Media  Global Economy  2022.05.13

In China, "shutting down the most polluting activities leads to layoffs and has a negative impact on wages"

Le Monde on May 2nd, 2022

This article was initially published in French in Le Monde newspaper on 2. May 2022, as part of a series of monthly columns on Asian economies. The original article can be found here:

Chinese Economy China

Column by Sébastien Lechevalier, Professor at Ecole des Hautes Etudes en Sciences Sociales (EHESS, Paris), Senior Researcher at Maison franco-japonaise (UMIFRE 19, Tokyo) and at the Canon Institute for Global Studies (CIGS, Tokyo).

In China's most polluted cities, the tightening of environmental regulations has increased the income gap between skilled and unskilled workers, observes Sébastien Lechevalier in his column.

Column. China is, with the United States, one of the two countries that contribute most to the environmental crisis, through its economic growth. However, it has not remained inactive in terms of fight against pollution: since 1987 and the law on air pollution control and prevention, the Chinese government has constantly reinforced its environmental regulations.

At first, the results of this policy were very disappointing. For example, despite the measures taken during the 10th Five-Year Plan (2001-2005), sulfur dioxide emissions continued to rise sharply, reaching a peak in 2005-2006.

The main reason is that the implementation of environmental policies at the local level was biased in favor of economic development, on which the careers of the officials responsible for implementing pollution control measures were indexed (Ming Qin, Lin-feng Fan, Jing Li and Yi-fei Li, "The Income Distribution Effects of Environmental Regulation in China. The Case of Binding SO2 Reduction Targets", Journal of Asian Economics no. 73, April 2021).

Commitment contracts

This is why the government introduced a new approach in the 11th Plan (2006-2010), setting binding targets of a 10% reduction by 2010 for total emissions of major pollutants. Under this framework, local authorities were required to sign commitment contracts and the central government could block new projects if they failed to meet the targets. This new policy has been a clear success in the case of sulphur dioxide, with emissions falling by more than 14% between 2005 and 2010.

Economic growth was not significantly affected during this period, as China benefited fully from its membership in the World Trade Organization (WTO). But the same cannot be said of the social impact, as this study of the period 2002-2007 shows.

The four authors compare data from the periods before and after the implementation of pollution control policies, in order to analyze their impact on the evolution of wages for different types of workers. They confirm the heterogeneity of the effects of anti-pollution policies: the cessation or reduction of the most polluting activities lead to layoffs and have a negative impact on the wages of unskilled workers in the regions and cities of central and eastern China where they are concentrated, which mechanically increases inequalities between skilled and unskilled workers.

An environmental compensation fund

Based on these results, the authors make several recommendations.

On the one hand, it is important to take into account the differences in levels of development between Chinese regions so that those that are less advanced do not suffer more than others from regulations that remain homogeneous at the national level.

On the other hand, it is essential to set up a regional environmental compensation fund to mitigate the growth of inequalities. This fund must include a budget for the training of the least qualified workers in order to encourage their mobility towards less polluting industries. This is a fundamental condition to ensure that they are not the big losers in the ecological transition.

This transition cannot take place without the most vulnerable being able to face its consequences without opposing it, as the "yellow vests" revolt in France has shown. In China as in France, the fight against the end of the world and for the end of the month must converge.