The Political Economy of Pollution Reduction in China

• In Event: Environmental Governance in China: Governments, Corporations and Individuals

Abstract

Studies of the uneven implementation of pollution regulation in China tend to highlight favoritism towards large State-Owned Enterprises (SOEs). This phenomenon is often attributed to regulatory capture, where SOEs use their political connections to evade regulation. Yet close ties between SOEs and the state can also contribute to tighter control and monitoring of SOEs. Using an original dataset on firm ownership and remote sensing data to measure pollution levels, this paper finds a strong association between the number of polluting SOEs and improvements in air quality at the city level. Drawing on interview findings, this paper further explores the hypothesis that the ‘state capitalist’ model contributes to the relative success of SOEs in reducing pollution; with preferential access to loans, SOEs are more able to afford the substantial cost of reducing pollution than their private counterparts. In re-examining local government behavior towards polluting firms, this study challenges assumptions that local governments are powerless against firms or captured by firm interests. In drawing attention to the preferential role of SOEs in China’s economy, this paper also examines how structural inequalities in state financing can explain uneven compliance with pollution regulation.

Author

• Denise van der Kamp, University of California, Berkeley