Update of the Country Environmental Analysis

Opening Remarks by Paul J. Heytens, ADB Country Director, at the Inception Workshop, Beijing, People's Republic of China

Good morning, ladies and gentlemen,

It is a great honor for me to welcome you all to this inception workshop on the Country Environmental Analysis (CEA). On behalf of the Asian Development Bank (ADB), I would like to congratulate the Ministry of Finance (MOF), Ministry of Environmental Protection (MEP) and the National Development and Reform Commission (NDRC) for organizing this important workshop.

Today we are here to learn more about the environmental challenges that the PRC government must address in the context of preparing the 12th Five Year Plan covering the years 2011-2015. We are also here today to discuss how the ADB's new Country Partnership Strategy (or CPS), which is currently under preparation being formulated in line with the priorities of the 12th Plan, can be better designed to support the government in responding to these challenges. This workshop is not only very timely from these perspectives, but also highlights the increased importance of environmental protection and mainstreaming climate change dimensions (both mitigation and adaptation) in the government's development agenda.

Economic Growth and Environmental Protection

Before elaborating further on the challenges ahead, it is important to note that China's rapid economic growth and development has been unparalleled in modern history. China's GDP has grown at an annual average of about 10% over the last 30 years, which coupled with average per capita GDP growth of over 8% per annum, has brought great benefits for the population, in particular to the poor. Three decades ago, China's ranking on the Human Development Index and on other development indicators was quite low, but today the country has achieved an upper middle income level of human development. Further, more than 500 million people have been lifted out of poverty over the past three decades.

After 30 years of successful economic reforms, China has now emerged as the second largest economy in the world. As such, the country is increasingly influencing the global economy, and its continued growth and stability have become crucial to the world as the experience from the recent financial crisis indicates. After years of prudent economic-policy making, China has also turned into a major global trade and investment partner, and holds the largest foreign exchange reserves in the world.

These are all outstanding and commendable achievements. However, we cannot ignore some of the problems that have emerged as a result of the rapid economic growth, which has been achieved at a significant environmental cost. High rates of economic growth and the country's high dependence on coal as an energy source to fuel this growth has resulted in significant environmental damage, in particular high levels of air and water pollution.

In many respects the high economic growth has overwhelmed increasing investments in conservation and environmental protection in recent years. Land degradation has been worsening; natural forests have been declining; biodiversity resources have come under stress; water quality is deteriorating in most areas; new threats are developing, such as discharge from more intensive livestock operations; and the explosive growth of motor vehicles with increasing wealth presents a significant new problem in air pollution control; to identify just a few of China's environmental problems.

Further, while China is a major source of greenhouse gas emissions globally, the country itself is under serious threat from global climate change, which will only intensify the trends I have just noted. The impacts of climate change are anticipated for example to reduce the runoff for all watersheds and water availability across the country, exacerbate water shortages and pollution in northern China, increase flooding in southern China, and inundate the country's coastal areas. Climate change is also expected to negatively affect cropping patterns and grain production, reduce biodiversity, intensify desertification of grasslands, and increase morbidity and mortality from infectious diseases.

With the current energy outlook pointing to a substantial increase of coal consumption in the next 20 years, it is in the country's strong interest to actively pursue low-carbon solutions in meeting its future energy needs, which indeed has been a government priority for some time. In particular, the government's efforts to reduce the carbon intensity of GDP growth have been widely publicized.

Opportunities and Challenges under the 12th Plan

While rapid economic growth has greatly multiplied the environmental challenges faced by policymakers at all levels of government, it has also created opportunities. For example, the PRC's rapid growth and development has given the government the financial wherewithal to improve its capacity to monitor and enforce existing environmental laws, and to fund new environmental initiatives and policies to address the challenges that have emerged.

But the challenges faced are very complex and will become even more so in the period ahead, including that covering the 12th FYP. For example, it is evident that the country in addition to sustaining its high growth in the coming years will also continue its rapid urbanization—the urbanization rate is projected to increase by 4 percentage points to about 51% by 2015. The direct implication of the latter will be a significant increase in the production of solid wastes, wastewater and air pollution emissions. Indirect effects are likely to include further loss of prime cultivated land, increased use of farm inputs (fertilizer and agro-chemicals) to maintain production and food security, and possibly also continued widening of the rural-urban income gap.

The Need and Importance of Updating the CEA

Against this background, the PRC government and ADB agreed to update the first CEA, which was published in 2006 when the country had just commenced implementation of its 11th FYP. The country's environmental performance under the preceding 10th FYP covering 2001-2005 had generally been less than satisfactory, as nine of the 20 environmental targets under the Plan had not been met, making the environmental program the only sectoral program that failed to fully meet its objectives.

During the current 11th Plan period, the government proposed to place more emphasis on the quality of growth, and identified the aim of building a "harmonious, resource-efficient and environment-friendly society" as an essential state policy. Since 2006, significant environmental, institutional and regulatory changes have occurred in the PRC, including the upgrading of the State Environmental Protection Administration (SEPA) of the MEP and the establishment of six regional offices to strengthen supervision of the environmental performance of provincial governments.

The 12th FYP is now being developed and the State Council has requested the sector ministries and local governments to mainstream the climate change agenda into their respective FYPs, which will have significant implications for the PRC's environmental, energy and development policies in the coming years.

As I noted at the outset of my remarks, ADB has also recently embarked on a process to formulate its new CPS, which will be approved next year and aligned with the priorities of the 12th Plan. Support for environmentally sustainable growth has also emerged as an important strategic objective for ADB in the PRC in line with the government's strong emphasis in this regard as exemplified by our increased lending support for environmental infrastructure services and protection, energy efficiency, development of renewable energy, natural resources management, and natural disaster mitigation, as well as the significant increase in our support for knowledge products to meet the country's policy and capacity building needs. My colleague and ADB's country team leader for the PRC, Mr. Jeffrey Liang, will be discussing our country operations in more detail later this morning.

Against this background, both government and ADB thought it very timely and important to update the 2006 CEA to support preparation of the 12th FYP as well as the formulation of ADB's new CPS.

Conclusion

Updating the CEA will help to chart the strategic directions for building a stronger environmental partnership between ADB and the PRC for the next five years to meet the enormous environmental challenges facing the country. I wish to congratulate the CEA team who has successfully produced the inception report. I also wish to express my sincere gratitude to the MOF, MEP and the NDRC for coordinating and organizing the Country Environmental Analysis work, and to the various other PRC government agencies who have been active participants in this worthwhile exercise.