A New Priority

Not long ago, environmental issues were a secondary concern at best for regional and national officials. With 1.3 billion mouths to feed, policymakers viewed environmentalism more as an aesthetic nicety than a question of national health.

Part of their attitude may also have resulted from the newness of the concept of environmental regulation to China. Elizabeth Economy, in her book on the Chinese environmental crisis, The River Runs Black, notes that historically, the Chinese never had a conception of nature as something to be preserved for its own sake. The Chinese traditionally have shaped the environment to suit themselves, driven in part by the needs of a huge population. Economy notes that historians have found evidence of the strain of high population on the land as far back as the year 700. For hundreds, if not thousands of years, the people of China have tended to go in for huge infrastructure projects, such as immense canals, which often had terrible environmental consequences.

A series of high-profile environmental disasters in the past several years, however, has shifted public opinion dramatically, and the recent headlines regarding Lake Tai illustrate the kind of complex environmental challenge an ecological crisis can create in a densely populated country. Located on the Yangtze Delta in eastern China, Lake Tai's scenery is prized as a tourist destination -- in fact, the islands and mists of the lake have inspired poems and paintings for nearly a thousand years. At the same time, the large but shallow lake (average depth is a little over six feet) is also a key source of water for a large chemical industry, home to a large fishing industry, and the primary source of drinking water for at least two million people.

After years of increasing pressure, the lake finally failed in April 2007 when it bloomed with blue-green algae that fed on pollutants in the water. For 10 days, the two million people who live near the lake, many of them chemical industry workers or rice farmers, had to stop drinking or cooking with tap water. "The pollution of Lake Tai has sounded the alarm for us," said Prime Minister Wen Jiabao shortly after the algae outbreak. To many in the government, crises such as the Lake Tai disaster have made it clear that for the sake of national security and social stability, the government can't continue to choose economic growth over the environment.

Yet there are conflicting signs on whether China is serious about the task ahead. In Lake Tai, for instance, 1,300 chemical factories were ordered shut down. At the same time, however, local officials sent a prominent environmental activist to prison, convicted of corruption charges that defenders say were actually retribution for his long-time campaign to stop the lake's decline. While an extreme case, what happened in the Lake Tai incident also demonstrated a key difficulty companies face with environmental regulation in China: The prime minister and the national regulators say one thing, but local officials charged with enforcing those regulations frequently do quite another, according to observers. As a result, enforcement can vary wildly by province. For example, more than 125,000 megawatts of coal-fired power plants have been built in the countryside, reportedly without obtaining official approvals.

Even when there is no strong conflict, the rules are sometimes vague enough for honest disagreements between the central government and the provinces, and between the provinces and their local companies. Rules can be opaque, warns David Michael, a senior vice president and director of BCG's Beijing office.