) but also less well controlled and open to adverse incentives, such as China demonstrates in the skewed loan incentives that have resulted in current unmanageable debt loads. ↩