Economic Impact of Industrial Pollution in China

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Table of Contents

Introduction
Overview of the problem
Economic effects
Conclusion/Recommendations
Works Cited

Introduction

In an economically competitive world, most countries around the globe constantly compete to attain the top position in the international market in order to reap the benefits that come with such progress. For this reason, most countries insist on industrialization with some showing more zeal as compared to others through political policies.

Although industrialization has been a big part of global economic growth since the end of the Second World War, it has also played a significant role in increasing the number of environmental risk factors such as pollution. Such risks result in a bittersweet experience for most economies, as although the process generates economic gains; its effects on the environment often lead to the loss of the same gains or more.

This concept results in a dilemma for such governments when choosing between making policies that give developmental success and those that protect the environment. China is among the many world countries experiencing such a dilemma, which makes it one of the best choices to explore in determining the economic effect of industrial pollution on a country.

Although China’s problem is more recent than that of most other countries, the potential economic devastation that industrial pollution is causing is significantly higher due to several factors.

This paper gives a brief overview of the problem in China especially with regard to air pollution, its impact on the Chinese economy, some of the steps that the government has taken to combat the problem, and the effectiveness of such policies. The paper also considers possible solutions and explores the outcomes of the solutions on the country’s economy and overall position in the global market.

Overview of the problem

China is indisputably the most populous nation around the world and it has approximately 1.3 billion people residing within its borders, out of the world’s approximately eight billion people. Some of its largest cities, which in turn create attraction points for most multinational businesses, include its capital city, Beijing, Shanghai, and Hong Kong.

Although the country’s land area makes it the second largest country in the world, the large population living within the country means that the amount of land area available per individual is much smaller than in most other industrialized countries in Asia and the West (Chan 385).

One of the greatest advantages that such a large population affords the state is the generation of a sustainable labor force, which makes industrialization realizable. Countries such as Saudi Arabia have often had to adjust their international trade policies to attract expatriates to the country to supplement their insufficient labor force for the ultimate progression of their economies.

Secondly, the large population offers a ready market for industrial products, thus reducing the country’s need to depend on the international market for sales and consumption.

Regardless of the numerous advantages that the large population presents to China’s economy in terms of progression of the industrialization process, there are also disadvantages with the main one in this case being industrial pollution. According to reports by the Reuters, about seventy percent of China’s industrial energy is dependent on coal, which explains the high rise of air pollution within the past eight years (Stanway par.8).

The World Bank’s estimates from studies conducted in the year 2013 indicate that more than 10 ten out of the 20 most polluted cities in the world are in China and that the country holds the record for the World’s largest carbon emitter, with forty percent of China’s rivers experiencing pollution from industrial and agricultural waste (Stanway par.9).

The report from Reuters indicates that only three out of China’s seventy-four cities are compliant with the county’s pollution standards and adds that the pollution menace continues to grow, with cities such as Beijing and Shanghai experiencing heavy smog thus reducing visibility and creating a mobility hazard for motorists (Stanway par.4). Apart from presenting a danger to motorists, the smog threatens the respiratory and cardiac health of residents.

A report by Green Peace East Asia indicates that according to the World Health Organization (WHO), pollution in the country’s major cities increases the risk of asthma and ischemia due to pollution levels that breach WHO air quality guidelines (Green Peace East Asia par.14).

Of greater interest to this paper in terms of economic impact is the effect that such diseases have on the young adult population, which serves as the country’s largest percentage in the labor force. Although the government of China has indicated its support for pollution reduction, especially air pollution, and stated various steps that it is taking in its policymaking, the problem still poses a threat to the country’s economy as similar efforts in the past have failed to bear fruit.

Economic effects

Reduction of the labor force

One of the most notable effects of industrial pollution within the country is a reduction of the labor force. According to a WHO report that the organization published in the South China Morning Post on 25 March 2014, about seven million deaths in the globe are resultant of pollution (Wei par.8).

The organization states that the death toll has doubled within the past eight years with China being one of the most affected countries with a death for every seven deaths in the world. In the same news piece, the WHO also mentioned an article by a former health minister Chen Zhu in which he explained that air pollution causes more than three thousand deaths in China on a yearly basis (Wei par.9).

Industry workers are prone to the immediate effects of pollutants, especially air pollutants, and thus they risk their health the most. However, the size of the country’s population increases competition for existing jobs thus ensuring that industry owners have enough laborers at all times coupled with reducing the need to attend to health risks that accompany the employment opportunities.

In addition, the government’s revenue gains from the industries, fast technological development pace, and reputation as one of the world’s leading countries in technological advancements has resulted in laxity with regard to oversight of industrial operations, which has led to aggravation of the situation over the past eight years (Gallo 36).

The impact of the government’s laxity to address the concerns of workers in industries regarding their health has largely existed in the form of management teams in such industries using employees in the same ways they use renewable resources, without regard on the lives of the workers or those of the families depending on them. Therefore, even though some people still opt to work in such industries to earn their income, the numbers keep on reducing, as more people die every year due to exposure to pollutants.

Apart from the reduction of the labor force due to deaths of industry workers, the pollutants also result in deaths in other areas of the country through air water and soil pollution, thus reducing the number of able-bodied adults likely to work in such industries. For instance, as mentioned earlier, the smog situation in major cities is, according to health experts, responsible for rising cases of respiratory and cardiac diseases among adults and children residing in these areas (Wei par.11).

Although it is possible for such industries to get laborers from areas outside those specific regions, the cost would be higher for the industries in terms of employment expenditure, the processes would be longer, and the people fewer as compared to obtaining the same man-power from within the cities. In addition, widespread pollution in the rivers, soil, and air in the country means that the number of children that grow up healthy enough to work in such physically demanding careers keeps on dwindling every year.

Aside from the various illnesses that result in deaths and reduction of the labor force available for jobs in industries and other professional environments, fewer people opt to work in industries due to the awareness of the effects that pollution has on workers and people residing in areas near industries.

In most instances, governments encourage young individuals with innovative abilities to establish industries through support of infant industries, provision of tax incentives, provisions for longer periods within which to enjoy monopolies, and promotion of products on their behalf.

However, research shows that people are more willing to work in environments in which they feel safe (Florczak 62). In the book, Improving Safety Culture, Cooper (12) explains that employees are more productive in environments within which they feel safe.

Essentially, safety culture concerns the management of safety in the workplace and reflects attitudes, perceptions, beliefs, and values that employees share regarding the maintenance of safety in the workplace in the performance of their duties (Duffey and Saull 26). Cooper (19) adds that companies with a reputation of high safety standards attract a good employee base and spends less in employment expenditure due to the availability of a large variety of trained employees with varying skill sets.

In contrast, companies without elaborate safety cultures create unfriendly environments for their employees in which they struggle to focus on completing their tasks while safeguarding their health (Cooper 43).

In the light of the above explanation, although the population presents an advantage to company owners in China, the rise of international markets has created an alternative for most educated adults within China with the ability to work in various sectors of the economy. Therefore, the Chinese economy risks losing its labor force to safer countries in terms of pollution coupled with losing revenue from its industries.

Fewer foreign investments

Secondly, the pollution crisis presents China with the risk of reductions in foreign investments. Early forms of international trade mainly involved import and export of goods and services. However, the practice of establishing extensions of corporations in other countries has become increasingly common in the modern world, thus leading to the rising number of multinational and transnational corporations.

The dynamic presents numerous benefits for the host countries as well as companies that choose to embrace the move as their investment method of choice.

For instance, unlike instances in which companies have to hire out other companies in foreign countries for investment purposes, the establishment of personal branches allows companies to reap maximum profits, reduces expenditure in terms of import and export costs, and allows the companies to benefit from government incentives. The host governments benefit from increased employment opportunities, increased tax revenue and a cheaper source of skill importation (Lieberthal 2011).

One of the main evolutions in international trade, especially with regard to multinational corporations, is evident in human resource management (HRM) practices. HRM practices involve the creation of organizational culture in aspects such as employer-employee interactions, recruitment and selection, employee development, and performance management.

Due to globalization, most of these cultures are similar for most companies worldwide, thus resulting in less need for some practices, some of which include importation laborers into foreign countries in which foreign corporations seek incorporation. For a country with high literacy levels, government support for innovation, industrial development, and large population, international trade is a resource that the government should seek to exploit.

However, despite the benefits, such potentialities results in government’s laxity in terms of foreign investment, poor management of local industries, and lack of oversight from the government, which create room for foreign corporations to take over the economy, thus leading to strict policies for such companies (Florczak 95).

Ultimately, in a bid to protect local industries and the country’s ranking in the international market, the government finds itself in a position where it needs to forego revenue benefits for the sake of the protection of national industries, at the risk of discouraging foreign investors.

Additionally, even in instances where the government does its best to support foreign investments in order to grow its economy like the one that the Chinese government does, policies affecting other trade factors reduce the likelihood of achieving success. For instance, one of the most important determinants for companies when establishing expansion strategies is the financial burdens that such expansions place on the companies’ budgets, rules of operation, and the local culture of the region.

In China’s current state, pollution presents a variable in terms of expenses as companies have a responsibility to ensure that their employees work in a safe environment, which in most cases means that they have to formulate policies and create mechanisms that ensure the safety of their employees, regardless of the state of the country’s health safety policies.

Although the government’s safety policies may not include installation of high-end air and water filtration systems, companies have to consider the costs of such installations for their employees. One of the benefits of international trade is that companies have a variety of countries within which to establish their branches and high cost countries do not rank highly in their choices.

Another factor that reduces chances of foreign investment from multinational corporations is the high rate of employee turnover that pollution causes. Poor health and loss of lives due to pollution reduce employee productivity and subsequently lead to low corporate revenue resulting in fewer investments. According to management expert, Mintzberg (75), most prudent managers prefer employees who can work for consistent hours and efficiently for purposes of reliability.

Reliability is crucial, especially for multinational corporations as they experience challenges operating simultaneously between two or more environments while conforming to the rules and cultures of the environments as compared to national corporations (Mintzberg 76). Stakeholders in such corporations need assurance regarding returns on their capital investments in the same way the corporations need assurance on profits in their new ventures.

Although it is usually difficult to guarantee circumstances regarding such trade resulting in profitable business interactions, successful companies ensure reliability of output by treating their employees as human capital. In the book Maximizing Profitability with Safety Culture Development, Florczak (106) posits that even though investing in the improvement of employee skill sets is a good idea for most companies, high employee turnover limits the returns on human capital investments, thus resulting in losses.

Ultimately, as is the case with any other form of investment, expenditure on investments that yield little profits for companies result in losses, thus reducing the urge for companies to keep reinvesting (Florczak 108).

Since multinational corporations insist on training employees on skills specific to their line of operation for efficiency, the high likelihood for high employee turnover rates in China makes the environment unattractive for foreign multinational corporations to establish branches in the country. The high rates make the establishment of branches in China unsound for investments.

In international trade, a country’s reputation carries a lot of weight in the determination of whether other countries choose to take advantage of investment opportunities.

Some of the factors that contribute to unfavorable investments include the ability of a country to comply with international standards in terms of operational policies, some of which include safety policies, political stability, tax incentives, and the ability for such states to comply with the principle of reciprocity with regard to business relationships with individual states.

Although China may still attract investments in certain areas of its economies, the industrial sector is likely to suffer from fewer investments due to the reputation of such business concerning effects on lives in areas where the industries exist.

Possible solutions

Most solutions that the Chinese government needs to explore in its quest to alleviate the pollution problem involve the formulation of new policies, alteration of the existent ones, or the elimination of the policies currently in place regarding the issue. In order to achieve real change, the government has to comply with the rules that govern the concept of change leadership.

Although the theoretical formulation of changes in the policies is easy, the actualization of such change often presents challenges to most leaders, some of which are unpredictable. One of the most significant challenges that the Chinese government would face in the change implementation process is finding a balance between furtherance of industrial development and addressing health safety concerns.

Some of the most essential steps in the achievement of change leadership include the creation of awareness regarding the need for change, development of an adoption plan, and assimilation of changes into the current system and reviews that ensure that such changes address the issue concisely and provide room for effective implementation.

The government should also establish a change management system to ensure that the implementation of change occurs systematically, thus allowing room for any modifications where necessary. Change has to occur at two levels simultaneously, viz. personal level and organizational level.

Lack of progress in the adoption of change at one of the levels hinders the project of the alternate level thus defeating the purpose of the entire process (Fullan 49). For instance, in China’s situation, the change has to occur at the corporate level where individual companies adopt institutional changes in addition to the government level implementation of changes.

Solution 1: Increased oversight on industrial operations

In 1979, the Chinese government implemented the Environmental Protection Law that is currently in place. The framework of the law carries stringent measures that aim at reduction and elimination of pollution in the country. However, the country’s hunger for industrial development has seen the country’s leadership overlook breaches of the law in favor of revenue benefits from industrial growth.

The Chinese government needs to create new laws that concentrate on the oversight process or amend the old laws to incorporate more stringent oversight requirements. The Sarbanes-Oxley Act in the United States is a good example of a government policy that specifically targets an increase in oversight policies in order to avoid breaches in the law for public policy reasons.

The American government implemented the Act in response to the financial crisis that hit the country due to poor oversight on financial institutions leading to a scenario that saw some of the leading credit institutions experience bankruptcy.

In order to salvage the situation at the time, the government spent billions of dollars in bailouts and implemented various policies, key amongst them the Sarbanes- Oxley Act, which calls for compulsory audits and a change of the primary auditor every time a company’s audits are due for financial institutions, especially those with lending powers. The Chinese government can borrow a leaf from this example by implementing personalized oversight laws specific to the industrial sector.

Solution 2: Restrictions on development of new industries

Another alternative worth exploring is the restriction of development of any new industries. The main benefit that this move presents to the country’s industrial sector and government is the negation of any further aggravation of the current crisis. The move saves the government the need to keep changing its policies in order to accommodate new growth while formulating new strategies to cater for increasing pollution levels.

However, this solution is likely to result in stagnation of progress in industrial development, which is one of the core revenue earners for the government. The government should explore other options to supplements the tax revenue that it is likely to lose in the process.

For instance, the government can capitalize on selling innovation through investment in human capital. In addition, the government should improve oversight, as this solution does not resolve the current pollution crisis appropriately in terms of reduction and elimination of the problem.

Solution 3: use of change leadership to overhaul current policies

The third solution for the government is the creation o brand new laws governing industrial development and health safety strategies. Even though this solution has a great chance of success, considering the failure of past regimes to resolve the problem, the cost of implementation would be high. This solution requires utter commitment from the government and individual industries in order to achieve success, which is often difficult to achieve without conflict with the current regime.

Conclusion/Recommendations

Industrial pollution in China has hit unprecedented levels. Due to the pollution, the country risks losing workforce and reduced foreign investments. In view of the above information, the most feasible way for the achievement of sustainable change for the Chinese government would be the adoption of the first solution.

The main advantage that this solution presents to the leadership is that change is gradual. The government thus has the ability to implement changes at a manageable pace without resorting to drastic changes likely to scare off present investment. The downside of this solution is that it would take some time before significant changes are visible.

Works Cited

Chan, Kam. “Misconceptions and complexities in the study of China’s cities: Definitions, Statistics, and Implications.” Eurasian Geography and Economics 48.4 (2007): 383-412. Print.

Cooper, Daniel. Improving Safety Culture, New York: John Wiley & Sons, 2001. Print.

Duffey, Romney, and John Saull. Managing Risk, Chichester: John Wiley & Sons, 2008. Print.

Florczak, Clifford. Maximizing Profitability with Safety Culture Development. Burlington: Butterworth-Heinemann, 2002. Print.

Fullan, Michael. Change Leader: Learning to Do What Matters Most, San Francisco, CA: Jossey-Bass, 2011. Print.

Gallo, Frank. Business Leadership in China: How to Blend Best Western Practices with Chinese Wisdom, New Jersey: John Wiley & Sons, 2011. Print.

Green Peace East Asia: Air Pollution 2014. Web.

Lieberthal, Kenneth. Managing the China Challenge: How to Achieve Corporate Success in the People’s Republic, Washington D.C.: The Brookings Institution Press, 2011. Print.

Mintzberg, Henry. Mintzberg on Management, New York: Simon and Schuster, 2008. Print.

Stanway, David. “China Says Pollution from Industries Still Growing too fast With Heavy Smog Alert for Beijing.” Reuters. 2014. Web.

Wei, Lo. “Pollution Kills 7 Million people every year according to WHO Report.” South China Morning Post, 2014. Web.

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