Thank you, Mr. Chairman, Vice Premier Wen Jiabao,
Dr. Labelle, Mr. Qu Geping, Mr. Liu Jiang, Mr. Xie Zhenhua,
Members of China Council for International Cooperation and Development,
Ladies and Gentlemen,
I am delighted to be here today to address this meeting, and am very grateful to be selected as a new member of this distinguished and influential Council. This membership is a particular honor, for me personally and for the World Bank, bec ause this Council is a model for the way we at the Bank want to approach sustain able development. Your efforts to work in partnership across sectors and across institutions, so that the development process can benefit from the broad and dee p knowledge of experts in a variety of fields, is helping to ensure that China's growth will be solid and sustainable over the long term.
I would like to begin by congratulating the council on its new Chairman, Vice Pr emier Wen Jiabao.
INTRODUCTION
Nineteen ninety-eight has been an unusual year for China in many ways.
Most notably and unfortunately we remember the floods on the Yangtze River, whic h were so devastating this past summer. We remember it not only because it was t he most serious flooding that the Chinee people have seen in many years, but als o because of the amazing determination ofthose fighting the floods. I want to ex press my deepest sympathy over the loss of many lives and the tremendous damage cuasedby the floods, and my admiration for the courage of the Chinese people. I also want to assure you, Mr. Chairman, that China is not alone in its efforts to retore the affected areas and improve natural resource management in the Yangtz e River Basin. The Would Bank, among many other members of the international com munity, is committed to helping restore the areas damaged by the floods. Even as we speak, anemergency Bank operation is under preparation to address the flood damage in Hubei, Hunan, and Jiangxi provinces. We have also started discussions with the Government about some of the causes of those follds to assess whether e can assist in addressing those too.
In March, a few months before the flooding began, the leadership ofthe new State Council took office with a commitmnt to improve macroeconomic management and ac hieve an 8 percent increase in GDP with less than 3 percent inflation, without d evaluing the renmimbi. Although the financial crisis in the region had already s harply reduced China's export growth, which in turn inhilbited domestic demand, China's fiscal stimulus program - including its important program of infrastruct ure develpment - has shown results, epecially during the last few months. By act ing with fiscal responsibility and discipline when the rest of the region was fa lling into crisis, China has helped to reduce the chance of another cycle of dan gerous devaluation that would have made the crisis much worse than it is. With J apan, the world' second largest economy, still in recession, China's role in hel ping the region to recoer has been crucial.
At the sam time, the Government has this year-and despite political resistance a nd practical challenges-started to implement important structural and policy ref orms in grain distribution, residential housing, social security, finance and ba nking, budgetary management, corporate restructuring, infrastructure development , and the management of natural resources. These reforms will lay the foundation for sustainable long-term growth.
This great achievement is why we are here today. We are here to recognize China' s farsighted and integrated approach to economic reform, environmental protectio n, and sustainable devel opment. Mr. Chairman, as a vice president of the World Bank Group and a new member of this Council, I am very grateful for the example China is setting for the rest of the world, its example of how to coordinate eco nomic development with social development and with preservation of the environme nt. I also think it is important that in recognizing China's achievement, we ref lect on past experiences, successes and failures, so that we can use our underst anding of the past to create a better future.
ENVIRONMENT AND DEVELOPMENT
Issues
Looking at the pace and depth of change in China over the last two decades, I am impressed with your country's strong economic performance and stability. We sho uld never forget the enormous social benefits that this has delivered to ordinar y people throughout China. However, this progress has also come at a huge enviro nmental cost:
·major Chinese cities have particulate and sulfur dioxide levels that exceed WH O and Chinese standards by two to five times, and the levels in some cities are among the highest in the world. As a result, chronic obstructive pulmonary disea se-emphysema and chronic bronchitis-is the leading cause of death in China.
·acid rain in the high-sulfur coal regions of south and southwest China has the potential of damaging 10 percent of the land area, and may have already reduced crop and forestry productivity by 3 percent.
·water pollution, a major focal point of recent Chinese policy, has contaminate d more than one-third of the 135 urban river sections monitored by state and pro vincial environmental agencies. Access to future safe drinking water supplies is threatened for tens of millions of people.
·China's enormous natural resource base is being significantly undermined. Unsu stainable agricultural and forestry practices are resulting in widespread soil e rosion, reducing the productivity of the land and having substantial downstream effects such as increased flood frequency.
In addition to such localized effects of development, China, like the rest of th e world, is also having an impact on the global environment. In the near future, if present energy use patterns persist, China will be one of the world's larges t producers of greenhouse gases- the principal cause of global warming. If the n ations of the world do not reduce these gases by early next century, the global climate could change dramatically, with flooding where there were deserts, deser ts where there was productive agriculture land, and island nations disappearing into the ocean.
The challenge we face, as partners in development, is to continue on the path of economic and social progress without exacerbating such risks. China's success i n meeting this challenge is crucial both for its own development and as an examp le of sustainable growth for the world.
Solutions
Is there a solution to the seemingly insurmountable confict between the developm ent needs of the people and the associated need to protect the environment?
Allow me to begin by using a Chinese saying-and please forgive my pronunciation- PAO ZHUAN YIN YU, " to throw out a brick to retrieve jade". I want to give some of my "brick" thoughts on how China can sustain growth and improve environmental conditions at the same time. How China can retrieve jade.
My first brick is that China can steer the market to work for the environment, n ot against it. This means accelerating economic reforms.
·reform of state enterprises to ensure that they respond to environmental penal ties. Government should expand the use of taxes on pollution to incorporate its enormous social costs (for example, the real cost of coal in Beijing, after heal th damages are calculated, is 100 percent higher than its current price);
·reform of the pricing system to ensure that prices paid for basic raw material s are an accurate reflcetion of their true economic value.
·reform of the international trade environment to enable Chinese industry to ac cess the newest, most efficient environmental technology; and
·reform of capital markets to improve the availability of finance to firms and municipalities supplying environmental infrastructure.
My second brick is that China can leverae its tremendous administrative ca pabil ities for the environment. While we expect economic reforms to bring more market -based solutions to environmental challenges, let us not forget that China's tru e comparative advantage is in its administrative effectiveness:
·At the national level, better regulatory policies and policy enforcement are e ssential for improving the environment. One example of the importance of command -and -control measures is the mandated phase-out of lead in asoline by 2000. As markets expand, new regulations have to be put in place to cover TVIEs, now effe ctively exempr from regulation but an increasingly large source of pollution.
·Work at the national level will not be sufficient in itself. It is also necess ary to convince leaders at the provincial and local levels of government that en vironment and development are not contradictory objectives and that they have an essential role to play in the national program.
·At the regional level, a more integrated approach to management of water basin s and airsheds is needed. Establishing regional authorities or making better use of the existing river basin management agencies offers a way of improving water resource management. Regulations governing sulfur emission, such as those embod ied in the Air Pollution Prevention ald Control Law of 1995, need to be stritly enforced in acid rain areas.
·At the urban level, there is already a strong urban planning tradition in Chin a It needs to be made more effective to promote removl of polluting industries f rom downtown areas and the development of effective urban transport systems.
·Environmental education, already launched in China, increases citizens' demand s for a cleaner environment, and this has to find expression in wider community participation in environmental policy-making. The recent decision by SEPA to pub lish air pollution data for major cities, and the establishment of " environment al hotlines " in certain cities, are good examples of what needs to be done.
·It is equally important that regulatory agencies receive adequate Government f unding to carry out their designated functions. Environmental monitoring and env orcement agencies need to be financially independent to effectively and impartia lly implement Government environmental policies.
My third brick is that China can utilize its high economic growth for promoting investments with the highest environmental benefits for the future generations.
·Public investments in natural gas to replace home use of coal would increase e nergy efficiency by 200 to 500 percent while sighificantly reducing urban air po llution.
·Public investment in research and development of new technologies such as more efficient industrial boilers and renewable enerbgy are citical for fostering en vironmental improvements at the same time.
·Public investment in wastewater collection and treatment would be more financi ally viable if wastewater charges were universal and were raised to full cost re covery levels. The financing of such investments through greater cost recovery a nd improved pricing are citical for conserving water resources and for cleaning China's rivers, lakes, and coastal waters.
·Public investment in mass transit systems can preempt the emergence of an auto -mobi based urban transport that would lead to congestion, heavy air polution an d construction of car-supportive infrastructure-diverting public funds from othe r important development priorities. China still has the chance to de-link income growth from increase of individual car ownership and prevent the big Chinese ci ties from the fate of Bangkok and Manila.
These efforts will require some sacrifices in the near term. Environmental inves tments as a share of GDP would have to rise by perhaps 1 percent of GDP, but the se costs are small relative to China's total investments of 35 percent of GDP. S uch investments are also small relative to the future cost of clean-up if the co untry delays action. More important, the sacrifices of today's generation are sm all in comparison to the enormous improvements in the quality of life that will redound to your children and grandchildren.
RELATIONSHIP BETWEEN CHINA AND THE BANK
Finally, let me say a few words about the relationship between China and the Wou ld Bank.
There has been a strong partnership between China and the Bank over the past dec ade to sustain rapid growth and lift millions out of poverty. Lending for sustai nable agricultural development is helping China to meet the challenge of food se curity for more than 1. 2 billion people . Microcredit has uplifted million of w owen with dignity in China's rural areas. Funding for reforms and investments in the infrastructure sectors boost regional development and provide jobs.
The Bank has responded to China's urgent environmental agenda by carrying out a comprehensive analysis of its environmental policy options and developing the la rgest environmental investment portfolio in Asia. Our lending portfolio in China consists of 103 ongoing projects totaling $ 19.4 billion, of which approximatel y $ 4 billion is targeted toward environmental objectives. We are working with t he Government on implementing 3-3-2-1 and on virtually all the major environment al issues in China.
In the crtical area of natural resources management, we are supporting land recl amation and sustaionable land management on the Loess Plateau through a world-fa mous projecta project that is simultaneously alleviating poverty and reducing so ilerosion; showing that it really is possible to develop "win-win" solutions to environmental problems.
We are also working with the Government to promote a more integrated approch to water resources management. In the Tarim Basin Water Resources Development Proje ct, we have supported creation of the Tarim River Basin Manaement Bureau to rati onalize water management and achieve a better balance between development and en vironmental needs in one of the driest regions in the world.
In the area of pollution management, the Bank in assisting the Government of Chi na in implementing large urban environmental infrastructure projects in several major cities- Beijing. Shanghai, Wuhan, and in other cities in several Provinces such as Lioaning, Hubei, Yunnan and Guangxi.
We are also working with the Government on global environmental issues. China is the largest user of Montreal Protocol fudns for the phase -our of Ozone Depleti ng Substances. We have also initiated discussions with the government to identif y ways to make increased use of funds from the Global Environment Fund in fields such as biodiversity conservation, greenhouse gas reduction and other relevant fields.
We are also working with the Government to support the institutions, which are e ssential for identifying environmental issues, developing environmental policies , monitoring the state of the environment and enforcing the law.
There are numerous other examples I could give but let me leave you with this co ncluding observation about our relationship; the World Bank's advantage is that it can deliver substantial financial resources to address environmental issues. But in a country the size of China, the resources we can bring to bear are only a drop in the bucket in comparison to what is needed. If we are to be of any rea l assistane, it will not only be through the investments we make; it will be bec ause we seek out the institutions, the government officials, the intellectuals a nd the ordinary people within China who are concerned about environmental issues , we support them, we help to get their messages heard in the high corridors of power, and we follow up with solid investments on the ground.
That is what we are trying to do, and that is why your invitation for us to part icipate in the work of this Council is so imporant to the Bank and to me persona lly.
I thank you again, Mr. Chairman and Council members, for your kind invitation an d assure you that the World Bank is committed to China's long-term economic and environmental health and will continue to work in partnership with your Governme nt and with the Council to make the dream of a better future a reality. We consi der this not a task or a burden, but a great honor.
Thank you.