Chinese State Capitalism and the Environment

Abstract

China’s state-owned enterprises (SOEs) have contributed mightily to the country’s environmental problems. Scholars and commentators have long treated SOEs as “vested interests” with a particular ability to thwart central Party-state environmental objectives. The inability of the state to reform SOEs and stem the tide of environmental degradation is, in turn, seen as evidence of China’s governance deficits and a threat to the ultimate legitimacy and long-term survival of the Chinese state.

This Chapter examines an emerging set of strategies that Chinese leaders are using to counter this dynamic. Rather than resort to the types of political, legal, and market reforms that liberal commentators typically support, Chinese authorities appear to be engaged in an effort to bring about environmental reform in significant part by accommodating elite SOE interests, bringing them along with a large helping of positive incentives and a relatively smaller dose of traditional regulatory enforcement.

Drawing from public choice theory, this Chapter further argues that salient aspects of authoritarian governance (i.e., instrumental concerns about legitimacy and elite rent seeking) are not necessarily incompatible with the delivery of public goods, like environmental quality. Ultimately, it is not clear whether SOEs will in fact respond to state incentives to implement Chinese environmental policies, but there are reasons to believe that SOEs may in fact be more responsive than conventional wisdom assumes.

Keywords: China, environment, environmental regulation, state-owned enterprises, environmental protection, legitimacy