China: From Chief Polluter to Overall Sustainability Champion?
All major aspects of “overall sustainability” in China
by Tom Van Der Heyden
When combining in one sentence the words “China” and “sustainability,” for many readers in the West inevitably “pollution” will come to mind as the (sole) connection between both. Yet, given the country’s increasingly leading role on the international forum, a more complete analysis is justified, highlighting all major aspects of “overall sustainability” in China (Park, J., 2008) ““ not merely the environmental perspective ““ as well as how companies trying to do business in the country have to act to comply with this concept.
In this article, based on a collection of sources from both East and West, a generally inclusive approach will be applied, focusing on economic and environmental, as well as social sustainability. Some companies will feel more at ease or will even position themselves as specialists in e.g., environmental sustainability, but, as will be shown, most will find it compelling to adjust to the overall context.
While”the Middle Kingdom” is putting heavy emphasis on tackling environmental pollution (Timperley, J., 2018), can we also assume that similar improvements have been and are being made in economic and social sustainability? And how to manage a Western-owned company in China successfully, navigating this complexity?
Overall Sustainability in China
To analyze the level of overall sustainability in a country, ideally, three major aspects (The University of Nottingham, 2015) should be considered:
As mentioned in the introduction, China ““ since declaring its “War on Pollution” in 2015 ““ has made enormous advances in the last of the three above-mentioned perspectives, reversing a trend towards an ever-increasing deterioration of its environment. The country came from a truly unsustainable position, courtesy of its unprecedented economic development, starting in the early 1980s. In this process, the “˜Factory of the World’ had also become the “Chief Polluter of the World,” whereby both the lack of air and water quality had started to influence local public opinion at an alarming rate (Ye, M.F., 2016).
As a result, the Chinese government outlined and implemented a major policy shift, moving from an almost purely economic growth focus to more environmentally sustainable development(Cooper, B., 2019), while in the meantime strongly supporting the kick-off of a new, green industry. Massive resources have been dedicated to allowing (mainly Chinese) companies to invest in researching and developing solar panel technology, electric vehicles, and the like.
Inevitably, scores of foreign companies spotted the opportunity as well, participating in tenders and other commercial processes, on national, provincial and city levels alike, for ventures in wind energy, water treatment infrastructure and other projects where Western technology initially was far superior to the local equivalent. The majority of these companies, though, soon found out that Chinese legislation included a compulsory “hand-over” of the used technology, indirectly strengthening local competition. This practice was the focus of fierce criticism from Western businesses and governments alike and was only recently abolished under the pressure of Donald Trump’s equally fierce trade war(Bornstein, S.J. & Albanese, K., 2020). At this point in time, caution is still required by Western companies in this context, but at least the legal framework has been adjusted and adapted to, say, international standards on the protection of intellectual property rights.
Social equity, as will be shown below, has followed a quite different course, with major improvements ““ almost overlapping with (albeit unrelated to) the gradual worsening of the environment ““ taking place over the first two/three decades after Deng Xiaoping took over the country’s leadership, not long after Mao Zedong’s death. Nevertheless, in recent years, this positive trend has partially been reversed with several significant concepts scoring worse than in previous decades, as is for instance the case of gender equality.
Finally, assessing China’s economic viability inevitably has the potential to lead to an intense, almost philosophical debate, not in the least because it is closely related to the current political discussion about the country, its role in the world and, needless to say, its current leader, President Xi Jinping. Given the reduced scope of the present article, the analysis on economic viability – and its connection to (geo)politics ““ will inevitably be incomplete, although an effort will be made to expose the main topics and letting the reader decide for themselves, whether China is or can be an economically viable and sustainable nation, given its recent history, the current data available and a cautious look into the future.
China’s War on Pollution and Its Quest for Climate Sustainability
On the other hand, nearly half a million electric buses ““ 425.000 to be precise ““ are currently on the road worldwide. Fully 99% of them drive around in China (Malkov, A. et al., 2020). Less than 1% are in the U.S.A. This simple, yet significant statistic shows how seriously China has taken on the challenge of moving away from a path to (environmental) self-destruction towards climate sustainability. It also shows how a top-down, truly resolute, and long-term vision is needed to complement grassroots movements demanding drastic changes in light of the global climate emergency.
Finally, and although as mentioned before top-down initiatives surely lead the way, Chinese citizens have been showing year after year a growing interest in sustainable consumption (Li, Y., Zhang, L. & Jin, M., 2016) of all kinds, whether it relates to green products or garbage recycling, pushing local companies to rethink their overall supply chains. In a 2021 study by scientists of the Harbin University of Science and Technology (Zhuang, W., Luo, X. & Riaz, M.U., 2021), this trend was confirmed and a variety of references were provided for companies engaged in green product diffusion and organizations responsible for environmental protection.
By all means, though, it is too early to see whether China will be able (Maizland, L., 2021) to hit peak emissions by 2030 and be carbon-neutral by 2060, these being the ambitious goals (Holzmann, A. & GrÃ¼nberg, N., 2021) set forward in a speech by Xi last year. In any case, if history has taught the world anything about how serious the country’s leadership takes its self-imposed challenges, chances are the above goals will be met, if not entirely, at least partially.
Social Sustainability: A Less Obvious Picture
Under Mao’s rule, it was fair to state that a concept like income inequality barely existed, but not so much because China’s population was made up of a generalized middle class. Quite the contrary, because the implementation of a variety of the Chairman’s far-reaching policies, mostly in the late 1950s and early 1960s, led to poverty and often famine among vast swathes of the country’s citizens. Hence, noting that currently China’s degree of inequality (Milanovic, B., 2021), as measured by the Gini coefficient, is at levels similar to the U.S.A. might look quite shocking to the (in particular, European) reader. Surely famine has gone and a middle class has arisen, so how can there be such a substantial level of income inequality?
While extreme poverty has officially been fully eradicated (Shepherd, Chr. & Yang, Y., 2021) and a middle class of hundreds of millions is on the rise, a super elite of millionaires and billionaires has taken a step forward, without doubt a surprising phenomenon, especially taking into account that barely 45 years have passed since Mao’s death. China’s spectacular economic development has also not prevented a widening gender gap in labor force participation (Brussevich, M., Dabla-Norris, E. & Li, B.G., 2021), as well as in pay, a stark contrast to the general narrowing in most other countries worldwide. Many reasons have been highlighted, but primarily a disproportionately large childcare burden for women (Zhang, Y. & Huang, T., 2020) is thought to be the main culprit.
Ratio of residents living below the poverty line in China from 2000 to 2020
Inevitably, respect for human rights is also part of the equation when discussing sustainability in a society. As a prelude to analyzing inclusive growth and governance, China’s view on human rights is yet another example of how different world views lead to different policies and, hence, different outcomes. According to Western mainstream views, China has a poor record in the field (Amnesty International, 2020), among other reasons due to its specific treatment of a number of ethnic and religious minorities. On the other hand, according to Chinese media and government officials, this view is not only biased and incorrect (Xinhua, 2021), it also disregards well-documented factors like the West’s colonial history and interventionism over the last five centuries, even up to this day in some cases. How to reconcile both approaches will be a challenge for the next generation of leaders on both sides.
Who is right or wrong in this debate is beside the point: as will be commented on further in this article, a lack of understanding, as well as engaging with China is a major error on behalf of the West, whether it be companies, governments or the public in general. It has led to a number of truly autonomous Chinese initiatives, like the creation of the Asian Infrastructure Investment Bank and Xi’s pet project, the Belt and Road Initiative (BRI), both of a game-changing nature in the countries and markets involved. Although the BRI has so far produced both positive and negative outcomes (OECD, 2018), its geopolitical role can no longer be ignored.
Does all the above constitute a challenge for foreign businesses, when investing in operations on Chinese soil? On the one hand, most Western multinational companies are used to complying with more advanced social standards than the ones required in China. Equality, minority rights, privacy and the like, whether under the pressure of governments and/or of civil rights groups, the fact is that many companies have evolved into including (the majority of) these concepts as part of their corporate philosophy. Hence, it is fair to conclude that they actually contribute, while operating in China, to the advancement of the corresponding social equity conditions for local workers and their families.
Nevertheless, on the other hand, as a clear example of the need for adaptability (GMA, 2021) when internationalizing a business activity, Western corporations must additionally comply with a number of specific, “China-only” regulations they would not encounter in their respective countries of origin. Privacy pops up as a focal point in this panorama (Pink, Sc., 2021), where recent legal changes have pushed foreign companies to hold ““ compulsory ““ customer data on Chinese consumers on China-based servers, causing many a company to express its doubts on the impermeability of these data vis-Ã -vis the Chinese authorities. Yet, doing business in the soon-to-be-largest consumer market comes with this type of strings attached. Take it or leave it.
Inclusive Growth and Governance: A Clash of Visions
Since the 2000s, the Chinese government has pursued plans (Zhuang, J., 2021) for inclusive growth and governance: in order to create a harmonious society (“the” leitmotiv in China), the focus would have to be on keeping growth both high and sustainable, implementing redistributive policies to provide equal access to opportunities, as well as providing good governance and strong institutions to ensure economic and social justice.
While this grand picture looks objectively speaking, quite balanced and not much out of line with what most Western governments would propose to their respective voters, there are multiple ways to put the above into practice. Taking into account that China in 2008 (not to mention 1980) didn’t have much in common with the economic, social and environmental realities of the West, unavoidably the implementation of these ideas would differ substantially, as history has shown. Even starting with the same “dream” in mind, surely transforming a huge and poor country like China into (at least) a middle-income economy requires different recipes than pursuing the same final objectives in rich, Western nations.
Apart from other, obvious differences like average income (lower in China) and speed of economic growth (higher in China), a variety of equally interesting factors come into play. One of them ““ particularly relevant in the context of analysis on overall sustainability ““ is the fast pace of the country’s urbanization (World Bank, 2014). Whereas in 1980 barely 20% of China’s population lived in cities, by 2020 this figure had tripled to nearly 65% (Textor, C., 2021).
In comparison, the corresponding value in the U.S.A. is over 82%, while ““ to offer a more comparable number ““ in India, less than 40% of the population lives in urban areas. Needless to say, urbanization is a factor closely related to both economic growth (median income in cities is substantially higher than in rural areas) and to sustainability (the mere logistics of feeding an urban population is an environmental challenge, among others).
As previously mentioned, the road chosen by China’s leaders over the last 40 years turned out to be a significantly different political mix of economic policy, individual and collective liberties, as well as environmental concerns, compared with what Western nations have chosen for their respective overall development. These differences include, among others, initially a gradual loosening of the role of the state during more than the first three decades (1980-2012) and a renewed, stronger influence of the state, following Xi’s ascent to power in 2012.
A tighter grip on the country by government and state (Weller, T., 2021) can be seen in multiple measures taken, some of them with an obvious impact on the overall sustainability of the country. Examples include the National Security Law for Hong Kong, the Social Credit System, the recent, highly visible interventionism in the technology industry (The Economist, 2021), as well as China’s more assertive role on the regional and even global scene. The latter, often misunderstood in the West, should be seen in the context of China’s desire not to necessarily dominate the world, but to regain the relative power position as a country and economy that it had enjoyed for centuries until the mid-1800s, when the so-called “Century of Humiliation” started (ended by Mao and the constitution of the Communist People’s Republic of China).
Businesses tend not to express their “corporate opinions” on political issues, especially in foreign markets, so as not to upset their respective hosts. This attitude is even stronger when considering some of the West’s largest companies operating in the Chinese market, where a variety of rules, laws and overall frameworks tend to imply a number of obligations that contradict those same companies’ philosophies in other markets (Nicas, J., Zhong, R. & Wakabayashi, D., 2021). Once again, the sheer size of the Chinese market poses a formidable challenge for businesses, managers, employees and shareholders alike: how far to go in accepting that set of rules that often clearly clashes with Western values? Short of offering an overall recommendation, each corporation will have to set out its own combination of objectives and acceptable limitations in order to achieve those objectives.
Indeed, China is today a less polluted country than it used to be (allegedly coming from a very dark and still quite recent past) with cutting edge technology and lavish investments in anything from electric batteries to water treatment systems (and the more than odd appropriation of Western technology, based on recently modified IPR legislation).
Yet, the targets set out by the current leadership are ambitious, very ambitious, to say the least, and achieving them will require, among others, an endless number of initiatives to be combined with an above-average level of economic growth (as compared to the rest of the world), in order to reach and maintain the self-proclaimed “harmonious society.”
In the meantime, reversing a variety of socially unsustainable trends will constitute an additional challenge, focusing on topics like gender gaps (both in labor participation as in wages), overall income inequality and the like. China’s view on human rights might not change in a significant manner over the next decade, unless the country’s leadership feels that it will pay off to make reforms in light of a united Western political front (even though the latter looks quite unlikely at this point).
Finally, for the foreseeable future (i.e., for as long as Xi’s presidency continues) sustainability in governance in China (Gea, T., Qiub, W., Lia, J. & Hao, X., 2020) may be expected to focus increasingly on controlling all major elements of the state apparatus, society and economy, while expanding in a synchronized way the country’s role on the global stage. If the West was seeking to alter this course (clearly not a unanimous goal at this point), a first necessary step would be to better understand the country, its history and leadership, upon which a more constructive engagement would appear to be the only possible way to proceed.
For Western companies wishing to play a substantial role on the Chinese market, whether it be exporting to, sourcing from, manufacturing in or implementing M&A operations across the Middle Kingdom, there is a thin line to walk. The challenge of sticking to their own core values, pleasing their (Western) stakeholders and complying with a rapidly changing legal framework (McHugh, R., 2021) in the country itself, will become an ever more delicate balancing act (Batabyal, A.A., 2020), one worthy of the most outstanding (often Chinese) Cirque du Soleil artists.
Tom Van Der Heyden is the Co-Founder and CEO of SÂ³ Group, a consulting firm based in Barcelona, Hong Kong and Shanghai, focused on internationalization services, with and within emerging markets (GroupS3.com). Additionally, he teaches international business at a variety of business schools and universities in Europe, the Middle East and China. Tom currently teaches International Management at Geneva Business School in Barcelona.
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The views expressed in the Research Review are those of the authors or interviewees and do not necessarily reflect the opinions of Geneva Business School or the editors of the Review.