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EU-China convergence on sustainable development may be on the (far) horizon

02-07-2020

Jacques Pelkmans, ECDPM Great Insights magazine, Volume 9, Issue 2

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China has long pursued economic growth ‘at all cost’. Evidence from the past decade suggests it is nudging towards a more sustainable growth path. EU trade policy may have helped.


The EU prides itself on using trade and investment policy to promote the ‘sustainable development’ of trading partners. Sustainable development here relates to a conglomerate of policies, including those for environmental protection and climate change mitigation. Pursuit of such goals reflects two separate rationales. The first is the EU’s desire to promote its own ‘values’ abroad. The second is the EU’s concern that trade be conducted on a ‘level-playing field’ in terms of policies, regulations and costs of doing business.


Values or fairness?


Since 2015, the EU’s position has leaned overwhelmingly towards the values rationale, as set out in the Union’s ‘Trade for All’ strategy. However, this does not make the ‘level-playing field’ irrelevant. Indeed, in a 2020 strategy paper on the systemic challenge that China represents for the EU, BusinessEurope devotes a comprehensive chapter to the ‘level-playing field’, including environment and climate regulation. The sensible position is that the two approaches are not incompatible and can actually be regarded as complementary.

One subject of research in our Horizon 2020 ‘RESPECT’ project (RESPECT stands for ‘Realising Europe’s Soft Power in External Cooperation and Trade’) is the effect of EU trade and investment policy in nudging China towards a sustainable development path. China is a very important EU trade partner, and the two have worked closely on sustainability issues for some 25 years. There can be no doubt that in the early part of this period (the first 15 years or so) China exhibited a worrying divergence on environmental and climate mitigation policies. This stance was harmful first of all for its own citizens, workers, farmers and nature (water, air, soil and forests). But it also became a major preoccupation for EU policymakers keen to support and cooperate with China in its endeavours to engage in market reforms and open trade and investment (both before China joined the World Trade Organization in 2001, and even more since).


Growth, at all cost


Not long ago China was still a developing country, though today it has achieved upper middle income status. But its unprecedented economic growth path was pursued ’at all cost’. The high-growth imperative permeated all levels of government and became a powerful credo for businesses. Other considerations and concerns were ignored or subjugated to the primacy of growth. That focus continued even after seemingly serious environmental and climate mitigation policies started to be adopted. For example, the central role of cheap coal to power industry and provide heating has been maintained up to this day – despite a push for households to replace coal with gas (and before that with less polluting coal briquettes). Modest reductions in coal’s very high share in energy supply have now been accepted (though only recently).

Meanwhile, CO2 emissions tripled from the mid-1990s to today, despite Kyoto. China remains by far the world’s largest emitter. Other greenhouse gasses, like methane and NOx, are also still on the rise. Although CO2 worsens the climate, it does not have noticeable effects on people. But coal use has caused huge SO2 pollution, with dramatic consequences for health, as well as acid rain in China and its neighbours. Severe pollution went virtually unchecked for decades, and is evident in the country’s ‘black’ rivers, lakes and groundwater; the constant smog that envelopes many cities; and the numerous unreported instances of soil contamination.

Besides putting millions of citizens, workers and farmers at higher risk of diseases and premature death, the pursuit of growth ‘at all cost’ also implied a de facto refusal to push domestic and international business to shoulder the cost of preventing and correcting unacceptable negative externalities.


Dialogue and partnership brought a wind of change?


This sad picture held until perhaps a decade ago, but now stands to be corrected. The EU has been a tireless supporter of China altering its policies and regulations (including taxes). It has engaged China in dialogues on climate, the environment, emissions trading, clean coal, sustainable forestry, sustainable fisheries and other issues. It has collaborated with China on action programmes and a joint water platform. The two have issued joint policy statements and summit conclusions, and worked together in the Clean Development Mechanism under Kyoto (with China as the leading user and EU companies as the leading investors), as well as in other initiatives, such as the ambitious EU-China roadmap on energy cooperation (2016-2020).

How effective these EU collaborations with China have been is less clear. China has also turned to international economic organisations, such as the Asian Development Bank, the World Bank and the Organisation for Economic Co-operation and Development (OECD), and to some extent to Japan and the United States. Moreover, pressures built up from within the country too. The Chinese people have become ever less patient with the incredibly unhealthy air and water pollution.

The contributions of all these factors means it is next to impossible to rigorously ‘measure’ whether and to what extent the EU’s efforts have been a driver in the recent reversal of China’s environmental and climate strategies. But there is little doubt that nowadays China is on a path of increasing convergence with the EU’s broad preferences.


Proof of convergence?


1. Both China and the EU are signatories to the 12 most important multilateral environmental agreements, including various additional protocols and new annexes.

2. China’s record on sustainable development is actually more mixed than many realise. European attention typically focuses on the excesses and dismal circumstances. Far less is said about the achievements. These include China’s leading global position in renewables production and equipment, and its 25-year-old reforestation programme (which led to a jump in area covered from 15% to 23%, and is set to reach 26% in 2030). There is also China’s significant increase in relevant taxation over the past decade or so.

3. China joined the Paris Agreement, and this is bound to have major consequences for domestic policies in the coming three decades. In doing so it has made a U-turn away from its former stance that its emissions are irrelevant given the cumulative emissions from OECD countries over the past two centuries.

4. China enacted three significant and risk based laws on water, air and soil pollution between 2015 and 2018, with much tougher enforcement provisions.

5. China has moved to confront the main weakness of its environmental policies, which is enforcement and monitoring. For example, it is investing in technological hardware such as cameras to monitor illegal waste and pesticide dumping in Western China, and it is carrying out more frequent inspections (leading to detection of thousands of illegal waste dumping sites on the Pearl River). It is also issuing tougher sanctions in some cases, and setting more precise targets for provincial authorities in some instances.

6. Partly due to the Paris Agreement, ‘hard’ reduction targets have become more common. The most important of these is the cap on the share of coal use in energy supply (58% by 2020). This is something that had been carefully avoided thus far.
7. We see less fear of employing pricing and tax measures in environmental and climate policies. The spectacular example is of course China’s national emissions trading system, with a carbon price that is meant to increase over time, due to start in earnest in late 2020. The use of pricing to encourage greater water use efficiency is no longer taboo.


Mixed signals


It is very difficult, at this point, to assess China’s environmental and climate policy, because of the mixed signals surrounding its strategy. Certainly some indicators point to lousy results. But there are also enlightened policies and controls, and indicators showing leadership. Where the EU seems to have exercised considerable influence is in technology, strategic thinking, policy formulation and underpinning ‘best practices’, as well as possibly in the setting up and improvement of monitoring and data banks. The EU and China also have similar long-run preferences in almost all multilateral environmental agreements, and often even in the instruments and calendars. The caveat here is that China was recently a developing country, and that status has consequences for environment-related obligations under some multilateral agreements. Also, in China, policy formulation is usually far ahead of actual results realised in markets, in empirical data and in the wellbeing of citizens. The lag can easily be a decade or (much) more.


A telling thought experiment


A thought experiment can help us appreciate China’s progress on the sustainable development path. Modern EU free trade agreements (FTAs) contain a chapter on ‘sustainable development’. The EU FTA with Japan is one of the most ambitious. It expresses quite well the EU’s preferences on trade and investment-relevant sustainable development provisions. Let’s take chapter 16 of that FTA, and break it down into 10 main issues, with in total 41 sub-items. Even though China does not, of course, have an FTA with the EU, careful verification of the 41 items shows that China broadly approximates this ‘EU standard’, with some uncertainties about a few items and definitely a few weak points. Admittedly, this exercise does not go beyond broadly formulated wording but nonetheless it demonstrates that China and the EU are on a gradually convergent path.


References

BusinessEurope. 2020. The EU and China: Addressing the systemic challenge.

European Commission. 2015. Trade for all: Towards a more responsible trade and investment policy. Luxembourg: Publications Office of the European Union.


About the author

Jacques Pelkmans is Associate Senior Fellow at the Centre for European Policy Studies (CEPS) and Professor at the College of Europe and Goethe University.


Photo: East Africa’s largest PV plant starts operations in Uganda. Photo copyright: Access Energy


This article was published in Great Insights Volume 9, Issue 2

Economic Transformation and TradeTradeChina

External authors

Jacques Pelkmans