China - Environmental strategy paper (Vol. 2 of 2) : Annexes

Report No. 9669-CHA China Environmental Strategy Paper (In Two Volumes) Volume II: Annexes April 1992 Environment, I iumian Resources aind UJrbanl Developmelt Operation5 DivisionI China and Mongolia Departmernt East Asia and Placific Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIAYENTS (As of June 1, 1991) Currency Unit - Yuan (Y) $1.00 - Y 5.33 Y 1.00 - $0.19 FISCAL YEAR January 1 - December 31 WEIGHt AND MEASURES Metric Cystem ABBREVIATIONS AND ACRONYMS ABC - Agricultural Bank of China ADB - Asian Development Bank BOD - Biochemical oxygen demand CAS - Chinese Academy of Sciences CFCs - Chlorofluorocarbons CH4 - Methane CIB - China Investment Bank CO - Carbon monoxide CO2 - Carbon dioxide COD - Chemical oxygen demand COPD - Chronic obstructive pulmonary disease CRAES - China Research Academy of Environmental Sciences DO - Dissolved oxygen DRC - Development Research Center EIA - Environmental impact assessment EPB - Environmental Protection Bureau EPL - Environmental Protection Law ESMAP - Energy Sector Management Assistance Program (World Bank/UNDP/ Bilateral) ESP - Environmental Strategy Paper ESW - Economic and Sector Work Program of the World Bank FAO - Food and Agricultural Organization FY - Fiscal year GDP - Gross domestic product GEF - Global Environment Fund GEMS - Global Environmental Monitoring System GHG - Greenhouse gases GNP - Gross national product HC - Hye'roc rbon IDA - International Development Association IPAS - Integrated Protected Areas System IPM - Integrated pest management LRMC - Long-run marginal cost MFO - Ministry of Forestry MOA - Ministry of Agriculture MOPH - Ministry of Public Health MPIF - Montreal Protocol Interim Fund MWR - Ministry of Water Resources NEPA - National Environmental Protection Agency NH4 - Ammonium N20 - Nitrous oxide N02 - Nitrogen dioxide NO. - Nitrogen oxides NPDES - National Pollutant Discharge Elimination System (US) 03 - Ambient ozone OECD - Organization of Economic Cooperation and Development Pb - Lead SEPC - State Environmental Frotection Commission S02 - Sulfur dioxide S04-- - Sulfate SOA - State Oceanographic: Administration SPC - State Planning Commission SSTC - State Science and Technology Commission TSP - Total suspended particulates TVIEs - Township and village industrial enterprises UNDP - United Nations Development Program UNEP - United Nations Environmental Program WHO - World Health Organization  FOR OFFICIAL USE ONLY CHINA ENVIRONMENTAL STRATEGY PAPER Foreword This report is based on the findings of a mission that visited China in June/July 1990 and in September/October 1991, and on the findings of a team staffed by: R.N. Anderson (Task Manager), R. Batstone, V. Elliott, S. Shen, K. Takemoto (Bank), A. Krupnik, L. Ross, Wang Yuanxiang, and Zhang Renwu (Con- sultants). Very helpful comments were received from D. Gunaratnam, R.T. Taylor, T. Wiens (Bank) and W.R. Spofford and D. Sheehy (Consultants). The members of the Bank team would like to acknowledge the invalua- ble support given by their Chinese colleagues in conducting this study, including organizing the discussions with experts from various cities and provinces in China, and the subsequent review and comments given on the ini- tial draft of this report by various government ministries and agencies. Without them, this report would not have been possible. Special thanks go to the National Environmental Protection Agency, which was the principal collabo- rative institution in China, as well as to the Ministry of Agricu.ture (Department of Rural Energy and Environment), Ministry of Water Resources, Ministry of Forestry, Ministry of Energy, Ministry of Metallurgy, Ministry of Chemical Industry, and th. Chinese Academy of Sciences. In addition, discus- sions were held with the Ministry of Construction, Ministry of Communication, Ministry of Light Industry, State Oceanographic Administration, Ministry of Textiles, Ministry of Public Health, State Meteorological Administration, State Science and Technology Commission, and the State Planning Commission. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Sank authorization.  - i - CHINA ENVIRONMENTAL STRATEGY PAPER Table of Contents Page No. EXECUTIVE SUMMARY . . . . . .*. . . . . . . . . . . . .* . vii I. INTRODUCTION. . . . . . . . . . . . . . . . . .* * * * * * 1 A. Ob4ectives of the Environmental Strategy Paper (ESP) . . 1 Objectives......................1 Scope . . B. Environmental Management and Economic Development . . . 2 Complemeuitarities and Tradeoffs . . . . . . . . . * . 2 Economic Aspects of China's Environmental Management . 3 C. China's Environmental Institutional Framework . . . . . 5 State Environmental Protection Commission . . . . . . 5 National Environmental Protection Agency . . . . . . . 5 Responsibilities and Authority . . . . . . . . . . . 5 Internal Organization . . . . . . . . . . .... 6 Subnational Environmental Management . . . . . . . . . 6 Subnational Environmental Protection Bureaus . . . . 6 Tranaboundary Problems . . . . . . . . . . .. 6 D. Role of the Public in China's Environmental Issues . . . 6 Public Education. ......a........ . 6 Expanding the Role of the Public . . . . . . . . . . . 7 Resettlement Principles and Guidelines . . . . . . . . 7 II. POLLUTION-CONTROL STRATEGY ... . . . . . ............. . 8 A. Introduction . . . . . . . . . . . . . . . . . . . . 8 B. Pollution Issues . . . . . . . a . . . . . . . . . . . . 9 Major Pollution Problems . . . . . . . . . . . . . . . 9 Urban Water Pollution . . . ............ 9 Damage to Aquatic Resources .......... . 9 Contamination of Urban Drinking W'-ter . . . . . . 12 Rural Drinking Water . . . . . . ......... 13 Urban Air Quality 14 Causes . . . . . * . . . . . . . . . . . . . . 14 Impacts . . . 16 Status . . . . . . * . . . . . . . . . . . . 16 Rural Industrial Pqllution . . . . . . . . . . . . . 20 Township and Village Industrial Enterprises (TVIEs) 20 TVIE Pollution Concerns . . ........... 20 Emerging Pollution Issues . . . . . . . . . . . . . 21 Acid Rain . .& 21 Greenhouse Gases and Ozone-Depleting Emissions . . 23 Solid Waste Disposal o . . . . . . . . ... . 26 Hazardous and Toxic Wastes . . . .. ... . . . 27  - li - Paae No. Groundwater Contamination . . . . . . . . . . . . 27 Noise ...... . . ...... .......... o o o .. . o. 27 Vehicular Emissions 9 . . . . 9 9 9 . . . . . . 9 27 Nonpoint-Source Pollution . . . . . . . . . . . . 28 C. Current Government Policies Influencing Pollution Control . . . . *. . . . . . . . . . . . . . . . . 28 Legal Framework . . . ..... . ..................... 28 Prevention 9 * * . . o . ........ * *. * o * * o * * 28 Polluter Pays . . . . . . . . . 9 . . . . . . . . . 28 Environmental Quality Standards and Permits a . . . 29 Strong Environmental Management . . . . . . . . . . 29 Economic Incentive Approaches . . . . . . . . . . . . 29 The Pollution Levy System . . . . . . . . . . . . . 30 The Responsibility System . . . o . . . . . . . . . 33 Pricing Policies . . . . . . . . . . . . . D . . . . . 35 Policies for Reforming Enterprise Management . . -. . 37 Industrial Structure and Energy Efficiency . . . . . . 38 Allocation Policies for Investment . . . . . . . . . 41 Credit Markets . . . . . . . . .. . 41 Urban Management and Finance Reform Policies . . . . . 41 Tax System . . . . . . . . . . . . . . . . . . . . 42 Bnorrow7ings .... . . . o o . . . . . . ... * * 9 43 Budgetary and Accounting Procedures . . . . . . . . 43 Future Plans . . . .... . . . . . .. * . * . . ... .. 43 D. Suggested Strategies for Improved Pollution Control . . 45 Economic Structure and Environmental Impact . . . . . 47 Fnerp.y Efficiency and Conservati,. .. . . . . o o. . . 49 Improving the Design of Incentives for Pollution Control 50 Adjustments to the Pollution Levy System . . . . . . 50 Indirect Policy Instruments . . . . . . . . . . . . 52 Greater Enterprise Autonomy and Taxation . . . . . . 53 Increasing the Availability of Investment Funds for Pollution Control 999 .999.9.9. 999999.9. 54 Pollution Levy Fund . . . . . . . . . . . . . . . . 54 Funds for Urban Public Services . . . . . . . . . . 54 Improving Regulatory and Administrative Instruments for Pollution Control . . . . . . . . . . . . . . . . 56 Improving Institutional Arrangements for Pollution Control . 9 * .* * * 9 * 9 . .* * 9 * o o o * o 57 Develop Cost-Effective Environmental Master Plans . 57 Improve the Performance of EPBs . . . . o . . . 58 Coordinate Pollution Control Strategies at the National Level . .- .... ......... 59  - iii - Page No. Vole of NEPA and EPBs ........ ....... 59 Development of the Environmental Products and Services Industry .. ....... . * ........ ..... 59 Suggested Policy and Technical Options for Air, Water, and TVIEs . . . . . . . . . . . . . . . . . . . . 60 Air Pollution and Coa .............. 60 Water . . . . . . . . . . . . . . . . . . . . . . . 61 A Introduction . . . . . . . . . . . . . . . . . . . . . . 65 B. Environmental Issues... ....... ...... 66 Farming Practices on Prime Agricultural Land . . . . . 67 Fertilization . . . . . . . . . . . . . . . . . . . 67 Chemical Fertillzers . . ............ 67 Organic Fertilizers . . .. ........... 68 Crop Rotation . . . . . . .......... . 69 Effects of Fertilization . . . . 9 9 .9 70 Pest Management . . . . . . . ....... .... 70 Effects of Pesticides . . . . . . . . . . . . . . 71 Water Use and Conservation . . . . .......... 72 Salinization ............ ............ 72 Groundwater Exploitation . . . . . . . . . . . . . 73 On-farm Water Use . . . . . . ... 74 Effects on Water Quality . . . . . . . . . . . . . . 74 Land Degradation on "Marginal" or Erodible Lands . . . 75 Effects of Runaoff and Erosion . . . . . . . . . . . 75 Areas Affected . . . . . . . . . . . . . . . . 76 AreassPateaucted............................... 76 Loess Plateau . . . . . . . . . . . . . . . 76 Red Soils Area .. . . .......77 The Northeast China Plain . . . . . . . . . . . . 78 Grasslands in Inner Mongolia, Xinjiang and Gansu . 79 Conversion of Grassland . . . . . . . . . . . . 79 Overgrazing . . . . . . . . 9 . . . . . . . . . 80 Further Development and Conversion of Land . . . . . . 80 Forestry and Fuelwood . . .... .......... 81 Marine Fisheries .e.. ............ ....... 83 Overexploitation .................. 83 Protection Efforts o................. 83 C. Policies and Actions of the Chinese Government a . . . . 84 Laws and Regulations .to .n . ................... 84 Institutions . . . . .... .... ...... # .... ... ....... 84 Environmental Impact Assessment . . . . . . . . . . . 86 Environmental Monitoring and Research . . . . . . . . 86 Incentives and Sanctions . . 9 . . * 87 D. Recommendations and Proposed Strateg.7 88 Economic Policies and Incentives . . 89 Grain Production and Distribution . . . . . . . . . 89 Pricing and Distribution of Agricultural Inputs . . 91 Land Tenure and Land Use Patterns . . . . . . . . . 92  - iv - Page No. Investments . . . . . . . . . . . . . . . . . . . . . 93 Overall Investment Priorities . . . . . . . . . . . 93 Water Conservation . . . ...... . ..... . . 93 SupportServ ices.................. 94 Fuelwood and Rural Energy ............. 94 Research and Extenson ................ 94 Regulations . . . . . . . . . . . . . . . . . . . . . 95 IV. LOSS AND DEGRADATION OF NATURAL ECOSYSTEMS . . . . . . . . . 96 A. Introduction . . . . . . . . . . . . . . . . . . . . . 96 General Trends .d.s.. . ... * .. ..................... 96 B. The Status of Natural Ecosystems in China . . . . . . . 97 Forest Ecosystems 9999999 9.9. 9..... 97 Deforestation . . . . . * *. * ... * * * * * * * * 97 Information Available . . . . .... . . . . . . 98 Fuelwood . . . . . . . . . . . . . . . . . . . . 100 Trends . . . . . . . . . . . . . . . . . . . . . 100 Grassland Ecosystems . . . e f * * 101 Reclamation and Conversion . . . . . . . . . . . . . 101 Trends . . . . . .. . . . . . . . . . . . . . . 102 River, Lake, and Marine Ecosystems . . . . . . . . . . 103 Causes of Loss . . . . . . . . . . . . . . . *. .. 103 Cultivation of Lakefront Land . . . . . . . . . . 103 Pollution . ................... ......... . 104 Trends . . . . . . . . . . 104 Wetland Ecosystems .................... 105 Coastal Wetlands . ............. ... 105 Trends . . . . . . . . . . . . . . . . . . . . . . . 105 Inland Marshes .e.... 106 Quantifying Value .......107 C. Consequences and Causes of Loss and Degradation of Natural Ecosystems . 107 Consequences . . . . . 107 Soil Erosion and Natural Disasters . . . . . . . . . . 107 Desertification . . . . . . . . . . . . . . . . . . 109 Causes . . . . . . . . . . . . . . . . . . ...o1 Remedial Efforts .o.r.s.9 ... .......... . 110 Loss of Biological Diversity . . . . . . . . . . . . . 110 Causes . . . . . . . . . . . . . . . . . . . . . . . ill Trends . . . . . . . . . . . . . . . . . . * . . . . 112 Causes of Degradation and Loss . . . . . . . . . . . . 112 High Population and Fragile Natural Resource Base . 112 Economic Policies . . . . . . . . . . . . . . . . 113 Institutional Factors . . . . . . . . . . . . . . . 113 Attitudes . . . . . . 114 D. Chinese Actions to Arrest and Reverse Ecosystem Degradation . .... * * * * o .. . . . . ... * 114 Legal and Institutional Framework * .. . . . . . . . 114 Laws and Regulations ... *......... o.................. 114 Inls and Regul . . . . . . . . . . . . . . . . . 115 Enforcement . . . . . 9 . . . . . 9 9 9 . . 9 115  Pane No. Measures to Protect Critical Ecosystems of Economic Importance . . . . . . . . . . . . . . . . . . . . 116 Rational Use of Resources . a . . . . . . . . . . . 116 Restoration . . . . . . . . . . . . . . . . . . . . 117 Measures to Protect Wildlands . . . . . . . . . . . . 118 Nature Reserves ................a............* *. . 118 Monetoring t. . . . . . . . . . . * . . . . . . . . 119 E. Assessment . . . . . . . . . . . . . . . . . . . . . . . 121 P. Recommendations . . . . . . . . . . . . . . . . . . . . 121 Institutions . . . . . . . . . . . . . . . . . . . . . 121 Environment and Natural Reecurces Commission . . . . 121 Policy . . . . . . . a - . . . . . . . . . . . . . . 122 Agricultural Economic Policy . . . . . . . . . . . . 122 Agricultural Sustainability . . . . . . . . . . . . 123 EIA Guidelines for Land Reclamation . . . . . . . . 123 Protecting Wildlands . . . a . . .. . . . .... .. . 124 Integrated Protected Areas System (IPAS) . . . . . . 124 Development of Wetland Management Plans . . . . . . 125 A Biological Diversity Action Plan . . . . . . . . . 126 V. WORLD BANK PROGRAM OF ENVIRONMENTAL ASSISTANCE IN CHINA . . 127 Overview . . .. . . . . . . . . . . . . . . . . . . . 127 Proposed Work Program ................ 131 Environment Studies . . . . . . . . . . . . . . . . 131 Sector Studies with Major Environmental Components ' 131 Technical Assstance ................ 132 Proposed Lending Program . 9 . . . . . . 132 Environment Projects . . . . . . . . . . . . . . . 132 Projects with Major Environment Components . . . . 133 Underlying Objectives. . . . . . . . . . . . . . . .o. 134 Participant.. . . . . . . . . . . . . . . . . . . . . 135 Institutions . . . . .................... 135 Regions . . . . * . * * * a . . . . . . . . 136 Processes . . . . . . * . *. . . . . 9 . 136 Recommendations of Report and Proposed Program . . . . 137 Environment Pollution Control . . . . . . . . . . 137 Choosing Priorities Better . . . . . . . . . . . . 137 Improve Environmental Policy *. . . o . . . . . 137 Macroeconomic Policy Reform . . . .. . . . . 137 Improve Institions . ............... 138 Risearch and Devalopment . ............. 138 Agricultural Sustainability and Degradation of Natural Resources ........... . . . . . . . . . 139 Agricultural Sustainability . . . . . . . . . . . 139 Agricultural Economic Policy . . . . . . . . . . 139 EIA Guidelines for Land Reclamation . . . . . . . 139 Biological Diversity Action Plan . . . . * . . . . 139 Integrated Protected Areas System . . . . . . . . 140 Development of Wetlands Management Plans . . . . . 140  - vi - Page No. TABLES IN TEXT 2.1 Groundwater Samples Violating the Nitrate (NO3-N) Standard 13 2.2 Comparison of Levels of Air Quality in Selected Cities in China . . . . . . . . . . . . . . . . . . . . . . . 18 2.3 Comparison of TVIE and Total Enterprise Discharges Per Unit of Output . . . . . . . . . .*. . . . . . . . . 22 2.4 Sample Contract for Tianjin Under the Environmental Responsibility System ........... .a........... . ... ..... 34 2.5 International Comparisons of Primary Commercial Energy Consumption Relative to GDP, 1980-88 . . . . . . . . . . 39 4.1 Comparison of Majnr Ecosystems . . . . . . . . . . . . . 8 4.2 China's Forest Cover . . . . . . . . . . . . . . . o . . . 99 4.3 Summary of Major Causes and Consequent-es of Ecosys -:m Change . . . . . . . . . . . . . . . . v . . . . . . . . . 108 4.4 China's "Megadiversity" Status . a . . . . . . . . . . . . .ll 4.5 Nature Reserves in China . . . . . . . . . . . . . . . . . 119 FIGURES IN TEXT 2.1 Samples Violating Water Quality Standards . . . . . . . . 11 2.2 Average and Ranges of Mean Air Quality Concentrations . . 19 2.3 Estimated 1985 Global Anthropogenic Greenhouse Gas Emissions . . . . . . . . . . . . . . . . . . . . . . . . 25 2.4 Energy Use in Certain Industrial Sectors in China . . . . 26 BOXES IN TEXT 2.1 Summary of German Effluent Fee System . . . . . . . . . . 31 VOLUME II - ANNEXES 1. Environmental Legal, Regulatory and Institutional Frameworks 2. Environmental Control Administrative Structure 3. Standards, Permits, and Monitoring 4. Effluent Fees and the German System 5. Environmental Policies and Programs of Selected Sector Minlistries 6. Strategic Planning for Regional Environmental Quality Management: An Economic Framework for Analysis 7. Laws Relating to Protection of Natural Resources 8. National-Level Institutions Dealing with Natural Resources and Envi- ronmental Conservation 9. Sino-Japanese Friendship Environmental Protection Center Project 10. Proposed Economic and Sector Work (ESW) and Lending Programs for the Environment 11. Chinese Response to Global Environment  Lm-x l -1 - Page 1 CHINA ENVIRONMENTAL STRATEGY PAPER Environmental *eaal. Regulatory and Institutional Frameworks A. Legal Framework 1/ The Development of the Chinese Legal System 1. Historically, China has placed little emphasis on the development of a comprehensive legal system for various philosophical, political, economic and cultural reasons. Since 1978, however, law has acquired much greater importance throughout economic, social and political life. The positive con- tributions offered by a legal system has gained increased recognition, partic- ularly in the areas of economic and administrative law--the areas of greatest relevance to environmental law. 2. The role of law has increased in part as a consequence of economic reform. Although central planning continues to be the dominant influence in the most critical sectors of China's economy, the process generally has become less controlled and more reliant on indirect levers. Meanwhile, substantial parts of the economy have been decentralized and converted to a quasi-market system. In these economic changes, law is regarded as an especially important instrument for regulating the decentralized sectors of the economy. Planners accept law as necessary to achieve the economic efficiencies promised by decentralization and to regulate the third-party or external effects of eco- nomic activities and government actions, especially in the areas of environ- mental protection and natural resources conservation. The Structure of Environmental Protection and Natural Resources Law 3. The highest law in China, the Constitution (1982), provides for environmental quality (articles 9 and 26). Below the Constitution are the statutes, including basic laws and specific laws. The Environmental Protec- tion Law (EPL) (1989) is a basic law. Specific lawe--such as the Water Pollu- tion Prevention and Control Law (1984), the Air Pollution Prevention and Con- trol Law (1987), and the Marine Environmental Protection Law (1982)--govern specific subjects that are addressed more generally in the EPL. Other stat- utes--such as the Forestry Lits (1984), the Fisheries Law (1986), the Grass- lands Law, the Water Law (198s), the Wildlife Conservation Law (1988) and the Land Manatement Law (1988)--are basic laws within their own spheres, but in terms of environmental protection they are specific laws subject to the EPL. Some issues (e.g., solid and hazardous waste management) have not yet received sufficient attention to be covered by specific laws, but work is underway to fill the gap in regard to hazardous waste management. 1/ See Attachment for summary diagram of the environmental legal and legis- lative framework.  2- Pago> 2 4. At the next level of authority below the statutes are regulations, which generally are more technical and specific--ard more authoritative--than the statutes. Example. are the Implementing Regulations for the Water Pollu- tion Prevention and Control Law (1989) and the Provisional Regulations for Environmental Management in Economic Development Zone. (1986). 5. After the system of regulations, at a still lower level of author- ity, are the method. and standarcs, e.8, the Management Methods for Environ- mental Impact Statements Pertaining to Construction Projects (1989). Prov- inces and subprovincial units also promulgate legal edicts for their own jurisdiction., subject to approval by higher levels of government. Finally, it should be noted that all laws and regulations other than the Constitution may be promulgated on a provisional or trial implementation basis, without formally diminishing their authority. Recent Developments in Environmental Protection Law 6. The EPL was promulgated in trial implementation version in 1979 and became final in 1989. The major changes between the two versions indicate heightened awareness of the need for active and continuing enforcement by gov- ernment agencies. In particular, article 14 provides clear authority for on-site inspections by environmental protection bureaus. Under article 35(1), enterprises subject to inspection or other forms of investigation, are required to cooperate, under penalty of warnings or fines. In cases where polluters operate without required pollution-control equipment or alter such equipment without prior approvai, local environmental protection bureaus are empowered by articles 36 and 37 to suspend operations, order installation or reinstallation of pollution-control equipment, or impose fines. Article 34 prohibits the transfer of pollution-emitting technology and equipment to enterprises without pollution-control capability. This provision is intended in part to reduce the problem created when polluters in urban areas transfer outmoded and inefficient technology to subcontractors or affiliates in sub- urban and rural areas where regulation is less stringent. Both civil and cri- minal liability may apply to pollution incidents. Criminal liability is lim- ited by article 43 to those persons directly responsiblet however, civil lia- bility under article 38 may apply further up the chain of causality to persons indirectly responsible for the pollution. Finally, article 42 has facilitated private suits by victims of pollution by establishing a three-year statute of limitations that begins with the date of discovery rather than the date of occurrence (exceeding the two-year statute appl:.cable to other areas of civil law). Recent Developments in Natural Resources Law 7. As of July 1990, China had formally designated 606 nature reserves of different types totaling 400,000 kM2. Article 18 of the EPL provides greater protection for the growing number of nature reserves by prohibiting pollution-causing industry in these areas. However, resource-extractive industries such as forestry and mining are not expressly prohibited and thu- may be permitted, albeit subject to more stringent regulation than elsewhere. Hunting and other activities harmful to wildlife within nature reserves are prohibited by article 20 of the Wildlife Conservation Law, a statute which  ANNEX I Page 3 regulates the taking of wildlife in general. Several persons convicted of hunting or trafficking in endangered species, particularly the giant panda, have received severe punishment under the Criminal Law (1979). B. Regulatorv Framework 8. Environmental protection employs a mixture of regulatory instruments including direct controls, the state plan, public education and economic or quasi-market instruments. Use of these instruments has become more sophisti- cated and extensive over time, although public education has generally been relegated to a background role. This annex focuses on direct controls and Chapters II-IV discuss the other regulatory instruments. Direct Controls 9. Direct controls are the principal means of regulation, and take many forms. In forestry, logging controls have been greatly strengthened by a com- prehensive system of logging permits keyed to local production ceilings and mandatory replanting. This system is reinforced by an expanded system of tim- ber marking and roadside inspections. Some nature reserves have introduced permits governing the harvesting of medicinal herbs and other traditional products in order to regulate harvest size and ecological disturbance. The principal instruments for emissions control are technology and performance standards that have been established for several industries and for technology imports and pollutants. The instruments are being enhanced by the introduc- tion of a discharge permit system modeled in part on the United States National Pollutant Discharge Elimination System (NPDES), especially for water pollution control. Some discussic. has been given to establishing a system of tradable pollution rights in China, in conjunction with the discharge permits. Meanwhile, less polluting energy sources, especially district and gas heating, are being introduced in larger urban areas to reduce pollution from the com- bustion of coal and biomass in small and i.efficient burners. In addition, land use controls operate in conjunction with urban planning systems and des- ignated "smoke-free distticts" to reduce pollution. State Plan 10. In the 1980s, environmental protection was first incorporated into the State Economic and Social Development Plan as a separate chapter. This reflected the increased importance the government placed on the environmental consequences of economic development and its treatment of environmental pro- tection as a goal in and of itself. Official policy states that economic development and environmental protection shall proceed in tandem to avoid pol- lution. Although implementation of this policy is far from ideal, there are cases of successful environmental policy having been formulated in close coor- dination between the environmental agencies and the planning and financial bureaucracies. This includes limiting production targets for extraction of natural resources to sustainable levels and/or levels that minimize permanent damage to the environment. For example, increases in timber production tar- gets have been capped in recent years to minimize deforestation--although the limits apply only to the within-plan component of timber production and actual enforcement may be problematic.  ANNEX 1 Page 4 11. With regard to pollution control and land management, approval from the appropriate environmental protection bureau at each of the "three simulta- neous points" (design, construction and start-up of operations) is required for construction of most new projects, expansions and renovations. Article 13 of the EPL has strengthened environmental protection bureaus by requiring their approval of environmental impact statements before project proposals are submitted to the planning commissions for their apiroval. Enforcement comes, in part, through the denial of capital and credit. This provision applies to virtually-all large- and medium-sized industrial facilities and (a reported) 80 percent of smaller projects, although the numbers for smaller projects are subject to considerable doubt. Previously, environmental impact statements were not submitted for review until after the projects had been included in the local or State plan, placing the environmental protection bureaus in the vulnerable position of vetoing projects that had already been approved by more powerful agencies. C. Institutional Framework 2/ State Environmental Protection Commission 12. The State Environmental Protection Commission (SEPC), which includes the heads of all relevant ministries and agencies, and ultimately the State Council (the highest executive level of government in China) are at the apex of decision-making on environmental policy. SEPC provides policy direction at times and resolves interagency disputes, but it convenes only quarterly. The commission relies heavily on the National Fnvironmental Protection Agency (NEPA), which functions as its secretariat. National Environmental Protection ARency (NEPA) 13. ResDonsibilities and Authority. The National Environmental Protec- tioh Agency became an independent agency in 1988, although it still does not have full rank as a ministry. It reports to both the State Council and the SEPC. It is responsible for all aspects of environmental policy and compre- hensive supervision and management of environmental protection, although it shares authority with other agencies for certain specific natural resources; for example, the marine environment is managed primarily by the State Oceano- graphic Administration and the Ministry of Agriculture (fishing). Authority in conservation issues primarily rests with the natural resources ministries such as the Ministry of Forestry. The agency liaises with the environmental protection units within most other ministries and agencies, and sets the over- all policies and regulations governing the provincial and municipal environ- mental protection bureaus. In addition, there are two research institutes affiliated with NEPA: the Chinese Research Academy of Environmental Sciences and the recently established Environment and Economic Policy Research Center. 14. Internal Organization. The National Environmental Protection Agency is organized into four general areas: policy, enforcement, support and super- 2/ See Annex 2 for a diagram of the environmental control administrative networks.  -5- ANNEX~ 1 Page 5 vision. The two policy sections are the Planning Section and the Policy and Legal Section. The five enforcement bureaus are Pollution Management, Devel- opment Supervision, Nature Conservation, Science and Technology Standards, and Propaganda and Education. The three support departments are the Office for Coordination of Operations, the Administrative Structure and Personnel See- tion, and the Foreign Affairs Office. The two supervision departments are the Communist Party Committee and the Discipline Inspection Committee (grouped together for organizational purposes), and Control and Audit. A recently created Foreign Economic Cooperation Office liaises with and coordinates assistance from the World Bank, ADB, UNDP, and the government of Japan. The National Environmental Protection Agency is very thinly staffed with fewer than 300 authorized personnel at the national level (1988), far fewer than in similar agencies of most developed countries; however, there are many more personnel in auxiliary units at the subnational level. 15. Recent Developments. In 1988 NEPA embarked on a multiyear effort to improve its management efficiency. This effort has concentrated on introduc- ing "scientific" principles of administrative management to NEPA in particular and is one of several pilot experiments in civil service reform for the gov- ernment of China in general. Within NEPA, 424 agency functions have been precisely enumerated and each staff member's responsibilities specified. 16. The reform is intended to increase professional administration in agency affairs and personnel matters; but it is not yet possible to assess the effectiveness of these changes or to determine which additional measures are necessary. However, some important indicators are lacking. For instance, preventing or assessing the extent of corruption among lower-level environmen- tal officials who conduct inspections and assess effluent fees and fines, is crucial; but the existing supervisory departments appear unable to guarantee consistently that fees and other receipts are collected and used appropri- ately. Unless NEPA can properly supervise personnel and procurement prac- tices, it will ultimately be unable to fulfill its mandate, and public trust in the agency and the EPB network in general could be jeopardized. Such dis- illusionment may encourage an aggrieved public to take direct action against polluters, a phenomenon that was reportedly quite widespread in the early 1980s but has since declined. To monitor its own performance and that of the EPB network, NEPA should consider not only strengthening internal management controls but also establishlng its own internal inspectorate, modeled perhaps on the experience of other countries, such as the United States. The inspec- torate would be able to monitor the agency's personnel, audit and investigate policy implementation and procurement contracts of provincial and municipal EPBs, and respond to public complaints more independently than is currently possible.3/ 3/ See Inspector General Act of 1978, 5 USC app. 3, Secs. 1-11 (1990 Supp.); EPA Office of the Inspector General Semiannual Report to the Congress: October 1, 1989 through March 31, 1990.  6 ANtNEX I Page 6 Subnational Environmental Protection Bureaus 17. Most implementation of environmental protection policy is conducted at the subnational level. Provinces are responsible for the implementation of national policy, and are authorized to act in the absence of preemptive national standards and, where warranted by local condition., to impose more stringent standards than required by the national government. In all prov- inces and municipalities and in most counties around the country, environmen- tal protection bureaus now have been established under local environmental policy commissions headed by a vice-governor or vice-magistrate. At the end of 1989, local bureaus had about 54,000 staff, of whom almost 38,000 were classified as scientific anJ technical, while another 10,000 were classified as administrative cadres. Probably at least the same number of staff are involved in the environment offices within sector ministries and state enter- prises. How this system implements environmental policies is described in Chapter II. Staffs and Budgets of the EPB Network 18. The level of China's commitment to environmental protection is indi- cated by the numbers of organizations and people it has assigned to the effort, and by the budgets of organizations involved. 19. Considering only the Environmental Protection Agency network, which includes NEPA, provincial, county and municipal EPBs, there were 2,393 such organizations in 1988 (including NEPA), one for each of 30 provinces, 347 at the municipal level, and 2,015 at the county level. They employed over 16,500 vorkers in administration. The number of employees per unit goes down drama- tically with the level of government. Starting with about 250 people at NEPA, there are only 42 people per unit on average at the provincial level, 16 at the municipal level, and between 4 and 5 at the county level. These figures are only one indication of the level of effort; they do not include those engaged in monitoring, enforcement? or the levy collection system. About 26,000 people are engaged in monitoring, 88 per provincial unit, 33 per muni- cipal unit, and 8 per county unit.4/ Another 3,500 people are involved in the levy system. 20. In addition, there are research institutes funded by the EPBs: 24 at the provincial level and 91 at the municipal level, with a total of over 5,000 personnel. Overall, counting people in organizations labeled as "other," there are over 54,000 people in the EPB network, including some 70-100 researchers at NEPA's two national research institutes (the Chinese Research Academy of Environmental Sciences--CRABS--and the recently estab- lished Environment and Economic Policy Research Institute). 21. The size of the environmental protection budgets is another measure of commitment. On this score, it appears that the comimtment, at least to NEPA, has been slipping. The 1988 budget of Y 110 million fell steadily to 4/ There are fewer units engaged in monitoring and the levy system than there are EPBs in administration at each level.  7 ANNEX 1 Page 7 only Y 75 million in 1991. Budgets for other organizations in the environmen- tal protection bureaucracy were not available. 22. Besides the environmental protection activities of the EPB network, each ministry (at all levels) and most state enterprises have positions dedi- cated to environmental protection. At the enterprise level, they are mainly engaged in emissions monitoring activities. The state sector ministries also support research institutes that sometimes address environmental problems. 23. The environment offices within the national-level line ministries are small--no more than 20 people (e.g., 11 in the Ministry of Metallurgy, 18 in the Ministry of Energy (MOE)). However, this merely indicates the decen- tralization of environmental protection activity. In the Ministry of Metal- lurgy, there are 17,000 people at all levels, including those in the enter- prises engaged in environmental protection out of 3.5 million employed in the entire ministry. In the oil industry, 3,200 people are working on environmen- tal protection, 800 are managers, 1,200 do monitoring. In the Ministry of Chemical Industries, 25,000 people are involved primarily in environmental protection out of 3 million workers overall. However, in the Ministry of Textile Industries, only 300 people are employed to monitor emissions at the largest mills, out of 5 million workers in the state enterprises (which include more than just the largest mills). 24. Finally, independent research institutes in China devote effort to research in environmental issues, primarily in the physical and biological sciences. For example, about 50 institutes in the National Academy of Scien- ces do environmental research, employing 1,400 senior researchers and techni- cians. 25. The staff allocated to the environmental pollution issues is large by any standard, particularly when compared to most developing countries. At the national level in China, however, the staff and budgets are quite modest, both for NEPA (250 people) and within the line ministries (5-20 people per ministry). In contrast, the U.S. EPA employs over 14,000 people (about 6,000 at the national headquarters) and other national-level U.S. agencies may employ hundreds of people in their national environmental offices. In con- trast, the Japanese workforce for the environment at the national level is only about 400 people, about the average for the countries of the European Economic Community. 26. The small number of staff in NEPA at the national level reflects the general administrative structure and nature of decision-making in almost all sectors in China. In NEPA's case, thisis also probably due to the lack of large, nationwide subsidy or counterpart fund programs to administer. Envi- ronmental problems can easily exte'nd over many provinces, ,equiring resolution at higher levels of government, and NEPA's role in this respect is unclear. It is also unclear whether river basin commissions in China have enough authority to perform this task effectively. In addition, because of the enor- mous economies of scale in information development and research, the central government should t