Informational Mechanism and the Future of Chinese Pollution Regulation

Abstract

Just as China has emerged as the world's fourth largest economy, its environment is deteriorating at an increasing rate. The nation's environmental degradation-particularly its rapidly rising level of pollution-threatens to undermine the efficacy of environmental protection measures throughout the world and could have global effects extending beyond the environment. Commentators have attributed the deterioration of China's environment to the gap between the enactment of pollution regulation measures and their implementation. This gap is said to exist because of various institutional and financial constraints imposed upon regulators of industrial pollution.' Without challenging such lines of commentary, this Article argues that prior research has overlooked two critical and related information mechanism issues that may independently contribute to the existence of the gap: (1) the manner in which information about industrial pollution regulation is collected and disseminated through mechanisms designed by regulators; and (2) regulators' preferences for certain mechanisms. This Article focuses on China's environmental impact assessment system ("EIAS") and scrutinizes two recently enacted measures that are intended to enhance the EIAS's efficacy but will likely fail to accomplish this objective, a conclusion that will become apparent through a revealing comparison with the regulatory regime governing securities in the US.

In critiquing the current information mechanisms in China's EIAS, including the recently promulgated guidelines on public participation in the EIAS, this Article seeks to offer the following three preliminary observations: first, too many resources have been devoted to collecting speculative information for preventive measures that are often strategically produced by regulated subjects, thereby depriving all parties, especially regulators, of the opportunity to accumulate the appropriate type of human capital and efficiently allocate limited resources; second, ill-designed regulation of intermediaries and improper use of public participation requirements in China's EIAS together provide enterprises with incentives not to disclose quality information and may discourage some enterprises from entering the market; and third, for public participation purposes, using the same framework to evaluate decisions made by the government and by enterprises may be counterproductive. Such an approach may help the regulator as an institution without necessarily providing benefits to the public. In particular, shifting administrative costs and public pressure to enterprises may not advance the goal of effective pollution regulation. These three observations may also shed light on studies about the design of information mechanisms in other Chinese regulatory regimes.

Keywords: China, Chinese law, regulation, environmental law, environmental impact assessment, public participation

JEL Classification: K32, K42