China's balancing act

BEIJING — China's government doesn't want Chinese firms to make products that can kill you. But, by making economic growth the paramount goal of state and party, it has created the conditions by which firms may feel compelled to make those kinds of decisions.

It's a very tricky path to the future for both the United States and China. China's internal dilemma is to balance economic development with preserving the environment and other human needs.

For the United States, it's learning how to be diplomatic while nudging China toward becoming a more open, progressive society.

The yin and yang of China's economic/environmental dilemma are evident all across the nation. The Chinese government is aware of the environmental and social challenges the nation faces. But, the leaders of the still-ruling but not-very Communist Party — what I like to call the Kaching! Dynasty — also understand that their continued political legitimacy depends on continued economic prosperity.

So, for example, in Beijing, the billboards are coming down and the condos are going up.

The billboards, which, ironically, often advertise new housing developments, are coming down because they're too exposed and dangerous to work on during the chunks of the year when winds pepper Beijing with sand.

Meanwhile, new condo towers march across the landscape in seemingly endless array. Like a lot of cities, bustling, burgeoning Beijing is encircled by a ring road to ease the flow of traffic and commerce (and there's a lot — heavy trucks are barred from most highways except between 10 p.m. and 6 a.m.).

But these are baby steps in a nation that needs a great leap forward in how it deals with the environment. The usual Chinese explanation, that "China is a developing nation," is increasingly of small solace to people who can't get enough clean water — or even enough water — to drink.

In part, the problem goes back to a mid-1990s tax reform, in which more revenue was moved from the local governments to the national government, and local governments were directed to pursue economic development. When you've got 1.5 billion people to feed, there's some logic behind that.

The revenue reform, however, has become part of the problem, though it's not clear that the Chinese quite grasp this. Depending on whom you ask, everything is groovy — and if you Westerners are so concerned, clean up your own houses first.

The reform moved nearly 30 percent of national revenue from local governments to the national government, with some of it sent back to the local governments in the form of revenue sharing. China draws on a value added tax, a corporate earnings tax and a series of administrative fees for the bulk of its revenues.

The local governments (22 provinces, four major municipalities such as Beijing, the "special administrative regions" of Hong Kong and Macau, and four "autonomous republics" such as Tibet) continue to face pressure to maximize their economic development and, hence, their revenue.

One of the ways to boost revenue is through special administrative charges such as development fees. The more development, the more fee income, and more tax revenue from corporate earnings.

Local environmental-protection agencies can slap on additional fees to help mitigate environmental impacts, and national officials are supposed to be making sure that they do so.

However, the presence of national hall monitors suggests that perhaps this doesn't always happen, and some Chinese officials admit it isn't working.

If a developer tries to skirt the law here, someone files suit. But, inside and outside reports indicate that China's judicial system continues to be based as much on kickbacks as on jurisprudence.

"It's a little better in the cities, but in other places it's still about the money," says one Western venture capitalist doing business in Beijing.

Development pressures

Absent a solid judicial system, the pressure on local officials to maximize development has to be substantial. Impact fees raise costs; if you raise the price of something, people buy less of it, including starting or expanding a business, or building a condo tower. So, environmental protection remains Miss Congeniality to Queen Growth. Money talks, everything else walks.

And factory owners and managers, lacking any legal restraint and with substantial pressure to boost profits, sometimes make toothpaste with antifreeze and pet food with poison. That's just the top of the list.

The environmental problems are widespread, from the recent pollution-driven algae bloom on the otherwise gorgeous Taihu Lake (leaving millions of nearby residents without drinkable water), to air pollution from too much coal burning, to desertification at an alarming pace.

But, if you're the local mandarin in charge of Jiangsu province, home of the lake, and your prime task is economic development, you're a lot less likely to start levying impact fees on polluters — if the polluters aren't just paying you off in the first place.

The environment vs. economy challenge is compounded by the urban exodus from the impoverished west to the prosperous east. Every year, 20 million people leave rural China for the glittering cities of the coast. It's as though the entire Pacific Northwest up and moved to California.

Beijing is not immune to this. Having gained more than 3 million people in the past 10 years, the city now has six concentric ring roads, with a seventh already under construction. Across the flat expanse of the North China Plain, the condo towers loom and grow, filling the space between the outer rings, their distinctly Asian capitals making them look like a gathering legion of giant ancient warriors.

The new condos are much nicer, inside and out, than the graying, grimy blocks of dismal dormitories that were erected here as recently as 15 years ago (maintenance often seems to be a truly foreign word in China).

They're also more expensive; housing prices having doubled in the past five years. A 900-square-foot flat goes for $120,000, and people are lined up to buy them.

Beijing is bustling in anticipation of the Olympics, and city officials say everything will be ready on time.

Oddly enough, that is pushing some environmental work as well, and not just the campaign to stop people from spitting in public (not all that common, from what I've seen).

The hills north of Beijing have been terraced and planted with bushes and small trees (sometimes called the Great Green Wall) to try to limit erosion and keep those sandstorms out of the city. The result is a welcoming carpet of green all the way to Badaling Gate of the original Great Wall (which, despite its length, cannot be seen from space).

Perhaps the shifting bush-to-billboard ratio is a hopeful sign. Chinese officials do hold environmental hearings now and then, though it's not clear if anything comes of them.

Officials higher up the food chain acknowledge the need to move away from the high-sulfur coal that fuels so much of the nation's economic expansion. Beijing is building miles and miles of subway to go with its condo boom, which should help limit the number of cars on the roads.

The U.S. challenge

The challenge for the U.S. is to help China along, and it remains in our interest to do so. The political system will evolve, but it will take another generation before Chinese politics grow into something democratic. A smooth transition to this will be better for all of us.

And there's hope for that, if only due to the impending end of the Bush doctrine of shoot first, talk later.

For example, the U.S. (and the rest of the world) would like to get China to do something about the yuan — still artificially cheap compared with other currencies, making Chinese goods artificially cheap and raising the price of exports into China.

They just can't be bullied. Chinese people get very obstinate in the face of threats, so saber-rattling in Congress about economic sanctions only tends to make them dig in. Moreover, the Chinese don't have much grasp of domestic politics, so they tend to take anything said in Congress a little too seriously.

The Chinese have to be coaxed. They desperately want to be regarded as players; China's history of abuse at the hands of foreign powers makes them bristle at anything that might look like foreign meddling. Like it or not, the Chinese have to be flattered, feted and ego-fed. Under those conditions, they're not unreasonable.

So our approach, as well as China's, has to be balanced. The Chinese talk a lot about the need to maintain harmony; the whole concept of yin and yang is about keeping a balance between the light and the dark.

Maybe then, in the twilight of a Beijing summer evening, there's room for a little optimism as the billboards slowly come down.