Environment vs. Growth: Political Incentive Shift and Pollution Control in China

• In Event: Green Politics around the World

Abstract

Scholars of environmental governance in China agree that China’s decentralized administrative structure is ill-suited to address the nation’s growing environmental challenges. China’s fiscal structure and growth-oriented cadre performance evaluation system have provided incentives for poor environmental policy enforcement, because it may negatively affect local development. Studies show that fiscally weak cities are slower to implement centrally mandated environmental regulations and eventually become pollution havens, as they rely more on investment and tax revenue from more-polluting local industries.

In late 2013, the Central Organization Department downgraded economic growth and increased the weight of environmental targets in local leaders’ performance evaluation to address the “race to the bottom”. Exploiting this change in personnel institutions, I examine whether and to what extent the current performance evaluation system affects environmental governance practices in China. I analyze an original 2008-2019 city-year panel dataset. My two main findings are the following. First, city governments’ environmental performance significantly improved and fixed asset investment growth significantly decreased after cadre performance evaluation reform. This suggests that local leaders in China are responsive to the center’s new policy shift: their incentives to enhance environmental governance grew, but incentives to boost economy through investment shrunk. Second, the political incentives to protect the environment vary across regions. Only city leaders in heavily polluted areas are more likely to be promoted for good environmental performance, not their peers in localities with good environmental quality. This indicates that environment only outweighs growth in political incentives in regions with severe pollution.

My findings have major implications for the political selection literature in Chinese politics. Most studies use economic or fiscal indicators to measure performance. Recently, some scholars have examined other policy areas, such as social welfare, the one-child policy, safety in production, and environmental regulations. Nearly all these studies, however, implicitly assume the political incentives to induce certain policy outcomes affect the whole country the same way. I suggest a new perspective to approach performance evaluation: for a large and complex country like China, it is impractical to use one single rule to evaluate all local leaders. Performance indicators are designed and their weights assigned in ways that motivate leaders to tackle their most urgent and important local problems. Economic growth used to be the most important goal for the regime; however, as China enters a new phase that values more balanced development, more diverse goals will emerge in different localities. The tournament model might not explain things well for the current stage.

My study also adds to a growing literature on the relationship between economic growth and pollution. The classic environmental Kuznets curve (EKC) hypothesis proposes that with economic growth, pollutant emissions tend to first increase and then decrease. However, no consensus has been reached among substantial empirical studies on the existence of EKC in China. Different results have been derived from different pollutants. My findings suggest that (1) pollutant emissions set as local environmental targets are more likely to decrease, all else equal; (2) China might reach the turning point of EKC, as the nation enters a new stage that advocates eco-friendly and sustainable development mode. Cadre evaluation standards, as a high-powered incentive tool in China, are calibrated from time to time to ensure that local leaders follow the central government’s policy orientation and adapt to new challenges.

Author

• Xiaoshu Gui, Duke University