The ultimate goals of economic growth are to expand human freedom and provide a better, safer and cleaner Earth for both present and future generations. We live in a moment of great opportunities and great challenges. The global economy has the potential to continue to grow 50% in the next 15 years. But the risk of environmental damage and climate change casts a shadow over the prospects for long-term growth. In the next 15 years, China has the potential to become the world’s largest economy. As a result, more than any other country, it faces huge opportunities and challenges.
After 30 years of rapid economic growth, China’s growth rate has been slowing down. China’s GDP growth rate fell to around 7.7% in 2013, the lowest since the 1997 Asian financial crisis.
Capital and fixed asset investment have driven growth over the past 30 years. However, because of a decrease in the return of investment (ROI), such investment- driven rapid economic growth will not be sustainable. Meanwhile, resource constraints are now beginning to negatively impact economic growth. If these are not dealt with effectively, Chinese growth may stall and China will risk falling into the so-called “middle- income trap” (not becoming a high-income country). Technological innovation and improvements in resource productivity will therefore be critical for China’s economic growth prospects. Analysis for the report suggests that China’s economy could then still grow by 7-8% in the coming years, before falling to 5% in 2030.
China is in the final stages of industrialisation and is in the process of urbanisation. In recent years, China has undertaken huge efforts to increase energy productivity through increasing energy efficiency and developing renewable energy. However, due to rapid economic growth, China remains highly dependent on fossil fuels. While China is now the world’s largest renewable energy producer, it is also the world’s largest importer of fossil fuels.
Even taking into account current energy conservation policy, primary energy demand in China will exceed the capacity of energy supply. Dependence on foreign supply is also expected to reach 75% for oil and over 40% for natural gas by 2030, and carbon emissions from coal are expected to exceed the safe environmental capacity. Compared to developed economies, China’s economy is more exposed to price volatility in the global energy market due to its fossil fuel dominated energy structure and high proportion of secondary industry. Sectors of the economy with high exposure to price risk account for about 20% of GDP, several times higher than that in the developed economies.
Air pollution in East China is increasingly severe and has constrained China’s economic and social development. The major characteristic is the high concentrations of particulate matter, leading to frequent smog in many regions. The most severe polluted regions are Jing-Jin- Ji region, Yangtze River Delta and Pearl River Delta. Coal burning is the major source of PM2.5. In Jing-Jin-Ji region, Yangtze River Delta and Pearl River Delta, coal burning is responsible for between 50% and 70% of PM2.5 pollution.
Our analysis shows that targets for air quality are only achievable through a combination of accelerated economic restructuring, energy conservation, fuel switching and environmental policy. Energy conservation and emission reduction measures are especially important in the Jing-Jin-Ji and Yangtze River Delta regions.
Simply relying on end-of-pipe regulation will not be sufficient to tackle the air pollution problem in China. Even with the strictest end-of-pipe treatment measures, almost half of Chinese cities risk failing to meet air quality standards in 2030.