Regulating Pollution in the People's Republic of China: An Analysis of the Enforcement of Environmental Law

Colorado Environmental Law Journal Colorado Environmental Law Journal

Volume 7Number 2

Article 5

Regulating Pollution in the People's Republic of China: An Regulating Pollution in the People's Republic of China: An

Analysis of the Enforcement of Environmental Law Analysis of the Enforcement of Environmental Law

Bryan Bachner

Regulating Pollution in the People's Republic of China: An Analysis of the Enforcement of Environmental Law

Bryan Bachnert

I. INTRODUCTION

The implementation of economic reform' in southern China has revealed a crisis in the utilization of the country's natural resources.2 The exposure of environmental catastrophes produced by bad central planning has, quite naturally, led to widespread acceptance of the argument that Chinese society will be best served in its husbandry of natural resources by unreservedly adopting Western legal and economic approaches.3 This ar-

gument may be mistaken on the basis of "law and economics," an approach to legal study that applies economic analysis systematically to legal fields that do not govern explicitly economic markets."

From a normative economic perspective, how should government allocate resources in order to ensure optimal economic development? It has been persuasively argued that a rational general economic policy for southern China must accept that the uncritical incorporation of a free market system into the current economic reforms will create as many impediments to optimal governance as does highly centralized planning.' This argument may also apply to environmental laws and regulations.

This paper examines the effectiveness of the current system of pollution control in southern China where a history of environmental failures is being reproduced under a purportedly radically different economic governance structure. The first section discusses the enforcement of environmental laws in greater China. The second section focuses on the problems in southern China associated with the enforcement of a sound environmental legal system in light of economic reforms. The third section discusses the "market environmentalist" approach to pollution control. Finally, the fourth section contrasts the environmental legal position of the existing Special Economic Zone of Guangdong with that of the soon-to-be-established Special Administrative Zone of Hong Kong, highlighting the differences between systems in which environmental policies and laws are subordinate to the demands of unrestrained economic growth and systems where these demands are less imperative.'

II. THE ENFORCEMENT OF ENVIRONMENTAL LAW IN GREATER CHINA

During the period of economic reform, policy makers in China curtailed the role of centralized planning and embraced to a considerable extent a laissez-faire approach to governing. Because it is implementing reform, the southern Chinese state of Guangdong, while enjoying dynamic regional economic growth,7 has been slow in coming to terms with the ecological

trade-offs8 The commitment to a laissez-faire approach is revealed by the state's shifting of its economic law and policy toward more private governance;9 however, the responsibility for establishing and maintaining socially efficient environmental standards remains neglected.0

The World Bank, for example, has argued that the type of governance structures and the current reform of those structures has not only failed to reduce the deterioration of the environment but may have exacerbated the problem. The World Bank writes:

The interrelationships between environmental issues and economic growth and development are central to any discussion of environmental matters. The structure of the economy, and general economic policies and management, largely determine the nature of environmental problems and the framework for environmental policies and programs in any particular country. In China, the impacts of economic policies (e.g., a population policy between 1950 and 1965 that encouraged high birth rates and the continued emphasis on basic heavy industry in industrial policy) have not always been conducive to sound environmental policies and management. The explosive growth of industry has been a major factor in water, air, and soil pollution, and the impact of this growth has been exacerbated by the fact that China has pursued an industrial strategy that has consistently emphasized basic heavy industrial sectors that are the worst polluters. In addition, both the desire for local self-sufficiency and the planned, administered nature of the Chinese economic system have introduced inefficiencies that have hampered efforts at environmental improvement. "

Although some officials, such as Zhang Kunmin, Deputy Director of the State Environmental Protection Bureau, may argue that China's economic growth has not been accompanied by deterioration of the environment,2 policy makers in China generally admit that enforcement of environmental laws has not been effective.3 Some have called for a reassessment of the balance between economic development and environmental protection in light of the economic reform.4 One leading environmental official has stated that the primary threat to the environment is an irrational economic development that sacrifices China's natural resources for commercial advancement.'- Such open debate has not always been part of economic policy in China.

From the founding of the People's Republic to the mid-seventies, the state, eager to push forward on modernization, did not see fit to develop a comprehensive environmental policy.6 During the first thirty years of the People's Republic of China (PRC), environmental protection was afforded only marginal consideration in the national plan.'7 Instead, economic resources were usually only mobilized in response to emergency health situations. As a result, the implementation of economic planning did not filly account for the social costs of pollution.'8

By the late seventies Deng Xiaoping had succeeded in initiating reform and decentralizing a moribund economy.9 Concurrent with the economic reform and Deng's commitment not to overlook welfare considerations, the state began to consider the reality that the highly centralized planned economy had neglected environmental protection.0 For the first time in the short history of the People's Republic, policy makers incorporated environmental protection into the State Economic and Social Development Plan as a separate chapter.' Officially, implementation of economic development and environmental protection policy would continue in tandem. At the national level, an environmental protection bureaucracy was set up and new environmental protection and natural resource laws were introduced.2 Even at provincial and municipal levels, lawmakers have established an impressive regulatory framework and institutional infrastructure for the sake of environmental protection.3

Although the environmental policy and laws that have emerged in the last few years do not provide a definitive program to address the environmental damage created by a poorly thought-out plan,4 they are an intriguing start.5 For instance, on November 14, 1993, the Central Committee (CC) of the Chinese Communist Party published "Certain Problems on the Establishment of a Socialist Market Economic Structure." This report acknowledged the environmental problems associated with unfettered economic development and proposed the implementation of the polluter pays principle6 as a response, so that individual enterprises would bear the financial liability for environmental injury rather than the government. The report further contemplated restoring control over the environmental impact of new construction or development projects to the National Environmental Protection Agency (NEPA) and provincial Environmental Protection Agencies (EPAs). In 1986 the power to enforce environmental impact assessments (EIAs) had been delegated to the federal planning and development agencies. The authority to enforce EIA regulations normally under the NEPA had been transferred to the State Council,27 in order to improve the enforcement of ElAs.8 The 1993 report, however, claimed that these federal agencies failed to enforce the laws.

The revised Environment Protection Committee (EPC) of the National People's Congress (NPC), the Environmental Protection Commission under the State Council9 (EPCSC), and the NEPA° are the primary institutions responsible for enforcing environmental protection laws in China. The EPC, which was officially approved on March 29, 1993, has a number of roles, including drafting and putting forward environmental and resource laws,

examining proposals relating to the environment and resources, as well as assisting the Standing Committee of the NPC in supervising the enforcement of the environment and resource laws." The EPCSC is the institution within the State Council responsible for discussing and coordinating environmental protection issues. Among other things, the EPCSC examines the coordination of environmental protection and economic development, the application of appropriate environmental technology, and the drafting of economic plans with relevance to the environment prior to their consideration for approval by the State Council. The EPCSC must also supervise all environmental action plans between and among regions as well as law enforcement plans throughout the nation." The NEPA administers environmental protection policy under the State Council. Its principal role is to supervise and manage environmental protection, prevent and control pollution, protect and improve the living environment, and promote sustainable economic and social development."

The current environmental legal framework is under serious reevaluation. A leading expert on Chinese environmental law, Lester Ross, expects legislation proposed for enactment over the coming years will establish a considerably stricter environmental system, in which local governments and foreign and domestic companies will have to comply with a wide range of complex, new environmental issues." According to Hongjun Zhang, the deputy director of the EPC's Legislative Division Office, there will be four new principles introduced into environmental policy in order to improve industrial performance while enhancing pollution control." They are: (1) the clarification of institutional responsibilities toward the environment; (2) the incorporation of internationally recognized principles, including the polluter pays principle,36 the precautionary principle,37 and the preventative principle;"

(3) the establishment of administrative controls, such as permitting, registration, and reporting requirements; and (4) the use of economic measures, such as fines and taxes, to induce acceptable behavior.

EPC is currently reviewing two existing laws in light of these reforms: the Environmental Protection Law of the People's Republic of China, which was enacted on December 26, 1989, and the Law of the People's Republic of China on the Prevention and Control of Water Pollution, which was enacted on May 11, 1984. One of the more significant changes which has been proposed for both laws is the inclusion of an article mandating state adherence to environmentally sound principles.9 These principles include: sustainable development, prevention and precaution, effective protection of the environment, polluter pays, economic and resource efficiency, integrated pollution prevention and control, effective control of transboundary pollution, public information and participation, integration of environmental protection with other state policies, and decisions based on available scientific data. No specific definitions of these terms were included in the available draft legislation. Additionally, Hongjun Zhang stated that these principles would be incorporated into all upcoming draft laws and amendments including the Air Pollution Prevention and Control Law, Chemicals Management Law, Desertification Prevention Law, Forestry Law, Grassland Law, Marine Environmental Protection Law, Mineral Resources Law, Natural Resources Conservation Law, Noise Management Law, Radioactive Pollution Prevention and Control Law, Water and Soil Erosion Conservation Law, and the Water Law.4'

Much of the current impetus for environmental law reform in China is a substantive response to the 1992 United Nations Conference on Environment and Development (UNCED).4' China's public commitment to sustainable development and the UNCED ideals are illustrated in "China's Agenda 21: The White Paper on China's Population, Environment and Development in the 21 st Century,142 a public report approved by the Executive

Committee of the State Council on March 25, 1994. In that report, China discusses the need to develop legislation and enforcement procedures relating to sustainable development.43 The report provides considered views on strategies, legislation, and financial policies for sustainable development, population, eradication of poverty, sustainable agricultural devclopment, conservation of biological diversity and public participation, among other subjects. China's Agenda 21 will be used to assist in the drafting of medium- and long-term economic and social development plans.

Despite China's expressed commitment to achieving sustainable development, the goal of balancing economic development and environmental protection on the mainland remains complex and long-term. Enterprise reform provides a good illustration of how the implementation of economic reform does not appropriately take into consideration environmental policy concerns.

In response to the failing fortunes of the state's public economic enterprises, China in the early 1980s considered the possibility of creating shareholding companies and issuing shares to the general public.4'5 The new regulations for securities and publicly-held companies reveal China's commitment to business reform without adequate consideration of the potential risks to the environment posed by new decision-making structures.46 China has rapidly and recently established a market economy within an avowedly socialist system by organizing stock exchanges, issuing and trading shares, setting up Renmenbi-oriented B shares for foreign investors, and listing Chinese companies on foreign exchanges.47 The principle concern for policy makers has been to encourage state-run companies, which had become accustomed to receiving orders and instructions under a highly centralized state administration, to make independent business decisions.8

Environmental law, to some extent, requires active government intervention, whether to set standards, enforce compliance, or create market alternatives. However, in debates concerning market reform, the Chinese government has been less concerned with the nature and extent of intervention and more concerned with the basic question of whether or not government should be allowed to intervene at all in the marketplace.49 In fact, A. Qian has argued that when the reform is implemented, although the basic structure of the Chinese enterprise will not change dramatically, public authorities will have a considerably lesser role in economic decisionmaking.'

The new fiduciary duties of managers toward their respective enterprises, combined with the diminishing relationship between government and those enterprises, may have a negative impact on the environmental consequences of corporate activities in China." The current environmental regulatory framework does not include criminal enforcement mechanisms for environmental harm. Although China has recognized within its jurisprudence the concept of "crimes against the environment,"52 administrative

responsibility3 and civil liability' remain the primary means of pollution control5 China does not now impose criminal liability upon corporate enterprises that cause environmental harm .6

The policy of decentralization, a further consequence of economic reform, will also affect the state's capability to effectively enforce environmental law. Environmental laws are implemented through a defacto form of federalism: National laws provide a framework for the administration of environmental protection, but a great deal of enforcement authority has been delegated to the regional environmental authorities. Such an approach appears advantageous, because it allows local administrators to tailor their environmental programs to their own local needs. The only national requirement is that the standards set at the provincial or municipal level do not fall below national quality objectives." This approach, however, also has its disadvantages. For instance, central authorities, without knowing local needs or values, may impose standards that local authorities consider too costly to enforce. Additionally, pressure from central planners for a profitable economic climate may lead local planners to improve economic output by sacrificing environmental standards.

Little empirical research has been done on the structural tensions underlying this defacto federal system. It is clear, nevertheless, that a balance between central and provincial authority has been difficult to attain. Provinces have been reluctant to allow the center to regain power that it had originally delegated to the provinces during the early days of the reform. One anonymous government official reported that, in a recent meeting, provincial governors expressly rejected Beijing's attempts to recentralize power that had recently been allocated to the regions. This shift in the balance of power seems to have arisen from the small and medium-sized enterprises that have been growing and enjoying considerable profits, thereby undermining the authority of central planners to make economic decisions administratively. According to the official, as the power of the local enterprises and their influence in the local community grows, the local government naturally will pay greater heed to the enterprises' local interests rather than the national interests of central planners.8

On the other hand, allocating too much authority to the provincial powers can result in local protectionism that could adversely affect trade between and among provinces. It is possible that provinces in the future could use environmental standards to protect their own products against competition from products of another province.

[In Jinjiang, not far from this capital in southeastern China, a real estate developer got into a legal tussle with a sub-contractor from Shandong Province, in the northeast. Courts in both provinces were petitioned by their local companies, and each took up the case. The court in Shandong ruled in the Shandong company's favour, the court in Fujian ruled in the Fujian company's favour. Now the country's supreme court will be asked to intercede.9

It is evident that, although the success of China's rapid economic growth may be due in part to the policy of decentralization, the central authority has not been willing to part with all of its power. Some commentators even claim that the economic development that China has enjoyed is largely the result of strong central governmental authority. However, contemporary China is more integrated not because the central government enforces an arbitrary unit, but because the Chinese people have a vested interest in staying together. If China is to continue its economic growth and market reforms, without facing the hazards of hyperinflation and crippling income polarization, it must maintain political stability and effective central government.6°

III. SOUTHERN CHINA

Regional enforcement of environmental law, especially in southern China, remains difficult due to the considerable structural pressures that the move toward economic reform and private governance (for example, enterprise reform and decentralization) brings to bear upon China's welfare system. An evaluation of southern China's Guangdong province, home of three of China's five Special Economic Zones6, provides a stark illustration of the environmental problems inherent in the economic reform due to its simultaneously expanding economy and deteriorating environment.62

The assumption that there are no problems with the establishment of environmental policy and law in China is ultimately damaging to the future of environmental protection in that country, because it suggests that there is no need to improve or reform the current environmental policy. For example, local expert Carlos Lo Wing Hung, claims that the environmental regulatory framework of Guangzhou, the capital of Guangdong province, is satisfactory.63 His optimistic assertion that the local government has developed a sound administrative policy to ensure the effective enforcement of environmental law is difficult tojustify given evidence of Guangzhou's serious environmental decline.'

However, in subsequent commentaries, Professor Lo reverses his ground and argues that the current pollution-control legislation in Guangzhou is inadequate and that the enforcement measures applied by the municipal government are weak and ineffective.65 His argument is based on the incomplete rationale that the poor record of enforceability is due to the lack

of accountability of Guangzhou's public authorities.' Although public accountability will certainly contribute to improved environmental enforcement, sound evaluation of an environmental management system must also include an accounting for the social costs of pollution and the extent to which government ought to be involved.67 He has applied similar arguments to environmental protection efforts in Hong Kong.68

In fact. there are indications that officials will realize the need to improve their environmental management systems. Despite the commitment of southern China's provincial and municipal governments to market-oriented economic growth, it appears that public authorities may be willing to amplify their role in pollution control. For example, as set out in the 1991 report "Reply Regarding the Authority to Determine the Limitation Period to Control Environmental Pollution," the State Council was invited to settle a question concerning the extent of authority the State Bureau of Environmental Protection would have over Special Economic Zones in order to accord with the "Provisional Regulations on the Management of Environmental Management in the Areas Economically Open to Foreign Regions."69 The report concluded that the State Bureau of Environmental Protection retained the discretion to determine a limitation period for a pollution-control regulation affecting the Pearl River Delta.

In Shenzhen, a Special Economic Zone in Guangdong province in southern China, Mayor Li Youwei has identified three problems centrally associated with pollution control. First, the rapid pace of economic development makes environmental protection more difficult than would be the case if the pace of development were more rational. Second, the environmental education among government leaders is weak and some leaders tend to protect individuals who violate environmental laws. For example, Mayor Li has pointed out that in the last few years, the Shenzen Intermediate People's Court has only found thirteen enterprises guilty of violating environmental laws.7" Third, Li estimated that capital for investment in environmental technology lags far behind investement for other commercial projects.7'

Regional policy makers are studying remedies for the inefficient use of water resources as well as for the environmental deterioration of these resources.72 The Minister of Water Resources, Niu Maosheng, has argued that rigid economic planning, undefined property rights, and the prevailing management system of water conservancy have caused a deterioration in the water facilities. He suggested that water should be treated as a marketable commodity rather than a welfare item, although the policy of water conservancy should not be ignored by the state. He advised that a reasonable pricing system should be established and that the management system should be decentralized.73 Nui argued that:

[u]nder the modem enterprise system, the property relations should be clearly defined. The State owns the firm's assets [formed from] investments from various sources, including the state. The firms become legal entities that enjoy rights and shoulder responsibilities under civil law.4

According to Niu, the institutionalization of reform along these lines of water conservancy would require the central government to relinquish its power to local authorities. Although flood control works, irrigation, and drainage works should continue to be subsidized by the government, "water supply firms (and other hydroelectric facilities) should be weaned from government capital, assuming their own responsibility for profits and losses.75

Decentralization and partial privatization may create autonomous enterprises responsible for the management of the water facilities that, for certain purposes, will be an effective alternative to the current system. The enterprises will have to account for transaction costs (including the transportation of the water to consumers), negotiate appropriate prices, and maintain the resource. The economic cost of water may be passed on to consumers. The extent of the economic cost will depend upon whether the new regulations adequately identify the responsibility of parties to remedy past contamination of water resources, to modernize existing water works, and to demarcate regional jurisdictions for water consumption. As a result, the effects that the decentralization of water facilities will have on efficiency and environmental friendliness are not entirely clear. Nor is it clear that the privatization of water resources will lead to an equitable distribution

of water. Although the increased cost of water caused by any kind of privatization may result in consumers conserving water rather then wasting it, fewer consumers may be able to afford water.

In 1990, Jiangmen became the first prefecture in Guangdong to agree to a five-year responsibility contract with its four neighboring counties. The purpose of the contract was to cooperate in the cleanup of a polluted river that crossed all of their territories. Even as the industrial output of the region grew threefold, the governments were able to improve the ecological balance of the river.76

Two recent pollution control cases from southern China that found their way to the local judiciary further illustrate how the state's move toward private governance has made it more difficult to effectively enforce existing environmental law.7 In response to an explosion at a chemical storage site in Shenzhen that resulted in considerable ecological damage, the Administrator of the NEPA recently announced a reinvigorated effort to control spiraling pollution through stricter enforcement. He announced that the individuals whose pollution crimes caused the death of fifteen people would be given the death penalty and other polluters would be sent to labor camps. According to the Administrator: "For those leaders and cadres whose behaviour seriously harms the environment, we will institute terms in reform-through-labour camps. Let them go there and think about what they have done."78

In another case, the Zhili Handicraft Factory explosion, the Hong Kong co-owner of a Shenzhen toy factory was found guilty of ignoring fire safety regulations. The fire, caused by an electrical fault, resulted in the death of eighty-seven people. Additionally, two fire prevention supervisors were accused of accepting bribes from the company manager to falsify records to make it appear that the factory had followed requisite fire prevention codes. In discussing the court decision, a legal adviser to the Shenzhen government commented that:

[T]he present legal system on the mainland is not that sound and some cadres do not enforce laws stringently. Because of the fact that some foreign enterprises emphasize only making money and management is made difficult by workers' limited knowledge of industrial safety, accidents easily occur.79

During a speech, a leading member of the National People's Congress reportedly suggested that polluters should face the death penalty.10 Another official has proposed that environmental wrongdoers should be punished as severely as smugglers and drug traffickers.8 Although it appears that the environment may emerge as a benefactor of this new policy of stricter enforcement, one must wonder whether civil rights will become a victim. Another potential criticism of this proposed stricter enforcement regime is the inflexible choice of sanctions available to government officials seeking to punish environmental transgressions. The inflexibility of legal measures (either capital punishment or the trivial fines) may not be the most efficient way to deal with environmental protection.2 On the one hand, although the extreme threat of the death penalty may induce polluters to reduce pollution, it may also have the effect of frightening interested parties from necessary industrial investment. On the other hand, when the authorities punish environmental transgressions with trivial fines, polluters may choose to pay the fines and continue to pollute because there is no inducement to invest in pollution-control technology that would assist the industry to comply with environmental regulations.3

China's general energy policy also illustrates how the trend to private governance makes it hard for policy makers to take into account the environmental damage costs related to implementation of the economic reform. Driven by an extraordinary demand for more energy, China has responded by attempting to increase its supply while underemphasizing, according to some analysts, the possibility of conservation." Some observers advocate

the construction of more coal-burning power plants, others call for nuclear power, and still others argue for hydroelectric plants.8" In Guangdong, it has been reported that the State Council will approve the construction of a second Daya Bay nuclear power plant." Although China has established new regulations to ensure the safety of nuclear energy,87 recent reports point out the potential for an environmental emergency.88 Furthermore, a great deal of ecological controversy has arisen out of China's considerable hydroelectric power projects, including the Three Gorges Dam Project.89 Some critics claim that the economic benefits expected from the energy generation do not offset the environmental costs.9°

In an attempt to achieve a sustainable level of energy growth, China

has adopted the following policy:

1. To adopt the policy of "equal importance of development and conservation" aiming at raising energy utilization efficiency and reducing energy consumption so as to cut down fuel consumption as much as possible;

2. To encourage rational fuel selection in power generation, priority is

to be given to low sulphur and high quality fuels;

3. To use high efficiency precipitators and scrapers;

4. To use clean coal technology; 5. To be active in developing renewable energy such as hydropower, wind power and solar energy as well as nuclear power generation in order to cut down fossil fuel consumption;

6. To speed up rural electrification to reduce the consumption of bio-

logical products;

7. To provide... [that], in the process of building and planning hydropower and thermal power stations, high priority.., be given to reducing damage to the biological and natural environment[,]...tree planting and improving the biological system.9'

Although these policy guidelines set up rational goals for sustainable development, it is unclear whether the state has created the apparatus needed to ensure that the standards are enforceable92 and will be adhered to by government and development projects.93 The vice-chairman of Guangdong's Environmental Protection Bureau, Li Zhiyian, suggests that the population explosion9" and correspondent energy demands have resulted in an inevitable deterioration of the environment.95 An official of the State Planning Commission, Gao Guangsheng, stated that the total amount of fuel consumed each year by China will be twice as much as the total consumed by the world in 1970 if China's economy continues to grow at the current pace.96

Additionally, the municipal government of Guangzhou has recognized the threat that smog creates for the urban community. It has been estimated that less than half of the over 500,000 vehicles in Guangzhou meet minimum standards. The number of vehicles in the city is expected to grow by twenty percent over the next few years. Huang Weinging, chairman of the Guangzhou People's Congress, has stated that "[t]he city is in urgent need of reinforcement for the control over tailpipe emissions.

IV. STATE RESPONSIBILITY AND ECONOMIC IDEOLOGY IN CHINA

As a result of the increasing environmental deterioration suffered by southern China, policy makers are endeavoring to come to terms with pollution without threatening China's economic development. The free market approaches to economic policy offer attractive models for environmental policy makers in light of the contention that implementing the free market ideology constitutes the primary reason for China's phenomenal economic growth. However, unconstrained laissez-faire policies, exemplified by market environmentalism, are unsuitable for southern China.

A number of Western scholars have addressed the question of how a market system might be developed within a formerly centrally planned economy.8 Much of the literature suggests that the success of environmental reform in China is a simple, even quantitative, expression of the extent to which free market approaches are incorporated into the Chinese economic system." The impact that pollution has on economic development must be examined, however, in order to develop sound, market-based laws. 10 A more constructive analysis of market reform would put forth all of the costs and benefits resulting from the integration of free market principles into the planned economy.'"' Many commentators do not recognize that unaccept-

able levels of pollution are currently being generated, because the markets created under the economic reform do not accurately reflect the costs of pollution.

A possible solution to the externalization of environmental costs is to improve the transparency of the markets. Jo Anne Kwong, an expert in natural resource policy and economics based in the United States, argues that free market environmentalism could solve pollution problems in Hong Kong.'2 Kwong claims that the most socially efficient approach to pollution control would be to privatize government environmental operations."'3 She argues that public control over pollution has been based on the mistaken notion that private markets cannot provide such control, whereas the thorough implementation of market principles will actually create innovations to overcome the externalities that may prevent the market from working.14 However, Kwong does not address the more basic question of which type of governance structure would be most effective to control pollution, not only in China but anywhere that government and business plan to externalize cost.

Much of Kwong's basic philosophy is based on a theorem first advanced by Ronald Coase in "The Problem of Social Cost."''5 Coase claims that, in the absence of transaction costs, an optimal accommodation between two competing uses (his own examples involve a use that causes environmental damage) will be determined by private negotiation in a market. The benefit to be derived from preventing the harm and the loss that would be suffered by halting the use that produces the harm must be weighed comparatively. In theory, this balance is best reached through a free market.

In actuality, not all costs and benefits can be directly represented in the market. The Coase Theorem relies on values represented by prices to determine a socially efficient level of pollution. Although the determination of costs and benefits of production for the firm may be clearly signaled by prices, it remains very difficult to signal environmental costs suffered by

the public in this way. These costs may include damage to natural resources,'0 aesthetic harm, and very long-term medical injuries (such as chronic respiratory disorders), which cannot easily, or perhaps at all, be reflected in market prices.

Pollution costs are not appropriately factored in by the price mechanism, because pollution is a cost that a firm, in whole or in part, does not take into account when determining the price of a particular product, because the cost is external to the firm's internal costs. As Arrow has argued:

[There is] no... mechanism by which the pollution which a firm imposes on a neighbourhood is paid for. Therefore, the firm will have a tendency to pollute more than is desirable. That is, the benefit to it or to its customers from the expanded activity is really not as great, or may not be as great, as the cost it is imposing upon the neighbourhood. But since it does not pay that cost, there is no profit incentive to refrain.''

Because the firm's objective is profit maximization, the firm only factors into the price costs that it is obliged to pay, such as (at least partially) internal costs for labor, land, electricity, and raw materials.

Some have argued in response to this objection that the environmental costs are not accounted for because private property rights have not been fully recognized in the use of air, public land, or water. The remedy is, therefore, to extend these rights. As Burrows has put it, the attribution of property rights

specifies those resources which are someone's property, that must be paid for if they are to be used and... establishes which resources may be used without a charge being paid. We may presume that people and firms would not pay for the resources they use if the law had not established someone else's property right in those resources. If resources are anything on which people place a value, then freedom from interference, which takes the form of damage to one's appreciation of surroundings, is as much a resource as are labour, machines and materials.08

1996l

However, how are such rights (to clean air, water, and land) to be recognized? The axiomatic production of Pareto optimal'°s outcomes by negotiation in the market succeeds only on the assumption of zero transaction costs. As Coase himself has been at pains to insist, this is an unrealistic assumption. It may be difficult or impossible to devise a private property system in a resource such as air, which cannot be allocated in discrete units among consumers. Once this assumption is relaxed, the possibility of other forms of governance, including state governance of public resources, must be considered. Coase himself, although highly critical of what he perceived to be poorly thought-out elements of public regulatory theory, has been very careful not to rush to advance an overall economic model for pollution control. Coase has not critiqued inefficient state governance structures in order to justify a preconceived market-based system of pollution control, although he has frequently argued that deregulation is an appropriate response to the political and economic problems of pollution control. Coase's basic argument is ultimately not for deregulation but for care in choice of governance structure.

Perhaps the best way to appreciate the problems that can attend the application of the Coase Theorem is by taking up an example chosen by Kwong herself."' the collection and disposal of waste. She has claimed that the privatization of trash collection would be more cost effective than any public trash collection service. However, it is only by assuming zero transaction costs in the purported free market and by overlooking significant distributional considerations that her argument leads to the conclusion that the privatization scheme is cost-effective. First, Kwong does not account for transaction costs, including negotiation of the trash collection contracts, and the supervision and enforcement of minimal safety and environmental standards. Second, the cost of collecting and disposing of trash from people who cannot afford to pay for private collection services has been excluded from Kwong's analysis. Kwong has argued that the freerider problem is negated, because private firms will only pick up trash from paying clients. It is obvious, however, to residents of Hong Kong that the high-density living conditions would make a widespread absence of trash collection intolerable. Third, who will bear the cost to rectify any accidental or negligent damage caused by the private trash disposal agents? In Hong Kong, in particular, the risk of damages is made considerably greater by profit motives of trash collection services and the weak application of tort law. Fourth, Kwong has underestimated the costs associated with the mo-

nopolistic tendencies of the Hong Kong market. In the absence of any regulation to deal with market failure, it is likely that trash collection services will be largely controlled by oligopolies, which will have freedom to increase the price without the threat of losing market share. Private collection services may then price poorer Hong Kong families out of the market, again resulting in state responsibility for trash collection on public health grounds.

Kwong's argument for free market environmentalism cannot be supported by factual circumstances. Her proposal stands as a particularly clear example of the "extreme and untenable 'solutions"' that Williamson"' argued follow from sloppy use of the Coase Theorem.

Nonetheless, rejection of formulaic free market policies does not detract from the fact that any sensible environmental policy must determine a socially efficient level of pollution, a level where benefits derived by society are greater than the costs created by the pollution."' Under modem welfare theory, a market system can provide appropriate economic incentives to private firms to avoid pollution and establish socially efficient standards to guide persons or firms who generate pollution.

V. HONG KONG: AN ENVIRONMENTAL LEGAL MODEL FOR SOUTHERN CHINA?

The economic growth that Hong Kong has enjoyed over recent years may, to a considerable extent, be due to the government's laissez-faire policy. Even in Hong Kong, however, it has been recognized that too much private governance has led to extensive environmental deterioration."3 In response to the poor outcomes of the territory's laissez-faire policy, state governance structures for environmental protection are reluctantly being developed.

The administration of public environmental law in Hong Kong has been characterized by a minimal use of rules and legal measures to enforce environmental standards. This is indicative of the government's policy of "passive non-interventionism" in supporting economic growth. The government has taken the position that a legalistic approach to pollution control is ineffective and that it can succeed in inducing corporations to reduce pollu-

tion through flexible rule-making power and consultation with the corporations, an approach once used in the United Kingdom."' The cooperative tone of the section in Hong Kong's 1993 review of the 1989 White Paper on the environment is typical:

The Study report concludes that to remain competitive in a fast changing and developing world, manufacturing in Hong Kong needs to upgrade its processes and products. An important part of this challenge is to move towards compliance with environmental controls as such compliance can create "win-win" situations. That is, there can be benefits from changing processes to minimize wastes and save materials; there can be production efficiency gains; there are opportunities to profit from changing consumer preferences; and there is a whole new market in environmental technology in which firms can compete. The overall aim is to work towards maintaining and enhancing competitiveness of Hong Kong's manufactured exports in both regional and world markets."5

An examination of pollution control laws suggests the importance that the government places on collaboration with business. 6 The two most important pieces of legislation are the Air Pollution Control Ordinance (APCO)"7 and the Water Pollution Control Ordinance (WPCO)."8 The primary regulatory measure relied on in these pieces of legislation is licensing. Both the APCO and WPCO divide the territory into various control zones, each zone having its own environmental quality objectives.' '1 These objectives are based on complex scientific standards and are set by the government in consultation with the Advisory Council of the Environment (ACE), formerly known as the Environmental Pollution Advisory Commit-

tee."' Generally speaking, licenses to pollute are granted by the Environmental Protection Department (EPD), based on a determination that the emission of permitted amounts of pollutants is compatible with the environmental quality standard for that particular zone. It is worth noting that, when the ordinances were enacted, existing industrial activities were exempted from the law, which placed the burden of the law on new industries.

Rather than designate uniform legal standards that licensees must meet, as in the British approach to regulation,'' the legislation affords a great deal of discretion and flexibility to the EPD to negotiate acceptable standards with a particular industry. In granting a license for a specified process under the APCO, the EPD will consider the best practical means available to control pollution to meet air quality objectives and obviate health risks. The license then imposes standards of design, construction and maintenance of technology but goes into little detail on the question of types of effluent that may be produced.'2 Violations under the APCO may result in fines up to HK $500,000.23

With regard to water pollution control, the EPD is less concerned with the technological process that creates the pollution and more with the pollution content of the effluent. The WPCO makes it an offense to discharge any waste or polluting matter into certain designated waterways in Hong Kong unless one possesses a license to do so. While the EPD is concerned with ensuring that Hong Kong's water quality meets specified environmental quality objectives, the licensing procedure is guided by a new set of effluent quality standards published in a technical memorandum. According

to one commentator, the technical standards that may be imposed under the WPCO are far less effective than the specified process conditions required under the APCO.'24 Fines under the WPCO may also go up to HK $500,000.

Although violations under the APCO and WPCO usually involve corporate liability, the government has extended personal liability to directors in pollution control cases through Section 1 OA of the WPCO and Section 47B (1) of the APCO. However, there have been no actions under these provisions. One government official incorrectly stated that the government had not taken action against corporate directors because the government did not wish to go beyond the will of the community as expressed by the legislature in the statute.'5 However, Section 1 A of the Water Pollution Control Ordinance reads:

Liability of Directors, etc. Where a person convicted of an offence under this Ordinance is a body corporate and it is proved that the offence was committed with the consent or connivance of, or was attributable to any neglect or omission on the part of, any director, manager, secretary or other person concerned in the management of the body corporate, the director, manager, secretary or other person also commits the offence.'26

Given this language, it is difficult to justify failures to enforce the law against corporate officers on the basis of legislative intent. Since the statute clearly holds directors personally liable for pollution, the reason for the lack of actions must be sought in the attitudes of the enforcing agencies.

Early environmental cases in Hong Kong expose ajudicial attitude that governmental interference in environmental affairs should be curtailed when it harms economic growth. For example, the Melhado case'27 in 1983 followed from government action to slow the deterioration of the New Territories through its conversion into container terminals. In that case the court of appeals ruled that block leases did not forbid the conversion of land from a purpose for which it had originally been designed to a new purpose as long as no prohibited buildings were attached. The decision depended upon the interpretation of the original lease condition as descriptive rather than mandatory. The relevant lease condition required that the land in question

be used for agricultural purposes. As a result of the court's decision to deem the condition descriptive, the land was transformed into an environmentally unsound storage area for steel girders. Following the loss of this case, the government initiated legislation to improve environmental planning in Hong Kong.

In the Kam Kong Dyeing Factory case,'25 an appeals tribunal overruled the EPD's decision to refuse to grant a license to a factory to install chimneys. Although the EPD found that the installation would result in the discharge of air emissions in excess of the current environmental quality objectives, the tribunal ruled against the EPD on purely technical grounds. The tribunal held that a license may be refused only if it violates the legislation. Because the legislation stipulated that violations only occurred for actual and not imminent discharges, the company could not be found to be in violation of the ordinance, and therefore the license had to be granted.

As indicated, Hong Kong officials have been unwilling to bring civil actions in pollution cases, and the courts have proven reluctant to enforce civil liability in the few cases that are brought. The point that Celia Wells makes about the UK applies afortiori in Hong Kong.'29 The rhetoric of the debate concerning harm presumes that state coercion should be applied against an individual and that the harm caused by the individual may harm other iridividuals. Corporate activities, however, do not fit neatly within the model. Wells states that harm caused by corporations need not be balanced against state coercion of an individual but against control of a profit-oriented industry."' This is probably best illustrated in Hong Kong during legislative debates which lead to the enactment of an environmental law; often lawmakers will water down pollution control legislation by arguing that it is "too expensive for Hong Kong" or is oppressive because it is based on foreign legal models inappropriate for the unique local circumstances."' Lawmakers have also argued that the attribution of corporate environmental responsibility is unfair and excessively costly because government regulators do not understand the complexities of commercial and environmental decision making.' According to Wells, the difficulty in regulating

corporate polluters arises from the implicit ambiguity in the definition of "harm." The definition focuses on harm to others; corporate polluters, however, rarely discriminate in the harm through pollution that they cause to others. This is the case in Hong Kong where the density of the polluters within industrial areas is so high that it is often difficult for regulators to attribute responsibility for the generation of pollution and the causation of harm.33

Having noted the institutional basis for Hong Kong's historical complacency toward the environment, it would be unjustifiable to ignore the action recently taken by both the Planning, Environment and Lands Branch (PELB) and the judiciary that illustrates that this inactive attitude may be changing. The lack of any regulatory scheme for the application of environmental impact assessments3" had highlighted the Hong Kong government's unprogressive approach to pollution control vis a vis many other countries, including the People's Republic of China.35 Recently, however, the PELB has proposed, for consideration by the Legislative Council, an Environmental Impact Assessment Bill."6 Currently, an EIA in Hong Kong is carried out on an ad hoc requirement based upon administrative notes issued by the PELB.37 These requirements are imposed upon a number of public and private de-

velopments138 The EPD is responsible for determining whether an EIA is appropriate, what matters the EIA will address, and whether the technical findings of the EIA are acceptable. The EPD has marginal legal leverage to require proponents'39 to comply with the ETA; largely, the EPD relies on the goodwill of the proponent or uses its power to grant licenses or other approvals to force proponents to apply.40 The bill, therefore, was proposed in order to formalize and, in the process, clarify the existing legal requirements of the proponents and to provide greater legal authority to the EPD to enforce the EIA's findings.'

The Hong Kong judiciary has also shown signs that it recognizes the costs of pollution upon society and is willing to hold polluters liable for the harm they have caused.42 One Hong Kong court fined a factory director HK $80,000 (equivalent to approximately US $10,000) for discharging dangerous chemicals into a protected water body. The judge wrote:

This is a small earth. If everyone starts putting zinc and cyanide into the ocean, what will happen? People who are prepared for their own commercial reasons to allow poisonous concoctions of metals to be released into the water courses are committing graver offenses than most criminals I have to deal with. This kind of offence cannot be tolerated by society nowadays.'

In another appeal in which the defendents had decided to challenge the sentences to their guilty plea to seventy one offenses against the Ozone Layer Protection Ordinance, Cap 403, the appellate court determined that it had the power to increase the fine, if it chose to, during the appeal. The Court stated:

[I]t was incumbent upon the courts of Hong Kong to ensure that the message of the legislation is clearly and without equivocation brought home to all those who are involved commercially or otherwise with substances which endanger the environment. It was the deliberate policy of the legislature to enact that the penalty for

each offence could be one million dollars and two years imprisonment. The courts must ensure that the penalties they impose adequately reflect the community's determination to protect its own environment, and to observe its international obligations under the various environmental protection agreements. Penalties must be a real deterrent against those whose priorities list profit above our ecological well-being.'4

Although there is scope for some praise of the judiciary's progress, the application of environmental law remains unsteady.'45 The case of Asia Dyeing Co. Ltd. & Others v. Air Pollution Control Authority illustrates this problem.46 In this case, the environmental authority had to decide whether smoke from burnt fuel emitted through a chimney was in violation of the air pollution statute. The law stated that smoke emissions should not exceed a greater quantity of pollutant "than need be." The environmental authority determined that the defendant had violated the statute, because the emission of sulphur dioxide from the chimney under investigation was in excess of what the Authority considered suitable. The reviewing court held that the Authority had overstepped its administrative discretion,'47 saying that the statute must be interpreted according to its "plain words and meaning." The court stated that the determination of whether the pollutant was greater "than need be" depended on whether or not the fuel was suitable for the relevant industrial purpose. The basis of the Authority's decisionwhether the pollution generated was scientifically dangerous and would adversely affect the public-was deemed beyond the scope of its legitimate power.

In addition to statutory controls, Hong Kong, as a common law jurisdiction, has such common law remedies as nuisance and negligence available to control pollution.48 These legal measures, however, in which an individual may bring an action against a polluter who has caused injury by breaching reasonable environmental standards, are rarely used. Several factors explain why so few common law actions for environmental protection arise in Hong Kong, including, among others: the prohibitive costs for plaintiffs; the overwhelming advantage to defendants in terms of financial and legal resources; and the lack of certainty with regard to the meaning and application of the law.'8

It should also be noted that the Office of Commissioner for Administrative Complaints (COMAC) plays a functional role in overseeing the implementation of environmental law and investigating complaints of improper administration." In particular, the COMAC, during the investigation of the governmental approval for the development of a golf course on country park land, has asserted that the implementation of the relevant environmental impact assessment was marked by procedural impropriety and poor decision making."' In fact, COMAC found that neither an EIA nor a public consultation had been conducted prior to the Authority's grant of approval to the developers for use of the land and recommended that reasonable ETA procedures be implemented for future development applications.52

Another institutional arrangement that has been used in Hong Kong to control pollution is an economic charge. Usually, an economic charge is defined as a tax, but due to the general political unacceptability of taxes in Hong Kong, the pollution tax is set up as an economic charge for pollution control services rendered. The government justifies economic charges by claiming that they are being established in accordance with the polluter pays principle. As the latest White Paper explains:

When costs.., are not borne by those who incur them, they do not simply go away. Someone else inevitably has to pay. Until recently it has been the taxpayer who has had to meet these costs through revenues collected by the government and used to provide these facilities without direct charge.. .The time has come for the responsibility for payment to pass from the public or the taxpayer to the polluter.'53

The two primary examples of using economic charges in Hong Kong include the Chemical Waste Treatment Centre (CWTC) on Tsing Yi Island and the Strategic Sewage Disposal Scheme (SSDS). Both projects have been established in the expectation that they will develop into self-financing environmental institutions at least partially independent from the government. It is not clear whether the government intends to privatize the waste disposal business in Hong Kong. If it intends to, however, it should explicitly make this intent clear, so that all parties involved understand the strengths and weaknesses of such a radical change from the tradition of public waste disposal in the territory.

The CWTC is a multi-billion dollar capital investment in what the government hopes will ultimately be a self-financing chemical waste disposal unit. The manager of the plant, Waste Management Incorporated, will be responsible for providing the treatment service. The government's role will be to ensure that particular environmental health and safety standards are met. Waste producers will have to pay for the cost of treating their waste to certifiable government standards. The extent to which the government will be effective in ensuring that the CWTC and the producers observe environmental standards remains uncertain. I I

The government also plans to minimize the ultimate extent of its involvement in the SSDS. As with the plan for the treatment of chemical waste, under the Sewage Master Plan, users will have to pay a variety of different charges. There will be a fixed charge to cover fixed costs, a vari-

able charge to be based on the amount of water consumed, and a trade effluent surcharge to reflect the cost of treating the more costly industrial effluents.

Overall, some legislators claim that high environmental standards should not be applied to Hong Kong, because Hong Kong's fragile economy would decline under the strain of added environmental costs.' This blanket view is hardly tenable; the purpose of environmental legislation is to achieve optimal outcomes by recognizing otherwise "hidden" costs of pollution and holding accountable enterprises that impose previously "free" pollution costs on society. More persuasive reasons for being cautious about anti-pollution legislation stem from the unintended outcomes of its enforcement. For example, strict application of environmental regulations tends to have a disproportionate impact on smaller companies that have fewer resources to absorb abatement costs than do larger companies. Additionally, the imposition of high abatement costs may force companies to emigrate to a jurisdiction where environmental standards are more lax, such as southern China. Hong Kong would not only lose the economic benefit of the company but also continue to suffer the transboundary pollution costs. In light of these points, policy makers in Hong Kong must consider carefully whether offending companies merit compensation or technological assistance to support compliance with environmental regulation.

The final institutional arrangement that would assist Hong Kong in recognizing the external costs of pollution would be a new code of environmental ethics.'-' A code of environmental ethics would serve to formalize rules that would guide environmental behavior for all companies, improve the environmental image of all businesses to the consumer, and thereby support a business environment more conducive to economic development and the protection of natural resources. For example, in Beijing, representatives of enterprises throughout China recently signed the Declaration of Chinese Enterprises Development which claims that Chinese enterprises will gradually adjust their development strategy in order to make development sustainable and environmentally friendly. 57

Corporate Hong Kong and the public sector have taken initial steps to demonstrate to consumers and taxpayers that their institutional attitude is environmentally friendly. A nongovernmental organization called the Private Sector Committee on the Environment (PSCE) has been established,

with the aim of coordinating the efforts and resources of leading companies in Hong Kong to address pollution problems. Participating companies include the Hong Kong Bank, the South China Morning Post, and China Light and Power. One of the more significant plans implemented by the PSCE has been to establish the Private Sector Committee Environment Centre.'8

Although the EPD publishes an annual report on the environment and the Hong Kong Industrial Department publishes a guide to pollution control legislation, there is little else in the way of guidelines for corporate management. To the government's credit, in response to the governor's most recent policy address, the EPD established the Corporate Environmental Management Division to advise corporate management on environmental issues. The division also provides advice to various government departments on environmental matters, especially environmental auditing. The division seeks to facilitate projects that would help improve corporate environmental management. It is also important for corporations to note that the government has endorsed the notion of sustainable development; that is, the idea that environmental protection and economic development are not mutually exclusive.

Ultimately, there seem to be more similarities than differences between the environmental approaches of Hong Kong and present-day Guangdong; in particular, both jurisdictions place very limited reliance on regulatory principles to control pollution. Although regulatory mechanisms have been promulgated in both Hong Kong and Guangdong, it is arguable that both governments have underestimated the costs that the adverse affects of pollution will have on their economies.I" The resultant laissez-faire approach to the enforcement of environmental law is unsound, but the trend in Hong Kong toward increased policing of the environment will have long-term beneficial consequences.

VI. CONCLUSION

The implementation of legal and economic reform in China may undermine the achievement of a sound environmental protection policy unless socially efficient environmental standards are enforced effectively. In the Guangdong province of southern China, where the implementation of reform is meant to serve as a model for the country, regulation moves toward

increased private governance while Hong Kong regulation moves in the other direction, toward greater state governance. Paradoxically, Guangdong believes it can duplicate Hong Kong's economic success by embracing a laissez-faire approach to environmental protection, while Hong Kong is in the process of developing economic incentives for environmental protection and responsibility.

If lawmakers continue to marginalize social costs such as pollution in order to justify the region's economic prosperity, the social welfare implications could be ultimately staggering. As Riskin points out with respect to economic reform:

As long as the energies released by the reforms continue to feed, clothe, and house people better, China can live with its contradictory path. But if, as Mao (and Marx) may have put it, these contradictions begin to impede the development of the productive forces, China will once again be forced to redefine its path towards modernity, and, in the process, to clarify which aspects of the modern world it truly covets.160

The point applies equally to environmental protection. Until environmental costs'6' are responsibly accounted for and state and private governance structures are appropriately integrated, a just and effective solution to the problems of environmental health and economic development will remain unachievable.

--- FOOTNOTES ---

Part of the Environmental Law Commons

t Associate Professor of Law, City University of Hong Kong. The author would like to thank David Campbell, Arthur Von Mehren, A. Dan Tarlock, Wang Xi and Jeffrey Dunoff for their valuable comments on earlier drafts of this paper. This paper also benefited from its presentation at the Inaugural Conference of the Centre for the Study of Business Values organized by the Department of Management Studies at the University of Hong Kong. A portion of an earlier version of this paper will be published in THE PEARL RIVER DELTA REPORT H (Joseph Cheng & Stewart MacPherson eds., 1996).

1. See Wu Jinglian, 1995 To See New Efforts to Step Up Reform Pace, CHINA DAILY, Sept. 13, 1994, at 8; Invisible Hand Relies on State Economic Control, CHINA DAILY, Oct. 6, 1994, at 4.

2. See Zhu Baoxia, Agency Assesses Overall Environmental Conditions, CHINA DAILY, June 4, 1994, at 3. Emissions of certain air pollutants increased: soot emissions increased by 7.1% and sulphur dioxide emissions by 6.5 %. Noise pollution also worsened. The mortality rate for lung cancer in the cities is 34 deaths per 100,000 people, and in the rural areas respiratory ailments kill 165 people per every 100,000. It should also be noted that less industrial waste water was discharged than in the previous year, and no more solid waste was disposed of than was last year. Id.; see also Wang Rong, Smog Looms on Guangzhou Horizon, CHINA DAILY, June 17, 1995, at 3; Patricia Young, Worldwide Threat Posed by Pollution, S. CHINA MORNING POST, Nov. 16, 1994, at 11.

3. For discussions on this issue in other regional contexts see Bryan Bachner, Sweep Before Your Own Door: The Legal Concept of Environmentalism in the Pearl River Delta in HONG KONG, CHINA AND 1997: ESSAYS IN LEGAL THEORY 229 (Raymond Wacks ed., 1993) [hereinafter Bachner, Sweep Before Your Own Door]; Bryan Bachner, Coming Home to Roost: Pollution, Law and Economics in the People ' Republic of China, 5 GEO. INT'L ENVTL. L. REV. 635 (1993) [hereinafter Bachner, Coming Home to Roost]; Bryan Bachner, No Law, No Sky: Economic Development and Environment in the Fifth Dragon, in DEVELOPMENT IN SOUTHERN CHINA: A REPORT ON THE PEARL RIVER DELTA REGION 186 (Joseph Cheng & Stewart MacPherson eds., 1994) [hereinafter Bachner, No Law, No Sky].

4. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 21-22 (4th ed. 1992). 5. David Campbell, Economic Ideology and Hong Kong s Governance Structure

After 1997, in HONG KONG, CHINA AND 1997: ESSAYS IN LEGAL THEORY 87,121 (Raymond Wacks ed., 1993).

6. See Ernest Stem, The Way Ahead for China: More Change, Sustainably, INT'L

HERALD TRIB., May 19, 1994, available in LEXIS, News Library, ARCNWS File.

7. See Michael Byrnes, China: Guangdong Chases 'Tiger' Status, AUSTL. FIN. REV., Jan. 29, 1993, available in LEXIS, Market Library, PROMT File. See also Guangzhou Ranks Third Among Big Chinese Cities, Xinhua General Overseas News Serv., June 19, 1993, available in LEXIS, World Library, XINHUA File. Guangdong Province

has achieved considerable financial success under the auspices of Deng's economic reform, but at considerable ecological cost. See supra note 2. In the latter half of the 1980s, the country's Gross National Product grew at a rate of about 13% while the rest of China maintained an 8% growth rate. Guangdong was the leading exporter of the nation and in 1992 accounted for about 16% of the nation's imports. Planners do not intend to slow down the pace of growth.

In early 1993, the Eighth People's Congress of Guangdong proposed a plan for economic development over the next twenty years. Guangdong's domestic product is projected to triple by the year 2000 to over $500 billion yuan (approximately US$85 billion). Gross Domestic Product is expected to increase to 1,600 billion yuan and per capita income is intended to raise to 7,200 yuan.

8. See Chan Wai-Fong, Pollution Hits Water Supplies, S. CHINA MORNING POST, Aug. 13, 1994, at 8. (indicating that pollution in the Pearl River Delta has closed down a major water supplier in Guangzhou). See also VACLAV SMIL, CHINA'S ENVIRONMENTAL CRISIS: AN INQUIRY INTO THE LIMITS OF NATIONAL DEVELOPMENT 99-137, 188-203 (1993). Measurements of acid rain precipitation in some cities of Guangdong equal those of the worst urban areas of eastern Europe. Much of the high yield farmland has been lost as a result of urban and industrial development and while land reclamation has replaced some of the losses, especially in Guangdong, only about one third of this land could be farmed as high-yielding fields. See also China-Guangdong Coal Industry Profile, 1994 NAT'L TRADE DATA BANK-MARKET REP., Mar. 27, 1994, available in LEXIS, Asiapc Library, MKTRPT File. This report argues that China will increase its investment in nuclear power, in part because it has not been able to control the emission of the sulphur dioxides which lead to acid rain. See also Steven Mufson, Dark Cloud Over China, INT'L HERALD TRIB., Apr. 1, 1996, at 2; Uli Schmetzer, In China Pollution Can Turn Snowflakes Black: Nation a Top Source of Global Acid Rain, CHI. TRIB., Nov. 3, 1994, at 1; Experts Report on Guangdong Water Resources Crisis, CHINA INTELLIGENCE REPORT, Mar. 22,1994, available in LEXIS, Market Library, IACNWS File. Water pollution has intensified the problem of conserving limited water resources in Guangdong. But see Urban Environmental Quality Improving in Guangdong, Xinhua News Agency, Aug. 13, 1994, available in LEXIS, Asiapc Library, XINHUA File.

9. For further discussion of the concept of private governance and its relationship to the development of environmental policy in the People's Republic of China see infra notes 46-58 and accompanying text.

10. For instance, the Worldwatch Institute recently reported that:

China simply will not be able to follow for long any of the development paths blazed to date. Its abundance of people, shortage of resources, and collision with the technologies and political philosophies of the twenty-first century will force the country to chart a new and different course. Although this is a daunting challenge, China is well equipped to face it. Throughout most of history, China has led the world in scientific and industrial development, and has charted its own course. The country that invented paper and gunpowder may now have the opportunity to leapfrog the West and show it the way to a sustainable economy. If it succeeds, China could become a shining example for the rest of the world to admire and emulate. If it fails, we will all pay the price.

Megan Ryan & Christopher Flavin, Facing China ! Limits, in STATE OF THE WORLD 1995: A WORLDWATCH INSTITUTE REPORT ON PROGRESS TOWARD A SUSTAINABLE SOCIETY 13, 131 (Worldwatch Institute ed., 1995).

11. THE WORLD BANK, REP. NO. 9669-CHA, 1 CHINA ENVIRONMENTAL STRAT-

EGY REPORT xix(1992) [hereinafter 1 CHINA REPORT].

12. Ecological Protection Plan Nears Completion, CHINA DAILY, Jan. 26, 1994, at 1. 13. Zhu Baoxia, Polluters Warned Punishment to be Tough, CHINA DAILY, Nov. 15, 1994, at 3. Xie Zhenhua, Administrator for the National Environmental Protection Bureau stated that a complete environmental legal system would take about five years to set up. In the meantime he promised to increase penalties on enterprises that violate state environmental laws. He claimed that the major cause of the environmental damage was irrational economic development.

14. Ecological Protection Plan Nears Completion, supra note 12, at 1; See also Zhong Shukong, Environment, Development Tough Targets, CHINA DAILY, Nov. 23, 1994, at 5.

15. Rone Tempest, The Asia Boom: Is Pollution the Price of Asia ' Development?,

L.A. TIMES, Nov. 29, 1994, at WR 9.

16. See generally 1 CHINA REPORT, supra note 11. 17. 1 CHINA REPORT, supra note 11. 18. RODERICK MACFARQUHUAR, THE ORIGINS OF THE CULTURAL REVOLUTION-

2 THE GREAT LEAP FORWARD 1958-1960, at 22 (1983) (describing Chairman Mao's support of a national health campaign to eliminate rats, sparrows, flies, and mosquitoes); see also CHAIRMAN MAO TALKS TO THE PEOPLE 232-233 (Stuart Schram ed. & John Chinnery & Tieyun trans., 1974) (reproduces Mao's directive on public health, emphasizing the need for medics in the countryside).

19. See Richard Baum, The Legacy of Deng Xiaoping: A Members Only Program, Lecture at the Asia Society-Hong Kong Centre 3, 4 (Sept. 19, 1994) (transcript available from author); James Feinerman, Economic and Legal Reform in China, 1978-1991, PROBLEMS OF COMMUNISM, Sept.-Oct. 1991, at 62.

20. See LESTER Ross & MITCHELL SILK, ENVIRONMENTAL LAW AND POLICY IN

THE PEOPLE'S REPUBLIC OF CHINA (1987).

21. THE WORLD BANK, REP. No. 9669-CHA, 2 CHINA ENVIRONMENTAL STRAT-

EGY REPORT Annex 1, 3 (1992).

22. For an examination of the relationship between economic development and environmental protection in light of national reform see Bachner, Coming Home To Roost, supra note 3, at 635; Bachner, Sweep Before Your Own Door, supra note 3, at 229.

23. See Carlos Lo Wing Hung, Environmental Management in Municipal Guangzhou: Policy, Law and Administration, in DEVELOPMENT IN SOUTHERN CHINA: A REPORT ON THE PEARL RIVER DELTA REGION 200 (Joseph Cheng & Stewart MacPherson eds., 1995).

24. For a recent effort to control pollution through preventative means, see Liu

Yinglang, A Ministry Designates Eco-Friendly Goods, CHINA DAILY, April 9, 1996, at 2.

25. See Lester Ross & Mitchell Silk, PRC and Taiwan: A Special Report, in ENVTL.

RISK Y.B. ED. 62 (1993).

26. The "polluter pays principle" is the idea that the polluter should be held responsible for the costs necessary to ensure that the community achieves a level of environmental quality deemed acceptable by the state. See P. BIRNIE & A. BOYLE, INTERNATIONAL LAW AND THE ENVIRONMENT 109 (1992).

27. Environmental Law Update-China & Taiwan: Uphill Battle, ECONOMIST INTELLIGENCE UNIT BUS. ASIA, Dec. 6, 1993, available in LEXIS, Market Library, PROMT File.

28. Compare infra notes 124-132 and accompanying text. 29. Zhu Baoxia, Polluters Warned of Criminal Penalties, CHINA DAILY, June 6, 1994, at 1. Song Jian, the Director of the State Council's Environmental Protection Committee urged local authorities to take stem legal and economic action against violations of State environmental laws and regulations. Josephine Ma, Environmental Law Breakers to Face Prison, S. CHINA MORNING POST, Aug. 12, 1994, at 9. Xie Zhenhua, the head of the National Environmental Protection Bureau stated that a review of the current environmental legislation, especially the penalty clauses, was under way. Id.

30. CHINA ENV'T Y.B. 1994, at 200 (1995).

31. Id. at 209. 32. Id. at 219. 33. Id. at 223. 34. Lester Ross, The Next Wave of Environmental Legislation, CHINA BUS. REV.,

July-Aug., 1994, at 30.

35. Changing Economy Driving Force in Revising Environmental Law, Official Says, 18 Int'l Env't Rep. (BNA) No. 14, at 546 (July 12, 1995) [hereinafter Changing Economy].

36. See supra note 26 and accompanying text. 37. The "precautionary principle" has been incorporated substantially into the mainstream of sustainable development law. The precautionary principle basically deals with sensible risk management. Environmental measures should anticipate and prevent sources of pollution. Scientific uncertainty should not excuse an effort to reduce a threat of ecological deterioration. See GREENING INTERNATIONAL LAW 116-119 (Phillipe Sands ed., 1993). See also Daniel Bodansky, Scientific Uncertainty and the Precautionary Principle, ENV'T, Sept. 1991, at 4.

38. The "preventative principle" means the institutionalization of a risk-averse environmental policy by the government. The principle is only applicable to newly-formed industries; if an industry has already begun polluting, only a damage limitation approach may be used. See ROSALIND MALCOLM, A GUIDEBOOK TO ENVIRONMENTAL LAW 28 (1994).

39. See DRAFTING GROUP OF THE EPC-ADB PROJECT, ENVIRONMENTAL PROTEcION LAW OFTHE PEOPLE'S REPUBLIC OF CHINA (June 1995) (Fourth Draft Revision Suggested by the Asia Development Bank and the EPC); DRAFTING GROUP OF THE EPC-ADB PROJECT, LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON THE PROTECTION OF WATER QUALITY AND PREVENTION AND CONTROL OF WATER POLLUTION Art. 4 (June 1995) (proposed draft articles) (on file with author). 40. Changing Economy, supra note 35. 41. Bin Wu & Andrew Flynn, Sustainable Development in China: Seeking a Balance Between Economic Growth and Environmental Protection, 3 SUSTAINABLE DEV. 1 (1995). 42. See supra note 35 and accompanying text. According to the China's Agenda 21, sustainable development is a strategic choice that must be taken by both developing and developed countries. The prerequisite for sustainable development is economic development. Only if economic growth is sustained can China eradicate poverty, improve people's lives and maintain progress toward its goal of achieving sustainable development. Sustain-

able development means providing for economic development while ensuring the rational utilization of natural resources and the protection of the environment; See also, CHINA'S AGENDA 21: WHITE PAPER ON CHINA'S POPULATION, ENVIRONMENT AND DEVELOPMENT IN THE 21ST CENTURY 3 (1994).

43. Id.; see also ENVIRONMENT ACTION PLAN OF CHINA 1991-2000, at 29-79 (1994). See also NATURAL RESOURCE ACCOUNTING FOR SUSTAINABLE DEVELOPMENT (Li Jinchang et al. eds., 1990).

44. For a critical discussion of the progress of enterprise reform see Matei Mihalca, Don 't Believe Rosy Predictions for China ' State Sector, ASIA WALL ST. J., Apr. 10, 1996, at 10.

45. Andwer X. Qian, Riding Two Horses: Corporatizing Enterprises and the Emerg-

ing Securities Regulatory Regime in China, 12 UCLA PAC. BASIN L.J. 62, 63 (1993).

46. See Alison W. Conner, To Get Rich is Precarious: Regulation of Private Enterprise in the People ' Republic of China, 5 J. CHINESE L. 1 (1991) (discussing the regulatory issues relating to the enterprise reform).

47. Qian, supra note 45, at 63. 48. Qian, supra note 45, at 73; see also State Firms Need More Reform, CHINA

DAILY, Apr. 16, 1996, at 2.

49. For further information regarding this debate see Privatizing State Firms Rejected, CHINA DAILY, June 21, 1995, at 1; Willy Wo-Lap Lam, Proposal to Privatise State Firms, S. CHINA MORNING POST, Nov. 16,1994, at 11. But see Willy Wo-Lap Lam, Joint Conference to Control Industry: State Sector to Stay Public, S. CHINA MORNING POST, Nov. 17, 1994, at 14; Ernest Stern, China Can't Afford the Burden of Para-Statal Duds, INT'L HERALD TRIB., May 20, 1994, at 6; Wei Jing, Company Sets Example in Management Reform, CHINA DAILY, Apr. 25, 1994 at 4; Julia Leung, China Backtracks on Economic Reform, and Fuels Inflation It Wants to Control, WALL ST. J., Apr. 13, 1994, atA9; ThreeProng Strategy, CHINA DAILY, Mar. 22, 1994, at 4; Legislature Must Guide Economy, CHINA DAILY, Feb. 15, 1994, at 4; Dai Yuanchen & Liu Yingqiu, Article on Macroeconomic Regulation, Control, JINGJI YANJIU, June 20, 1993, at 60-65; Jiang Shijie, Depending on the 'Invisible Hand'Alone Will Not Work, RENMIN RIBAO, Aug. 16, 1993; Xu Baoqing, On an Operational Model for State Assets Property Rights Under Monetized Economy, JINGJI YANJIU, Apr. 20, 1993; Wang Zhenzhong, Column on Theory of Socialist Market Economy, JINGJI RIBAO, June 11, 1993.

50. Qian, supra note 45, at 93. 51. In light of the fact that it seems that, under reform, enterprise managers will be less and less accountable to government officials, corporate environmental responsibility may not be a high priority for corporate officials or the government. Qian, supra note 45, at 93.

52. Yang Chun-Xi et al., China s Treatment of Crimes Against the Environment: Using Criminal Sanctions to Fight Environmental Degradation in the PRC, 8 J. CHINESE L. 145,150 (1994).

53. An act which breaches an environmental law and causes environmental harm generally results in the violation of an administrative law. The person who performed the act may incur administrative responsibility. Administrative responsibility depends upon the subjective mode of intention and negligence; the act violating administrative regulations; the consequent damage; and the causal relationship between the act and the damage. ZHANG KUNMN & JIN RUILIN, A COURSE IN CHINA'S ENVIRONMENTAL PROTECTION LAW 305320 (1992). [hereinafter COURSE].

54. The concept of civil liability suggests that legal responsibility is borne by a civil subject who breaches civil law and another's property and personal rights. Civil liability arises in a person who infringes property rights of an individual, state or collective as a result of the adverse effects of pollution on the environment. The primary remedies under civil liability include: cessation of infringements; removal of obstacles; elimination of dangers; return of property; restoration of original condition; repair, reworking or replacement; compensation for losses; payment for breach of contract; elimination of ill effects and rehabilitation of reputation; or offering an apology. Id. at 320-345.

55. See Wang Xi & Robert Blomquist, The Developing Environmental Law and Policy of the Peoples Republic of China: An Introduction and Appraisal, 5 GEO. INT'L ENVTL. L. REV. 25 (1992).

56. Chun-Xi et al., supra note 52, at 164-167. 57. See 1993 NAT'L TRADE DATA BANK-MARKET REP., Aug. 17, 1993, available in LEXIS, Asiapc Library, MKTRPT File. For example, the Water Law of Guangdong is implemented by the Guanzhou Environmental Protection Bureaus. The GEPBs will collect fees from polluting enterprises. Eighty percent of the fees are returned to the enterprises for investment purposes with the intention that the funds be used to help the enterprises meet the standards set by the GEPB's. All costs associated with pollution control, in line with the polluter pays principle, are the responsibility of the polluter and not the government. The GEPBs must ensure that new project developments incorporate new technology and that older companies retro-fit their current technology to meet environmental standards. Id.

58. Yan Shi, Provinces Hold Key to Reform, FARE. ECON. REFORM, Dec. 27, 1990,

at 16.

59. Marcus Brauchli, Beijing Eases Up: China ' Economic Changes Spur Legal-

System Reform, ASIAN WALL ST. J., June 21, 1995, at 1.

60. Huang Yasheng, Why China Will Not Collapse, ASIAN WALL ST. J., June 27,

1995, at 8.

61. There are five Special Economic Zones (SEZs) in China. They include: Shenzhen, Zhuhai and Shantou in Guangdong Province, Xiamen in Fujian Province and Hainan Island. The SEZs must follow national and provincial regulatory guidelines in the fields of banking, taxation, and customs, promulgated specifically for the SEZs, but have been allocated particular discretionary powers to create their own rules in order to speed development. For instance, the central government has established the following investment incentives specifically for the SEZs: lower corporate income taxes; tax holidays; and tax exemptions on interest, rentals and royalties. ECONOMIST INTELLIGENCE UNIT, CHINA HAND 9 (1995). Despite the regulatory authority allocated to them, the SEZs have not been effective in controlling pollution.

62. See Bachner, No Law, No Sky, supra note 3, at 186, 197. It has previously been argued that the ecological deterioration of the Pearl River Delta is largely due to the Guangdong Special Economic Zone's excessive emphasis on unfettered market-oriented growth and that without the establishment of rational environmental policy and law that will account for market failures, the economic and environmental development of the region remains uncertain.

63. Lo, supra note 23, at 221. 64. See supra note 8. 65. Carlos Lo Wing Hung, Problems and Prospects in Guangzhou, 4 ASIAN L.J. 19,

22 (1995).

66. Id. at 20. 67. Compare infra notes 97 to 108 and accompanying text. 68. Professor Lo's work, it should be noted, has provided detailed information concerning the administration and operation of environmental law in southern China and Hong Kong. See Carlos Lo Wing Hung, Environmental Protection in Hong Kong Amidst Transition: Is Hong Kong Ready to Manage its Environment by Law?, 19 ENVTL. MGMT. 331 (1995).

69. See generally GENERAL OFFICE, STATE COUNCIL REPORT, REPLY REGARDING THE AUTHORITY TO DETERMINE THE LIMITATION PERIOD TO CONTROL ENVIRONMENTAL POLLUTION NO. 18 (Apr. 22, 1991) (N.Z.).

70. Shenzhen Mayor Stresses Improving Environmental Protection, ZHONGGUO

XINWEN SHE, Aug. 12, 1994.

71. Id.

72. Chong Zi, Stronger Market Forces Needed to Conserve Water, CHINA DAILY, Oct. 4, 1994, at 4. In Guangdong most of the water works were built two or three decades ago, and many are in disrepair. Due to the high costs of water distribution and the lack of sufficient subsidies, the water companies are operating at a loss. The Government, however, has invested about US $1.4 billion into improving water facilities over the last fourteen years.

73. Id. 74. Id. 75. Id.

76. See Wang Rong, Guangdong Tackles Water Pollution, XINHUA, June 3, 1995,

available in LEXIS, World Library, ALLNEWS File.

77. For a discussion of the cases, which arose during the 1980s and involved pollution control and foreign enterprises see Lester Silk & Mitchell Ross, Environmental Planning for Investment Projects in China, in DOING BUSINESS IN CHINA 11-1 (1992). See also Joseph Profaizer, Economic Development and Environmental Law in China ' Special Economic Zones, 28 TEX. INT'L L.J. 319 (1993); Zhu Baoxia, Factories to Battle Pollution, CHINA DAILY, Dec. 5, 1994, at 4.

78. Bruce Gilley, Beiing to Increase Environmental Offence Punishment, E. EX-

PRESS, Aug. 12, 1994, at 5.

79. Stella Lee, Officials Blamed in Factory Disaster, S. CHINA MORNING POST, Oct. 4, 1994, at 3. See also, Two TriedforRole in Shenzhen Blaze, CHINA DAILY, Sept. 22, 1994, at 3; Quinton Chan, Fire-Tragedy Factory Boss Found Guilty, S. CHINA MORNING POST, Oct. 2, 1994, at 2.

80. Tempest, supra note 15, at WR1; Sam Jameson, The Asia Boom: China Sets the Pace as Cash, Concrete Pour into World's Hottest Economic Region, L.A. TIMES, Nov. 29, 1994, at WR1.

81. Tempest, supra note 15, at WR1. 82. I am grateful to Dan Tarlock for bringing this to my attention. 83. Shelley Clarke, Wastewater Fees, Penalties and Fines: Definition and Compli-

ance Issues, 1 CHINA LAW BRIEFING 8, 10 (1995).

84. Guangdong Accelerates Construction of Power Plants, XINHUA, July 13, 1994, available in LEXIS, World Library, ALLNEWS File. For a discussion of an expansionist production policy with regard to automobiles and its environmental impact see Patrick Tyler, China to Churn Out Personal Cars: Can Its Infrastructure and Ecology Stand the Weight?, INT'L HERALD TRIB., Sept. 23, 1994, at Fl; Philip Bowring, South China Seas:

Washington Needs to Hear About Beiings Claims, INT'L HERALD TRIB., Oct. 18, 1994, available in NEXIS, News Library, ALLNEWS File. See Further Report: Failure to Resolve Marine Boundary Disputes Raises Tensions in Southeast Asia, MARINE POL'Y, Nov. 1992, at 486, 488 (China's energy needs and her policy in the Spratly Islands cannot be ignored.).

85. Dusty Lee & Foo Choy Peng, Disputes Over Risk Acceptance and Return Guarantees Stifle International Investment: Energy Sector Faces a Dilemma, S. CHINA MORNING POST, Oct. 6, 1994, Chinese Business Review Section, at 1. See also More Nuclear Power Plants to be Built by Year 2000, ZHONGGUO XINWEN SHE, July, 20, 1994, available in LEXIS, World Library, ALLNEWS File.

86. Second Daya Bay Nuclear Plant to be Approved Soon, AGENCE FRANCE PRESSE,

Jul. 16, 1994, Int'l News Section, available in LEXIS, World Library, ALLNEWS File.

87. Regulations on Nuclear Materials Transportation, XINHUA, Sept. 14, 1994, at

26.

88. Patricia Young, Callfor Release of Daya Bay Reports, S. CHINA MORNING POST, Aug. 31, 1994 at 5. See also Elisabeth Tacey, Daya Bay Accident Cover Call, S. CHINA MORNING POST, Nov. 1, 1994, at 2; Elisabeth Tacey, Daya Bay Admits to Bypassing Procedures, S. CHINA MORNING POST, Aug. 30, 1994, at 1.

89. See Marian Sullivan, The Three Gorges Dam Project: The Need for a Comprehensive Assessment, 8 GEO. INT'L ENVTL. L. REV. 109 (1995). See also Chau Kwai-cheong, The Three Gorges Project of China: Resettlement Prospects and Problems, AMBIO, Mar. 1995, at 98.

90. See H. F. Ludwig et al., Environmental Impact Assessment for Xiaolangdi Yellow River Multi-Purpose Economic-Cum-Environmental Improvement Project, 1995 ENVIRONMENTALIST 45.

91. 1994 NAT'L TRADE DATA BANK-MARKET REP., Mar. 17, 1994, available in

LEXIS, World Library, MKTRPT File.

92. See Mark McDowell, Energy Strategies and Environmental Constraints in China's

Modernization, in ASIA'S ENVIRONMENTAL CRISIS 181-199 (Michael Howard ed., 1993).

93. Sullivan, supra note 89, at 140. 94. Population Control, CHINA DAILY, as reported by UPI, Sept. 5, 1994, available

in LEXIS World Library, ALLNEWS File.

95. Chen Wai-fong, Pollution Fear Hits Guangzhou, S. CHINA MORNING POST, Aug.

15, 1994, at 8.

96. See Ecological Protection Plan Nears Completion, CHINA DAILY, Jan. 26, 1994, summarized by Andrew Quinn, Pesticide Deaths Show China ' Environment Problem, REUTERS, Jan. 26, 1994, available in LEXIS, World Library, ALLNEWS File.

97. Rong, supra note 2.

98. For example, in one comprehensive study, the impact of the economic reform on environmental protection does not even feature as a topic in the index. The author's comments that "China's economic reform experience must bejudged an overall economic success" ring hollow when the ecological deterioration which the reform has visited upon China's already over-stretched resources is taken into account. See SUSAN SHIRK, THE POLITICAL LOGIC OF ECONOMIC REFORM IN CHINA 346 (1993). Another recent monograph reveals its author's blindness to the interaction between environmental protection and economic development when, while extolling the commercial benefits that await potential investors in China, the author declines to evaluate the environmental costs which further unfettered market reform will impose upon the domestic economy. See WILLIAM OVERHOLT, CHINA: THE ECONOMIC SUPERPOWER (1993).

99. For peripheral discussion of the relationship between environmental protection and economic development in China see KENNETH LIEBERTHAL, GOVERNING CHINA 22629 (1995); SUSUMI YABUKI, CHINA'S NEW POLITICAL ECONOMY 145-151 (1995); COLIN MACKERRAS ET AL., CHINA SINCE 1978, at 150 (1994).

100. For a study of the impact of a badly planned centralized economy on the environment see MURRAY FESHBACH & ALFRED FRIENDLY, JR., ECOCIDE IN THE USSR: HEALTH AND NATURE UNDER SIEGE (1992). See also SUSANNA HECHT & ALEXANDER COCKBURN, THE FATE OF THE FOREST: DEVELOPERS, DESTROYERS AND DEFENDERS OF THE AMAZON (1989); See BILL MCKIBBEN, THE END OF NATURE (1989).

101. See CARL RISKIN, CHINA'S POLITICAL ECONOMY: THE QUEST FOR DEVELOPMENT SINCE 1949, at 378 (1987). Riskin asserts that "the specific manner in which market and plan are to cooperate, as well as the more general question of the nature of the economy and society in the making, are both still blurred." Id.

102. See JO ANNE KWONG, MARKET ENVIRONMENTALISM: LESSON FOR HONG

KONG (1990).

103. Id. at 20. 104. Id. 105. See RONALD COASE, The Problem of Social Cost, J.L. & ECON., Oct. 1960, at 1.

106. To my knowledge, this topic has not yet received much attention in China. It is interesting to note that in the United States some legislation related to pollution control of spills and other disasters allows the recovery of damages to natural resources. The assessment of these damages remain a controversial issue. See J. Terence Ryan, The Evolution of Natural Resource Damage Assessment Under the Oil Pollution Act and the Comprehensive Environmental Response, Compensation, and Liability Act, 6 FORDHAM ENVTL. L.J. 29 (1994). The European Union is also considering how to assess damage to natural resources. See Owen McIntyre, European Community Proposals on Civil Liability for Environmental Damage-Issues and Implications, 3 ENVTL. LIABILITY 29 (1995).

107. Kenneth Arrow, Social Responsibility and Economic Efficiency, in APPLIED

ECONOMICS 133 (1985).

108. GENEvRA RICHARDSON ET AL., POLICING POLLUTION: A STUDY OF REGULA-

TION AND ENFORCEMENT 8 (John C. Boa] et al. eds., 1982).

109. Pareto optimality suggests that the allocation of resources is efficient at the point when no one may be made better off without making someone else worse off. Pareto optimality arises in the welfare context where at least one person gains and no one loses. See ANTHONY OGUS, REGULATION: LEGAL FORM AND ECONOMIC THEORY 24 (1994).

110. KWONG, supra note 102, at 25.

111. OLIVER WILLIAMSON, ECONOMIC ORGANIZATION 259 (1986). 112. See DAVID PEARCE ET AL., BLUEPRINT FOR A GREEN ECONOMY 61 (1992).

See generally KENT PORTNEY, CONTROVERSIAL ISSUES IN ENVIRONMENTAL POLICY: SCIENCE VS. ECONOMICS VS. POLITICS 1-22 (1992).

113. For a critical discussion of how the lack of public participation undermines the effective implementation of environmental law in Hong Kong see Julie Bloch, Conservation in a Concrete Jungle: Political, Legal and Societal Obstacles to Environmental Protection in Hong Kong, VI, 3 GEO. INT'L ENVTL. L. REV. 545, 606-7 (1994).

114 SIMON BALL & STUART BELL, ENVIRONMENTAL LAW 102 (3d ed. 1995). 115. PLANNING, ENVIRONMENT AND LANDS BRANCH, GOVERNMENT SECRETARIAT, THE HONG KONG ENVIRONMENT: A GREEN CHALLENGE FOR THE COMMUNITY 116 (Nov. 1993) [hereinafter SECRETARIAT]. See also HONG KONG GOVERNMENT INDUSTRY DEPARTMENT, A GUIDE TO POLLUTION CONTROL LEGISLATION AFFECTING MANUFACTURING INDUSTRIES (Jan. 1994) (providing a basic technical guide to pollution control law in Hong Kong).

116. See generally Stuart Reed, Managing Hong Kong ' High Pressure Environ-

ment, 2 ENVTL. POL'Y & PRAC. 51-69 (1992).

117. Air Pollution Control Ordinance, 1983, ch. 311 (H.K.). 118. Water Pollution Control Ordinance, 1980, ch. 358 (H.K.). 119. See generally Paul Holmes, Pollution Solutions: Commercial Carrots, Legal Sticks, HONG KONG LAW., Apr. 1994, at 18-20; Paul Holmes, Policies and Principles in Hong Kong's Water Pollution Control Legislation, 26 WATER Sc. TECH. 1905 (1992).

120. The group has nineteen members including representatives of the Legislative Council, the Urban and Regional Councils, District Board, tertiary and educational institutions, non-governmental environmental groups as well as commercial and industrial organizations. The Governor has the discretion to appoint members with interest in the environment. The Secretary for Environment, Planning and Lands; the Director of Environmental Protection; the Director of Planning; and the Director of Agriculture and Fisheries all have the right of permanent attendance at the meetings. Advisory Council on the Environment (ACE), ENV'T HONG KONG, 1995, at 117, 117.

121. See BALL & BELL, supra note 114, at 74. It may be useful to note that the British approach to regulation has been described with the following characteristics: delegation of decision-making to autonomous quasi-governmental and non-governmental bodies, extensive use of industrial self-regulation, a limited availability of legislative and judicial scrutiny of regulators, a gradualist approach to change, reliance on scientific knowledge for decision-making and continual reference to economic indicators for decision-making. The other side of this is that the British system is marked by an absence of statutory standards, minimal use of prosecution, a flexible enforcement strategy, considerable administrative discretion, decentralized implementation, close cooperation between regulators and the regulated and the restrictions on the ability of non-industry constituents to participate in the regulatory process.

122. See Edward Epstein, Air Pollution Control in Hong Kong: Where to Next?, 23

HONG KONG L.J. 450,458 (1993).

123. Id. at 455.

124. Paul Holmes, Pollution Control in Hong Kong, Address at the Legal Business in

Asia: What Price Pollution? Conference (June 29, 1993).

125. Id. 126. Water Pollution Control Ordinance, 1980, ch. 358, § 10A (H.K.). 127. Case Comment, Attorney General v. Melhado Investments Ltd., HONG KONG L. REP. 327 (1983). For a prefatory discussion of planning control in Hong Kong see Anton Cooray, Enforcement of Planning Control in Rural Hong Kong: Reflections on Recent Legislative Reform, 1 ASIA PAC. L. REv. 108 (1992).

128. Case Comment, Kam Kong Dyeing Factory v. Authority, 18 HONG KONG L.J. 111 (1988). See also Case Comment, Hon Wei Industries Ltd. v. Authority, 15 HONG KONG L.J. 226 (1985) (holding that a company must use a higher grade and higher costing fuel for its manufacturing process in order to receive a license, but taking three years to make the decision thereby permitting the lower grade fuel to be used); Kathy Griffin, Notorious Polluters to Shift to Indonesia, S. CHINA MORNING POST, Jan. 24, 1991, at 3; Jamie Allen, Ultimatum to Pollux Includes Dyeing Ban, S. CHINA MORNING POST, Nov. 10, 1990, at 4.

129. CELIA WELLS, CORPORATIONS AND CRIMINAL RESPONSIBILITY 15(1993). 130. Id. at 16. 131. HONG KONG HANSARD, Sess. 1982-83, at 863 (1983) (statements made by

members of the Legislative Council of Hong Kong on Apr. 27, 1983).

132. Id. at 850.

133. See Reed, supra note 116, at 51. 134. Hong Kong has required environmental impact assessments (EIAs), on an ad hoc basis only for major public and private sector developments since 1978. Since 1987 an administrative directive has required EIAs for all major public developments. Otherwise EIAs have been required through lease conditions or negotiated agreements. SECRETARIAT, supra note 115, at 82.

135. China has incorporated environmental impact assessments into many different laws and regulations including the Marine Environmental Protection Law, Water Pollution Prevention and Control Law, Atmospheric Pollution Prevention and Control Law as well as a number of others. COURSE, supra note 53, at 154. See also Environmental Protection Law of the People's Republic of China, Art. 13, reprinted in DOMESTIC LEGISLATION OF PARTICULAR INTEREST TO FOREIGN BUSINESS, CHINA CURRENT LAWS 11, 13 (June 1990). It states that the environmental impact report for construction projects must make an appraisal of the pollution and effects on the environment to be engendered by the construction project, and formulate measures for prevention and control, and, after advance review by the department in charge of the project and in accordance with stipulated procedures, shall be submitted to the administrative departments in charge of environmental protection for approval.

136. 138 HONG KONG GOV'T GAZETTE C36-C109, Legal Supp. 3 (Jan. 19, 1996). 137. For government projects see PLANNING, ENVIRONMENT AND LANDS BRANCH, CONSULTATION PAPER: NEW LEGISLATION FOR ENVIRONMENTAL IMPACT ASSESSMENT (1994) (available from author) [hereinafter CONSULTATION PAPER] (citing ENVIRONMENTAL IMPACT ASSESSMENT OF MAJOR DEVELOPMENT PROJECTS, PLANNING, ENVIRONMENT AND LANDS BRANCH TECHNICAL CIRCULAR NO. 2/92 AND WORKS BRANCH TECHNICAL CIRCULAR NO. 14/92 (1992) and ENVIRONMENTAL PROTECTION DEPARTMENT, APPLICATION OF THE ENVIRONMENTAL IMPACT ASSESSMENT PROCESS

TO MAJOR PRIVATE SECTOR PROJECTS, ADVICE NOTE 2/92 (1992 .

138. CONSULTATION PAPER, supra note 137, at 1. 139. The proponent is the party who is developing the project and is responsible for

proposing their EIA to the EPD for approval.

140. CONSULTATION PAPER, supra note 137, at 2. 141. CONSULTATION PAPER, supra note 137, at 2. 142. See generally, Judgment of May 14, 1992 (R. v. Cabot Plastics Hong Kong Ltd.), High Court, Magistracy Appeal No. 25 of 1992 (H.K.), reprinted in 1 HONG KONG CASES 465 (1992) (holding that a company that had installed a chimney deemed environmentally unacceptable by the EPD would be held responsible for the infringement under the Air Pollution Control Regulations).

143. Director Fined for Pollution, S. CHINA MORNING POST, Apr. 20, 1993, at 20.

144. Judgment of Dec. 22, 1994 (Tsui Chit-fan et al.), High Court, Magistracy Appeal of 1994 No. 1422/94 (H.K.), discussed in Sentences, 25 HONG KONG L.J. 279 (1995) (Environmental Protection). See also I. Grenville Cross et al. eds., Magistry Appeals Against Sentence, in CRIM. APPEALS BULLETIN, Jan. 1995, at 21 (H.K.).

145. Hong Kong courts also seem to be willing to re-write statutory notices issued by the EPD which have been sent to polluters. The effect of the judicial notice is to render the notice invalid and to undermine environmental quality standards. See Judgment of Jan. 24, 1995 (R. v Boon Wai Ltd.), High Court, Magistracy Appeal No. 1562 of 1994 (H.K.), 1 HONG KONG CASES 483 (1995).

146. Judgment of April 26, 1989 (Asia Dyeing Co. v Air Pollution Control Authority), High Court, Miscellaneous Proceedings No. 573 of 1989 (H.K.), reprinted in 1 HONG KONG CASES 447,452 (1989).

147. But see Judgment of May 15, 1994 (Hong Kong Racing Pigeon Assn. and Attorney General and Another), High Court, Miscellaneous Proceedings No. 3501 of 1993 (H.K.) reprinted in 2 HONG KONG LAW REPORT 309, 311 (1994) (attributing a broad interpretation to the word "pigeon" in order to confirm a summons against a racing pigeon organization for its violation of the Waste Disposal Ordinance).

148. Bryan Bachner, Common Law, Common Sense and the Environment in Hong Kong, in LEGAL DEVELOPMENTS IN CHINA: MARKET ECONOMY AND THE LAW IN THE PEOPLE'S REPUBLIC OF CHINA 407 (Wang Guiguo & Wei Zhengying eds., forthcoming 1996). See also Gary Heilbronn ed., ENVIRONMENTAL LAW IN HONG KONG: PROBLEMS AND PROSPECTS (1993); Bryan Bachner, HONG KONG TORT LAW 1-61, 80-96, 97-108 (1996). Although Cambridge Water Company v. Eastern Counties Leather, I All E.R. 53 (H.L. 1994) has undermined the power of Rylands v. Fletcher to impose strict liability on polluters involved in soil contamination, there is serious consideration in Hong Kong that, due to the fact that Hong Kong's environmental legal system is not as comprehensive as England's, the rule in Rylands v. Fletcher still prevails. Whilst Hong Kong is a common law jurisdiction and in theory would be bound to follow the Cambridge Water Company case, Hong Kong's legal practice is guided by the Application of English Law Ordinance which gives the Hong Kong Court the discretion to reject law that is inappropriate for local circumstances. See Richard Glofcheski, Reasonable Foreseeability, Pollution and the Rule in Rylands v. Fletcher, 24 HONG KONG L.J. 189 (1994). 149. See Bachner, supra note 148, at 421. 150. HONG KONG, COMMISSIONER FOR ADMINISTRATIVE COMPLAINTS ORDINANCE, FUNCTIONS OF THE COMMISSIONER (Cap. 397) § 7(1)(a) (1994) (enumerated powers and duties of the commissioner).

151. 1994 COMMISSIONER FOR ADMINISTRATIVE COMPLAINTS (COMAC), AN-

NUAL REPORT 94-98 (1995).

152. For discussion on the current proposal to implement environmental impact

assessment legislation in Hong Kong, see supra notes 131-38 and accompanying text.

153. SECRETARIAT, supra note 115, at 128. 154. Patricia Young, Experts Fail To Find Agreement on Sewage Plan, S. CHINA

MORNING POST, Oct. 1, 1994, at 3.

155. See Stella Lee & Louis Won, Tougher Environmental Laws and Rising Costs Threaten Future of Factories: Fears of More Firm Closures, S. CHINA MORNING POST, May 30, 1995, available in NEXIS, News Library, ALLNEWS File

156. Arrow, supra note 107, at 139. 157. Chinese Enterprises Endeavor to Realize Sustainable Development in Society, Economy and Environment, XINHUA, July 26, 1994, available in LEXIS, World Library, ALLNEWS File.

158. The primary objective of the Centre is to create and market commercial projects which will have a direct positive impact on the environment. Other important corporate projects include the Caltex Green Fund, which has been responsible for providing financial support to projects that help improve environmental awareness in the territory.

159. See, e.g., Patrick Tyler, China, Tobacco and Health: The Biggest Habit in the

World, The Greatest Risk, INT'L HERALD TRIB., Mar. 22, 1996, at 2.

160. RISKEN, supra note 101, at 379. 161. See generally China-Asian Development Bank Environmental Plans, 1993 NAT'L TRADE DATA BANK-MARKET REP., Sept. 15, 1993, available in LEXIS, World Library, MKTRPT File. See also VACLAV SMIL, CHINA'S ENVIRONMENTAL CRISIS: AN INQUIRY INTO THE LIMITS OF NATIONAL DEVELOPMENT (1993).