Central Protectionism in China: The 'Central SOE Problem' in Environmental Governance

Abstract

This paper examines the so-called “central State Owned Enterprise (SOE) problem” in China’s environmental governance system, namely central SOEs’ defiance of environmental regulation. We present evidence showing that, in the last decade, central SOEs have been the source of a large number of serious pollution incidents and have often failed to comply with environmental guidelines and regulations. Central SOEs in the electricity generation and oil and gas industries are particularly culpable, with six firms alone accounting for 62 per cent of all 2,370 reported violations (2004-2016). We argue that a combination of “central protectionism” of state-owned national champions and insufficient regulatory capacity in the environmental bureaucracy have provided state firms under central management with both incentives and opportunities to shirk on environmental regulations. Yet, while the institutions of central protectionism are deeply-rooted, countervailing forces within the complex Chinese state are also gaining momentum. In spite of the considerable regulatory challenges, officials in the environment bureaucracy display increasing resolve and ingenuity in trying to strengthen their enforcement capacity.

Keywords: China, Environmental Protection, Central-Local Relations, State-Owned Enterprises (SOEs), Central Protectionism, Pollution

JEL Classification: O53, P50, Q2, R5, R58