EXECUTIVE SUMMARY

This paper reviews major points related to China’s efforts for sustainable industrialization and a well-off society, the theme of the 2003 CCICED Annual General Meeting. The purpose is to provide background on both international and Chinese experience and to set the stage for discussion and development of recommendations by the Council. The paper complements the reports of five Task Forces being presented to CCICED this year, each on a particular area related to sustainable industrialization. The link to xiaokang, an “all-round, well-off society”, places emphasis on equity and various concerns related to quality of life, using the wealth creation, knowledge and products created by industrial development.

Sustainable Industrialization

Sustainable industrialization is a process of development that (1) sets and meets wealth generation and production objectives that support Chinese and, when appropriate, international sustainable development goals; (2) builds capacity and sets conditions for enterprises of all sizes to meet “triple bottom line” financial, social and environmental objectives; and (3) provides for institutional reform and commitment to innovation in order to meet these objectives. It depends upon the interplay of government and business, community, and other interests, including those of international organizations to set objectives, guidelines, regulations and incentives. New metrics will be needed in order to adequately understand and communicate progress on achieving both sustainable industrialization and its link to a well-off society.

China is drawing upon globally-recognized concepts such as eco-efficiency, polluter pays, Cleaner Production, Eco-industrial parks, as well as some that are more specific to various countries, such as the idea of the Circular Economy. These ideas, while very important, provide only part of the picture of an emerging new approach. Sustainable industrialization depends very much on overall structural reform of industry, regulation based on a broader array of instruments and voluntary measures, and both fiscal and financial reform.

As individual sectors and enterprises move along their “Sustainability Journey” the role of innovation becomes important in order to develop new material and energy-efficient industrial processes and environmentally and socially sustainable products. China is encouraging investment in new sectors such as environmental technology, alternative energy, information technology, biotechnology and nanotechnology that should help achieve advanced objectives, including those involving a commitment to technology leapfrogging.

Urban planning and development, government procurement policies, and the tremendous need for new installed capacity of various industrial infrastructure offer many very significant opportunities for making choices in favour of sustainable industrialization. Balanced against these largely positive elements are some major difficulties, for example, the uneven performance of provinces in enforcement of environmental regulations, the issues of old industry including some obsolete state enterprises, the technical and financial difficulties of the very economically important small and medium-size enterprises, and extensive policy and institutional reform needs. China also faces international competitive pressures, trade and environmental negotiations, and growing expectations internationally for improvement of corporate social responsibility, and higher environmental and social performance levels.

Chinese Data Trends

This section of the paper, to be completed for the CCICED AGM will provide additional information that illustrates areas of progress and also some dilemmas.

Ten Issues for Discussion

The purpose of this paper is not to identify specific recommendations. But a number of issues and questions arise. The ten themes summarized below are a starting point for general discussion on how to improve China’s sustainable industrialization efforts, and strengthen the linkage to a well-off society. They are discussed in somewhat more detail in Section III of the paper.

1. The link between sustainable industrialization and a well-off (xiaokang) society goes beyond issues of wealth creation and distribution, and these broader dimensions need considerable attention. How much and how broadly should sustainable industrialization be expected to contribute to a well-off society in China? Can this be done in a way that actually improves the profitability and right to operate of individual enterprises, while also reducing rather than contributing to China’s overall environmental debt?

2. The success of sustainable industrialization will depend upon how well other components of sustainable development are implemented within China. How can intersectoral communication and cooperation on sustainable development be enhanced so that the full potential of sustainable industrialization is realized, including its contribution to other processes such as sustainable urbanization?

3. Fiscal reform and financial sector reform are necessary to achieve sustainable industrialization. Given a need for both fiscal reform and financial sector reform in order to achieve general development goals within China, which reforms are most likely to be useful in achieving sustainable industrialization, while at the same time contributing to a well-off society?

4. The appropriate scale for individual enterprise development and its relationship to both sustainable industrialization and urbanization require policy attention. Should China restructure its industrial base to encourage development of larger-scale industry that may be more capable of addressing sustainable industrialization? And, if so, are there strategic sectors to start this process, and sectors where it is still particularly important to foster SMEs?

5. The legal framework for sustainable industrialization is still incomplete, but there are real tradeoffs between adding new laws and enforcing existing laws and regulations. Are there critical gaps in legislation and regulations to support sustainable industrialization, and if so, what should be the appropriate balance between adding new rules and improving enforcement of existing ones? How can enforcement be made more consistent at provincial and municipal levels? As well, more attention needs to be given to incentive-based approaches to industrial regulation. What are the most important areas to address using this approach?

6. China is not achieving an optimal transfer of environment and sustainability technology from abroad, and the rate of technology leapfrogging is less than would be desirable. There is a need to speed up the development of a Chinese environmental protection and sustainable development industrial sector. How can environmental protection and sustainable technology sector development be accelerated so that it can adequately support the needs of sustainable industrialization? And can the sector be developed in a fashion that stimulates innovation within industry, leading to useful, environmentally sound products that will contribute to a well-off society?

7. Measures of progress for sustainable industrialization in China are weak, and even less well developed for the linkage between this new style of industrialization and a well-off society. How can sustainable industrialization progress be monitored and measured in relation to its own performance and for its contribution to a well-off society? Which sustainability indicators are likely to be most useful, and can they utilize existing statistical information?

8. Capacity-building is highlighted by many sources as a high priority need within virtually all segments of the industrial sector, in regulatory systems at national and local levels, within the management structure and board room of individual enterprises, and in financial institutions. The gap between skills required for sustainable industrialization and their supply is already large, and likely to increase over time unless there is concerted action and considerable foresight. What are the most critical actions that can be taken during the existing and coming Five Year Plans, and within the private sector to address the gap?

9. China’s domestic market potential attracts attention from those who ask the question of whether the world’s ecosystems can support Chinese consumption at levels anywhere near those of western society; and others who see this emerging market as the most significant place in the world to stimulate consumption and, therefore, demand for their product, whether or not the product truly improves well-being or sustainability. What actions are needed within China’s domestic marketplace to develop and reinforce sustainable consumption patterns, and how might such efforts improve both sustainable industrialization and the achievement of a well-off society?

10. Chinese efforts for achieving sustainable industrialization and a well-off society are taking place at a time of evolving international views towards globalization and development. Almost certainly there will be surprises (e.g. SARS) leading to international responses that may threaten progress. How can China reduce its vulnerability to potentially damaging events and perceptions that may affect its international markets, sustainable industrialization progress, and capacity to be fully engaged in a globalized world?

Conclusion

China’s best efforts could be derailed by a convergence of problems, with only some directly controlled from within the country. Therefore it is important for the international community to support the Chinese sustainable development effort in various ways, even where there may be issues of industrial competition. Within China it will be more and more important to build dialogue, partnership and action across major sectors, for sustainable development demands this type of exchange.

No one yet knows how different China’s approach will be compared to international norms, and to industrial development in other countries that developed along lines now considered to be unsustainable.

China has surprised the world with its rapid and dedicated efforts for economic development. With this same degree of dedication directed towards sustainable industrialization and xiaokang, we can hope for an interesting and globally significant business and sustainable development transition.